HONG KONG/PARIS BNP Paribas's(BNPP.PA) second attempt since 2010 to expand in Asia is a bold move by the bank, as it plans a big hiring push at a time when many Western banks in the region are still scaling back.
BNP's Asia revamp is the first sign this year of a broad regional, investment banking growth plan in a part of the world where revenues in the sector have dropped and costs have risen. While other banks are selectively growing certain investment banking or trading units amid broader cuts, BNP's ambitious plan to hire 1,300 bankers over three years in Asia is the most eye-catching move yet.
But in a change from its traditional business model in Asia -- partly forced upon it by regulatory pressure at home -- the bank plans less big corporate lending against its own balance sheet and more indirect financing and advisory work.
That could be difficult, say some analysts, in a region where corporate clients expect their banks to "pay to play".
"If BNP is thinking they are going to get those ancillary businesses without providing the loans, that's wishful thinking," said Ismael Pili, head of financials research for Asia at Macquarie Securities.
GRAPHIC-BNP Geographic mix, click link.reuters.com/nyj46t
GRAPHIC-BNP Asia presence, click link.reuters.com/pyj46t
GRAPHIC-Loan league table, click link.reuters.com/wak46t
The damage inflicted on balance sheets by the eurozone crisis prompted BNP, like its peers, to withdraw parts of its business from Asia in 2011, offloading billions of dollars of loans to other banks in a painful bout of "de-leveraging".
Now, supported by a stronger capital base than its domestic rivals, BNP hopes to build on its traditional strength in trade finance and fixed income and derivatives in Asia whilst others remain hunkered down in Europe.
"We have completed the adaptation process and we're out of the blocks ahead of most of our competitors," said Eric Raynaud, CEO of Asia Pacific, in an emailed response to Reuters.
Those competitors will be closely watching to see how France's biggest listed bank fares against lenders from Japan, Singapore and China who were quick to step into the gap left by European banks and are likely to defend their new turf fiercely.
BNP plans to grow in most business units in China and Indonesia and will invest in its regional hubs Hong Kong and Singapore. It is ramping up in trade finance, interest rate and commodity hedging, private banking and insurance, Raynaud said, adding that it planned to expand its corporate lending book by more than 50 percent in Asia.
It's a gutsy strategy for a bank seeking to regain its footing in a high growth region, and one some critics believe may be too ambitious.
"There is still a lot of local competition...It's not in the bag for BNP," said Philippe Bodereau, managing director at London-based Pacific Investment Management Co., the world's largest bond investor.
After beefing up its Asia loans team last year, the bank said in its quarterly report in February that it wanted to add more than 1,000 employees in the region over three years in its investment solutions and corporate investment banking divisions.
The two divisions, which include wealth management, fixed income and insurance, already have 8,000 employees -- a big team by Asia investment banking standards. The bank wants to increase annual revenues from these businesses to more than 3 billion euros by 2016 from 2 billion now.
Investors so far seem to be supportive of BNP's latest Asia plan, at a time when growth is slowing in Europe, though concern is surfacing about the tough competition posed by local banks and the cost of expansion.
"For European investors, revenue plans don't tell you anything. They don't tell you about what it will cost," said Nick Davey, an analyst at UBS in London, who has a neutral rating on the stock. "Geographically, Asia makes a lot of sense but I can understand why the shares have not responded more enthusiastically."
The bank did not detail the cost of expansion. Its shares have fallen around 5.4 percent since the announcement, though the dip is associated more with the economic weakness in the eurozone. Societe Generale (SOGN.PA) is down 6.2 percent and Credit Agricole (CAGR.PA) fell 3.5 percent in the period.
According to a senior executive based in Hong Kong, the bank aims to double revenues from insurance over the next 5 years and sees growth potential in debt capital markets, with a focus in greater China. The bank also expects to garner fees from foreign exchange transactions, particularly in China's currency.
"We want to be cash rich. Our strategy is to have more and more indirect financing, less balance sheet exposures," the executive told Reuters.
Another senior executive said the bank does not plan to return to its corporate lending business on the scale it was operating on three years ago. The executives were not authorised to speak on the record.
One challenge that BNP faces with its Asia plan is winning back clients' confidence following its retreat, at a time when investment banking revenues in the region are shrinking.
Royal Bank of Scotland (RBS.L) and Barclays (BARC.L) are among the European banks that pared down in Asia in the last year. Credit Agricole and SocGen have also been scaling back.
The February announcement is not BNP's first Asia comeback effort. It had rolled out a regional growth plan in December 2010, aiming to more than double revenues within three years.
One year into the plan, the bank was in retreat mode, hit by the eurozone crisis. In 2012, it dropped down the Asia mandated loan bookrunner league table standings (excluding Japan) to 22nd from 11th in 2010, Thomson Reuters LPC data shows.
Mizuho Corporate Bank MZFGAE.UL, Sumitomo Mitsui Banking Corp (8316.T), OCBC Bank (OCBC.SI), HangSeng Bank and UOB (UOBH.SI) were among the lenders that replaced Western banks.
Standard Chartered (STAN.L) and HSBC (HSBA.L) and Chinese banks also took on the market share that was left behind, stepping up loan syndication, trade finance and cash management -- profitable segments that BNP is now eyeing.
BNP aims to climb back to the top 10 in lending, said one of the sources.
"Our operations in Asia Pacific have always been sustainable and profitable and obviously our plan is to continue to grow a profitable and self-funded business," Raynaud said. "We are back to business and ready for growth."
(Additional reporting by Stephen Aldred and Lawrence White; Editing by Michael Flaherty and Alex Richardson)
Trending On Reuters
India will release data on Monday showing it remains one of the fastest growing economies in the world, but economists are struggling to reconcile that rosy picture with ground realities like weak exports, investment, and flat corporate order books. Full Article