Rapid and divergent demographic changes in Asia-Pacific will lead to opportunities for some banking systems in the region and challenges for others, says Moody's Investors Service.
"Over the next decade, of the 17 banking systems in Asia-Pacific, banks in Japan, Hong Kong, South Korea and Taiwan in particular will face challenges from the effects of shrinking prime-age populations and declining proportions of working people," said Christine Kuo, a Moody's senior vice-president. "By contrast, banks in India, Indonesia and the Philippines will see growth opportunities in the same period from the effects of rapidly growing prime-age populations and increasing proportions of working people."
Moody's said favourable demographic trends will benefit banks the most when accompanied by income growth and technological advancements.
Moody's identifies India, Indonesia and the Philippines as banking systems where income levels are growing, against the backdrop of favourable demographic trends. Moody's also said technological advancements in Indonesia and the Philippines will help banks in these two economies acquire more customers.
Moody's analysis is contained in a new report titled "Banks -- Asia-Pacific: Demographic Changes Will Bring New Challenges and Opportunities in the Next Decade", authored by Ms Kuo.
The report covers 17 banking systems in Asia-Pacific: Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, Mongolia, New Zealand, the Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.
Banks in several Asian economies are facing shrinking core customer pools. In particular, prime-age populations -- comprising people aged 25-64 -- are set to shrink in many Asian countries, and for banks the situation means that their core customer bases will dwindle.
Between 2017 and 2030, prime-age populations will fall in China, Japan, Hong Kong, South Korea, Taiwan and Thailand by 3%-10%.
The shrinking core customer pools will hurt bank profits, a credit negative, as banks try to offset the effects of shrinking core customer pools through price competition and offering attractive interest rates or fees to lure new customers from their competitors.
In addition, markets with rising proportions of retirees will show slower economic growth, another factor that will prove detrimental to bank profits.
Banks that are under profit pressure will start focusing on cost management, affecting branch operations and staff numbers.
