Singapore - Asian banks bullish about revenue growth from global transaction services

SINGAPORE: Asian lenders are bullish about revenue growth from the global transaction and treasury business. They expect the segment to post double-digit revenue growth annually.

Industry players have added that global transaction services, which includes cash management and trade finance services offered to corporate clients, will also provide a stable source of income amid macroeconomic uncertainties.

Shipments from ports like this around Asia have been increasing in recent years, in tandem with the region's rapid growth.

With the rise of intra-Asia trade, banks are focusing on transaction banking - once thought to be the less glamorous cousin of investment banking.

Jiten Arora, Global Head of Sales for Transaction Banking at Standard Chartered Bank, said: "As you can see, as the corporates sell more, buy more, produce more in Asia, this is becoming a place where a lot of the liquidity is sprout.

"And with that, the role of transaction banking will become more important because transaction banking helps unleash the working capital of the corporates."

Growth prospects aside, some banks said that the transaction services business also offers a more stable income stream, compared to investment banking, which can be volatile.

For example, the financial crisis in 2008 wiped out more than US$15 billion from the proprietary trading desks of banks in the US alone, according to the US Government Accountability Office. In the following years, weak capital markets continued to dampen bank income with slower activity in equity issuances and mergers and acquisitions.

Tom McCabe, Managing Director & Head of Global Transaction Services at DBS Bank, said: "Transaction banking certainly is less glamorous. But its a great business to be involved in when you look at sustainability of earnings, the importance to the customers in expanding their business, and having a reliable partner for them to continue to invest in growth in different markets.

"From the bank's side, they're looking at this being a high fee, high annuity revenue. A well-managed transaction banking business should get a 50 to 60 per cent return on capital."

DBS Bank, which has a wide network in Asia, said transaction banking contributed to over 15 per cent of the bank's profits in 2011, up from nine per cent in the previous year. Meanwhile, traditional heavyweights in trade finance like Standard Chartered and HSBC have also benefited from their international branch network

But they are facing more competition from smaller lenders in the region.

Andy Dyer, Managing Director of Global Loans & Transaction Banking (Asia-Pacific, Europe and Americas) at ANZ, said: "As a bank that's not going to have a large branch network in each country, we look to utilise our large geographic network in raising deposits. Whether that's by our relationships with big corporates, or by the role of our offices in London and New York."

In order to drive growth, ANZ said it has increased its staff strength for transaction banking to 350, up from just 40 people three years ago.

Asian banks are also looking to capitalise on growth opportunities as European banks scale back on their operations in the region.

-CNA/ac

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