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18/09/2018 10:45

Demographic changes in APAC lead to opportunities for banks

[ET Net News Agency, 18 September 2018] Moody's Investors Service said that rapid
and divergent demographic changes in Asia Pacific will lead to opportunities for some
banking systems in the region and challenges for others.
"Over the next decade, of the 17 banking systems in Asia Pacific, banks in Japan, Hong
Kong, Korea and Taiwan, in particular, will face challenges from the effects of shrinking
prime-age populations and declining proportions of working people," said Christine Kuo, a
Moody's Senior Vice President.
"By contrast, banks in India, Indonesia and the Philippines will see growth
opportunities in the same period from the effects of rapidly growing prime-age populations
and increasing proportions of working people," adds Kuo.
Moody's also said that favorable demographic trends will benefit banks the most when
accompanied by income growth and technological advancements.
Moody's identifies India, Indonesia and the Philippines as banking systems where income
levels are growing, against the backdrop of favorable demographic trends. Moody's also
says that technological advancements in Indonesia and the Philippines will help banks in
these two economies acquire more customers.
Moody's analysis is contained in its just-released report titled "Banks - Asia Pacific:
Demographic changes will bring new challenges and opportunities in next decade," and is
authored by Kuo.
Moody's report covers 17 banking systems in Asia Pacific: Australia, Bangladesh, China,
Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Mongolia, New Zealand, the
Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.
Moody's explained that banks in several Asian economies are facing shrinking core
customer pools. In particular, prime-age populations - comprising people aged 25-64 - are
set to shrink in many Asian countries, and for banks, this situation means that their core
customer bases will dwindle.
Between 2017 and 2030, prime-age populations will fall in China, Japan, Hong Kong,
Korea, Taiwan and Thailand by 3%-10%.
The shrinking core customer pools will hurt bank profits, a credit negative, as banks
try to offset the effects of shrinking core customer pools through price competition;
offering more attractive interest rates or fees to lure new customers from their
competitors.
In addition, markets with rising proportions of retirees will show slower economic
growth; a situation which will also prove detrimental to bank profits.
And, banks that are under profitability pressure will start focusing on cost management,
affecting branch operations and staff numbers.
Another focus area for banks facing shrinking customer pools will be the tapping of
underserved customers, while deepening relationships with existing customers. However,
achieving either will be challenging in some economies with a shrinking core customer
pool, as well as high penetration rates and leverage. (KL)

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