Industry Overview

Financial Industry

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The Banking Industry in Asia is an evolving and changing landscape. The regulatory climate is dominated
by state banks and individual governments. Despite the best efforts of some, Asia has no unified governing authority. Since the Asian Financial Crisis of 1997-98 there has been significant reform driven by local governments and concerns over capitalization, corporate governance, risk management and operational inefficiencies. Despite these changes, concerns and doubts still linger.

Between 1996 and 2001 profits of the top 1,000 banks in Asia (excluding Japan ) grew by only 6%. Banks
in Japan reported $50 Billion in loses during 2001. During the same period profits of the top 1,000 banks worldwide grew by an average of 18%. Even today in 2005, banks have not rebounded to their pre-crisis levels, and non-performing loans continue to plague the portfolios of banks in many Asian countries.

Despite its' problems, Asia will be one of the largest growth markets over the next ten years. Retail banking revenue alone is expected to top $180 billion by 2010 and nearly 100 million Chinese will be issued their
first credit card during the same period. Japan and China will be the second and third largest credit card markets in the world (in terms of card holders) behind only the United States .

Recent years have seen growth in the financial sectors and increased industry wide consolidation. Over
the past five years mergers and acquisition activity has grown steadily, a trend that is likely to continue as banks and governments struggle to comply with the new capital adequacy and regulatory standards.
Asian countries have approached these issues from different angles and as a result countries have met
with differing success. In order to be competitive in Asia institutions must have knowledge about the unique banking climate for each country. The differences in the pace of development amongst the various countries of Asia have led to lucrative opportunities for cross-border investments and domestic consolidation within
the banking sector. The bankable population in Asia is likely to more than double within the next decade.

Future opportunities are not without their risks. Asia continues to have problems with non-performing
loans, under-developed capital markets, weak corporate governance, and political instability. Progress
will be slow and difficult.

The banking opportunities that will begin to materialize in Asia have the most potential of any market worldwide. The potential for profit is enormous however the risks are high as well. Anticipation of market movements will be an essential skill for any entity hoping to profit from the huge opportunities in Asia. Regardless of the issues and concerns manifest in Asian finance, it is clear that any organization who
ignores the opportunities for growth in the Asian markets will suffer a serious competitive disadvantage in the future.

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