Global corporate and investment banks will derive almost half their revenues-as much as 45% or about $790 billion--from Asia by 2015, led by India and China, from about 33% or $442 billion in 2010, says a report by global consulting firm McKinsey & Co.
"The surprisingly strong economic health of Asian economies in 2010 saw the risk-adjusted corporate and investment banking (CIB) revenues from the continent, touching nearly $442 billion, just under a third of the global total. But by 2015, this revenue pool will rise to about $790 billion by 2015 or 45% of the global CIB revenue," says a McKinsey report titled Asia: The future of corporate and investment banking.
According to McKinsey partner and Asia corporate banking practices leader Akash Lal, "Asia will become the largest and fastest growing region in the wholesale banking universe by 2015."
Lal further says that soon the dynamics of the game would change, as more players would enter and customers would become more knowledgeable and demanding, and also cross-regional business would become more important over the next few years.
Senior partner and Asia corporate and investment banking practices head Emmanuel Pitsilis said that for those foreign financial institutions looking to benefit from Asia's fast-growing CIB market, regulation and more intense competition would be the biggest challenges.
"Global banks will have to find a path to become more Asian by making the right investments from both business as well as geographical perspectives, apart from building a business model that is both profitable and durable," he says.
Incidentally, this optimism comes at a time when core investment banking activities-M&As, equity and debt capital markets-are down in the dumps on the back of the global market crash triggered by the Eurozone debt crisis and the faltering global recovery.Core investment banking revenue in the country is down about 30% to just $467 million this year.
The report also says that the lion's share of Asia's new CIB revenues would come from China and India. With 50% of Asia's CIB revenues, China is already the region's largest wholesale banking market, says the report.
The report is very bullish on India as this market is poised to see growth rate of 15 to 17% per annum over the next four years, which will be higher than China's.
"India will witness one of the fastest CIB growth rates: 15 to 17% annually over the next five years. While the country's revenue pools today are still relatively small, this growth will significantly increase its relevance in the sector, with the wholesale banking revenues from the country becoming as large as Australia's," says the report.
This rapid growth will be oiled by the proposed large-scale investment in the infrastructure ($1 trillion over the next five years beginning April 2012), a vibrant mid-market client base, and the growth of the Indian multi-nationals.
According to the report, there are three major business opportunities in the corporate and investment banking market in the continent- the rapidly growing mid-corporate segment, capital markets and investment banking and the continued expansion of regional transaction banking.
It says the mid-corporate segment will grow faster than the larger ones, even as the large corporates will continue to be the largest CIB customer segment at $326 billion in post-risk revenues. Mid-corporates are defined as companies with revenues between $50 million and $125 million.
The report further says that by 2015, revenues from Asia's mid-corporate segment will nearly double to $308 billion, driven primarily by the companies from India and China, as these two nations give a lot of importance to their medium-size companies.
On capital markets and investment banking, the report says by 2015, these segments will represent a $158 billion opportunity, nearly twice as large as today."Not surprisingly, the regional focus will naturally shift from the developed Asia to China and India," says the report.
On the transaction banking segment, the report says this revenue head, for both the large as well as mid-corporates, will be another big opportunity, with revenues projected to almost double from $170 billion in 2010 to $300 billion by 2015.
Transaction banking encompasses traditional cash-management services like collections and payments, as well as trade-finance activities such as issuance of letters of credit or bank guarantees.