Foreign banks dominate the banking business among large companies in Asia. In terms of number of corporate banking clients across Asia, HSBC ranks a clear first, followed by Standard Chartered and Citigroup.
However, the results of Greenwich Associatesâ 2009 Asian Corporate Banking Study illustrate the shifting dynamics of the business. In 2007, foreign banks held 58% of Asiaâs corporate banking relationships, including 52% of companiesâ domestic banking relationships and 69% of international relationships. In 2008, foreign banksâ share fell to 56% of the total, 49% of domestic bank relationships and 62% of international banking relationships.
In 2007, 57% of large Asian companies said they used at least one foreign bank as a bilateral lender or for syndicated loans; in 2008 that share fell to 51% for both products. âIn every banking product and service covered by Greenwich Associates in our research, the proportion of large Asian companies reporting that they work with international banks declined from 2007 to 2008, in some instances, dramatically,â says Greenwich Associates consultant Markus Ohlig.
The shift is evident in this yearâs Greenwich Associates Rankings, which reveal a loss in market penetration by four of the top five corporate banks in Asia â the one exception being Deutsche Bank, which kept its fourth-ranked market penetration level stable from 2007 to 2008. Among the banks that added new corporate banking relationships over the period were Bank of China, BTMU and State Bank of India, and local Asian banks overall increased their share of total corporate banking relationships to 44% in 2008 from 42% in 2007.
While some of those gains can be attributed to pick-ups in domestic banking relationships, the increase in local bank market penetration was driven mainly by the addition of international banking relationships, in which local banks increased their share across Asia to 38% in 2008 from 31% in 2007. The relative stability of Asian banks also is paying off in the form of new clients in cash management, foreign exchange, interest rate derivatives and trade finance/service, as well as in mergers & acquisitions advisory services and in the capital markets. The share of Asian companies using a local bank for M&A increased to 32% in 2008 from 24% in 2007, while the share using a domestic provider for debt capital markets increased more modestly to 36% from 32%.
Local Banks Step Up as Lenders
Much of the recent success of local Asian banks can be attributed to their simple willingness to lend. âAsian banks emerged from the 1990s currency crisis with very conservative business models that produced much stronger balance sheets than those maintained by the global banks,â says Markus Ohlig. âBecause most Asian banks have loan-to-deposit ratios well below 100% they have not been pressured to reduce assets and lending due to disruptions in wholesale funding â the process which has caused the deep problems among large international banks. As a result, many Asian banks have been able to better maintain, and in some cases even expand, their corporate lending.â
Every year, Greenwich Associates asks Asian companies to rate their current banks in terms of their willingness to extend credit. Among clients of international banks, the share describing their banks as particularly reliable credit providers has declined to 38% in 2008 from 40% as recently as 2006. (The one exception: Japanese banks, which were cited as particularly reliable lenders by 34% of Asian clients in 2008, up from 30% in 2007 and 27% in 2006.) The trend has moved in the opposite direction among local banks, which were cited for their reliability as lenders by 45% of Asian corporate clients in 2008, up from 36% in 2007 and 32% in 2006. âItâs simple: Two years ago, companies saw global banks as the best source of credit,â says Markus Ohlig. âNow, itâs the reverse.â
Although it is largely the need for credit that is prompting companies to switch from global to local banks, some domestic Asian banks have upgraded the quality of their capabilities and service quality. Banks like HDFC and Korea Exchange Bank have dramatically improved their scores on the Greenwich Quality Index (GQI) over the past two years â and theyâre not alone. Traditionally, foreign banks have outscored local Asian banks by a wide margin on the GQI, a statistical aggregation of quality ratings awarded to banks by their corporate clients in a variety of product and service categories. Over the past 12 months, however, the gap between the average scores of the two groups has narrowed from 38 points to 15 points â a statistically significant shift. Ongoing market disruptions could present local banks the chance to continue or even accelerate this progress by hiring talent that in the past was hoarded by top global banks, but is becoming increasingly available as the international banks cut staff.