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The approaching battle for Asian bank deposits

Asia is home to a conservative population that holds over 60 percent of its wealth in bank deposits.

글 David Mountain and Sameer Chishty

First published on 12월 19, 2008
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If you have to be a banker during the global financial crisis, the best place to be is Asia. The region is home to a thrifty and conservative population that already holds 60-80% of its wealth in bank deposits. In Asia, bankers can expect even more deposits as investors flee equity markets in the continuing credit crisis, attracted by higher returns and the prospect of less risk. In India and elsewhere in Asia, investors are shifting their money not only out of stocks and bonds but also from multinational banks—in the belief that local and state-owned banks are sounder. Several state-owned Indian banks have already seen a surge in deposits. For example, State Bank of India, the country's largest bank, saw deposits grow 28% in the July-September quarter over the same period in 2007. New deposits are reported to have soared 68%. At Punjab National Bank, deposits for the same quarter rose 24% and new deposits swelled a reported 80% over the same period in 2007. Non-resident Indians are helping to fuel this movement; they deposited $513 million (Rs2,426.5 crore) into India's banks this September, the highest amount in nearlytwo years. While this deposit surge may seem like a sudden abundance of riches, it won't be evenly distributed. Nor will it be cheap. What's shaping up is a fierce battle among Asia's banks to win these swelling deposits and still make adequate returns. In a surprising twist with enormous implications, today's situation is just the opposite of what many regional financial institutions faced a decade ago, when the Asian financial crisis devastated local banks. Years of market reforms and new management disciplines have paved the way for the reverse flight to quality. Taking advantage of this huge opportunity, however, will require some new ways of winning customers' loyalty. Asia's bankers have grown overly reliant on wealth management services and consumer lending—Indian banks have particularly depended on consumer lending—to fuel revenue and earnings growth. But with skittish customers bailing out of investment products, credit cards and loans, the best option forreinvigorating their business lies in the region's unglamorous but deep pools of retail deposits. The impending battle to win deposits from rivals will be a zero-sum game with a huge prize for the winners. Throughout Asia, we estimate that the winning banks can expect to increase their deposit revenues by between 20% and 35% in 12 months. In India, we expect the figure may go up as much as 50%. With their extensive branch networks, Asian banks enjoy a big edge over many of their multinational rivals. But the passive approach by Asia's banks to collecting deposits from customers already heavily inclined to save means their business muscles in this area are weak. Accustomed to earning higher returns during the market upswing, bank customers will be unwilling to settle for the low yields currently paid on conventional accounts. The intensifying competition for deposits risks driving down returns as banks, unaccustomed to playing aggressively, succumb to the pressure to overpay to hold on to sceptical account holders and attract new ones. With customers looking to move their assets to banks that offer them the best combination of value, convenience and returns, depositors should be willing to pay some kind of premium. But innovation is one area where Indian banks have badly trailed those in other countries. Basic products that have worked in other markets—low-balance transaction accounts, hybrid interest-bearing checking accounts, flexible savings accounts that combine cheque-writing privileges with higher-yield term-deposit features, and no-frills high-rate savings instruments—are largely unknown in India and Asia. Another battleground in the coming war for deposits will be new prices offered on different kinds of accounts. To avoid overpaying for their depositors, leaders will have to price products and set rates dynamically. That entails regularly reviewing each pricing element, based on how different depositor segments react to changing yields and account fees. Lenders will also have to constantly fine-tune their pricing strategies in response to competitors' moves. Some manoeuvres in this war will take place out of sight. For example, successful banks will begin to reward employees who bring in new deposits and cross-sell deposit products to existing credit card and investmentaccount holders. To increase customer awareness of deposit products, customers will see the promotional and merchandising campaigns wherever they come in contact with the bank—from branch windows and service counters to ATM receipts and on statement envelopes. Alert banks will time such promotions to when customers' deposits mature or following sales of real estate or other investments. They will also need to match these occasions with attractive offers that help land new deposits or keep funds in the bank. The new focus on attracting depositors will have implications for the management and organization of Asian banks as well. As banks come to recognize profitable deposit growth as a lucrative new franchise, they will begin to valuedeposit management as acareer path to senior executive positions. Most Asian banks' deposit operations have been starved for professional talent and resources. Look for them to start recruiting top talent to staff product management, provide marketing and sales support and develop high-powered analytical capabilities to sustain a competitive edge. The Asian banks that win the coming battle for deposits will not only become the place where most of the world's money is kept, they will be well positioned to grow into a larger role among global financial institutions. At the least, they will secure their positions in a region that for the time being has the world's strongest long-term economic fundamentals. David Mountain and Sameer Chishty are partners with consultancy firm Bain & Co., based in New Delhi and Hong Kong, respectively. Both are members of the firm's Asian financial services practice.

If you have to be a banker during the global financial crisis, the best place to be is Asia.

The region is home to a thrifty and conservative population that already holds 60-80% of its wealth in bank deposits. In Asia, bankers can expect even more deposits as investors flee equity markets in the continuing credit crisis, attracted by higher returns and the prospect of less risk.

In India and elsewhere in Asia, investors are shifting their money not only out of stocks and bonds but also from multinational banks—in the belief that local and state-owned banks are sounder.

Several state-owned Indian banks have already seen a surge in deposits. For example, State Bank of India, the country's largest bank, saw deposits grow 28% in the July-September quarter over the same period in 2007. New deposits are reported to have soared 68%.

At Punjab National Bank, deposits for the same quarter rose 24% and new deposits swelled a reported 80% over the same period in 2007. Non-resident Indians are helping to fuel this movement; they deposited $513 million (Rs2,426.5 crore) into India's banks this September, the highest amount in nearlytwo years.

While this deposit surge may seem like a sudden abundance of riches, it won't be evenly distributed. Nor will it be cheap. What's shaping up is a fierce battle among Asia's banks to win these swelling deposits and still make adequate returns.

In a surprising twist with enormous implications, today's situation is just the opposite of what many regional financial institutions faced a decade ago, when the Asian financial crisis devastated local banks. Years of market reforms and new management disciplines have paved the way for the reverse flight to quality.

Taking advantage of this huge opportunity, however, will require some new ways of winning customers' loyalty. Asia's bankers have grown overly reliant on wealth management services and consumer lending—Indian banks have particularly depended on consumer lending—to fuel revenue and earnings growth.

But with skittish customers bailing out of investment products, credit cards and loans, the best option forreinvigorating their business lies in the region's unglamorous but deep pools of retail deposits.

The impending battle to win deposits from rivals will be a zero-sum game with a huge prize for the winners. Throughout Asia, we estimate that the winning banks can expect to increase their deposit revenues by between 20% and 35% in 12 months. In India, we expect the figure may go up as much as 50%.

With their extensive branch networks, Asian banks enjoy a big edge over many of their multinational rivals. But the passive approach by Asia's banks to collecting deposits from customers already heavily inclined to save means their business muscles in this area are weak. Accustomed to earning higher returns during the market upswing, bank customers will be unwilling to settle for the low yields currently paid on conventional accounts.

The intensifying competition for deposits risks driving down returns as banks, unaccustomed to playing aggressively, succumb to the pressure to overpay to hold on to sceptical account holders and attract new ones.

With customers looking to move their assets to banks that offer them the best combination of value, convenience and returns, depositors should be willing to pay some kind of premium. But innovation is one area where Indian banks have badly trailed those in other countries.

Basic products that have worked in other markets—low-balance transaction accounts, hybrid interest-bearing checking accounts, flexible savings accounts that combine cheque-writing privileges with higher-yield term-deposit features, and no-frills high-rate savings instruments—are largely unknown in India and Asia.

Another battleground in the coming war for deposits will be new prices offered on different kinds of accounts. To avoid overpaying for their depositors, leaders will have to price products and set rates dynamically.

That entails regularly reviewing each pricing element, based on how different depositor segments react to changing yields and account fees. Lenders will also have to constantly fine-tune their pricing strategies in response to competitors' moves.

Some manoeuvres in this war will take place out of sight. For example, successful banks will begin to reward employees who bring in new deposits and cross-sell deposit products to existing credit card and investmentaccount holders.

To increase customer awareness of deposit products, customers will see the promotional and merchandising campaigns wherever they come in contact with the bank—from branch windows and service counters to ATM receipts and on statement envelopes.

Alert banks will time such promotions to when customers' deposits mature or following sales of real estate or other investments. They will also need to match these occasions with attractive offers that help land new deposits or keep funds in the bank.

The new focus on attracting depositors will have implications for the management and organization of Asian banks as well. As banks come to recognize profitable deposit growth as a lucrative new franchise, they will begin to valuedeposit management as acareer path to senior executive positions.

Most Asian banks' deposit operations have been starved for professional talent and resources. Look for them to start recruiting top talent to staff product management, provide marketing and sales support and develop high-powered analytical capabilities to sustain a competitive edge.

The Asian banks that win the coming battle for deposits will not only become the place where most of the world's money is kept, they will be well positioned to grow into a larger role among global financial institutions. At the least, they will secure their positions in a region that for the time being has the world's strongest long-term economic fundamentals.

David Mountain and Sameer Chishty are partners with consultancy firm Bain & Co., based in New Delhi and Hong Kong, respectively. Both are members of the firm's Asian financial services practice.