The Asia/Pacific banking sector will see a notable increase in mergers, acquisitions and consolidation activities in 2010, according to the latest study by IDC Financial Insights Asia/Pacific. As signs of recovery from the global financial crisis gather pace, Asia/Pacific banks will become more aggressive in gaining size through inorganic growth and will feel more confident in revisiting regionalization plans. More insights are revealed in the report entitled "Business Strategy: Banking Consolidation in Asia/Pacific – Which Banks Are Most Likely to Succeed in 2010?"

Michael Araneta, Senior Consulting and Research Manager at IDC Financial Insights Asia/Pacific, says, "The merger and consolidation trends that we expect in 2010 will transform the industry. For one, we will see increasing market share concentration among top-tier institutions. Large banks will get more dominant and have greater pricing advantage. To some extent, it will be difficult for niche banks to thrive."

The report states that the growing dominance of large banks brings to the fore two issues that gained prominence in the recent crisis: too-big-to-fail and systemic risk. However, the report points out that the most concentrated markets in the Asia/Pacific region have remained healthy and have emerged relatively unscathed from the crisis. This supports the case for further size-building and further increases in market share concentration of top-tier banks.

In 2010, governments across the region are expected to play prominent roles in banking consolidation. The influence of the government is already seen through recently launched subsidies and tax incentives supporting industry consolidation, new guidelines governing mergers and acquisitions, as well as new financial sector master plans. Araneta continues, "Thailand and Malaysia are coming up with new financial sector master plans soon, but other markets like Taiwan, Vietnam, and India are introducing salient changes to rules governing banking competition. These master plans aim to lift the efficiency and competitiveness of the industry typically by encouraging consolidation and by opening up the sector to a greater number of new or foreign players."

Another important trend to note is the emergence of Asia/Pacific super-regional banks. These banks have become more aggressive despite adverse conditions, and are steadily building a franchise beyond their home markets. The banks' regionalization strategies however rely on regional units that are close in proximity, and limited to one part of the region. The super-regional strategies of ANZ Bank (Australia), Commonwealth Bank of Australia (Australia), OCBC Bank (Singapore), DBS Bank (Singapore), OCBC Bank (Singapore), Maybank (Malaysia) and CIMB Group (Malaysia) are cited in the report.

Araneta adds, "Interestingly, the rise of super-regionals has occurred just as international players retreated from the region or have offloaded shares in specific banks. While we expect super-regional organizations to fill in some of the vacuum left by the global players, we believe that super-regionals are creating their own unique propositions as truly Asia-centric powerhouses."

Araneta concludes, "Technology vendors should consider the rise of super-regionals as an important trend, not only because of the potentially huge uplift in IT budgets but also because it will necessitate more 'regional' sales and marketing strategies. Vendor incumbents in other markets will have to build their presence and domain expertise in the super-regional's home base."

Figure 1 presents key consolidation trends cited in the 11 Asia/Pacific markets covered in the report.




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Business Strategy: Banking Consolidation in Asia/Pacific - Which Banks Are Most Likely to Succeed in 2010?