The value of mergers and acquisitions in the Asia-Pacific banking sector is soaring this year as regional lenders seek to take advantage of the weakness of global rivals to grab market share or spread geographic reach.
Regional banking deals in the first five months of the year totalled $35.3bn, easily outstripping the $19bn full-year figure for 2007, and the $15bn for 2006, according to figures from Dealogic, the data provider.
Bankers say the tough financial conditions facing lenders in the US and Europe in the wake of the credit crunch are providing Asian banks with the chance to pursue M&A opportunities that previously favoured global banks and private equity.
Bankers believe 2008 could surpass the peak year of 2005 when $69.2bn worth of Asia Pacific deals were recorded, largely thanks to the $59bn all-Japanese tie-up of Mitsubishi Tokyo Financial Group and UFJ Holdings.
The biggest deals of this year include the proposed $18bn takeover of St George Bank by Australian rival Westpac, and China Merchants Bank’s $4.7bn offer for Hong Kong ’s Wing Lung Bank.
There has also been a spate of multibillion-dollar deals involving domestic takeovers in India and Japan, and a flurry of cross-border investments involving banks in south-east Asia.
“This is set to be a strong year in Asian banking for overall deal volumes,” said Olivier de Grivel, head of the financial industry group in Asia Pacific for JPMorgan, which advised on CMB’s pursuit of Wing Lung.
The dynamics driving consolidation differed across the region’s markets, said Mr de Grivel. Activity in Australia was centred on domestic consolidation, while large banks in China and Japan were looking to spread their reach by acquiring control or minority stakes in lenders in Asia and beyond.
Rob Jesudason, head of financial institutions group, non-Japan Asia, for Credit Suisse, which advised Wing Lung on its sale, said about 20 banks in Asia Pacific were looking to become regional champions. The majority had ample cash reserves to fund acquisitions.
He said: “At this stage in the cycle, Asia’s banks are advantaged with regards to inter-regional consolidation given that US and European financial institutions are focused on repairing their own balance sheets. The Asians realise this.”
Regulatory barriers to foreign investment in the financial sector in fast-growing countries such as India, are likely to restrict some M&A opportunities. However, activity in the broader financial institutions sector in the region is also expected to grow strongly.
IAG, the Australian insurer, last month spurned an $8bn takeover move from domestic rival QBE, while China’s largest insurance companies are scrambling to expand their overseas footprint.