Banks which have the experience of operating in volatile markets, combined with their knowledge of how to reach unbanked and under banked population, are better positioned to achieve a successful expansion to developed and other emerging markets, a report said.
World trade flows, increased gross domestic product (GDP), a growing middle class and new technologies will help banks based in emerging markets expand into developed markets in the coming year, added the report “Banking across borders: International expansion opportunities for emerging markets-based banks” released by Deloitte, a provider of audit, tax, consulting, and financial advisory services.
“The banking systems in the Middle East and many emerging markets, which were less exposed to the complex and toxic products and therefore less impacted by the financial crisis of 2008, benefited from opportunities in their domestic markets and have grown their operations and expanded locally thus resulting in stronger balance sheets and larger capital base,” said Joe El Fadl, Partner and financial services industry leader at Deloitte Middle East.
“This relative domestic expansion and growing means allow these banks to invest in growth opportunities Moreover, many of the large banks are considering to leverage their strengths and relative efficiency in their operating model by looking to opportunities of expansion into new markets.”
The Deloitte report also outlines the steps that these banks will need to take in order to expand internationally. This includes factoring in readiness for expansion, lessons learned from expansion from previous decades and potential challenges such as language, culture, talent, regulation, and capital needed to extend their brands into new markets.
According to the Deloitte report, over the last several decades, emerging markets-based banks have followed different paths in expanding their reach around the world. Many Banks have looked to the Middle East region as the next frontier, due to its proximity to the Asian markets, and its untapped potential, as foreign banks had minimal presence in the region at that time
In fact, the World Bank notes that acquisitions from emerging markets are on the rise, projecting the annual value of cross- border M&A transactions to double by 2025, outpacing the underlying GDP growth rates in emerging-market firms’ home countries, the report said.
“Even though Emerging markets-based banks still have domestic expansion opportunities and growing market needs for innovative banking products and services, they are also looking for expansion beyond national borders as their customers expand into new markets and their citizens immigrate to new countries,” added El Fadl.
Today, emerging markets and developed markets each account for half of the world’s GDP. However, in the future, the report projects emerging markets to account for more of the global GDP with developed markets accounting for less.