Growth in banking M&A

The Sun, 17April 2013

PETALING JAYA - Asia-Pacific is likely to remain the most active region for banking merger and acquisition (M&A), supported by rapid economic expansion, increasing middle- class demand for banking products and a growing high-net-worth segment, according to findings from PwC's new report, "The Journal-Brave new world: New frontiers in banking M&A".

It said domestic deals will continue to drive M&A, as banks respond to increasing competition and the need for greater operational and capital efficiency. In-market transactions will also be stimulated by the desire to acquire customers.

"Other banks will use M&A to develop a broader range of services for institutional and high-net-worth clients," it added.

PwC also sees intra-regional deals growing as large banks from markets such as Japan, South Korea, Singapore, Malaysia and Australia are increasing their exposure to fast- growing Southeast Asia, particularly Indonesia and Vietnam.

"The rapid growth of retail banking is an increasingly strong motive for regional expansion, as banks seek to acquire new customers and develop scalable platforms for growth.

"However, national regulators are increasingly inclined to place limits on foreign ownership, and minority stakes will become more capital intensive under Basel III. Many are encouraging local banks to merge, to develop a smaller number of nationally and regionally competitive banks," it said.

Some Asia-Pacific banks, particularly from North Asia, are becoming more focused on making acquisitions outside the region.

"The largest Chinese banks are already following corporate clients around the world, using M&A as well as greenfield start-ups to enter new markets.

"Large Chinese and Japanese banks may also take an interest in Western Europe, where low banking valuations could allow them to acquire valuable expertise or gain access to new clients," said PwC.

In Malaysia, PwC Malaysia advisory leader Tan Siow Ming said Malaysian banks will continue to seek growth through M&A.

"As our domestic market matures, they will look beyond just organic growth. Our banks will continue to expand regionally to capitalise on the growth story of Asia, and Southeast Asia specifically.

"The new Financial Services Act and enhanced regulatory environment will also encourage industry consolidation or restructuring, which will drive local M&As as well. With the global banking M&A trend on a decline overall, the fact that our region bucks the trend is promising indeed," he said in a statement yesterday.

Meanwhile, PwC doesn't expect global banking M&A transactions, which have been on a decline over the past few years in terms of number and value, to return to its previous level, nor to its previous patterns.

During the first 10 months of 2012, the total value of completed global banking deals fell by 37% on a like-for-like basis, compared with a decline of 20% for all-sector global M&A.

"In the short term, regulatory pressure on banks in the developed markets means that valuable transaction opportunities are likely to be missed. The eurozone crisis will also continue to contribute to barriers to banking M&A, most notably uncertain valuations and weak deal confidence," said PwC.