Cerulli Associates, a Boston and London-based consultancy, has released a report that highlights Citibank's dominant role in distributing mutual funds across Asia ex-Japan. "Citibank is the bank of choice not only in the region but at an individual country level," says Shiv Taneja, senior analyst in London.
The report, 'Asian Bank Distribution', predicts that by 2006 bank distribution will account for 51% of assets under management in the main markets of Hong Kong, Singapore, Korea and Taiwan, up from 39% in 2001. In absolute terms, banks now account for $45.5 billion of assets under management in those four markets, and will grow annually by 25% to distribute $131 billion by 2006.
Except in Hong Kong, Citibank's two regional competitors, Standard Chartered Bank and HSBC, have failed to keep pace. "Citibank is either number one or in the top three in every market except Korea, where it is number four - and it has only been selling funds there for about two years," says Taneja. "But the supermarket approach by Standard Chartered and, more recently, HSBC isn't working. They lack the regional approach. They have people in place regionally but the strategy has not yet come together. The various branches don't seem to talk to each other."
Instead StanChart and HSBC are strong in particular markets but lack a consistent top-tier presence, says Taneja. But that could change. HSBC is a relative newcomer to mutual fund distribution, and is putting down strong roots in new markets such as Korea.
Local banks also dominate in many markets. DBS Bank rules the roost in Singapore, while Kookmin Bank leads a fractious field in Korea. Others are seen as potential rivals to the top three regional players as well: Bank of China has the brand, the branch network and the customer base to threaten in Hong Kong, if it gets its strategy right.
Taneja outlined two threats to the banks. One is falling quality of sales staff at the retail level. He says banks have grown market share not because of their amazing service, but because in markets such as Hong Kong and Singapore there is no real alternative. Moreover the independent financial advisory industry has never got off the ground. So retail service on funds become lax.
In an unchanging world this would not matter, but insurance companies are rapidly emerging as powerful fund distributors in their own right. "Insurance companies aren't necessarily better than banks but they have the same size, scale and ability to push product," Taneja notes.
For now he sees no one insurance firm achieving a regional dominance a la Citibank. Rather he sees big players such as AIG and UK's Prudential establishing strongholds in particular countries, as Standard Chartered and HSBC have done. "The insurance companies may be reinventing the same mistakes as the banks," Taneja says.