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Hong Kong Commercial Banking Report Q4 2009Published by: Business Monitor International Published: Sep. 23, 2009 - 50 Pages Table of Contents
AbstractWe now rate 59 banking systems, and it is little surprise that the developed states dominate the top spots.The US and UK come first and second place, respectively, with scores of 88.7 and 88.0 out of 100. Ofcrucial importance to both scores is the very high rankings in the crucial 'Risks to realisation of returns -Market structure' sub-category, which accounts for 42% of the overall score. The two countries areranked first and second in this category as well. This sub-category captures the size of the sector, and thepotential for assets and loans to grow in US dollar terms. While both systems have been buffeted by theglobal credit crunch and will not post stellar growth numbers in percentage terms for the foreseeablefuture, the sheer size of the US and UK's financial systems means that there is massive potential fordeposits, assets and client loans to rise. In addition, the generally solid institutional framework - whichlooks set to be augmented with new post-credit crunch regulations - will continue to provide a firm basisfor the sector.A Mixed Bag For The Developed States Following just behind the US and UK are a clutch of major developed state economies, including France(82.9, 3rd) and Germany (80.5, 4th globally), Canada (79.9, fifth), as well as Australia and Italy (78.4,joint sixth). All of these sectors have reasonable prospects into the medium term, having a large depositand loan base, and the potential to grow substantially in volume (even if not percentage) terms. However,several states are notable by their absence in this cluster. Austria falls somewhat short (72.4, 12th) of thepack, along with Greece (69.4, 16th), but it is the poor performance of Switzerland (62.7, 26th) and Japan(56.3, 34th) that really stands out. Both states are going to struggle to post increases in asset or loangrowth in US dollar terms over the forecast period, to 2013, partially as a result of currency moves to thedownside, but also in the case of Switzerland because of the relative weakness of the two key bankinggroups, UBS and Credit Suisse which had built up large franchises during the good years. Asia Rising Significantly, just behind the main 'pack' of European economies, several Asian states have managed topost strong performances in our risk ratings. Malaysia (72.1, 11th) and Singapore (77.1, 8th) come inahead of Austria. However, Singapore leads the world globally in the 'Risks to realisation of returns -Country risk' sub-category, with a score of 84.0, while South Korea has a score of 64.0. Singapore's highscore rests on good scores for key elements of BMI's economic, political and business environment riskratings, which measure the risks to policy continuity. In contrast, the small size of the economy andbanking sector is a major factor limiting the potential for expansion, especially in a world of lowerliquidity and risk appetite. South Korea, however, has a large domestic economy to provide the depositbase necessary to fund credit growth. Elsewhere in Asia, we note that China (overall score 75.1) ranks 9th overall. As the world's third biggesteconomy - and still an emerging one at that - it is little surprise that the scope for asset growth in China ishuge. This has allowed the country to be ranked fourth in the 'Limits of potential returns' category (74.0),and post the highest 'Limits of potential returns - Market structure' sub-category score, at 90.0. Whatprevents China from rising any higher is its poor performance in the 'Limits of potential returns - Countrystructure' sub-category, at 57.5 (42nd), and the 'Risk to realisation of returns category', at 80.0 (9th). Ofparticular concern to BMI is the potential for a collapse of the local system, because much lending is stillstate-directed and risk management is embryonic. Also, despite the size of the whole economy, per capitaGDP remains low. We forecast it at US$3,024 for 2009, with significant income inequalities. Thisseverely limits the ability of financial institutions to sell premium products in local markets, and alsomeans average deposit levels are still low. Emerging Europe, Limited Opportunities The emerging European states are posting surprisingly mediocre ratings outturns. We highlight thepotential for a systemic crisis in the region as major Western European banks remove credit and capitalfrom Central and Eastern Europe. These risks are exacerbated by the deep recessions we see in the Balticstates, Bulgaria, Russia and Turkey, and the risk of further currency crises which could create evengreater economic dislocations, as the massive economic asymmetries that have built up in the regionunwind. When taken in tandem with the relatively small size of the local economies and the rapid bankingsector expansion seen in recent years, it is little surprise that the highest-rated emerging European state isregional heavyweight Russia, at 73.8 (10th globally), and that the top 'new' EU member is the CzechRepublic, at 64.5 (24th). Coming close to the bottom of both the regional and global peers groups areLatvia (39.0, 55th) and Ukraine (43.0, 51st), which have both been forced to tap the IMF and EU foremergency funds. MENA Below Par The big story in recent years in the Middle East and North Africa (MENA) banking sectors has been highoil prices in recent years. Hydrocarbon revenues have swollen bank balances across the Gulf region, withsignificant amounts of capital and liquidity finding its way to North Africa as well. With the days ofstellar oil prices gone for now (and not likely to return over the forecast period) the outlook is not sopositive for the region, and this is reflected in the fact that the two highest ranked countries are the UAEat 14th and Saudi Arabia at 21st. No other MENA state has broken into the top 25 of our 59-strongratings universe. Of particular concern is that while some progress has been made on putting the region'sfinancial infrastructure on a more sustainable footing in recent years, it is still far too dependant upon oilrevenues, and there are few drivers of either economic or commercial banking growth outside the naturalresources sector. Indeed, it is particularly worrying that not one MENA state has broken in to the top 10states in the 'Limits of potential returns - Market structure' sub-category. The best performer is the UAE,in 18th place, and even with the growth of Islamic banking products, the boom years are over. We expectmuch more moderate growth in the financial space over the forecast period. Opportunities In Africa While Africa remains one of the most 'under-banked' regions in the world - and hence one of the mostinsulated from the global credit crunch - the commercial banking business environment ratings still reflectthe major problems in operating even in the region's largest economies. South Africa's overall 70.5 ratingscore put it in 13th place globally, while in the 'Limits of potential returns - Market structure' category itscores 73.3, but it receives poor score for 'Risks to realisation of returns - Country risk', at 56.0. Thecountry's main weaknesses, in common with Kenya and Nigeria, are bureaucracy, external economic riskand financial market risk, all of which deter potential investors from engaging more fully in the localmarket. Diverse Latin Performance Again, in Latin America, the ratings do not tell one particular story, with a widely diverse regional picturedeveloping. Perhaps the most interesting story is among the worst performers, which include Argentina(43.0, 49th), Colombia (50.3, 43rd) and Venezuela (36.0, 56th). All three economies face difficult timesover the coming years, having been fiscally imprudent. The latter two (especially Venezuela) havebenefited significantly from the oil boom, which has now come to an end. There is little to be optimisticabout in any part of the ratings for these countries, and we anticipate a much weaker performance than inBrazil (66.5, 123rd), Chile (66.6, 22nd) or even Mexico (67.6, 20th). Of particular note is Brazil's crucial'Limits of potential returns - Market structure' sub-category rating of 80.0 (seventh globally) and Chile'sreasonably solid 80.0 'Risks to realisation of returns - Market structure' rank of 11th. Get Full Details About This Report >> |
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