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Banking activity shifts from Europe to Asia

Banking activity shifts from Europe to Asia

Asia Japan

Banking practices are seeing a changing dynamic in the Australian market as European institutions pull back and Asian banks swoop in.

Minter Ellison head of finance in Sydney John Elias suggested the institutional banking sector is likely to see an increased number of exits from European players this year.

This trend is fuelled by “increased global markets' volatility, heightened competition, and regulatory change”, he said.

Since 2010, major banks including Lloyds, RBS, Société Générale have all pulled out of Australia, while others – including Barclays – are winding up their Australian operations.

“Regulatory pressure is undoubtedly one of the key factors driving this change," Mr Elias said.

"Stricter capital requirements demanded by Basel capital accords, leading to a squeeze on lending profitability, together with Dodd-Frank-style market regulation, are pushing banks to reconsider their footprint."

On the other hand, Chinese, Taiwanese and Japanese banks have been pushing strongly into the Australian market, he observed.

According to research from Minter Ellison’s financial institutions group, Japanese banks added $7 billion in resident asset balances in Australia and Chinese/Taiwanese banks added $7.6 billion.

By contrast, North American banks only grew their asset balances by $3.1 billion in Australia while European banks fell by $7.3 billion.

Mr Elias also pointed to the established presence of Chinese banks in Australia, including the Bank of China, ICBC and China Construction Bank.

"It's our view that the next phase of institutional banking in this country is going to be dominated by the Chinese banks,” he said.

“This will likely take the form of further loan book acquisitions, but may also include derivative and other financial instrument positions."

 

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