“For the first time in 30 years — at least on a sustained basis — we have a supply-and-demand imbalance, where we have too few loans and too much funding in the form of deposits.”James Abbott, Director of Investor Relations, Zions Bancorp
Regulatory reform and increased competition will require banks to focus their efforts, realize efficiencies and optimize the scale and scope of their organizations.
Making significant investments in enterprise-level frameworks will help banks focus and operate more effectively. Additionally, banks will need to concentrate on the core banking activities at which they excel — potentially sacrificing geographic and organizational scope — as well as reduce the complexity in their organizations, operations and products.
A unique challenge
In the meantime, US and European banks are facing an issue that they haven’t witnessed in more than 30 years: more deposits and fewer loans.
The resulting competitive pressures are leading banks to seek more business in emerging markets, such as Australia and Asia, where demand for credit remains strong. India’s banking sector, for example, is attracting foreign banks due to the country’s changing demographics and rising levels of wealth.
Asia’s local banks are successfully meeting the high demand for credit and financial services, especially in rural areas.
In fact, the transformation and adoption of risk management standards and management capabilities are helping China’s banking sector to meet this demand, said Jack Chan, Managing Partner Financial Services Office (FSO), Ernst & Young China.
Chan reported that most large banks are Basel II-compliant and looking ahead to Basel III. Most tier-two banks are also moving in this direction.
These practices at rural commercial banks, on the other hand, are still rudimentary. Chan said this is a top priority for China’s key regulator.
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