By TECHNOLOGY TIMES Reporter
Lagos. July 29, 2013: Emerging market banking is an attractive prospect for financial institutions looking to boost their revenues according to a new report projecting that banks in Nigeria and other developing economies will experience between 3-7 per cent GDP growth by 2015.
Nigerian banks have also opened up alternative banking platforms leveraging technology to promote wider inclusion of the unbanked in the country in line with the regulatory direction in the industry.
Based on a survey and conversations with 50 global banking executives, “Seizing Opportunities and Overcoming Challenges“ examines the next wave of developing markets beyond the BRIC (Brazil, Russia, India and China), including 10 that are projected to experience GDP growth of 3-7% per year by 2015.
These include: Chile, Colombia, Mexico, Egypt, Nigeria, Turkey, South Africa, Indonesia, Malaysia and Vietnam. The report also analyzes whether domestic banks are positioned to serve the growing demand for corporate and investment financial services in these markets.
The new report from EY, a global leader in assurance, tax, transaction and advisory services released recently points out that the excitement surrounding rapid-growth markets is tempered by political instability, economic volatility, undeveloped market infrastructure and other challenges.
“Banks in rapid-growth markets are universally positive about the outlook for business lines with vanilla products, where it is straightforward to capture natural growth, but their reticence about corporate and investment banking is telling,” Steven Lewis, director of global banking and capital markets for the EY organization said.
“It is not that there will be no demand for these services in rapid-growth markets – we expect more corporates to have to turn to capital markets for funding in the next year or so. However, many domestic banks are currently not well-placed to help their clients transition to the next level.”
According to the report, the findings reflect the financial services industry’s optimism about the rising demand for bank services and improved financial performance in emerging economies. However, the outlook for business lines varies considerably – the forecast is best for deposits and lending, but there is less confidence regarding private banking and investment banking.
Many emerging market banks also are not well-equipped to help clients access capital-market funding, which could give larger, international banks an opportunity to poach domestic banks’ most profitable clients.
Key findings:
Interviewees were overwhelmingly confident about their banks’ prospects – 79% of respondents in rapid-growth markets forecasted that their financial performance will improve this year, with 25% expecting it to improve significantly.
EY’s analysis estimates that combined private-sector credit will grow by about 65% over the next five years in the 10 rapid-growth markets covered by the survey. This is more than twice the rate of growth expected in the United States and more than five times the rate of growth expected in the United Kingdom.
Six of the 10 markets studied have reached approximately US$6,000 per capita GDP, which puts them in a position to build capital-market depth. However, this also requires emerging market banks to invest in staff and infrastructure. While 58% of respondents said they expect to increase their headcount within the next year, none said they are looking to hire investment banking expertise, and just 7% expect to build their corporate banking teams.
Forty-four percent of respondents said they expect the regional banking landscape to change significantly. Forty-eight percent who expect significant change said they anticipate that domestic banks will be acquired by larger foreign banks already present in their market, and 43% expect smaller banks to be bought by larger domestic players.
