With annual revenue exceeding $1.4 trillion, Asian corporate and investment banking (CIB) accounts for nearly half of global CIB revenues. Asia’s CIB sector is not only large but also projected to sustain 7 percent annual revenue growth through 2027 (exhibit)—faster than in other regions.
Asia’s fast-growing CIB market offers several pockets of opportunity for institutions aiming for the top of the league tables; the composition of these opportunities varies by country and segment. Our analysis has found returns on equity (ROE) of 15 percent or more at CIB institutions that have targeted clearly defined segments where they enjoy distinct advantages, particularly in coverage and scale.[1] Institutions seeking sustained market leadership can benefit from building a cost-efficient organization focused on delivering superior, highly personalized services within select segments.
Key elements shaping Asia’s CIB markets
To lay a foundation for determining the pockets of opportunity where it can compete and win, a CIB organization can consider how key features of Asia’s CIB landscape combine to create different conditions in each market:
- Asia CIB is heterogeneous. The average bank in China, India, and Indonesia is achieving annual revenue growth of 7 to 8 percent, while banks in developed hubs (notably Singapore, Japan, and South Korea) are growing at 2 to 6 percent per year. Furthermore, local markets vary significantly in terms of factors including population, geography, and the balance of agricultural, industrial, and service sectors. These conditions favor CIB institutions that think carefully about how to strengthen their local footprint by increasing market share within the segments served, expanding the geographic scope of their footprint, or both. Asia’s current CIB leaders—a mix of domestic and global institutions—have built market share with best-in-class offerings and are recording annual revenue growth of 9 to 17 percent or more.[2]
- Small and medium-size enterprises (SMEs) are the largest client base. SME clients account for approximately 50 percent of transaction banking revenue.[3] Their value for Asia’s CIB institutions is expected to increase as they mature and demand more sophisticated credit and account services. We therefore would expect all or nearly all top-performing CIB organizations to be serving SMEs. Tapping the potential of this segment requires deep local knowledge, a product offering tailored to each company’s needs, and personalized service.
- Technology can help lenders stabilize and lower risk costs. Risk costs in India and China have steadied at 1 to 2 percent but historically tend to be volatile, with potential ripple effects across neighboring markets. CIB leaders in India and China have been able to keep their risk costs (measured as loan loss provisions to total loans outstanding) significantly lower than market averages, even as they increase their exposure to new ecosystems such as digital platforms for e-commerce, food delivery, rideshare, and healthcare ecosystems. The critical element here is the development of risk scoring and underwriting models that use advanced analytics and machine learning (AA/ML) to produce highly accurate predictions of individual companies’ ability to keep up with payments.
- Transaction banking is the core growth engine. Transaction banking—including cash and liquidity management and trade finance—contributes half of CIB revenue in Asia, followed by lending. It serves as a gateway for new clients as well as a platform for deepening existing relationships, so the transaction banking business is crucial to a CIB organization’s strategy for growth. These largely fee-based services also provide visibility into companies’ transactions, cash position, and other data that can be analyzed to generate competitive credit offers without taking on undue risk. In contrast, the region’s capital markets and investment banking (CMIB) sector is less mature, accounting for 6 percent of the region’s CIB revenue, versus 14 percent in the Americas and Europe.
- Changes in the balance of economic production call for a rethinking of core services. Asian markets’ share of total exports relative to gross domestic product (GDP) has declined steadily since 2010 and is expected to continue shrinking through 2030, largely because of increased global competition and the recent focus on resiliency. The fast growth of Asia’s emerging economies has also boosted domestic consumption, spurring growth in both domestic and regional corridors. These shifts, together with the accelerated growth of the region’s services sector, are pushing CIB institutions to rethink their value propositions.
- Private credit has gained traction in Asia. As in other regions, private credit has entered Asia’s markets by serving niche segments. The assets under management (AUM) by direct lenders in Asia have grown on average by 17 percent annually to $93 billion in 2022, up from $3.2 billion in 2000.[4] This growth, however, is volatile and concentrated in specific subsegments (e.g., borrowers with greater appetite for leverage). With higher risk tolerance and fewer regulatory constraints than banks, private lenders serve clients that usually give traditional CIB institutions pause. Traditional institutions should remain alert, however, as direct lenders with the right risk appetite and more flexibility in structuring transactions could potentially gain market share over time.
Pockets of opportunity for higher efficiency and faster growth
CIB institutions in Asia are well positioned to tap specific pockets of opportunity, each formed by a combination of secular trends and competitive dynamics. Notable opportunities include expanding services for SMEs, developing services tailored to specific large corporations, lending for green infrastructure projects, and pursuing technology transformation with large-corporate and SME clients in mind.
Transaction banking and credit services for SMEs
Given the rising SME demand for transaction banking and credit services, CIB institutions have an opportunity to explore innovative ways to address the needs of this segment. The long tail of fast-growing SMEs increasingly expects cash and liquidity management offerings tailored to their specific needs, which vary widely by sector and from one enterprise to the next. These companies also present a pocket of demand for value chain finance, including innovative approaches to supplier and buyer finance, as well as working-capital finance. A robust technology platform, for example, would generate transaction data that could be analyzed for SME cash forecasting, carbon footprint monitoring, and customized credit offers to CIB clients and their trading partners. Banks that tailor their offering to the precise needs of each client, seamlessly integrate these service offerings with enterprise systems, and provide actionable intelligence on local markets have the potential to build profitable relationships and manage cyclical risks.
This platform or ecosystem approach to deepening SME relationships will require frontline officers well versed in transaction banking and credit products and adept at wielding analytical tools to optimize the mix of net-interest- and fee-based products for each account.
Tailored services for large corporations
The remarkable growth of Asia’s large corporate segment creates increased demand for coverage models that address each organization’s distinct needs. Current trends suggest that in 2030, more than 30 percent of the world’s 500 largest corporations (by market capitalization) will be based in Asia, up from 25 percent in 2020.[5] Banks that serve large corporates—typically global banks, regional leaders, and institutions serving niche segments—can seize this opportunity to rethink the way they engage with each client. In addition to providing robust tools for managing, for example, domestic and cross-border transactions and subsidiary accounts, they might develop scalable coverage strategies for targeted segments and adapt them to each organization’s characteristics, such as their geographic reach, financial and reporting needs, shareholder structure, and more.
Financing for green infrastructure
Major investments in green infrastructure create an opening for new CIB offerings. Asia’s green transition of energy and land use by 2050 is estimated to require new spending of $2.6 trillion annually.[6] The environmentally sustainable physical assets that will enable this transition are likely to include wind and solar power plants, electric cars and trucks, and low-emission heating systems for homes, commercial property, and public buildings. As enterprises, institutional investors, and government agencies seek to balance growth aspirations and emission reduction goals, they are turning to banks for sustainable finance and transaction banking, such as carbon credits (including futures), monitoring of supply chain carbon emissions, and sustainability advisory.
CIB organizations in Asia cannot shoulder these historic investments alone. That means an increase in the relevance of the originate-to-distribute model, whereby these institutions originate loans for low-emissions projects through their local networks and then distribute them to a broad set of financial institutions and investors (within Asia and beyond) who seek exposure to green assets and are bullish on the Asia story. The originate-to-distribute model will enhance the agility of the balance sheet for Asian CIB institutions, enabling them to be a one-stop shop for financing, transaction services, and advisory.
Technology transformation focused on serving CIB clients
Technology is a crucial tool for any institution going head-to-head with market leaders. Historically, Asian banks’ spending on tech transformation projects—especially digitization, advanced analytics, AI-enabled applications, and cloud migration—has been weighted toward retail banking, laying the foundation for Asia to become the world’s leader in consumer adoption of digital banking and payments tools. Further evidence of Asia’s leadership in financial technology innovation and adoption includes India’s early adoption of real-time digital payments and Asian markets’ incremental adoption of T+0, or same-day, settlement of securities trades.
Not only have banks in Asia supported the rapid digitization of consumer transactions, but they have also launched digital tools and capabilities for CIB clients. Examples include digital platforms offering market insights, B2B commerce, and professional services; integration with fast cross-border payment networks; and digital asset exchanges. These and other technology innovations have required significant investment; our research shows that the region’s banking leaders spend 10 to 15 percent of revenue on technology. Of this, approximately 20 percent is devoted to transformation initiatives. Regional leaders may allocate as much as 35 percent of their total tech budget to technology transformation.
It must be noted, however, that at most institutions, investment in upgrading the tech infrastructure and digital capabilities for CIB still trails spending on consumer-oriented transformations. For Asia’s CIB organizations, growth in revenue and returns in their chosen markets will likely depend on increases in technology spending to support bold actions.
Tech transformation can bring maximal automation, superior client experiences, and improved cost efficiency when organizations combine it with agile operating models and a workforce trained to get the most out of analytical tools to improve performance. Sales officers and relationship managers will continue to play a lead role in engaging with and advising clients, even as the balance of interactions continues to shift toward digital interactions. Many client-facing employees will soon have the added advantage of AI-enabled workbenches equipped with tools to assist with, for example, strategic planning for client relationships, highlighting relevant product choices, or flagging accounts potentially at risk of missing scheduled payments. In addition, generative AI applications can increase productivity by drafting emails, know-your-customer reports, loan agreements, and more. CIB institutions with the right combination of technology and human skill have the potential to reap disproportionate benefits from targeted opportunities.
As the growth of Asia’s CIB sector continues to outpace that of other global regions, institutions aiming to increase efficiency and accelerate revenue growth would do well to target high-potential segments, such as SMEs or companies leading the transition to green infrastructure. Regardless of where they decide to compete, CIB institutions can deepen relationships and extend market share by delivering finely tuned products and highly personalized service, providing seamless integration between bank and enterprise systems, and strengthening their capabilities in risk scoring and underwriting. To get there, institutions will need the right tech infrastructure—mostly likely a cloud-centric architecture to power advanced analytical models, AI-enabled tools, and fully digitized client journeys.
Nilesh Gupta is a partner in McKinsey’s Mumbai office; Semyon Yakovlev is a senior partner in the Seoul office; Kamalika Sengupta is an engagement manager in the Mumbai office, where Raahi Kapadia is an associate partner; and Nitin Jain is an associate partner in the Gurgaon office, where Nitin Kansal is a specialist.
Copyright © 2024 McKinsey & Company. All rights reserved.[1] Based on analysis of ROE for CIB institutions in each Asian market, 2019–2022. S&P Capital IQ; Tricumen; bank filings.
[2] Five-year CAGR for two fastest-growing CIB institutions in each market, 2017–2022. S&P Capital IQ; Tricumen; bank filings.
[3] Definitions of the SME segment vary by market. Our analysis of each national market follows the definitions of SME used by the respective regulators.
[4] Preqin Pro; press search.
[5] Based on analysis of data from S&P Capital IQ.
[6] This estimate by the McKinsey Global Institute includes investment needs in low-emissions physical capital across major energy and land-use sectors to pursue a pathway for reaching net zero by 2050. See From poverty to empowerment: Raising the bar for sustainable and inclusive growth, McKinsey Global Institute, September 2023; Network for Greening the Financial System (NGFS), Scenarios Portal, NGFS Phase II net zero by 2050 climate scenario.