By definition, regional banks are both physically present and committed. They benefit from an intrinsic cultural awareness that is specific to their local client base, and this differentiates them from the larger competitors.
The emergence of regional banks is a relatively recent phenomenon which can also be attributed to the rise of the emerging market economies. 33% of global high net worth individuals are expected to live in the Asia/Pacific region by the end of 2011, and the local banks within these countries have risen in prominence to cater to the increasing needs of their domestic market.
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Many hold the international firms accountable for the woes experienced during the financial crisis. Local banks have benefited from this perception, and are seen to be a safe alternative. For instance, during the Gulf War, the National Bank of Kuwait took the decision to guarantee the deposits of their clients.
This move earned the bank the loyalty of its customers and today, the firm has benefited from outflows from the international banks and is ranked 47th in the top 50 safest banks list by Global Finance, ahead of the likes of Citigroup and Barclays.
The increasingly regulated environment that has followed the crisis can be highlighted with the recent recommendations of the UK’s Independent Commission on Banking (ICB) to ring-fence commercial banking activities from the more risky investment bank. Should this transpire, both investors and bankers may be more inclined to consider prospects abroad, in the less stringent setting of local banks. Equally, the lack of financial transparency or strict regulation does make local firms a riskier proposition, particularly with differing guidelines relating to employment law.
To appease the regulators and to enjoy the advantages of a physical onshore network, the international banks have historically purchased local players or entered into joint ventures (HSBC and Saudi British Bank). The landscape has since changed, and the heavy involvement of Emirates NBD in M&A activity, for example, has created the largest regional bank by assets in the Middle East.
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By GlobalDataLocal banks also benefit from a bespoke platform, which is targeted to their clients’ needs. Earlier this year, the Central Bank of Qatar took the controversial decision to ban conventional banks from offering Islamic banking services. The potential total market of Shariah compliant assets is estimated to be $4trillion, and this move will further cement the home ground advantage of the local players.
Though, on the whole, the platform at a regional bank does not tend to be as advanced, with simple IT systems and lower level research capabilities than their international counterparts, the tide is changing. In the past, the level of expertise of the regional banks has been questioned. Now, the younger generation are educated abroad at the world’s leading institutions and choose to return home to work for their local banks.
Post crisis, international banks no longer offer or create a stable, long-term career path for its employees. As a result, we are seeing that the new Heads of the regional banks tend to have an international background, such as Pierre Pissaloux, who joined Emirates NBD as General Manager, Private Bank from HSBC.
A further attractive factor for bankers is the financial component, since regional players are aware that there must be some ‘fat’ built into any offer, to compensate for the perceived risk of joining a local bank. They tend to pay 100% in cash, which is a rarity in this market, particularly when international banks are compensating their employees with more and more stock with longer vesting periods.
It appears that the ‘peaceful rise’ of the local banks is set to continue over the next 5 years. While the vast majority of international firms are in the process of reducing headcount, local banks are in an aggressive expansion mode, particularly in the core emerging economies. They are also willing and able to attract top talent from the international banks, which sends an important signal to the rest of the market.
For those executive search firms that anticipate this trend and position themselves accordingly, not only does it present an opportunity to diversify your client base, but the rewards may also be substantial.
Megha Kumar is senior consultant at HB International Executive Search, email MKumar@hbinternational.co.uk
