Posted by Gilmour Poincaree on December 12, 2008

December 12, 2008

by Richard Gluyas – The Australian


Asia looms as an El Dorado for major Australian banks in the same way Spanish lenders have enjoyed the fruits of their Latin American expansion, according to consultancy Accenture.

Financial services practice global head Pierre Nanterme said yesterday the big four banks would concentrate on getting their local franchises in order over the next year.

“That means avoiding doing anything stupid, investing in the domestic market and driving their cost-to-income ratios down to 40 per cent,” he said. “In a year’s time, they should have a unique operating model that they can use as an acquisition and integration engine in the region.

“Asia is a new El Dorado, and banks making bets in the region will get the same kind of returns the Spanish banks have from investing in Latin America a decade ago.”

Mr Nanterme, who is in Australia to meet banking leaders, said the global banking landscape had changed irreversibly as a result of the financial crisis.

There would be a select few super-global players, certainly including HSBC, which was coming out of the crisis “even stronger”, and possibly a wounded Citigroup, he said.

Then, in markets such as Britain, France, Germany and Spain, as well as the US, there would be groupings of three or four giants, each with market shares of about 20 per cent.

The Australian banking industry, Mr Nanterme said, had been structured along those lines for some time, and in that sense was ahead of the curve.

However, the opportunity existed for strong domestic players to become super-regional operations, replicating the success of the Spanish bank, Santander, which had acquired Abbey National, and Alliance and Leicester, in Britain.

“I’ve found banking leaders here saying they’d like to be the Santander of Asia, which means dominating your home market first, and from that base developing an industrial model, underpinned with technology, that can be exported to the rest of the world,” Mr Nanterme said.

“They make the comparison with Santander, which has 30 per cent market share in Spain, and a cost-to-income ratio of 50 per cent – very good in Europe.”

A year ago he might have been critical of the reluctance of Australian banks to embrace Asia, the Accenture chief said.

The exception would have been ANZ Bank, with new chief executive Mike Smith already having revealed his plan to create a super-regional bank.

Then the financial crisis had intervened.

“The crisis has forced us all to be a little more humble, but certainly the potential is there in Asia in the medium to long term,” Mr Nanterme said.

“In Europe, the economy will be in recession for the next couple of years, but if you’re a super-regional in Asia, you’re looking at 2-3 per cent growth for the region, minimum.”

Local banks, in the short term, would concentrate more on the cost line than revenue expansion.

This could involve re-engineering the business, investment in software, and improved efficiency of the back office through outsourcing and offshoring of jobs to countries with cheaper labour.

“Banking will become more industrialised, like a manufacturing company,” Mr Nanterme said. “The name of the game is scale, and customers expect a low unit price.”



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