‘Big banks find middle market consumer segment as an attractive proposition’

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: John Lyngaas, Practice Leader, Global Financial Services (Far East Area), Ernst & Young (E&Y), gives a ringside view of the emerging challenges in the global financial architecture, be it Basle-II, risk management, corporate governance or consolidation. He was in India to attend the Global Financial Services seminar on November 9 and give a talk on emerging trends in the banking industry in Asia. Vidyalaxmi & K Ram Kumar of FE caught up with him during a tea-break. Excerpts:

Your take on the emerging global banking scenario?
Globally, there is focus on corporate and risk governance. Managements have to understand risks in corporations rather than just leaving it to the risk managers and business units.

They have to ensure there is a framework that handles risk management over all. This is partly driven by, among other things, some of the large losses incurred by corporates in the last few years, legislations like the Sarbanes-Oxley, and Basle-II being implemented in some countries.

An emerging trend is the emphasis that the board of directors understands and takes responsibility of managing risks. Second trend is the ongoing consolidation of the industry. There are too many players (banks) out there. In certain markets, consolidation is being forced by the government. For example, in Taiwan and Thailand, the government is taking the initiative to reduce the number of financial institutions and see if there can be some national champions that can compete with big players overseas.

In Asia, economic growth is good. Banks are having less non-performing loans and they are on a sound footing now as compared to 1997 (Asian crisis). The banks are stronger and that’s good for everybody. The allocation of funds by them is appropriate.

How do global banks fancy emerging markets?
In the case of India, the big banks find the middle market consumer segment an attractive proposition. The mid-market segment, which has disposable income to buy consumer durables and homes, is growing every year. This has resulted in demand for more finance and lending. Moreover, there is access to the local markets in countries like India on account of liberalisation.

Foreign banks like StanChart, Citibank and HSBC have been in India for so many decades. They have a huge customer base and have been operating as successful models. They want to expand and the retail sector offers the biggest opportunity.