FINANCIAL REPORT: Domestic banks have more local appeal

Like their overseas counterparts, Asia-Pacific banks are undergoing dramatic changes. The global financial turmoil has resulted in bank customers who are more cautious about borrowing, and who are forcing banks to fight for customers’ attention.

In the battle to win hearts, however, it seems that throughout the region, local banks are doing a much better job at engaging with the customer than their international counterparts. In fact, according to a 2011 quarterly survey by global management company McKinsey, out of 20,000 consumers in 13 Asian markets, almost 81 per cent of consumers in developing Asian markets and 63 per cent of consumers in developed Asian markets prefer to use local banks instead of international ones. In China, this figure stands at 87 per cent.  

There is, of course, an obvious connection here to economic growth, with the establishment and visibility of brands affected by the economic uncertainty of the countries that the banks originate from. Regardless, such volatility in global markets is causing the brand value of many global banking behemoths to be affected. In fact, a recent global report by Brand Finance which looked at the intangible asset values of all public stock exchanges worldwide, showed that bank brands lost about US$25.9 billion of their total brand value (seven per cent) since January this year. Bank of America saw its brand value fall by $5.3 billion.

This comes at a time when domestic banks have seen growth in their home countries and created opportunities for expansion. China’s ICBC Bank, for example, has seen a 125 per cent deposit growth in 2011, and is now expanding into the Middle East.

Some attribute the results to government initiatives — defensive regulatory measures that are not making it easy for foreign banks to operate. In China, for example, the government has implemented policies such as the ‘Three measures, one guideline’, in which working capital loans cannot be used to finance, project finance or be used in shareholdings, which has been considered by international banks as cumbersome to the business process.

Ingrid Cheng, director of strategic financial relations at PR firm SPRG, uses the Hong Kong banking industry to explain the phenomenon. With the financial services industry there already very competitive, international banks are in a battle with local brands for business, and the local brands are fighting back.

“To differentiate themselves from the big global players, Hong Kong’s brands are often more adept at engaging with consumers through employing local interests and addressing local concerns to build an emotional bond,” Cheng says.

In recent years, as more financial institutions from China enter the Hong Kong market, “the China background in itself appears to send a strong message to financial marketing as consumers increasingly see it as contributing to their peace of mind due to China’s [past] strong economic performance,” Cheng says. “I think this perception of the China foundation conveying reassurance would have been utterly inconceivable before the 1997 transfer of Hong Kong to Chinese sovereignty.”

Such changes are forcing banking institutions to rethink their value propositions, which have changed dramatically over recent years, and from place to place.
For international banks to play a regional part they have to play to their (present) strengths. The key lies in the ability to persuade local clients that international banks can still deliver and provide services not provided by domestic banks, which ties in with marketing campaigns that relate to the cultures and the social situations of the nations the banks have a presence in.  

But there are more fundamental issues that relate to the core ideas of trust, which will also be guiding factors.

According to the McKinsey Report, there is a crisis in customer loyalty in Asia, which has fallen since 2008 at an average of 11 percentage points. In China, the percentage of respondents who said they ‘would recommend’ their financial institution to a friend or colleague declined from 57 per cent in 2007 to 47 per cent in 2011.

Banking relationships at the local level ultimately boil down to a matter of trust and confidence, and this is especially true during economic uncertainty. To ride out the storm (and the global financial turmoil many experts are predicting for the coming months) international banks will have to focus on these issues.

“Clients will only want to entrust their assets to banks perceived as strong and secure, a reliable partner who stands by their clients and has their long-term interests in mind,” says Cheng. “Branding and marketing that are attuned to these client concerns and can convey the message that the firm can turn market insights into a solid value proposition and value-added services are more likely to maximise customer loyalty through good and bad times.”

As an example, Standard Chartered Bank has shifted its marketing focus towards winning loyalty in the countries it operates in. The bank’s latest ‘Here for good’ campaign allows it to be involved in local goodwill projects so that it can be perceived as a ‘positive force’ in those markets where it carries out its business.

“The negative public sentiment towards the financial industry after the 2008 crisis led Standard Chartered Bank to rethink our business strategy,” explains Tracy Ren, head of marketing, pricing and customer analytics at Standard Chartered Bank, China. “We decided to go back to basics in terms of truly understanding customer needs and forming a customer-centric business model. Our marketing department adjusted our strategy accordingly. Our brand positioning, communication message and channel selection became more targeted and more precise as a result.”

Other features in the 2011 Financial Report include:

Bank on trust

Domestic banks have more local appeal

M-Payments: the future

Insurance industry: bright prospects

New face of China's banks

Banks take a retail feel