Fitch: Challenging Conditions to Test Bank Expansion Strategies
Fitch Ratings' Chart of the Month released today highlights a trend in Asia Pacific where banks' expansion outside their home markets has been an important growth story over the last decade. The region's attraction has been better access to regional markets, long-term growth potential of a rising middle class as well as China and the trade linkages.
The credit cycle turning in Asia means that the banks' foreign exposure will come under greater scrutiny. Successful cross-border expansion is associated with synergies aligned to core businesses, and/or attaining sufficient scale and profitability in new markets. More often than not, however, scale is not achieved and risks increase. These include greater group complexity, exposure to markets of higher volatility and currency risks, which then test the strength of the group franchise.
Singaporean and Malaysian banks have the largest exposure by loans and profit from foreign sources, followed by the Japanese mega banks and China's most international bank - Bank of China. The Chinese banks have been growing at a much more rapid pace - but off a lower base, and are therefore less exposed.
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