Asian banks, even in some of the smallest markets, are leveraging strong earnings to transform themselves into state-of-the-art digital players.

Author: Jonathan Rogers

Banks in Asia have met the challenge of regulatory-driven industry change—principally driven by Basel III compliance—with relative ease. In 2018, they weathered more rate hikes from the US Federal Reserve, the increased capital provisions of IFRS 9, and the protectionist zeal of President Trump.

For the most part, they enjoy impressive efficiency ratios, Tier 1 capital buffers and consistently rising returns on equity. Japan is the notable exception, as its banks struggle with the impact of ultralow interest rates on margins and an inauspicious demographic mix crimps demand for retail loans. 

Like their counterparts elsewhere, however, Asia’s banking CEOs know they face a digital revolution that requires them to execute a scalable innovation-based business strategy in an evermore cutthroat regional banking ecosystem if they are to maintain solid growth in return on equity. They have been investing heavily in digitization, bringing them to the brink of some critical decisions: whether to be a first mover or a fast follower, how to apply new technology to legacy systems in a cost-efficient manner, and how to address the growing threat of data theft and cyber fraud.

In doing so, they may have some advantages over their global rivals. “Asian banks for the most part emerged relatively unscathed from the global financial crisis, with higher levels of capital versus their Western peers, and have been less distracted by risk and regulation,” says Jan Bellens, sector leader for Banking & Capital Markets at EY in Singapore. “Hence, they have been able to embrace digitization and innovation more comprehensively, helped by an open mindset among regional regulators. In 2018, the region’s banks demonstrated they are increasingly able to leverage data and meet the challenges of a demanding customer base, Bellens adds, “while at the same time collaborating with fintech and big tech.”

The award for overall Best Bank in Asia-Pacific goes to Singapore-based powerhouse OCBC, Southeast Asia’s second-largest bank. With an overwhelming 87% of financial transactions in Singapore completed digitally, it’s no surprise that OCBC is centering its business plan on digital transformation. The bank has earned a reputation for strategic collaboration with fintech and ecosystem partners; some 95% of its new customers in the city-state are digital. The OCBC OneWealth app, using an OpenAPI platform, enables third parties to integrate OCBC products and services; and Emma, an AI-powered chatbot, answers home-loan queries. The bank even uses facial-recognition technology in some transactions.

OCBC has territorial ambitions, as well. Last June, it launched its Greater Bay Area strategy in China with a S$200 million investment over five years. OCBC aims to derive S$1 billion in annual profit from the project by 2023, accounting for 70% of its Chinese revenue. The bank already has 100 branches across the Greater Bay area, which includes Guangdong, Hong Kong and Macau, and has an established network across the Asia-Pacific region, from Australia in the east to Myanmar in the west.

Industrial and Commercial Bank of China, the country’s largest commercial lender and world’s biggest lender by assets, delivered 4.1% profit growth last year (US$44.26 billion), besting 2017’s 2.85% profit growth. Notably, the bank achieved gains of 6.5% and 6.2% in business revenue and total assets, respectively. It was also something of an achievement given the country’s slower GDP growth, softer local bourses and fears that an intensifying trade war with the US could precipitate a full-blown debt crisis.

Like its peers among the Chinese mega-bank, ICBC benefited last year from a regulatory crackdown on the ultra-aggressive lending practices of the shadow banking industry, reducing competitive pressure on China’s established banking giants. Margins for the big Chinese institutions were aided in 2018 by an accommodative liquidity stance from the central bank. ICBC’s net interest margin came in at 2.3%, an increase of 8 basis points over 2017. Non-performing loans declined 3 basis points to 1.52%, the eighth consecutive quarterly drop, and delivered via the disposal of Rmb226.5 billion non-performing loans.

Promisingly, ICBC’s investment in digital banking appears to be delivering cost reductions; the bank’s cost-to-income ratio declined by more than 1% to 25.7%.

Singapore’s DBS Bank clocked its 50th year of operations by pulling in record earnings in 2018 to mark its Golden Jubilee year. Total income hit S$13.2 billion while net profit rose 28% to S$5.63 billion for a healthy 12.1% ROE—a return last seen as long ago as 2007—and the bank increased it dividend over the previous year by 29%.

The bank’s mission statement is rooted firmly in sustainability, from financing renewables, originating and distributing Green and social bonds, championing gender diversity and supporting social enterprises.

DBS enjoys some of the highest credit ratings for any bank globally (AA-/Aa1 from S&P/Moody’s) and weathered a challenging year thanks to interest rate increases that improved NIM together with the full integration of its acquisition of ANZ’s wealth management and retail banking divisions.

The bank’s digital transformation continues apace, with 82% of the bank’s open systems Cloud-ready and a structure in place in which business and technology teams are co-drivers of 35 “platforms.” This is already paying off in terms of productivity, with the bank enjoying a reduction in its cost to in-come ratio to 44% in 2018.

In Japan, the ultralow interest rate policy that has prevailed since the introduction of Abenomics in an effort to reflate the economy continued to mark a less-than-auspicious landscape for its banking industry.

SMBC increased consolidated profit by ¥60.3 in fiscal 2017 thanks to a strong performance by its Re-tail Business Unit and solid profit generation from its credit card and overseas business.

This was an impressive performance amid the gloom which has begun to intensify in a banking indus-try where a belief in the terminal decline of Japanese banks’ earning power has gripped the industry’s CEOs.

Credit costs improved ¥70.2 billion year-on-year thanks to the reversal of costs from provisions made in the past from key corporate customers. In the meantime SMBC enjoyed ¥63.9 billion from gains in stock holdings.

In fiscal 2017, ROE came in at a respectable plus 8.8% while the bank hit its overhead ratio target of 60.9%, thanks in large part to prudent cost control, and realised a 9.5% CET1 ratio, despite the tight-ened international regulatory accounting environment.

The bank has a strong commitment to ESG, having issued the first Green bonds to emerge from Japan’s financial sector, and offers a range of ESG-compliant products, including ECO loans offered to certified SMEs.

Banking in Australia faced multiple headwinds in 2018, including: the delayed impact of the bank levy on the country’s largest institutions introduced the prior year; the effects on customer sentiment of the findings of a Royal Commission investigation into misconduct in the industry; and a slowdown in system loan and deposit growth.

In Australia, Westpac produced cash earnings totaling just over A$8 billion in 2018, more or less flat year-on-year, with loan growth up 4% and customer deposits up 6%. Against this somewhat meager performance were bright spots, including a strengthening balance sheet with ordinary equity up 6%, strong credit quality, and improving funding and liquidity ratios. ROE for 2018 came in at 13%, down from 13.8% in 2017 but still besting the 11.3% average achieved by US banks last year, and net interest margin improved by 2 basis points to 2.11%.

Westpac continues to make strides in digital innovation. Last year, it enabled check deposit by mobile phone and payments by digital assistant Siri while gradually reducing the use of paper-based systems.

In New Zealand ASB Bank offers a broad range of financial services including business, retail and ru-ral banking. Against the backdrop of a thriving New Zealand economy, the bank grew deposits and lending and managed to return a decent 15% return on average equity in 2018 via a 10% increase in net post-tax profit. its loan delinquency rates were low.

India’s Mumbai-headquartered State Bank of India continues to reap the rewards of its status as In-dia’s largest commercial bank in terms of assets, deposits, branches, number of customers and em-ployees. The bank is driven by its “Reform, Perform and Transform” mission statement, with this statement most fully realised in the bank’s ongoing digital transformation.

A digital highlight in 2018 was the introduction of an integrated omni-channel digital platform YONO, India’s first fully digital service platform designed to facilitate banking and lifestyle needs via a B2C marketplace.

Meanwhile the bank continues to grasp the nettle of stressed assets under the Insolvency and Bank-ruptcy Code, while deposits grew steadily by 4.7% in 2018, led by a near 8% growth in savings bank deposits. The bank is the largest home loan lender in India, with around 32% of the market.

Pakistan’s Meezan Bank posted sparkling results in 2018, growing its deposit base by over 18% and its loan book by 22%, while for the first time its trade business exceeded Rs1 trillion. In 2018, Meezan worked with the International Finance Corporation (IFC) and Karandaaz Pakistan, a nonprofit that promotes access to finance for SMEs, to enhance its penetration in the SME and commercial sectors. Meezan enjoyed a 1.29% ratio of non-performing loans in 2018, one of the country’s lowest, and enjoyed heady 59% growth in fee-based income.

The City Bank Bangladesh has transformed itself since inception in 1983 from a somewhat traditional banking enterprise into a multi-faceted technology-driven lender. It operates out of 130 branches, marketing its brand via the slogan “More banking. Less Bank.” The bank has enjoyed a consistent growth rate in deposits and loans in recent years and has been at the forefront of Bangladesh’s export-driven economic growth.

Sri Lanka’s Commercial Bank of Ceylon bested its competitors in 2018, pulling in Rs13.8 billion after tax for a 34.37% jump in operating income in a year when gross income surpassed Rs100 billion for the first time. Interest income swelled by 17.4% and net interest margin widened to 4% from 3.62%, well ahead of its regional peers.

“We recorded impressive growth in all key areas in 2018,” CEO S. Renganathan tells Global Finance, “despite the challenges encountered by way of increased taxation and higher levels of non-performing loans, resulting in increased provisions for impairment charges arising from IFRS 9 implementation.”

In South Korea, KEB Hana Bank, which was created from the merger of Korea Exchange Bank and Hana Bank in 2015, has since earned a reputation as a digital innovator and a lender able to leverage its global brand presence. KEB Hana has a robust balance sheet, enjoying a 16.5% Tier 1 CAR while posting a 10.05% ROE in 2018. KEB aims to align its digital innovation ambitions with a sustainability initiative, using data analysis to price bonds and loans for financing or refinancing of projects with clear environmental and social benefits, especially for SMEs. Areas of interest include affordable housing, clean transportation, renewable energy, financial inclusion and green buildings.

Indonesia’s Bank Mandiri was created in 1999 out of the merger of four banks under a government restructuring effort necessitated by the Asian financial crisis. Twenty years later, it is actively engaged in reducing its non-performing loans, having shrunk its NPL ratio to 2.8% at the end of 2018 from 3.5% a year earlier. The improvement in asset quality combined with consistently rising operating income to prompt a ratings upgrade this year, underlining the bank’s recent positive trajectory. Net income rose a healthy 14.4% ROE in 2018, to Rp25 billion.

In Malaysia, Public Bank managed a healthy 14.7% ROE in 2018, the highest in the domestic industry, while enjoying the lowest cost-to-income ratio (33%) and the highest earnings-per-share growth (144.2%) in Malaysian banking. Impaired loans were low at 0.5%, again the lowest among Public’s peer group, where impaired loans range from 0.8% (at Hong Leong Bank) to 3.1% (at CIMB).

Last year, Public consolidated its leading position in consumer banking, retail commercial lending to SMEs, and its private unit trust business. Its domestic loan portfolio is dominated by residential property financing; this segment grew 8.1% in 2018.

Thailand’s Bangkok Bank turned in a solid performance in 2018, cementing its reputation as one of Southeast Asia’s leading commercial institutions. Against a still sluggish economy, the bank delivered 7.9% income growth and a profit increase of 7.2% for ROE of 8.7%. Bangkok Bank has the largest international network among Thai banks, covering 32 locations as far afield as the US and UK and including a presence in nine out of 10 ASEAN countries.

In the Philippines, BDO Unibank topped its peer group last year in several categories. Its loan portfolio expanded by 17.3% while deposits grew 12.2%. BDO registers a low-cost current account/savings account (CASA) ratio of 70%, one of the highest in the Philippines, which means it enjoys one the lowest funding costs among its peers. BDO also earned its place in the ESG stakes last year by issuing a US$150 million green bond to finance climate-smart projects in  the Philippines.

Hong Kong’s Bank of East Asia last year revamped its BEA mobile phone app, which utilises big data analysis of customer footprints to provide tailored suggestions and services and includes the i-Planner which integrates banking with lifestyle options.

The bank has earned a reputation in Hong Kong for leading the pack in terms of fintech; it has adopted a “mobile-first” approach, via which its aims to synchronise its entire suite of services according to a mobile template. It is on the cusp of major advances in the area of open APIs.

In Vietnam, MSB, formerly Maritime Bank, grew its assets substantially in 2018, by 24% over the previous year, while the stability of the bank’s balance sheet was clearly demonstrated by a rise in owner’s equity at the end of the year. Earnings grew over the period by an eye-opening 700%, thanks to a 43% rise in net fee income, allowing for a 0.9% increase in ROE for the period, to 6.36%.

The bank focused its business model on SMEs in 2018 and this afforded a rise in corporate lending by 37%, with more than 4,000 new customers added over the period. MSB opened seven new branches in 2018 and now has 270 branches in 47 provinces in Vietnam.

CB Bank is Myanmar’s fastest growing bank and is comfortably placed to take advantage of the company’s integration into the global economy. Last year, it rolled out CB Pay, a mobile banking app with wallet features that allow customers to access their accounts from any location and open new accounts online. CB’s digital ambitions go beyond banking, however; the next round of CB Pay, CB Pay API, will connect to multiple apps and platforms such as online food delivery services, e-commerce, travel, and ticketing apps.

ICBC Macau is the largest locally registered bank in the former Portuguese colony, with US$38.5 billion in assets, 19 branches, and three subsidiaries. ICBC sits front and center of China’s One Belt One Road (OBOR) infrastructure development initiative and is a crucial lender to Macau’s Five-Year Development Plan. Last year, ICBC Macau signed an MOU with the local government aiming to embed Macau and the Portuguese-speaking countries within OBOR.

The bank provides comprehensive corporate-banking and traditional investment-banking services, including syndicated lending, project and trade finance, and commercial loans. One of its key financial undertakings in the project finance arena has been to fund the construction of the Hong Kong–Zhuhai–Macau Bridge, which authorities bill as the world’s longest sea crossing and longest open-sea fixed link.

Brunei’s Baiduri Bank is known within the region for innovation and consistent delivery of strong results, and is regarded as Brunei’s leader in financial services. Baiduri offers customers an enhanced internet banking service as well as the Personal i-Banking app, both accessible anywhere in the world. Baiduri’s balance sheet strengthened in 2018 as it posted a 14% gain in Tier 1 capital alongside a 7% growth in assets; net profits surged 33%.

In Taiwan, Cathay United Bank is building on its strong onshore franchise to expand overseas, principally in China. Parent Cathay Financial Holdings is Taiwan’s largest financial conglomerate, with assets totaling US$304 billion, and its subsidiaries in insurance and asset management claim one in every two Taiwanese as its customer. Pretax ROE for Cathay United in 2018 was 13% while the offshore subsidiaries delivered an impressive 46%.

In Kyrgystan, Optima Bank leads the sector, claiming 14% of banking system assets, a well-capitalized balance sheet, a diversified credit and deposit portfolio, and a geographical spread across the country. In operation for 25 years, Optima has worked closely with the European Bank for Reconstruction and Development (EBRD) to expand access to funding for Kyrgystan’s SMEs.

Mongolia’s Khan Bank—born from the recapitalisation of the failing AgBank 20 years ago—is the country’s largest commercial bank and provides banking services to an estimated 80% of Mongolia’s families. Just over a year ago, the bank borrowed US$120 million under the syndicate direction of the Dutch development bank FMO to be devoted to SME lending within Mongolia.

In Kazakhstan, ForteBank was modestly impacted by IFRS 9 accounting regulations, taking a Kzt13.4 billion charge on loans and contingent liabilities. Net income powered ahead, however, rising to 2Kzt8.6 billion last year from Kzt18.5 billion in 2017 while foreign exchange revenue jumped to Kzt8.8 billion from Kzt5.9 billion, the cost-to-income ratio declined to 41.3% from 53.3%, and ROE pushed up to 10.3% from 7%.

Asia Alliance Bank in Uzbekistan grew its total assets by 28% in 2018, with net loans increasing 42% and customer deposits growing by 32% for the review period. Non-performing loans increased for the period by 33%, albeit to a relatively manageable 3.2%. The bank offers a full range of traditional and modern banking services and operates via 9 branches, 15 mini-banks and 14 cash desks.

Armenia’s Ardshin Bank has been in operation in the country for over 15 years and now boasts 64 branches from which it operates in the corporate and retail lending space. In 2018 the bank borrowed US$15m from the Black Sea Trade and Development Bank with the intention that the funds will be ex-tended to SMEs within Armenia.

PASHA Bank in Azerbaijan completed a strategic overhaul in 2018, which included entering the country’s insurance market via tie-ups with its subsidiaries PASHA Life Insurance and PASHA Insurance. The bank outperformed its budgetary targets for the projects within two months. PASHA also prepared to enter the investment banking arena last year, starting with syndication of corporate loans.

ABA Bank in Cambodia, 90% owned by National Bank of Canada Group, enjoyed a massive 50% asset surge in in 2017 and followed it up with a similar asset boost last year. Cambodia’s economy is growing at around 7% per year and ABA Bank is well positioned to take advantage of the dynamic environment. It operates 64 branches in the country and plans to open a further 11 this year. Given its fast growth, Standard & Poor’s raised the outlook on ABA’s credit from negative to positive in 2018.

In Georgia, TBC Bank has continued to leverage its strong brand name recognition with expansion into retail credit, corporate lending, leasing, and microfinance, the latter via an 80% ownership stake in Bank Constanta, the country’s largest microfinance bank. TBC is the leading universal bank in Georgia, with a 38.8% share of loans and 41.2% share of non-banking deposits.

Rastrija Banija Bank is one of Nepal’s leading commercial banks, having been founded almost a half century ago. It remains under government ownership. and operates via 217 physical branches, 17 counters and 93 branchless banking outlets. The bank enjoyed an increase in paid-up capital in 2018 thanks to the acquisition of NIDC Development Bank.

In Afghanistan, the Afghanistan International Bank (AIB)’s key business activity includes the provi-sion of Islamic banking services on a retail and corporate basis as well as conventional services, with both funding methods directed at the country’s SME sector. Washington-based IFC, a World Bank subsidiary owns a 7.5% stake in AIB.

BEST BANKS IN ASIA-PACIFIC 2019

Afghanistan AIB
Armenia Ardshin Bank
Australia Westpac
Azerbaijan PASHA Bank
Bangladesh The City Bank
Brunei Darussalam Baiduri Bank
Cambodia ABA Bank
China ICBC
Georgia TBC Bank
Hong Kong The Bank of East Asia
India State Bank of India
Indonesia Bank Mandiri
Japan SMBC
Kazakhstan Forte Bank
Kyrgyzstan Optima Bank
Macau ICBC Macau
Malaysia Public Bank
Mongolia Khan Bank
Myanmar CB Bank
Nepal Rastrija Banija
New Zealand ASB Bank
Pakistan Meezan Bank
Philippines BDO Unibank
Singapore DBS Bank
South Korea KEB Hana Bank
Sri Lanka Commercial Bank of Ceylon
Taiwan Cathay United
Thailand Bangkok Bank
Uzbekistan Asia Alliance Bank
Vietnam Maritime Bank