Asia’s private banking sector will accelerate its pace for consolidation this year driven by increasing cost pressures and wafer-thin profit margins, the head of UK private banking consultancy Scorpio Partnership said.
The cascading cost of global regulatory compliance has substantially hurt the bottom-line of private banks and many are starting to question if remaining in Asia is worthwhile, Sebastian Dovey told Private Banker International.
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These unanticipated costs are driving consolidation as banks begin to offload non-core assets in Asia that are painful to manage in a highly competitive environment.
"2014 is the reckoning period for the Asia Pacific private banks," said Dovey. "It will be clear by the end of the year that more firms will be changing ownership because they can’t sustain the cost without seeing material change in the revenue."
Many private banks have scrambled to tap into the rising affluence in the region but to their dismay, growing wealth does not automatically translate into profit.
"In many institutions that I’m familiar with, the cost-to-income ratios in Asia are the worst than their global average," said Dovey.
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By GlobalDataWith valuations falling to record lows, Dovey said prices are finally more realistic and private banks can now make intelligent acquisitions by buying specific expertise that complements their business model.
"Valuations today reflect the view of investors that the medium to long term prospects for growth are less rosy than they were 10 years ago," said Jim Antos, analyst at Mizuho Securities Asia. "Lower valuations also reflect the concerns investors have about the need for banks in Asia and globally to increase their capital base and to pay significantly higher regulatory costs."
However, Dovey said Asia is still considered as a relatively expensive market to acquire assets and prices will have to fall further to spur deal-makings.
In a similar vein, no decision has yet to be made for Societe Generale’s Asian private banking arm takeover in Singapore since it first announced the intention to sell in September last year. ABN AMRO and DBS are understood to have submitted final bids.
