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The three traits of top banks

12:50pm February 26 2020

EY’s 2020 Global Banking Outlook predicts a slightly better year for the industry than in 2019. (Getty)

Globally, 2019 was a tough year for banking, with the sector experiencing its lowest levels of growth in a decade. While the forecast is slightly better as we head into 2020, continuing market uncertainty and geopolitical tensions mean that profitability will remain a key challenge over the next twelve months.

Banks in the Asia-Pacific region aren’t immune to the margin pressure and economic volatility facing the sector globally, however the good news is that most are in a strong position to manage these risks. The region contains a diverse range of markets, from emerging to the more mature, and the growth outlook across the region varies – from around 6 per cent in markets such as India, China and the Philippines, through to less than 1 per cent in Japan’s continuing low-growth economy.

In general though, Asia-Pacific banks remain well-capitalised and, while average ROEs (return on equity) have fallen consistently since the global financial crisis, they remain in the double digits. Average cost to income also remains relatively strong, with efficiency ratios across the region significantly outperforming those in Europe and the US.

However, headwinds in the form of continuing low interest rate environments, US-China tensions, ongoing regulatory and compliance costs, and intensifying competition from new non-bank entrants are likely to impact banks across the region over the coming year. Asia will remain a growth market and banks will still be able to generate profits, but they will be tougher to come by.

In challenging times, banks need to take bold action to transform, make the most of evolving technology, stay ahead of new competitors and meet customer demands. But how can banks push forward with innovation and digital transformation agendas, and still improve cost efficiency at the same time?

Thankfully, there are some lessons that can be learnt from those financial institutions that manage to grow returns even when times are tough. As part of the research for the 2020 Global Banking Outlook, EY professionals found that the top performing banks globally had three key traits in common: customer-centricity; a focus on resilience; and a commitment to cost reduction. Emulating the traits of these high performers can help banks boost profitability and free up capital to invest in the next wave of their digital transformation.


Bigtechs and fintechs have raised the bar when it comes to customer service. While the evolution of consumer expectations is not recent, the challenge for banks is that customers can now turn to broader range of providers to address their requirements.

Asia-Pacific, in particular, has a thriving FinTech sector. Coupled with the success being enjoyed by bigtechs moving into financial services in China, India and, more recently, ASEAN, and the new digital banking licenses being made available in markets such as Singapore, Malaysia, Australia and Hong Kong, we are seeing a significant increase in non-traditional competitors across the region.

To remain relevant in this environment, incumbent banks will need to focus on new models of service and engagement, and on improving the customer experience to ensure they are served holistically, with tailored and relevant offerings.

Strengthening resilience

In many ways the story of the last decade has been about getting risks wrong, from the NPL (non-performing loan) drag in some European markets to the huge fines for conduct breaches that have eroded profits. 2020 must be about not only strengthening the resilience of organisations in the near term, but also ensuring they are getting ahead of new and emerging risks, especially those that may lead to reputational damage or financial penalties in the longer term.

Technology advances offer banks more effective and efficient ways to manage risks. But it also brings with it new risks in areas such as data and cybersecurity. The challenge will be for banks to think differently about how to strengthen current risk mitigation efforts while also getting ahead of emerging threats. Putting in place effective governance models will help build resilience, while also controlling costs.

Cost leadership

The best performing banks have highly efficient processes in place to control costs and drive productivity. They typically have a mindset of continuous improvement and an agility which enables them to quickly respond to shifts in the market.

Most banks have already maximised the benefits from initial optimisation efforts, so it’s now about thinking smarter. Having a focus on reducing marginal costs, stemming revenue leakage and making sure every product adds to the bottom line will help banks free up funds for investment in their digital transformation programs.

These three traits may seem fundamental but, the truth is, they are poorly embedded at most banks.

So, as banks look to improve their long-term profitability and position their business for the digital future, understanding the capabilities of high performers and deciding what measures they might want to adopt in their own organisations will help position them for successful growth as we move into the new decade.



The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.

The views expressed also do not necessarily reflect those of the Westpac Group.

Andrew Gilder is the EY Asia-Pacific Banking and Capital Markets Leader. Currently based in Singapore, Andrew’s background is in audit services and he has extensive experience dealing with complex accounting issues, conduct related matters, control investigations and transactions, including IPOs, for banks and other financial services organisations. He has worked with major financial services clients globally, in markets such as Sydney, New York, London and Tokyo, as well as the wider Asia-Pacific region.

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