John F. Kennedy, Americas 35th president, observed in a speech in Indianapolis, Indiana, that the Chinese use two brush strokes to write the word crisis. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger, but recognise the opportunity.
Kennedy was obviously not speaking to the management of Asias banks on that April day in 1959 but his words may help these executive to resist the natural urge to be reactive in the current crisis at the expense of longer term growth opportunities.
The current global crisis has hit Asia hard and local bankers must be feeling a sense of danger.
Trouble with US over-the-counter (OTC) derivatives such as collateralised-debt obligations (CDOs) quickly spread to global credit markets, engulfed all asset classes reliant on high leverage and cheap money and created a real economic crisis for Asias export tigers.
The Economist reported that gross domestic product (GDP) fell in the fourth quarter of 2008 by an annualised average rate of 15 per cent in Hong Kong, Singapore, South Korea and Taiwan; with exports plunging by more than 50 per cent at an annualised rate.
Domestic consumption has also collapsed as firms cut investment and staff and stock and property prices tumbled. Retail sales over the past 12 months have fallen by 11 per cent in Taiwan, 6 per cent in Singapore and 3 per cent in Hong Kong.
With reduced lending opportunities and rising default rates, Asian banks may feel it prudent to deleverage their balance sheets to protect profits and focus lending activity on quality clients within their core competencies.
But with their Western competitors scrambling for survival, opportunities exist for Asian banks to capture market share and increase margins over the medium term through improved product development, operational excellence and risk management.
They must resist the temptation in 2009 to cut strategic capital investments in IT solutions that will help deliver these opportunities over the next two to three years.
PwC identified seven emerging themes in financial services at its media briefing The Day After Tomorrow in Singapore on 6 February, two of which may bode well for Asian banks: the shift in global power towards the East; and the rise of the nouveau classic banking model.
First, new patterns of world trade and investment will emerge from the crisis that will be different from the US-centred system.
We are moving to a multi-polar world, noted Nigel Vooght, PwC central cluster financial services leader, where Western financial centres could be bypassed. Successful globalisation has always followed its customers and therefore banks will follow their customers natural trade routes. As the East invests to protect the natural resources, it needs to fuel its economies; the banks will follow this investment.
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