The private banking industry in Asia is undergoing times of increased M&A activity. This scenario follows international market dynamics, where a wave of consolidations is taking place in leading wealth management financial centres like Switzerland and a competition upsurge is occurring in growing markets like Latin America and Asia.
For private banks operating in the last region, issues like China’s economic meltdown and, at a market level, cost pressures affecting banks’ operational models are challenges echoing on private banks’ annual growth rates in the last few years. In turn, industry players are pursuing either a merger or an acquisition as a way to achieve inorganic growth, resulting in a wave of consolidation in the regional market.
Therefore, the drive behind international and regional players in pursuing consolidation is not incidental. It is a natural response to challenges arising from different fronts. Other than the factors mentioned above, recent deals in Asia have revealed more significant factors contributing to this trend. First of all, an increased customer mobility together with higher expectations have changed client behaviour, whom now demands more focus. Secondly, banks nowadays need to conduct significant planning and invest large amounts to continuously adopt new regulations such as Foreign Account Tax Compliance Act (FATCA), Automatic Exchange of Information (AEI), Investment suitability rules and cross-border rules. Thirdly, more aggressive market expansion strategies have been deployed by local banks while many international onshore banks are struggling with reaching a size big enough to operate at the optimum cost/return profile. «You will need to have about USD30-35 billion of AUM to run a viable private banking business in Asia» according to the regional head of a major wealth manager. These factors altogether not only induce a rise in operational costs, but also impose challenges in achieving organic growth. Eventually, banks in Asia are pushed to revise their operating models and consider M&A as a growth strategy.
Integration brings clear benefits for merged banks. This includes the opportunity to develop new lines of business, achieving a stronger market position by client book acquisitions, and lowering operational costs through synergies, diversification, and scalability. A successful consolidation process is fundamental for sustaining long-term benefits like economies of scale — including reorganisation and industrialisation — lower cost to income ratios (CIR), and increase profitability margins. Consequently, we expect the ongoing wave of consolidation is going to intensify as banks in Asia will continue to pursue M&As in an attempt to increase profitability by achieving economies of scale and service differentiation through unconventional strategies. The above discussion brings up the following question: which path — either outsourcing or consolidation — is the best option for banks operating model in APAC?
This study seeks to provide insights that support the decision-making of banks that are either considering consolidation or those already going through a consolidation process. M&As are a long process where both the Pre and Post-Merger Integration (PMI) phases are crucial: elements like defining the right objectives before signing the deal and establishing a suitable operating model for the integration strategy can give a real competitive advantage.
