Banks are now facing profit threat from increased non-bank competition, commonly categorised as fintech companies; this has already affected the financial performance of Asia Pacific banks, according to The Asian Banker.
Rising competition from non-banks is putting pressure on banks nudging them to respond quickly to changing market conditions to remain competitive.
“In China, due to guidelines issued by the authorities to encourage innovation in internet finance and protect investor rights, Chinese banks have faced competition from internet finance companies and private online banks,” the business intelligence provider said, in its report on the Asia-Pacific financial industry growth in 2014.
The Asian Banker pointed out that technology firms such as Alibaba Group Holding and Tencent Holdings can boast large customer bases and vast amounts of customer and transaction data. Tencent has even launched China’s first internet-based bank, WeBank, targeting small and medium enterprises.
“Their services include deposits, lending and online transfers, and they have also obtained licenses in 2014 to open China’s first private banks,” it added in its press statement.
Across the Asia-Pacific region, banks’ weakening asset quality has continued to impact profitability.
Aside from the competition from non-banks, banking groups have also to navigate relatively low-interest rates that crimp on profit margins. This all underscored the need for commercial banks to improve the structure of their revenue, The Asian Banker noted.
Among banking players in Asia-Pacific and Hong Kong, Bank of China (Hong Kong) has topped the Asian Banker 500 (AB 500) Strongest Bank by Balance Sheet Ranking 2015.
The bank reported strong financial results, partially profiting from the continued development of its offshore renminbi (RMB) business.
“In general, weakening asset quality was a major challenge for the Asia-Pacific banking sector. Banks had to drive top-line growth to sustain profitability,” the press statement said.
The Asian Banker further cited macroeconomic slowdown impacting the asset quality of banks in China and India, which had dipped in the financial year 2014.
The average gross non-performing loans ratio increased from 3.8 per cent to 4.3 per cent for India and from 0.9 per cent to 1.2 per cent for China.