I just received a report from the Economist Intelligence Unit (EIU) on new bank models based upon different styles of banking in emerging markets.
According to the report, the BRIC economies and their brethren will account for 35% of global assets by 2016, up from 24% today and just 10% in 2004.
Emerging market banks are growing to fill a domestic vacuum. This is not surprising when you think that these economies are spawning millions of middle-class, middle-income consumers over the past decade.
This is why there is enormous room for growth. In China 64% of adults have a bank account. In Brazil, the figure is 56%. In Russia (48%) and India (35%), less than one in two adults uses banking services.
Similarly, there are growth stories, such as M-PESA’s growth in Kenya. With 17 million subscribers, that’s every adult in Kenya using the service, but more notable is that the number of banked consumers in Kenya has risen from 2.4 million to over 9 million since the launch of M-PESA in 2007.
In other words, new business models are creating new styles of banking, as illustrated by the reports’ introduction:
“New technologies, innovative low-cost business models and supportive policy changes will permit lenders to engage ever greater numbers of consumers in sustainable and profitable ways. Many of these individuals will become users of formal financial services for the first time in their lives …
A decade ago, few took notice of this trend. After all, rich-country banking systems accounted for over 90% of worldwide industry assets as recently as 2004, according to Economist Intelligence Unit data. Emerging-market banks began to cut into their rivals’ dominance only slightly before the financial crisis of 2008-09, which marked the beginning of a global shift in the industry. Developing-country lenders now account for about 24% of global banking assets, and this share will increase to over 35% by 2016, according to our forecasts.
Moreover, most growth in the banking sector worldwide in terms of customers, deposits and lending now takes place in the developing world. About half the world’s adult population lacks an account at a formal financial institution—that is, at a bank, a savings and loan association (building society) or a credit union—according to a recent series of household surveys by the World Bank and Gallup. Although they differ among themselves, many developing countries have only low levels of bank usage and thus offer the greatest potential to reach new customers and deepen financial sectors. For example, in China some 64% of adults have or share an account, with lower levels in Brazil (56%), Russia (48%) and India (35%).
By contrast, in developed markets most adults have accounts, and any growth in customer numbers depends on population growth and immigration (which are themselves often stagnant). For example, in the United States 88% of adults hold accounts, with even higher rates of bank usage in Japan (96%), the United Kingdom (97%) and Germany (98%). The industry has recently been shrinking in many rich countries as banks trim loan books, sell off assets and realign their capital ratios to meet regulatory requirements.
In short, financial firms can no longer ignore developing countries if they want to expand in growing markets. Those lenders that insist on carrying on as usual are likely to be reduced to the low profit margins that come from fighting over market share in stagnating or declining markets.”
You can find a full copy of the report over here.