Asia Pacific has generated 43% of the total global bank profits in 2018, and is leading global banking in terms of growth as well. According to Oliver Wyman, worldwide global transaction banking revenue totalled US$290 billion in 2017, with an overall CAGR of 1% from 2013 to 2017. The APAC region, however, grew 3% – triple the global growth rate – and commanded a share larger than either EMEA or the Americas. The APAC region also leads the world in corporate banking revenue in the past, present and future; but how can banks better capture the opportunities provided by this growth?

Emerging markets – the new growth engine in Asia

APAC's continued stronghold in corporate banking was due in part to its growth engine, China – with the four largest global banks being Chinese banks. But recent developments in China point towards slower growth from the world's second largest economy. Other established economies in the region, such as Japan and Australia, which have demonstrated solid growth and returns in the past, are also seeing growth slowly tapering off.

The new engine of growth will come from emerging markets such as Indonesia, Vietnam, Malaysia and Myanmar. These markets are beginning to develop solid foundations in their financial systems, supported by large and increasingly sophisticated populations and regulations which are gradually opening up their financial markets.

Growth and trade data coming out of these markets are proving promising as well. The IMF has forecast that the GDP of the Emerging and Developing Asian countries will grow faster than the world output, with the exception of Thailand. Specific Asia-led government initiatives such as the Belt and Road Initiative (BRI) and the ASEAN Economic Community (AEC) will drive further growth in investment and trade in the region too.

The huge opportunity of the emerging world is not lost on banks. As domestic markets become saturated, there is a trend of regional banks increasing their presence in the developing economies – Japan's Sumitomo Mitsui Bank (SMBC) has acquired a large stake in Indonesia's BTPN, Korea KEB Hana Bank's is expanding into Vietnam, and Chinese banks are leveraging the opportunities of the Chinese government's BRI in Southeast Asia.

The challenges of APAC's emerging markets

The emerging markets in APAC are seeing exciting developments but the region is highly fragmented; slightly over 1,000 languages are spoken among the three billion people who live in this part of the world. This huge diversity is present in the financial systems too: markets, infrastructures, technological adoption and progress, currency and regulations.

The region is not only diverse but competitive as well. The largest corporate clients in Asia Pacific often work with 20 or more banks, relying on those institutions to deliver an extensive set of products and services, unique to a specific market. Banks must be able to deliver comprehensive, tailored and connected corporate banking products, to attract and retain a substantial piece of this corporate banking pie. Survey results show that 70% of corporates are planning to assess their banking partnerships and will choose their corporate banking relationships based on the digital capabilities that the banks have.

The good news is that transaction banking services are less susceptible to obsolescence due to fast-evolving customer expectations – as we have seen in the retail banking sector – because it is costly and time-consuming for a corporate customer to switch its core cash management and business to a new provider. However, if a bank does not continue to enhance its product offering to meet client demands over new core services and fit the requirements of new markets, while simultaneously streamlining legacy technology maintenance and operational processes to reduce costs, clients will take their business elsewhere.

Connected corporate banking for tailored products and services

The days of implementing a new solution and only applying mandatory maintenance patches or regulatory requirements are long gone. Banks looking to capture a greater share of the global corporate banking wallet must consistently invest in updating and enhancing their corporate banking solutions to meet client demands for ease of use, flexibility and convenience.

Integration and collaboration are the lynchpins that support "connected corporate banking", and the convergence of corporate banking products is fundamental to support the working capital objectives of clients. The banks that excel at integrating business and technology silos will win market share.

Banks need a more bespoke approach to offering solutions, tailoring products and services for a specific corporate client and not just a particular customer segment. Emerging technologies that have come to the fore – such as big data techniques, artificial intelligence, and machine learning – boast of the ability to help banks do exactly that.

As cloud computing platforms and emerging technologies become more widely available and cost effective, regional banks are investing in the technology themselves or by partnering with financial technology firms to increase their competitiveness but there is still a need for the underlying platform to connect it all.

There are multiple lines of business - project finance, loans and lending – in Corporate Banking which means multiple products, typically serviced through several systems which are not interconnected and working in silos. The downside is the huge amount of customer data which is trapped in these siloed systems – data which, when coupled with emerging technologies, can help banks make informed decisions and tailor products for the individual customer.

A connected corporate banking approach that retains the value of 'best-of-breed' components but delivers on a platform that enables open integration, cross-business cohesion and agility across services, products and markets will be critical to helping banks win market share in Asia's corporate banking sector.

By Andrew Coles, head of banking solutions, APAC, Finastra