APAC banks must reinvent themselves or risk disappearing: McKinsey

New Delhi, July 9 () Banks in the Asia-Pacific region must reinvent themselves and prepare for possible consolidation amid a weakening of macroeconomic expansion, says a report by McKinsey that also pointed out that less efficient lenders will disappear.

According to McKinsey's Asia-Pacific banking review, most banks in the region will face an existential choice: unlock the potential for scale to increase productivity, optimize capital and seek strategic growth or prepare for acquisition .

As storm clouds continue to darken over the region's banking industry, with a weakening of macroeconomic expansion, a continued compression of bank margins and an increase in capital and risk costs, banks must reinvent themselves as digital organizations , based on data, and prepare for change or possible consolidation, he said.

The report added that less efficient banks will disappear.

The survey findings for India indicated that the return on average capital fell from 11.3 percent in 2014 to -2.0 percent in 2018.

The impact of lower margins, higher cost of risk and lower cost efficiency has been mitigated by lower taxes, he added.

The report also noted that India's four major players have less than 35 percent market share, suggesting the potential for consolidation.

Jacob Dahl, a senior partner at McKinsey u0026 Company, said that in order to successfully exit a period of potential consolidation, banks must reinvent themselves or risk disappearing. Banks in the region must redouble their efforts to increase productivity, optimize capital and seek strategic growth. Preparing for consolidation will make the banks get fit to move forward in the next storm.

Banks can prepare for the coming battles and strengthen their businesses by first attacking costs and seeking to achieve market-leading efficiency rates, he said.

Those who develop the best digital and analytical capabilities in their class will also be in a position to capture significant new revenue in four fast-growing businesses: wealth management, retail loans, loans to small and medium-sized enterprises (SMEs) and banking transactions.

Bank loans to SMEs in Asia Pacific are expected to increase 9.1 percent annually to USD 23 billion in 2025. The report added that capturing these opportunities requires banks to develop a customer-centric and data-driven culture that combines the best talent, agile technology and excellence in partnerships, mergers and acquisitions. SUM ANU