China set to be biggest banking market by 2030, new analysis predicts

E7 banking markets are set to overtake those in G7 earlier than projected in a shift that has been accelerated by the global financial crisis, it is claimed.

China could become biggest banking market in the world within 15 years with projected domestic banking assets of over US$30 trillion by 2030 while India is set to overtake Japan by 2035, according to analysts at PwC.

In its Banking 2050 report analysts also predict that E7 domestic banking assets are set to overtake G7, that is the US, Japan, Germany, UK, France, Italy and Canada, in 2036, some 10 years earlier than projected by pre-crisis analysis and the UK will be overtaken by India by 2030 and by Brazil before 2050.

‘This reflects the fact that the global financial crisis has hit the G7 much more severely than the E7. The analysis is based on GDP projections, domestic banking projections and banking profitability projections and assumes governments follow broadly growth friendly policies and that no catastrophic events throw growth permanently off track,’ it points out.

According to John Hawksworth, chief economist, PwC, this fundamental shift in the geography of the world economies will take place during the working lifetime of those at the start of their career with huge implications for job creation, language learning and financial systems.
 
‘The GDP of the E7 countries is currently well behind that of their G7 counterparts but we’ll see them at level pegging within the next two decades and well ahead within the next four. In the banking world, this shift is happening even faster than anticipated and appears to have been accelerated by the financial crisis as emerging market banks have been relatively shielded from the effects of declining asset values,’ he explained.

‘We could now be talking about global banking assets quadrupling to around $300 trillion by 2050 with banks around the world fighting for a share,’ he added.

China is now expected to overtake the US to become the biggest banking economy in the world in about 2023, some 20 years earlier than anticipated by the pre-crisis projections.
 
India, which has particularly strong long term growth potential, could overtake Japan to become the third largest by 2035 if it continues to pursue growth friendly policies.

In practice, this means investing in infrastructure, opening up markets to increased competition, reducing bureaucracy, reducing budget deficits and increasing rural education. In the long run, India could overtake China as China’s growth is expected to slow as its population ages.

Brazil looks set to overtake Germany and the UK by 2045. The exception to the trend is Mexico, which is now expected to overtake Italy in around 2048 as opposed to 2038, the date projected in 2007.
‘We are only about 15 years away from China overtaking the US to become the world’s biggest banking economy. Three of the largest banks in the world by market capitalisation are Chinese and other leaders have heavy emerging market exposure, where they can capitalise on large, unbanked populations and booming demand for financial products. With populations of well over a billion each, access to markets like China and India is critical for growth,’ said Hawksworth.

‘There are a range of M&A options available to both emerging and developed market banks and we can expect to see a mix of consolidation, foreign banks entering emerging markets and banks from the E7 expanding overseas. The E7 doesn’t need the G7 for capital, decision making or consumers so the established economies will have to make a strong case to convince new economy policy makers of the benefits of inviting foreign competition in,’ he added.

The report also points out that socioeconomic issues such as ageing populations and increasing demand for natural resources will also have an impact on borrowing and lending requirements. The banks also need to factor the profound impact of regulation into their scenario planning.