Two trends are noteworthy for Asian banks: the rise of the Asian middle class and the regionalisation of Asian corporates. 2  BIS central bankers’ speeches  Rising incomes and the agglomeration effects of urbanisation will significantly expand the ranks of the Asian middle class. •  In ASEAN, the middle class is projected to make up two-thirds of the population by 2030, compared to less than a quarter in 2010. This rapid expansion of the middle class will spur demand for a wide range of goods and services. Modern services, such as telecommunication, banking and finance, have higher income elasticities of demand compared to traditional services. This means that as income rises and wealth accumulates, the demand for financial services – be it consumer credit, wealth management, or insurance – will rise more than proportionately. As Asian economies develop and integrate further, Asian corporates will expand and internationalise. They will need more funding – not just traditional bank credit but debt and equity financing. They will need more cash management and transaction services. Asian banks who have been serving these corporates in their home markets will follow them as they regionalise their businesses. Financial regulation The second driving force that will shape banking in Asia is financial regulation. The Global Financial Crisis has spurred far-reaching financial regulatory reforms. The ones impacting banks most will be the new Basel III rules.
The broad adoption of financial technology or fintech could dramatically lower the cost of banking services. Not only will this enhance financial inclusion, it could potentially also help mobilise untapped savings, enable more efficient financial transactions, and make credit more readily available and affordable to small businesses. Emerging Asia fares poorly in financial inclusion even among emerging markets. •  Less than 15% of Asian SMEs have bank credit lines, compared to 24% in Latin America and 28% in Eastern Europe. •  In Indonesia, for example, only about one out of every three persons aged 15 and above has an account with a financial institution. Ironically, Emerging Asia’s relative under-development could turn out to be an advantage. The innovative adoption of digital technology by the financial industry is enabling these economies to leapfrog into more advanced channels for providing banking services. •  A growing number of Asian customers, especially in countries like China and India with rapidly developing technology infrastructure, are using mobile banking apps for payments and funds transfers, even before customers in more advanced economies. •  In India, bank accounts can be linked to biometric identity cards issued under the national Aadhaar initiative, enabling millions who otherwise lack the formal documents required to open a bank account to have access to basic banking services. Of course, technological innovations pose threats as well as opportunities to Asian banks. As in the US, a number of fintech entities in Asia are making inroads as lower-cost alternatives to banks.