Growth takes a back seat to stability in crossborder banking, a global survey of executives reveals

While bankers in the Western world are focusing on consolidation—and indeed survival—their counterparts from emerging markets are still looking at expansion possibilities. So suggests a global survey of 275 senior executives from the banking and financial services industry summarised in a research study from the Economist Intelligence Unit, titled Beyond the home market: The future of crossborder banking. The study, which looks at how and why crossborder expansion has taken place, and examines how effectively banks are managing it, was sponsored by SunGard.

After expanding dramatically both in their home markets and overseas, many banks now have sprawling empires and must focus on integrating and managing their new operations efficiently. Nearly two-thirds of respondents to the survey say they will focus primarily on domestic markets and on fewer product lines. Banks in North America and the Middle East are particularly conservative, while emerging-market institutions express more expansive views in the survey. While nearly two-thirds (65%) of respondents to the survey say their priority will be to focus on core activities in the near future, close to half (48%) in the Asia-Pacific region plan to enter or expand their presence in foreign markets.

“Old-school virtues are back for now and the focus will be on core banking and home regions, but emerging Asia will continue to offer growth opportunities,” says Manoj Vohra, a senior editor with the Economist Intelligence Unit. “Many large banks have already expanded overseas in Asia, the region widely predicted to drive global growth post-crisis and which still has a large number of unbanked consumers.”

Other key findings of the study include:

· To compete successfully in foreign markets, banks need more than a token presence. 37% of respondents to the survey believe customer service is the critical advantage when competing in foreign markets. While face-to-face contact is an important element of this, institutions believe IT infrastructure and multi-channel banking are also important elements in understanding and communicating better with their customers. Asked how important multi-channel banking is as a competitive differentiator in foreign markets, 40% of banks say “extremely important” compared with just 9% which believe it is “not important”.

· Broadening the customer base is the overriding reason for expansion. This is cited as a key motivation by 49% of respondents. It explains why so many banks have targeted Asia already and why so many others see it as a fertile ground for future investment. The region is both populous and relatively unsophisticated in terms of financial services.

· Regulatory barriers still exist, particularly in emerging markets. Despite increased understanding and acceptance of globalisation, political and regulatory difficulties still represent the biggest barriers to successful foreign expansion by financial institutions. In fact, nearly two-thirds of respondents say regulatory barriers represent the biggest hurdle to further expansion.

· Banks place a premium on risk management. As the impact of the credit crisis intensifies, banks are putting a higher premium on risk management, with 57% believing this area requires the greatest focus when assessing IT infrastructure in foreign markets. Specifically, security and fraud detection are also viewed as important issues.

· Most banks face IT-related challenges in foreign markets. Building IT platforms is always a complex process, but it is even more so when the building is taking place in foreign markets. Indeed, just 10% of banks say they have experienced no problems when implementing an IT strategy in foreign markets. The most common problem surrounds the interoperability and integration of platforms and applications—mentioned by 42% of respondents.

"In the current economic environment, it is more important than ever for banks to drive cost efficiencies, consolidate and integrate operations, and prepare themselves to comply with more stringent regulations," says David Hamilton, President, SunGard’s Ambit.

Beyond the home market: The future of crossborder banking

is available free of charge at:

www.eiu.com/sponsor/sungard/crossborderbanking

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About the survey

In October-November 2008 the Economist Intelligence Unit conducted a global survey of 275 senior executives from the banking and financial services industry on the future of crossborder banking. Of these, 20% came from North America, 16% from Western Europe, 24% from Asia-Pacific, 24% from the Middle East, and the rest from other regions. The Economist Intelligence Unit also conducted a series of in-depth interviews with executives and independent experts knowledgeable about crossborder initiatives in the banking and financial-services sector. The survey sample was senior: 33% of respondents were C-level executives such as CEOs, CFOs, and CIOs, and the balance consisted of senior vice-presidents, heads of business units and other senior managers. Of the total 275 survey respondents, 35% work with banks and financial institutions with assets over US$50bn, 39% with assets between US$1bn-50bn, and the balance under US$1bn.

About the Economist Intelligence Unit

The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through our global network of more than 650 analysts and contributors, we continuously assess and forecast political, economic and business conditions in more than 200 countries. As the world's leading provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies. For more information, please visit www.eiu.com

About SunGard

With annual revenue of $5bn, SunGard is a global leader in software and processing solutions for financial services, higher education and the public sector. SunGard serves more than 25,000 customers in more than 50 countries, including the world's 25 largest financial services companies. Headquartered in Wayne, Pennsylvania, SunGard employs 17,900 people in more than 400 offices in 30 countries. SunGard is comprised of four businesses—availability services, financial systems, higher education and public sector—that provide IT services and infrastructure, and software and processing solutions. For more information, please visit www.sungard.com