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3 Hot Banking Markets Beyond the Obvious

When it comes to identifying potential geographic markets for growth and investment, banks have been focusing on the prominent BRIC nations: Brazil, Russia, India and China. While these four countries are attractive to financial services organizations seeking new opportunities to grow, global financial services growth opportunities need not be limited to the BRICs. BS&T explores growth beyond the BRICs, with snapshots of other hot banking markets in Latin America, Hong Kong and South Korea

Hong Kong

2. Hong Kong Banking Investment Continues to Boom, and South Korea Is on the Move

Even as global bank IT spending remains stagnant throughout much of the world, investment in IT infrastructure in the Asia-Pacific region continues to boom. According to research from Boston-based Celent, tech spending by banks in the region will grow 6 percent in 2012, reaching $59.4 billion, and the growth is expected to continue, with IT spending hitting a total of $62.3 billion in 2013.

While not every part of the Asia-Pacific region is expected to see huge growth, Celent reports that Hong Kong and South Korea, in particular, are banking hotspots. In fact, the research and advisory firm estimates banking profit in the Hong Kong market will attain 22 percent growth this year.

Hong Kong is benefitting from the surging overall wholesale banking sector in China. According to McKinsey & Co., China's wholesale banking market is expected to grow at an annual rate of more than 10 percent over the next five years.

Specifically, says Bruno Piers de Raveschoot, general manager, Asia-Pacific, and VP of risk strategy at New York-based NICE Actimize, Hong Kong banking is being lifted by an increase in capital market activities and wealth management. He points to the region's uptick in IPO activity, as well. Hong Kong raised $22 billion via 110 IPOs in 2011, second only to the United States, which raised $26.4 billion.

"The growth of wealth management comes from the massive investment from mainland China and other Asian sources reaching more than $1 billion in 2010 seeking quality services and stimulating tax environments," de Raveschoot says, adding, "There are no taxes on dividends and capital gains [in Hong Kong]."

Illustrating the massive growth in the region, de Raveschoot says, Hong Kong is the second richest city in the world, behind Singapore. Hong Kong has 624,000 millionaires, representing 8.8 percent of its 7.1 million inhabitants. (Millionaires comprise 11.4 percent of Singapore's population, according to de Raveschoot.)

To meet the new demand for financial services, local banks in Hong Kong and throughout China are investing heavily in their IT infrastructure, according to McKinsey, which says many banks are seeking to upgrade their core banking systems and to improve their transaction-processing skills. Further, McKinsey reports, domestic banks in China continue to focus on treasury services to drive growth. China Industrial Bank, for example, built a platform that provides a range of services for smaller banks, from IT platform outsourcing to settlement and wealth management product sales.

The McKinsey study notes that foreign banks have an opportunity to grow their market share in China by building integrated wholesale franchises that combine a presence in local securities, commodities and financial futures. One unnamed global bank is investing heavily in building a large energy and commodity team, leveraging its global strength in the sector, according to McKinsey.

The reason for the economic boom in South Korea is a bit different, notes NICE Actimize's de Raveschoot, as it arises from industrial, large equipment, produce and IT infrastructure manufacturers such as Samsung and Daewoo. "The financial boom is the result of the need for corporate financing in large projects," he explains.

U.S. banks are expanding operations in both regions, but more so in Hong Kong, "due to language and culture factors," de Raveschoot notes. Interestingly, the growth in both of these regions is not due to less-stringent regulation, he notes. Both markets, de Raveschoot says, enforce strict anti-money laundering and market surveillance rules; and Hong Kong is one of the few countries in the world where market abuse is a criminal offense. --Bryan Yurcan

Next Page: Central and Eastern European Banks Add New Charm to the Old World

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