A banking blog

This report looks at the banking industry in Europe, with a focus on France, Germany, Italy, the Netherlands, Spain and the United Kingdom
Current Environment - Key Points
- In the first half of 2006, the financial results for most banks were positive despite a tougher operating environment, uncertainty over interest rates and regulatory changes
- On June 8, the European Central Bank (ECB) raised interest rates by a quarter-point to 2.75%, after keeping its benchmark rate at 2% for two years - to keep inflation at bay
- Since mid-2005 and through the first half of 2006, the profitability of European banks improved tremendously, even among the formerly weak performing ones
- The Dow Jones Euro Stoxx Banks Index climbed from 379.81 points in early January to 429.88 points in late May, gaining 50.07 points overall
- As banks sought greater capitalization, economies of scale and wider revenue sources, M&A activity in the European banking sector rose in the first half of 2006

Industry Profile - Key Points
- The continued consolidation has led to a marked shrinkage in the number of banks in Europe, the creation of European banking titans and the privatization of a number of banks in Europe
- According to ECB’s Monthly Bulletin for May, assets of Eurozone financial institutions totaled -24,741.9 billion (US$31,271.29 billion) in April 2006, growing by 18.9% from the corresponding period in 2003, a 9.7% increase in 2004 and an 8.2% rise in 2005
- In the European banking platform, wealth and asset management is the main plank from which banks will springboard to a new period of growth
- Banks are now gradually moving toward the concept of bancassurance, or selling of insurance products through bank branch networks
- The European Commission (EC) is concerned that credit card fees vary widely within the EU for no obvious reason and that customers and businesses that accept credit cards are paying too much
Market Trends and Outlook - Key Points

Current Environment - Key Points
- Europe’s banking environment has been negatively affected by international crises such as the 9/11 World Trade Center attacks, the Iraq war and the SARS outbreak that buffeted the global economy
- German stockmarkets revived in the second quarter of 2003 bringing about a recovery in German banks- equity trading revenues
- Euro-zone banks have shown continuous tightening of credit standards - more for corporate borrowers than for households
- The UK’s banks performed the best in the region in 2003, with leading banks- market capitalization totaling US$422.733 billion on December 31, 2003
- Spending by European retail banks on customer relationship management (CRM) could increase from US$2.4 billion (2001) to US$3 billion (2004), as they shift from operational to analytical CRM

Industry Profile - Key Points
- Having weathered difficult economic conditions, the European banking industry remains one of the world’s largest banking sectors in terms of size and value
- Combined total assets for Europe’s leading 18 banks amounted to -8,399.1 billion (US$10,709.6 billion) in the first half of 2003
- Major French banks have enjoyed substantial growth in corporate and investment banking, due to strengthening of the country’s capital market activities (particularly in fixed income)
- The Governing Council of the European Central Bank (ECB) acts as a decision-maker in matters concerning the euro area’s monetary policy, with the main objective of sustaining overall price stability
- The European Banking Industry Committee (EBIC) was launched in early 2004 by Europe’s banking industry federations to facilitate industry consultation by European Union (EU) institutions
Market Trends and Outlook - Key Points
- Banks are restructuring, mainly through mergers, cross-border mergers, and scope expansions to help resolve their banking system issues
- European banks- investments in e-banking solutions are expected to

Current Environment - Key Points
- Despite facing weaker economic growth and a tougher operating environment, the banking industry in Europe managed to stay focused and continued to make headway
- The European Central Bank (ECB) faced an interest rate cut dilemma; however, industry analysts expect rates will stay on hold for the next 18 months
- The performance of most banking stocks continued to be positive in the first half of 2005, with leading banks reporting healthy growth in net income
- For some banks, strong volume growth in lending, together with continued growth in non-interest income, offset reduced interest margins
- Mergers and acquisitions swept the sector as a result of increased pressures for greater capitalization and size
- The merger in June between Italian giant UniCredito SpA and HVB, Germany’s second largest lender, was the region’s biggest cross-border banking deal, creating a powerful force in the heart of Europe

Industry Profile - Key Points
- Almost one third of credit institutions (CIs) that were active ten years ago have since disappeared as a result of consolidation
However, despite the reduction in the number of banks, the number of branches has remained stable or even increased
- During 2004, Europe’s 18 major banks reported combined total assets of about -11,340.3 billion (US$13,782.5 billion), some 33.7% higher than the -8,478.8 billion (US$10,304.8 billion) in 2003
HSBC Holdings Plc once again led the sector with total assets of -1,069.92 billion (US$1,300.3 billion) - 9.4% of total combined assets
- Wealth and asset management remains a strong plank in Europe’s banking platform
Over the past few years, retail banking has been the main driver of growth, particularly in the UK
- Due to globalization, consolidation, deregulation and diversification, the banking industry has become more complex and competitive
- More regulations are expected due to the pressure on governments to curb financial cr

This report updates the previous European banking report, focusing on the markets in France, Germany, Italy, the Netherlands, Spain and the United Kingdom
Current Environment - Key Points
- An economic upturn in Europe boosted bank earnings in the second half of 2006
The Euro Zone economy that grew faster than expected kept the European banking sector stable and in good shape
- On December 7 the European Central Bank (ECB) raised its key interest rate by a quarter percentage point to 3.50%, the sixth rise since the ECB abandoned a historically loose monetary policy in December 2005 in favor of higher rates
- The profitability of the European banking sector strengthened further and this trend showed no signs of diminishing in 2006, with banks that underperformed previously experiencing marked improvements
- In the second half of 2006, the Dow Jones Euro Stoxx Banks Index saw some of the liveliest trading, climbing from 387.28 points in early June to 446.93 points in late December, gaining 59.65 points overall
- With banks- greater focus on core business and coffers that are awash with surplus capital, M&A activity in the European banking sector continued to accelerate in the third quarter of 2006

Industry Profile - Key Points
- The quickened consolidation pace in the European banking industry and integration between banks and those from other European states has become more prevalent
- The assets of European banking sector totaled -25,370.1 billion (US$32,826.37 billion) in September 2006, an 18.8% increase in 2004 and a 7.2% rise in 2005, according to the ECB’s Monthly Bulletin for November
- In 2006 Europe’s 18 leading banks had combined assets of -14.34 billion (US$18.55 trillion), a rise of 6.7% from -13.44 trillion (US$17.39 trillion) in 2005
- Retail banking, which accounts for almost half of Europe’s banking activity, has become highly profitable and many banks that abandoned it several years ago are now re-entering the market

This report examines the retail and commercial banking segments of the banking industry in Europe, focusing on the markets in France, Germany, Italy, the Netherlands, Spain and the United Kingdom
Current Environment - Key Points
- Despite difficult macroeconomic conditions and an increase in oil and commodity prices, European banks were resilient in the latter part of 2004
- The annual rate of growth of loans to households rose from 6.6% in the first quarter of 2004, to 7.8% in October 2004 throughout the Euro zone
- For European banks, the main sources of revenue derived from non-interest income, drastic cost- cutting measures and reduced provisioning
- European banks showed a strong improvement in their profitability while trying to strengthen their positions in the first half of 2004
- Industry experts believe liquidity is the main priority for leading banks
- Spanish banks recorded positive performances in mortgage loans and mutual funds in 2004
There was also an increased commercial focus on small, and medium sized enterprises (SMEs)

Industry Profile - Key Points
- At the end of 2003, there were 7,444 banks and 186,009 branch offices in Europe
Germany led the sector with the most banks and branches, 2,450 and 47,351, respectively
- Combined total assets for Europe’s leading 17 banks amounted to US$13,257.6 billion in the period of 2003-2004
- Wealth and asset management remain the growth products for major French and German banks
- The new accounting rule, IAS 39 is causing problems for the 7,000 listed financial institutions in Europe
- Basel II, a new set of global capital requirements drawn up by the Basel Committee at the Bank for International Settlements (BIS), is expected to come into effect at the end of 2006, replacing Basel I
Market Trends and Outlook - Key Points
- The level of banking fraud among European banks is rising; in 2004, 2,000 Britons had fallen victim to online fraud
- Despite pending liability for car

This report examines the banking industries in the Asia-Pacific, with focus on Australia, China and Hong Kong, India, Japan, South Korea and Taiwan
Current Environment - Key Points
- Many Asia-Pacific banks still face fast-rising interest rates although many seemed to have adapted to the rising rate environment well over the last six months
- In the six months from October 2005 to April 2006, Asian banking stocks generally advanced, reflecting the faith investors have in the sector
- Following accelerating economic growth in Japan and South Korea, banking shares performances were favorable in those countries
- Most banks in the region, particularly those in Japan, China and South Korea showed a marked recovery in their financial results in 2005
- Due to relaxed regulations that allow the entry of foreign banks and ongoing reforms in China, Japan and South Korea, the banking industry in the region offered abundant M&A opportunities

Industry Profile - Key Points
- Driven by strong determination to stabilize and strengthen its financial markets, the banking industry in the region has undergone tremendous changes since the Asian financial crisis in 1997
- According to the China Banking Regulatory Commission, as of the end of March this year, the domestic assets of banking institutions reached RMB39.19 trillion (US$4.89 trillion)
- Small and medium enterprises (SMEs) play an important role in Asia-Pacific development and economic growth and represent more than 95% of all enterprises, producing around 50% of GDP and an estimated 30% of exports, according to Asia-Pacific Economic Cooperation figures
- In 2005, international efforts against money laundering were accelerated with banks closing gaps in their systems and ensuring compliance with anti-money laundering (AML) rules and regulations
- As announced by Taiwanese President Chen Sui-Bian in March 2005, the nation plans to halve the number of its state-run financial organizations from 1

This report looks at the banking industry in Latin America, with a focus on Argentina, Brazil, Chile, Colombia and Mexico
Current Environment - Key Points
- More foreign banks stepped up their presence in Latin America over the past year, attracted by the market’s stability and growth and spurred by rising investor confidence
- Regulatory reforms in recent years continued to inspire mergers and acquisitions, resulting in many cases in smaller institutions leaving the market
- The improving returns on assets of most banks improved the outlook for many of Latin America’s banks, in the wake of better corporate governance, greater fiscal responsibility, greater capital sufficiency and improved asset quality
- Major banks, particularly those in Brazil, Chile and Mexico, ended the second half of 2006 on an encouraging note
Not only were earnings higher on lower provisions, but the cost of eliminating non-performing loans was also lower
- Strategic alliances took on greater prominence for Latin American companies that wish to grow and compete in a global marketplace

Industry Profile - Key Points
- The Latin American banking sector has come a long way since the region’s economic crisis in the mid-1990s, with the industry now more focused and robust and subject to a drastically different regulatory environment
- Many Latin American banks are adopting new business models and slowly moving away from conventional banking
- More banks have switched their focus to the retail sector as the use of information technology lowers transaction costs and keeps remote areas within reach
- The New Capital Framework or Basel II, developed by the Basel Committee on Banking Supervision, comes into force this year, with 11 Latin American countries agreeing to implement it; five countries are expected to be compliant this year
Market Trends and Outlook - Key Points
- The Latin American banking system has become far healthier, with strong liquidity and surplus

Current Environment - Key Points
- Despite the economic slowdown over the past three years, the European banking sector has managed to stay in an overall robust condition
- Many banks- business lines continue to be supported by a relatively low inflation and interest rate environment as they progress into 2004
- In the first half of 2004, the earnings of major European banks were generally sound, following solid financial results in 2003
- The European banking sector is again experiencing a rise in consolidation deals following increasing pressures for bigger capitalization and size
- Some of Europe’s top banks are now seeking cross-border takeover targets, hoping to increase their market share and profits
- A major factor expected to fuel M&A activity for the rest of 2004 will be the availability of ready finance from banks

Industry Profile - Key Points
- Over the course of 2003, Europe’s 18 major banks reported combined total assets of about -8,478.8 billion (US$10,362.3 billion), about 8.8% higher than the -7,794.2 billion (US$9,605.6 billion) in 2002
HSBC Holdings plc led the sector with total assets of -1,034.2 billion (US$1,272.8 billion) - 12.2% of the total combined assets
- On April 5, Europe joined forces with the banking associations in the US, Australia and Canada to establish the London-based International Banking Federation
- The EU enlargement on May 1, 2004 brought new challenges for the industry to go ahead with the smooth convergence of the revised Eurosystem, while ensuring, an enhancement of respective countries- macroeconomic and financial stability
- There is increasing need for structural reform of the region’s capital markets, as it is a much needed tool to support the sustainability of the social security system
- In its 2003 review of the Monetary Policy Strategy, named -confirmation and clarification-, the ECB further emphasized the medium-term orientation of its monetary analyses and clarified the role of m

This report looks at the banking industry in Europe, with a focus on France, Germany, Italy, the Netherlands, Spain and the United Kingdom
Current Environment - Key Points
- Despite facing continuing risks and vulnerabilities such as the volatility in oil prices, uncertainty over interest rates and several regulatory changes, the European banking sector maintained its strength and stability
- On December 1, 2005, the European Central Bank (ECB) raised its key rates by a quarter-point to 2.25% - its first rate hike in more than five years - to maintain price stability and steady medium to long-term inflation expectations
- Continuing a trend that began in 2003, European bank profitability further improved, among both the weaker banks as well as those in many member states where economic growth rates were less favorable
- Leading European stock markets rose again buoyed by higher banking shares and underpinned by easing oil prices which helped to dampen concerns over the effect of high energy prices on company margins and raise the hopes of better earnings
- Following an increase in revenues, the cost-to-income ratios of most leading European banks continued a healthy trend
- There were many obstacles to cross-border deals during the first half of 2005, including political and cultural differences and different legal, regulatory and tax systems

Industry Profile - Key Points
- The consolidation process in the European banking industry has contributed to a significant shrinkage in the number of banks since 1994, yet only a moderate reduction in the number of branches
- In 2005, Europe’s 18 top players reported combined total assets of about -12,544.4 billion (US$15,122.6 billion), some 10.6% higher than the -11,340.3 billion (US$13,671.1 billion) reported in 2004
HSBC Holdings Plc once again led the sector with total assets of -2,120.7 billion (US$2,555.9 billion), representing 15.8% of the total combined assets
- Financial institutions

This report updates the previous Asia-Pacific banking report, focusing on the markets in Australia, China and Hong Kong, India, Japan, South Korea and Taiwan
Current Environment - Key Points
- Subprime mortgage-related losses in Asia were minimal and manageable throughout 2007 due to ample cash in the region-s banking systems and the limited exposure to the US market. - Asian bank stocks finished on a positive note between April and October 2007 although plunged in August as the US mortgage crisis rippled across the globe
- The FTSE Hang Seng Asian Banks Index rose from 10,573.98 points on April 30 to 12,367.53 points on October 30, 2007
- Over the last six-month period ended October 2007, the major players in the Asia-Pacific banking industry reported mixed financial results
- China, once beleaguered with under-capitalized state-owned banks, continued to emerge as the most popular locations for banking M&A and alliances, followed by South Korea and Taiwan

Industry Profile - Key Points
- Since the Asian financial crisis of 1997-1998, stronger banks have combined to form giants while weaker and smaller ones have merged or gone out of business. - Asian banks are getting more global and seeking new growth with lucrative business opportunities such as wealth management growing quickly. - Banks are diversifying their earnings bases and capitalizing on new opportunities in the international marketplace in this tougher environment where revenue is harder to come by
- Governments and regulatory authorities in Asia are making even greater efforts to tackle the money laundering threat effectively. Market Trends and Outlook - Key Points
- Many consumers, especially those with low incomes, are starting to feel the pinch of high bank fees
- Banks worldwide are jostling to grab a bigger slice of the Asian banking markets which offer increasingly lucrative opportunities
- Banks in the region are i