Shrinking of prime-age populations will hurt lenders in Asia

By NG MIN SHEN / Pic By BLOOMBERG

Banks in developing Asian economies are set to benefit from growing prime-age populations and larger numbers of working people over the next decade.

However, in countries grappling with diminishing working societies as their citizens get older, lenders are expected to face a tougher time.

According to Moody’s Investors Service, banks in several Asian economies are facing shrinking core customer pools, while other countries have the advantage of favourable demographic trends.

“Over the next decade, of the 17 banking systems in Asia Pacific, banks in Japan, Hong Kong, Korea and Taiwan in particular will face challenges from the effects of shrinking prime-age populations and declining proportions of working people,” Moody’s senior VP Christine Kuo said.

In a recent Moody’s report authored by Kuo, titled “Banks — Asia Pacific: Demographic changes will bring new challenges and opportunities in next decade”, prime-age populations are said to comprise people aged between 25 and 64.

“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,” she added.

India, Indonesia and the Philippines were singled out as banking systems where income levels are growing, while technological advancements in Indonesia and the Philippines will also help banks in these two economies acquire more customers.

According to the United Nations Population Fund, Asia Pacific is at the global forefront of population ageing, with one in four people to be over 60 years of age by 2050.

The population of individuals aged over 60 in the region will triple between 2010 and 2050 to reach nearly 1.3 billion

people. Women comprise the majority at 53% of those aged 60 or older and 60% of those above 80 years old.

India’s working-age citizens — those between 15 and 64 years old — constitute about two-thirds of its total population, which is also the second- largest in the world, as per data from the International Monetary Fund.

As for Indonesia — the fourth-most populous country in the world — it can depend on a young and growing workforce with a median age of 28.

But prime-age populations are set to shrink in many Asian countries and it will lower core customer bases for banks.

“Between 2017 and 2030, prime-age populations will fall in China, Japan, Hong Kong, Korea, Taiwan and Thailand by between 3% and 10%,” the report said.

The shrinking core customer pools will hurt bank profits and result in a credit negative as banks try to offset the effects via price competition and offer- ing more attractive interest rates or fees to lure new customers from their competitors.

Markets with rising proportions of retirees will also show slower economic growth, which will prove detrimental to bank profits as well.

Furthermore, banks that are under profitability pressure will turn to focus on cost management, affecting branch operations and staff numbers.

The report noted that banks facing shrinking customer pools could focus on tapping into underserved customers, while deepening relationships with existing customers.

“However, achieving either will be challenging in some economies with a shrinking core customer pool, as well as high penetration rates and leverage,” it said.

Moody’s report covers 17 banking systems in Asia Pacific, namely Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Mongolia, New Zealand, the Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam.