Wang Jiaqiang, Shao Ke, Du Yang, and Li Yifan also contributed to this article
Review and Outlook of the Asian Banking Industry from 2023 to Mid-2024
In 2023, developed economies in Europe and America maintained tight monetary policies, and the collapse of Silicon Valley Bank triggered a crisis in the banking sector in Europe and America, spilling over into global economic growth and financial market operations. By contrast, Asia’s economic recovery was robust, continuously enhancing its contribution to global economic growth and financial market operations. Against this backdrop, the Asian banking sector saw positive development, with steady expansion in scale, impressive profitability, a slight decrease in credit risk, stable liquidity risk, and a rise in capital adequacy ratios.
In the past few months of 2024, geopolitical conflicts continued to evolve deeply, and developed economies began to cut interest rates one after another, with the global economy expected to recover steadily. Asian economic growth remained solid at present, laying a strong foundation for the development of the banking sector, especially in areas such as credit financing, wealth management, cross-border services, green carbon reduction and the digital economy, where there is much room for expansion.
I. Stable and prudent bank assets
In 2023, thanks to steady economic growth, rapid financial market development, and increasingly stable currency performance, the Asian banking sector made a comprehensive recovery, becoming a major driving force in global banking development, with assets and liabilities accounting for half of the global banking industry. By region, East Asia’s banking sector was a stabilizer for Asian banking development, with Chinese Mainland’s banking sector maintaining its lead; Southeast Asia’s banking sector rose rapidly, leveraging the trend of regional economic integration to actively explore local and international markets; Indian banking sector performed well, while other South Asian economies lacked momentum in banking development; banks in the UAE, Saudi Arabia and Turkey, as the backbone of the banking sector in Western Asia, performed relatively stable.
In terms of asset size, as at the end of 2023, the total assets of the Asian banking sector reached USD82.45 trillion, accounting for 47.64% of the global total. The top five economies in terms of total banking assets were Chinese Mainland, Japan, India, Hong Kong, China, and South Korea. As at the end of 2023, Chinese Mainland’s total banking assets exceeded USD50 trillion, accounting for over 60% of Asia’s total and nearly 30% of the global total. In particular, large banks reported total assets of USD24.96 trillion, accounting for nearly 50% of the total commercial banking assets, indicating increased concentration. During the critical period of economic recovery, commercial banks actively increased credit supply, directing funds to key areas and weak links such as technology, green initiatives, inclusive finance, elderly care and the digital economy, significantly enhancing the quality and efficiency of services for the real economy. Japan’s total banking assets stood at USD10.51 trillion, accounting for about 13% of Asia’s total. In particular, nationwide city banks represented 46% of Japan’s total banking assets; regional banks, focusing on local business, accounted for over 32%; trust banks and foreign-funded banks make up approximately 8% and 5%, respectively. India’s banking sector emerged prominently, with total assets reaching USD3.76 trillion, accounting for 4.56% of Asia’s total, up about 0.5 percentage points YoY, surpassing Hong Kong, China and ranking third in Asia. The total credit of India’s banking sector expanded rapidly from USD1.77 trillion at the end of 2022 to USD2.04 trillion at the end of 2023, serving as a crucial foundation for the expansion of the banking sector. In recent years, against the backdrop of relatively sluggish global economic growth, India’s GDP has continued to grow rapidly, overtaking the UK to become the world’s fifth-largest economy. The increase in economic output has spurred significant demand for credit. The total assets of Hong Kong, China’s banking sector were USD3.49 trillion, accounting for about 4.2% of Asia’s banking assets. As a leading international financial center, it has distinct advantages in banking concentration, international development and other aspects. Hong Kong, China’s banking sector is home to numerous financial institutions, including 151 licensed banks, 16 banks with restricted licenses, 12 deposit-taking companies, and 40 approved money brokers. With a high degree of openness, among the licensed banks in Hong Kong, China, there are 29, 4, 15 and 1 respectively from Europe, the Middle East, North America and South America, totaling accounting for over 30% of all licensed banks in Hong Kong, China. Major global banks are deeply integrated into the Hong Kong, China market, with extensive business layouts covering retail, corporate, investment banking and other comprehensive financial services. South Korea’s banking sector had total assets of USD2.78 trillion, accounting for 3.37% of Asia’s total, remaining stable compared with the previous year. Although South Korea’s banking sector has a solid foundation, its economic growth has been relatively weak, leading to insufficient momentum for expansion in the banking sector.
Sources: IMF, Financial authorities of each economy.
In terms of liability size, as at the end of 2023, the total liabilities of the Asian banking sector amounted to USD75.96 trillion, accounting for 47.44% of the global total. The top five economies in terms of total liability size were Chinese Mainland, Japan, India, Hong Kong, China, and South Korea. As at the end of 2023, Chinese Mainland’s total banking liabilities reached USD46.19 trillion, accounting for over 60% of Asia’s total and nearly 30% of the global total. Among all, RMB deposits amounted to USD40.13 trillion, up 8.11% YoY; foreign currency deposits totaled USD797.8 billion, down 6.6% YoY. Japan’s total banking liabilities amounted to USD10.13 trillion, representing about 13% of Asia’s total. Among all, its total deposit balance was USD7.11 trillion, down 1.63% YoY. However, when calculated in Japanese yen, the deposit balance increased by 3.38% YoY, continuing the growth trend and driving Japanese household financial assets to record highs. According to data released by the Bank of Japan, as at the end of March 2024, Japanese household financial assets reached JPY2,199 trillion. The total liabilities of the Indian banking sector stood at USD3.17 trillion, accounting for 4.17% of Asia’s total. Among all, its deposit balance was USD2.57 trillion, up 12.02% YoY. The growth of the Indian economy has led to increases in resident income and corporate revenue, which are important foundations for the rise in deposits; with the continuous development of technology and communication technology, the rural communication coverage in India has been increasing, driving the development of the rural savings market. The total liabilities of the banking sector in Hong Kong, China amounted to USD2.77 trillion, accounting for 3.65% of Asia’s total. Among all, the balance of customer deposits was USD2.08 trillion, up 4.74% YoY. Under the influence of high interest rates in developed economies, the linked exchange rate system in Hong Kong, China and other factors, the banking sector in Hong Kong, China maintained a robust deposit-gathering capability. Accordingly, the banking sector in Hong Kong, China reduced its dependence on overseas counterparts for liabilities, with borrowings from overseas banks at USD431.759 billion, down 11% YoY, amidst continued high global financial market uncertainty, leading to a preference for more stable local funding sources. The total liabilities of the banking sector in South Korea amounted to USD2.57 trillion, accounting for 3.39% of the Asia’s total. Among all, the deposit size of commercial banks and specialized banks totaled USD1.94 trillion, up 1.6% YoY. In January 2023, to reduce the inflation rate, the Bank of Korea raised the base interest rate by 25 basis points, from 3.25% to 3.5%, marking the tenth rate hike in this cycle, which to some extent led to an increase in household deposits.
In terms of growth rate of liabilities, as at the end of 2023, the total liabilities of the banking sector in Asia increased by 6.99% YoY, a significant increase of about 9 percentage points from the previous year. Although interest rates in Europe, America and other developed economies remained high, Asian economies had strong monetary policy resilience and sufficient economic development momentum, effectively mitigating negative impacts such as currency depreciation and deposit outflows. The five economies with the highest YoY growth rate in banking liabilities were Georgia, Kyrgyzstan, India, Turkey, and Sri Lanka. Georgia’s total banking liabilities amounted to USD26.755 billion, up 23.88% YoY. Among all, its deposit balance was USD19.921 billion, up 25.66% YoY, serving as the main driver of the increase in banking liabilities. According to the Georgian Statistical Office, the average monthly nominal wage in Georgia maintained a YoY growth rate of over 15% in 2023. Kyrgyzstan’s total banking liabilities stood at USD5.804 billion, up 21.45% YoY. Among all, its deposits totaled USD4.894 billion, up 21.89% YoY, becoming an important source of bank funds. India’s banking liabilities were USD3.17 trillion, up 15.55% YoY, with deposit growth being the main driving factor. Turkey’s and Sri Lanka’s total banking liabilities were USD915.421 billion and USD56.493 billion, respectively, up 15.08% and 14.90% YoY, both related to the low base of the previous year. Similar to changes in asset size, Lebanon, Macao, China and Pakistan were the three economies that saw the highest decline in liabilities, falling by 31.83%, 7.29%, and 5.55% respectively.
Table 2 Overview of total liabilities of the banking sector in global and Asian representative economies
Unit: $ billion
Sources: IMF, Financial authorities of each economy.
II. Impressive earning performance
In 2023, geopolitical conflicts, high inflation and the tightening of monetary policies in developed economies continued to impact the global economic fundamentals, leading to a persistent slowdown in economic growth. According to IMF data, the global real GDP growth rate was 3.21%, down 0.25 percentage points from the previous year. However, the high-interest-rate environment still favored the development of banks’ interest income businesses, which to some extent led to an increase in profitability. Looking at representative developed countries, in 2023, the net profit of the US banking sector was USD254.663 billion, down 3.55% from the previous year, with the decline narrowing compared with that in 2022; the net profit of the UK banking sector was USD69.434 billion, up 15.47% YoY; the net profit of the French banking sector was USD48.078 billion, up 30.66% YoY; the net profit of the German banking sector was USD38.903 billion, up 44.77% YoY. The banking sectors of representative Asian economies also demonstrated strong profitability. For instance, the net profit of Chinese Mainland’s banking sector was USD335.676 billion, continuing to hold the top spot globally; the net profit of India’s banking sector was USD39.165 billion, ranking second in Asia after Chinese Mainland; banking sectors of Southeast Asian countries such as Indonesia, Thailand and the Philippines capitalized on significant opportunities from the global supply chain shift, with net profits reaching USD16.312 billion, USD6.598 billion, and USD5.43 billion respectively, achieving noticeable growth. Banking sectors of developed Asian economies also leveraged mature development strategies, extensive market layouts and comprehensive product systems to expand overseas operations, not only gaining high interest margin yields in European and American markets, but also fully exploring business opportunities in the Asia-Pacific market. The net profit of Japan’s banking sector stood at USD24.71 billion, leading among major developed economies, with the banking sector actively expanding business overseas and becoming a model for international operations amidst a long-term low-interest-rate environment; the net profit of South Korea’s banking sector reached USD16.3 billion, up 12.65% from the previous year. Although the Bank of Korea has not followed the Fed’s policy since January 2023, the benchmark interest rate remained relatively high at 3.5%. Higher interest rates and increased loans and deposits contributed to a rise in interest income, significantly improving banking performance.
Sources: IMF, Financial authorities of each economy.
The rise in the return on assets (ROA) of the Asian banking sector was consistent with that in return on equity (ROE), with no significant fluctuations in the equity multiplier. In 2023, the overall profitability of the Asian banking sector rebounded, with ROA of 2.15%, up 0.03 percentage points from the previous year; ROE of 14.80%, up approximately 0.36 percentage point from the previous year. The equity multiplier stood at 6.89, a slight increase of 0.07 percentage points from the previous year, indicating that the Asian banking sector balanced scale growth with capital replenishment. Some economies’ banking sectors faced challenges, with ROE continuing to decline. The banking sectors of Armenia, Kyrgyzstan, Cambodia, and Macao, China saw ROE decreases of 13.26, 7.47, 6.71, and 6.25 percentage points, respectively. While the equity multipliers in some economies’ banking sectors rose, reflecting significant asset expansion under countercyclical credit policies, leading to increased banking leverage ratio and certain capital replenishment pressure. For example, the equity multiplier in Japan’s banking sector exceeded 20, while those in Macao, China, Chinese Mainland, Cyprus and South Korea all surpassed 10.
Table 4 ROE and ROA (%) of the banking sector in the global and Asian representative economies
Sources: IMF, Financial authorities of each economy.
III. Comprehensive development of banking business
In 2023, the depth of development in the Asian banking sector significantly improved. Among the economies in Asia with available data, the average ratio of total banking assets to GDP was 237.94%, up nearly 20 percentage point YoY; 59.26% of these economies had the ratio exceeding 100%. Some economies, like Pakistan, Indonesia and Kyrgyzstan, had lower ratios, indicating significant room for growth. Certain economies had highly developed banking sectors, particularly the international financial centers like Hong Kong, China and Singapore, with the ratios of 926.72% and 502.18% respectively.
Data source: IMF, Financial authorities of each economy.
Figure 1 Total banking assets / GDP of global and representative Asian economies
In terms of development model, among economies with available data in 2023, the average interest income of the Asian banking sector accounted for 67.12% of total income, up 0.41 percentage points from the previous year, with over 40% of the banking sectors seeing a decrease in the proportion of interest income. On the one hand, the net interest margin (NIM) in the Asian banking sector decreased, which to certain extent affected the growth of interest income. Taking Chinese Mainland as an example, the NIM of commercial banks in 2023 was 1.69%, down 0.22 percentage points from the previous year, marking a historical low. The Japanese banking sector long had a NIM of less than 0.6%, and countries like South Korea, Singapore and Malaysia also faced significant downward pressure on their NIM. On the other hand, the development of non-interest business faced significant opportunities and become an important support for profit growth in the Asian banking sector. With the continuous accumulation of wealth, the demand for wealth management services among Asian residents increased. The economic integration process in Asia accelerated, with an increase in cross-border trade and investment activities, which led to a greater demand for cross-border financial services, laying an important foundation for banks to diversify their non-interest income sources. Compared with developed countries in Europe and America, the average interest income proportion of the Asian banking sector was lower than that of the United States (69.86%), but higher than that of the United Kingdom (45.47%), France (32.10%), and Germany (50.73%).
The banking sectors in Brunei, Pakistan and Chinese Mainland all had an interest income proportion exceeding 80%. To enhance the banking industry’s support for the real economy, Chinese Mainland adopted monetary policy that is flexible, precise, appropriately moderate and stability-focused, resulting in a significant decrease in the actual lending rates of financial institutions and a reduction in the overall financing costs. The scale of loans also grew steadily, offsetting the impact of falling loan prices to some extent. The non-interest income grew rapidly, with wealth management services returning to a higher growth range in 2023. Against the backdrop of reduced deposit interest rates, the wealth management products have become relatively more attractive, effectively capturing some of the savings from residents. Although the reduction in public fund management fees and custodian fees, and the pressure on bank-sold insurance commission rates pose challenges to banks’ wealth management services, banks will continue to intensify marketing efforts, improve per-branch sales capacity, offset the impact of fee reductions through volume compensation, and optimize product structures to increase the sales proportion of higher-fee regular payment products. In terms of growth trends, Asian economies that adopted interest rate hikes saw a significant increase in the proportion of interest income, with that of Thailand and Cyprus increasing by 11.87 and 10.64 percentage points, respectively.
Data source: IMF, Financial authorities of each economy.
Figure 2 Banking interest income / total income of global and representative Asian economies
The deposit-loan spread in the Asian banking sector remained higher than that in Europe and America, showing an overall upward trend. According to available data, the overall deposit-loan spread in the Asian banking sector in 2023 was 3.76%. The main reasons for the relatively high deposit-loan spread in the Asian banking sector include: first, the Asian financial system is dominated by indirect financing, where banks have strong bargaining power, maintaining a higher level of interest spreads over time; second, the monetary policy tools and transmission channels of central banks in Asian economies differ from those in developed economies in Europe and America. In terms of the absolute value of the deposit-loan spread, in 2023, the banking sectors in Maldives, Brunei, Macao, China and Hong Kong, China had the highest deposit-loan spreads, all exceeding 5%. The banking sectors in Bangladesh and South Korea had relatively lower deposit-loan spreads, both less than 1.5%.
Data source: IMF, World Bank.
Figure 3 Deposit-loan spread in representative Asian economies
IV. Risks under control in an overall sense
The roller-coaster monetary policy adjustments in developed economies in Europe and America have led to increased interest rate risks, causing risk spillover effects on the global banking industry. In a complex and volatile global economic and financial environment, the Asian banking sector has maintained operational resilience with overall risks being controllable.
1. Slight decline in credit risk
As a pro-cyclical industry, the banking sector’s exposure to credit risk is closely related to the economic growth of its home country. In 2023, Asia’s economic growth exceeded the global average, laying a solid foundation for the banking industry’s stable operations and improving asset quality. Under strict financial regulation, banking sectors in some Asian economies have comprehensively utilized various disposal methods to ensure overall controllable asset quality. On the one hand, they make reasonable provisions for loan loss reserves and accelerate the write-off of non-performing loans. On the other hand, by extending existing loans, enhancing credit for certain loans and implementing loan restructuring, they effectively reduce credit risk. In 2023, the average non-performing loan (NPL) ratio of the banking sectors in major Asian economies was 2.98%, down 0.14 percentage points from the previous year. However, some economies saw an increase in their non-performing loan ratios, continuing the high levels of recent years. The NPL ratio of the banking sectors of Cambodia, Malaysia and Bangladesh consecutively rose, reaching new highs of 5.13%, 1.73%, and 9.00% respectively; the banking sectors of Pakistan, Kyrgyzstan and Uzbekistan faced significant asset quality pressures, with NPL ratios at 7.59%, 9.24%, and 3.45% respectively. The asset quality in the banking sectors of developed Asian economies was also divergent, with the NPL ratios of South Korea and Israel below 1%, and that of Japan remaining steady at 1.2% YoY; the NPL ratio in Hong Kong, China and Macao, China, slightly increased YoY. Banking sectors in economies such as Thailand, India, Turkey, Chinese Mainland, Saudi Arabia and Indonesia saw improvements in asset quality.
Globally, the NPL ratio in the banking sectors of European and American economies maintained relatively low. Specifically, the NPL ratios in the US, UK and Eurozone banking sectors were 0.85%, 0.98%, and 2.00% respectively. Compared with the aforementioned economies, some Asian economies still face significant asset quality control pressures and urgently need to focus more on credit risk management, strengthen debt restructuring and NPL disposal capabilities to ensure stable asset quality. Faced with the spillover effects of divergent interest rate hikes by major European and American economies, the development of Asian economies is somewhat impacted. Market entities with slow financial recovery are under considerable pressure and must be vigilant of rising loan default rates, which could lead to increased credit risks.
Data source: CEIC.
Figure 4 Non-performing loan ratios of global and representative Asian economies
2. Relatively stable liquidity risk
According to various indicators, the liquidity risk in the Asian banking sector is at a relatively stable level. Asian economies guide the banking sector in matching the duration of funds with reasonable monetary policy based on their economic development needs and changes in the external economic and financial environment, effectively controlling liquidity risks.
Based on disclosed data, the average liquidity ratio of major Asian economies’ banking sectors in 2023 was 55.99%, slightly down 0.95 percentage points from the previous year’s comparable average, maintaining overall stability with a mix of increases and decreases in structure. Among them, the banking sectors of Hong Kong, China and Pakistan had liquidity coverage ratios of 179.51% and 103.19% respectively, which are at a higher level among Asian economies, both rising by more than 10 percentage points from the previous year. The liquidity ratios of the banking sectors in Cambodia and Indonesia were 24.36% and 23.98% respectively, which are relatively low. Some economies saw significant declines in banking sector liquidity levels, such as Armenia with a nearly 24 percentage point YoY drop in liquidity ratio, and Turkey and Uzbekistan with decreases of 10.17 and 18.95 percentage points respectively. Other Asian economies saw changes in their banking sector liquidity ratios mostly within a 5 percentage point range.
Data source: CEIC.
Figure 5 Liquidity ratios of global and representative Asian economies
In terms of liquidity coverage ratio (LCR), high-quality liquid assets in the Asian banking sector remained at a high level, sufficient to meet liquidity needs under stress scenario for at least the next 30 days. The Bank for International Settlements (BIS) monitoring report on Basel III shows that since 2019, the average LCR of representative banks in the Asia-Pacific and African regions has been maintained above 140%, significantly higher than the 100% minimum regulatory requirement. In 1H2023, this indicator reached a periodic high of 147.12%, up 2.71 percentage points YoY, higher than the global banking industry average, continuing the trend of ample short-term liquidity.
Data source: BIS.
Figure 6 Global economies’ liquidity coverage ratio (LCR)
Data source: BIS.
Figure 7 Global economies’ net stable funding ratio (NSFR)
In terms of the net stable funding ratio (NSFR), the average NSFR of representative banks in the Asia-Pacific and African regions in 1H2023 was 125.86%, up 1.33 percentage points YoY, also above the global banking industry average. The higher level of medium- to long-term liquidity reflects the abundant stable funding sources available to the Asian banking sector, resulting in correspondingly lower liquidity risks.
3. Increased capital adequacy ratio
In 2023, the global banking industry saw considerable profits, providing ample room for internal capital replenishment. The global capital market was also thriving, with stock markets in multiple countries reaching all-time highs, creating a solid market foundation for the banking industry to supplement capital externally. Against this backdrop, the overall capital adequacy ratio (CAR) of the Asian banking sector rose, with the average CAR of banking sectors in Asian economies with disclosed data at 20.47%, up 0.53 percentage points YoY. In particular, the Maldives banking sector’s CAR reached a high of 50.54%, exceeding the 50% level for two consecutive years and continuing to rank first in Asia; in Kyrgyzstan, Saudi Arabia, Cambodia, Cyprus, Indonesia and Georgia, the banking sectors’ CAR remained above 20%, at 27.58%, 20.13%, 22.52%, 24.23%, 25.84% and 22.14% respectively. Additionally, Pakistan’s banking sector saw a significant increase in CAR, rising by 2.69 percentage points YoY; other Asian economies saw changes in their banking sector CARs generally within a 1 percentage point range.
Data source: CEIC.
Figure 8 Capital adequacy ratios of global and representative Asian economies
V. Outlook
Since the beginning of 2024, the global economic environment has continued to be complex and uncertain, with deepening geopolitical conflicts, persistent risks in US small and medium-sized banks, diverging adjustments in developed economies’ tight monetary policies, and new changes in the interest margin boost effect due to a high-interest-rate environment. The global economic recovery outlook remains unclear, and the Asian banking sector must pay close attention to risk shocks and continuously enhance its ability to prevent and resolve risks.
First, the global economy is under pressure with complex changes in geopolitical situations, making the banking sectors of relatively vulnerable economies more susceptible to greater impacts. The US and some Eurozone countries will have presidential elections in 2024, which may lead to significant changes in their foreign economic and trade policies and increasing international political uncertainty considering the ongoing Russia-Ukraine and Israel-Palestine conflicts. In addition, the risk of persistent global inflation continues, with investment and trade momentum unstable and economic growth under pressure. The World Bank predicts that the global economic growth rate in 2024 will be below the average of the decade before the pandemic. The global economic downturn will affect some of the more vulnerable Asian economies, constraining the expansion and profitability of their banking sectors. In response, the Asian banking sector needs to strengthen macro-level foresight in economic, financial and geopolitical analysis, continuously improving risk perception and adaptability.
Second, as most developed economies are gradually relaxing monetary policy, the boost from high interest margin earnings weakens, causing spillover effects on the Asian banking sector. Since the beginning of 2024, Canada and major central banks in Europe have announced rate cuts, prompting a shift from earlier tight monetary policies. Constrained by sticky inflation and macroeconomic data reflecting economic uncertainty, the US maintained the federal funds rate target range at 5.25%-5.5% unchanged in the first half of the year. Overall, monetary policy in most developed economies in Europe and America is at a turning point, while emerging economies like Chile and Brazil are lowering policy rates, this trend leads most Asian economies to adjust their rate hike pace, driving their NIMs down from high levels and weakening the boost to Asian banking profitability to certain extent. The Asian banking sector must also be vigilant of the impact of monetary policy shifts on balance sheets, as policy rate adjustments prompt banks to reconfigure the scale and duration of assets and liabilities, increasing the difficulty of asset-liability management.
Third, global regulation is becoming stricter, and the Asian banking sector faces more rigorous regulatory requirements. In 2024, some small and medium-sized banks in the US are in crisis, with risks of spillover that could affect financial stability. Major European and American countries have released financial risk assessment reports, warning the banking sector to be vigilant against threats such as rising debt default rates causing credit risks, increasing funding costs leading to lower profits, and liquidity risks due to deposit outflows. The Federal Deposit Insurance Corporation (FDIC) has announced the resolution of Global Systemically Important Banks (G-SIBs) in the US under the Dodd-Frank Act, enhancing regulatory agencies’ ability to handle the bankruptcy of large financial institutions. Against this backdrop, Asian economies attach great importance to the impact of macroeconomic and financial market volatility on financial stability, strengthening regulation to enhance the risk resilience of the Asian banking sector, improving dynamic capital retention and provisioning capabilities, and enriching risk resolution measures for extreme scenarios.
Overall, the Asian banking sector is facing significant opportunities.
First, the rapid development of the Asian economy creates space for the banking industry to expand credit and investment financing services. Since the beginning of 2024, despite global economic downturn, the Asian economy has still shown strong potential. The Asian Economic Outlook and Integration Process Annual Report 2024 released at the Boao Forum for Asia points out that the Asian economy is expected to grow at around 4.5% in 2024, with Asia’s GDP accounting for approximately 49% of the global total, remaining the largest contributor to global economic growth. The robust economic growth creates a favorable environment for the banking industry to expand its operations. In terms of investment and financing, the positive effects of the restructuring of Asian value and supply chains on economic development are gradually emerging, and the infrastructure construction and interconnectivity of Asian economies will also generate strong funding demand. In terms of consumption, the accelerated development of digital trade and the rapid recovery of the tourism industry in Asia, coupled with economic growth solidifying the income base of the middle class, are nurturing substantial consumer demand, providing new momentum for the development of consumer finance services in banks.
Second, wealth in the Asia-Pacific region continues to grow, which offers substantial room for expansion in the banking sector’s wealth management services. According to UBS’s Global Wealth Report 2024, global wealth grew by 4.2% in 2023 over the previous year. Among others, the Asia-Pacific region saw a growth rate of 4.4%, surpassing the global average. In 2024, factors such as a steady economic recovery and a slowdown in the tightening of external monetary policies may mitigate the shrinkage in wealth valuations in the Asia-Pacific region, spurring the high-net-worth groups to further seek asset preservation and appreciation, thus expanding the scope for wealth management services. In the future, banking sectors in Asia will tailor their strategies to their realities, further refining their team-based, platform-centric, and integrated investment research systems. They will proactively build a network of top-tier talent and systems to serve global clients in wealth management, gradually developing the capability to compete with leading global wealth management institutions.
Third, the economic integration of the Asian region has made positive strides, with deeper multilateral and bilateral cooperation driving the expansion of cross-border collaboration. Since the RCEP came into effect two years ago, it has effectively countered the adverse effects of world economic fragmentation; “the Global South” is increasingly becoming a significant force in the reform and construction of global economic governance. It is expanding the pattern of multilateral and bilateral cooperation among Asian economies, injecting strong impetus into regional economic growth and Asian economic integration, and creating more opportunities for cross-border cooperation. The Asian banking sector will closely focus on customer needs, playing a pivotal role in connecting international trade and investment. On the one hand, the business potential of multifunctional free trade accounts will be tapped into, thus enhancing the quality and efficiency of comprehensive services such as foreign exchange settlement and sales, cross-border payments, credit guarantees, trade financing, project loans, investment management and cross-border pooling to meet the diversified cross-border financial needs of market entities. On the other hand, the risk management and compliance supervision will be strengthened to build a barrier against cross-border financial risks.
Fourth, the banking sector has significant potential for deepening its involvement in green carbon reduction. As related countries continue to advance carbon reduction goals, driving energy transformation and achieving low-carbon development have become a global trend. Asia holds core technologies for clean production, attracting substantial clean energy investments and offering broad prospects in green trade, green industries, and supporting infrastructure development. Building on Asian economies’ integration of financial risk management related to climate change into prudential banking frameworks, the Asian banking sector will further innovate in areas such as green loans, green bonds, green funds and financing for clean energy and technology, aiding Asia’s green economic transformation and contributing to global environmental protection and sustainable development.
Fifth, the rapidly developing digital economy and widespread application of artificial intelligence empower the banking sector to further enhance service quality and efficiency. The fast-growing digital economy provides a new impetus for global economic growth, with emerging industries, business models, and supporting financial infrastructure emerging, creating opportunities for the expansion of the Asian banking sector. Artificial intelligence, with its strong information integration and deep learning capabilities, has shown great potential in asset allocation, risk control management, financial knowledge dissemination and related research, significantly improving bank’s operational efficiency and service precision. The Asian banking sector will keep pace with regulatory requirements and drive innovation in financial products and services based on the development needs, continuously improving customer experience.
[1] There are no official figures on total global banking assets. The global banking asset size in this study is the sum of the banking asset size data for the United States, United Kingdom, France, Germany, Canada, Italy, Spain, Switzerland, Australia, Netherlands, Brazil, Luxembourg, Belgium, Denmark, Finland, Sweden, Mexico, Poland, and the listed economies in Asia.
[2] There are no official figures on total global banking liabilities. Global banking liabilities are aggregated for the United States, the United Kingdom, France, Germany, Canada, Italy, Spain, Switzerland, Australia, the Netherlands, Brazil, Luxembourg, Belgium, Denmark, Finland, Sweden, Mexico, Poland, and the listed economies in Asia.
【This article is AFCA Working Paper No. 2025-04/195】
Expert Biography
Chen Weidong, Director Fellow of Asian Financial Cooperation Association Think Tankers Committee, General Manager of the Research Institute, Bank of China. Dr. Chen joined the Bank in 1999, and was closely involved in the IPO of Bank of China Hong Kong Limited and the restructuring and IPO of the Bank. From 2005 to 2011, Dr. Chen was the Deputy General Manager of the Strategic Development, Bank of China. From 2011 to 2014, he served as the Vice President of Bank of China Liaoning Branch. From 2014 to 2019, Dr. Chen served as the Executive Deputy Director and the Director of the Institute of International Finance, Bank of China. Dr. Chen is also the Secretary General of the China International Finance Society since February 2015, and the chief editor of the journals of Studies of International Finance and International Finance since July 2014.He graduated from the International Economy Department, Renmin University of China with a Ph.D. in economics in 1997.
Wang Jiaqiang, Shao Ke, Du Yang, and Li Yifan also contributed to this article.
About AFTTC
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