Chinese provinces and municipalities are relying on banks for the brunt of their deficit financing, as only a small part of their funding is coming from bond markets. With the recent surge in lending in China, an estimated 27.7% is going to governments. And while NPLs have been falling in recent years, concerns are rising both about the increased in competition to lend even at thin margins, as well as the massive amount of lending to governments, which is feared will result in greater NPLs.
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The recent ‘threat’ by Visa to banks and merchants in Asia Pacific, ordering them to use its VisaNet system to process international transactions of co-branded China UnionPay (CUP) cards, is a publicly-voiced frustration reflecting equally Visa’s nervousness with the Chinese payment player and its determination to fight for every inch in a coming turf war. Visa claims that if banks do not process Visa and CUP co-branded cards on their platform, it will violate contractual terms.

Four possible fallouts of the CUP –Visa standoff on processing international transactions for co-branded credit cards:

•	Banks might comply with Visa’s demand to stop processing international transactions using CUP’s system given the hefty fines involved
•	Visa may have slightly higher revenues but other payments providers will be reluctant to follow what its amid fears that it might mar their chances of entering the Chinese market
•	Even if other providers do toe Visa’s line CUP will continue to expand its own network and seek to become independent of international network providers
•	CUP will have Visa on a tight leash apropos the Electronic Payment Terminals (EPT) business and the EMV standardisation in China that the government might bring into force in the next 3-5 years

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•	Agricultural Bank of China far behind in branch and productivity levels
•	Despite showing no differences in the loan structure by region compared to its peers, quality and productivity is lower
•	Current and future economic growth areas are uneven and often concentrated in metropolitan areas in the east and west putting ABC at a strategic disadvantage
•	Rural residents have lower disposable incomes and the rural-urban income gap is widening
•	Though residents in counties supply a cheap source of funding for Agricultural Bank of China, revenue contribution is minimal due to low loan account penetration
•	Urbanisation trends from rural areas to cities and from smaller to bigger cities cast doubts on the bank’s ambition to generate significant amount of revenue from the rural related economies

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The successful branch proposition isn’t just about automation but more about mixing front line automation, workflow process optimisation and the human interface to enhance service delivery and sales capabilities. The future branch is about connectivity, interactivity, discovery and instant delivery, designed to beat competition.

Here are the top five branch banking trends in mature Asian markets today:

1. Needs-based relationship banking
2. A highly differentiated front line proposition. Financial institutions will have to answer these questions to leverage automation effectively:

•	What do our key customers want from branch banking?
•	Are we putting the right branch staff around improved levels of automation?
•	Is it user friendly for our branch staff?
•	What aspects of branch banking should not be automated?

3. Increasing focus on product application and better access to centralised product information
4. Tearing down of rigid branch hierarchies and narrowly defined staff responsibilities
5. High levels of workflow optimisation, a strong element of interactivity, entertainment, information transfer and discovery

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The Basel Committee on Banking Supervision issued consultative documents that outline its proposals for the Basel III regime. We analyze the impacts of proposed Basel III regulatory changes on the equity Tier 1 ratios of top banks in China, Hong Kong, Indonesia, Malaysia, Singapore, and Thailand. We find that Asian banks are well prepared for Basel III; only banks in Singapore, China, and Malaysia will be impacted to some extent.

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