Hidden Dragons

The perils of establishing a presence in Asia

Strong credit growth, deepening fixedincome markets, and world- leading GDP growth continue to present a wholesale banking opportunity in Asia. As increasing global trade drives international corporations to seek banks with local capabilities, many also see establishing a presence in Asia as a requirement for retaining their international clients. Accordingly, the number of foreign banks active in Asia rose from 111 to 183 between 1995 and 2009.

With capital markets liberalizing in China, we believe international banks will chase this opportunity. But they will need to overcome significant hurdles to achieve profitable scale.

Complexities in managing operations over several regions, increasing capital and liquidity requirements, and idiosyncratic regulatory hurdles have reduced profits for many of the largest foreign players. Standard Chartered and HSBC are the notable exceptions, where their longestablished local branches and targeted client bases have given them returns on equity on a par with some local banks.

Hidden Dragons