Top 3 threats that could cripple Asia Pacific banks' ROEs by 2018

Weakening balance sheets is one.

While each country presents a unique situation, McKinsey & Company reveals that banks in every Asia-Pacific country will be affected by three threats now taking shape:

Slowing macroeconomic growth: The economic slowdown rolling across the region will affect banks and their customers, especially in the corporate sector. In China, for example, real GDP growth rates fell below 7 percent for the first time since 2000, hitting 6.9 percent in 2015. We also expect banking profit growth to slow from 10 percent annually between 2011 and 2014 to 3 percent between 2016 and 2021.

Attackers from outside the industry disrupting financial services: FinTechs—start-up technology companies offering financial products such as payment systems and lending platforms—and established companies from outside the industry, such as Alibaba, are encroaching into traditional banking territory.

ƒƒWeakening balance sheets: An increasing volume of non-performing loans is putting added stress on banks, as interest-coverage ratios are declining at large companies throughout the region, especially in China and India. McKinsey analysis indicates banks in Asia need to raise $400 billion to $600 billion in additional capital by 2020 to cover losses from non-performing loans while maintaining capital adequacy ratios.  

"These three threats could come together in a powerful storm with the potential to cripple ROEs by 2018. Banks that simply try to wait out the storm will likely find themselves struggling for survival, but those that take action can uncover growth opportunities and measures that could help rekindle their momentum," says McKinsey.