PETALING JAYA: The prospects of wholesale banking in South-East Asia including Malaysia for this year are bright amid uncertainties, according to global consulting firm Oliver Wyman.
Its head of South-East Asia Lee Seo Young told StarBiz that this year has been an exciting year in wholesale banking and it sees a number of structural drivers fuelling its growth.
“Firstly, there is a lot of vibrancy in business activities as we rebound out of the last two years since the onslaught of the Covid-19 pandemic, and this is showing up in domestic market demands and trade businesses.
“Secondly, interest rate normalisation is providing a significant boost in net interest margins or NIM, which plays well to the balance sheet-heavy nature of wholesale banking business across South-East Asia, including Malaysia. Moreover, continued volatilities across rates, foreign exchange (forex) and commodities are directly attributing to strong trading volume,” he said.
Having said that, Lee said these exciting growth prospects would also need to be counter-balanced by various uncertainties stemming from geopolitical dynamics, inflation, rate increases and fiscal tapering, as well as the lingering pandemic.
On the wholesale banking momentum in the region over the next few years, he added that rate normalisation and forex volatilities would provide a structural boost to the wholesale banking business.
Lee said many corporates in the region were also lagging in their climate transition journey vis-à-vis their Western peers.
He said wholesale banks, therefore, played a pivotal role in actively financing the transition journey with greater discipline and hedging various risks that would inevitably emerge. This leads to tremendous opportunities for wholesale banks with the right vision and the capabilities to demonstrate leadership, he noted.
Oliver Wyman head of Malaysia Anirudh Singh said in Malaysia, climate efforts have started to take priority among the leading banks over the past year and further boosted by the recent Bank Negara guidelines on climate risk. He expects this scenario to become even more broad-based in the coming years.
Lee said South-East Asia was a large producer and consumer of commodities that was going through super cycles, which bodes well for wholesale banking.
He said this presented many opportunities for wholesale banks in the region to refine their positioning in the commodities value chain across financing/investments, and hedging and advisory, hence emerging as significant players in the global commodities market.
So where does Malaysia stand in terms of growth in wholesale banking compared with its peers in the region? Anirudh said, “Malaysia’s wholesale banking growth is slightly lower than its overall South-East Asian counterparts, with the latter being driven by faster economic and wholesale banking revenue growth in markets like Indonesia and Vietnam.
“The growth in these markets is still heavily driven by financing activities, whereas markets like Singapore and Malaysia have transitioned towards a more diversified mix of revenues including transaction banking, markets and investment banking.”
Commenting on the trends of wholesale banking in Malaysia and South-East Asia over the next three to five years, Anirudh said the primary trends that the consulting firm expects include an increase in corporate demand and rate normalisation.
In terms of corporate demand, he said: “We are in the advanced stages of a structural shift in demand for wholesale banking services from corporate clients (of all sizes) that began after the Global Financial Crisis. And we expect a continued increase in demand across investment banking, transaction banking, markets, and financing for this period.”
As for rate normalisation, he added that the firm expects a return to normal interest rate levels across geographies.
He said this would radically shift the market dynamics for rate-sensitive businesses in wholesale banking – boosting revenues for transaction banking, securities services and corporate lending for years to come.
Beyond the above two trends, he said there were two disruptive trends over the longer-term horizon: climate transition and digital assets.
“The climate transition will disrupt many of the industries that wholesale banks serve, but the wholesale banking industry has the expertise and client franchise required to support the transition of these industries to net-zero while building new green revenue streams in decarbonisation finance, carbon trading, etc.
“The digital assets revolution may launch a new asset class and disrupt legacy businesses, but the industry has the expertise and the model to transform cryptocurrencies into an investable asset class for corporate and institutional clients.
“We believe the fundamental driver of adoption of digital assets by corporate and institutional clients will be the introduction of more clarity in regulation, which will be of advantage to banks that already operate in highly regulated markets,” Anirudh added.