Titien Ahmad talks to Richard
Williamson, general manager, Asia strategy for Commonwealth Bank of
Australia, about his bank’s plans for the Asia-Pacific market – in
particular the focus on the fast-developing mortgage market across
the region, which he says represent strong growth opportunities for
bold banks.

Apart from ANZ, Australia’s third-largest banking group,
Australia’s banks are not known for their forays into neighbouring
Asia. While ANZ has begun to distinguish itself, buying into a
number of markets such as China, India, Vietnam and Malaysia, the
other Big Four banks in Australia have largely sought safer
pastures elsewhere.

In an interview with RBI, Hong Kong-based Richard
Williamson, general manager, Asia strategy for Commonwealth Bank of
Australia (CBA), the country’s largest bank, said of his company’s
plans for the Asia-Pacific region: “We have strategic investments
in Asian banks – mortgages is one area where we are devoting some
focus at the moment.”

In particular, he sees an “upside in terms of customers” for
mortgage markets across Asia: “We think there is a lot of upside.
At the macro level if you look at the Asian economies there’s a
burgeoning middle class and an increasing amount of wealth among
mass consumers in Asian countries. The growth rate of premium or
high-net-worth customers is quite staggering.

“Higher wealth at an individual level would have an impact on the
mortgage business – there is a correlation between GDP per capita
and housing finance. Credit quality is generally very good across
Asia. There are a few examples where Asian mortgage markets have
seen through tough periods and credit quality has held up.”

A tendency to default

There is a tendency, according to Williamson, “that customers will
default on unsecured finance rather than secured or mortgage
finance if they are stretched. There is anecdotal evidence that if
customers are stretched and over-extended the default would have
already occurred in their credit cards.”

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He does not see overextension as an issue for banks in Asia even
though good growth rates are often coupled with frenzied lending.
“Asian regulatory bodies have been very conservative in terms of
guidelines and lending policies. The trend is for regulators to
increase their conservative stance and increase the loan-to-value
ratio that banks can lend,” he said.

“From our perspective, it is understandable that regulators would
be getting involved in these areas. We have some markets where
growth rates are staggering. You have China growing at 30 percent,
India at 30 percent and Indonesia at close to 30 percent. Even some
of the mature markets like Taiwan are growing at double digits and
Japan at high single digits. It is understandable that regulators
do not want to see customers over-extended.”

China – half the size of Australia

Commenting on the prospects in China and India, Williamson said:
“There are attractions in both markets. The mortgage market in
China is larger than India as a statement of fact. The China market
is about half the size of the Australian mortgage market.”

The attractiveness in China, according to Williamson, is that
interest rates are regulated – an issue that has had some foreign
banks lamenting on what is commonly seen as a restrictive policy.
“India is interesting for different reasons,” he said. “It is a
smaller market at the moment but there is a huge momentum of growth
behind it. We see high growth rates and very attractive

Between the two high-growth markets, Williamson says, “China, by
our internal estimates, has an internal rate of return that is the
most attractive in Asia”.

Across the markets, product differentiation has been limited. “To
some extent, you do not see the proliferation of different products
in many Asian markets that you see in others. Products that you see
in US, Europe and Australia such as risk-based loans, pension fund
mortgages and revolving facility products are not seen much here,”
he said.
From Williamson’s research, financial intermediation of mortgages
is more developed in Asia with over 50 percent of mortgages
brokered by external parties as compared to around 40 percent in
Australia. However, 50 percent of most transactions are primary
market transactions which make property developers very influential
in the intermediation. “Property developers are quite influential
in the customer’s selection of a mortgage provider. Next in
importance is the real estate agent. Distribution thus becomes
important when you have a higher level of disintermediation but not
quite through Western-style mortgage brokers,” Williamson said. “In
markets like the Philippines and Hong Kong, there is a close
relationship between developers and mortgage providers. We
generally see a closed loop around construction finance and
mortgages – the bank that secured the construction finance will get
a mortgage.”

Commenting on the subprime debacle that has affected banks not just
in the US but the UK and Germany, Williamson said: “It’s difficult
to see a similar scenario unfolding in Asia for a few reasons. The
percentage of mortgage assets over total assets in the balance
sheets for Asian banks is far lower than in Western markets. In the
latter, the proportion can be more than 50 percent, whereas, for
example, it is around 10 percent in China.”

Looking ahead, Williamson sees “new entrants in selected Asian
markets. There are lots of opportunities to differentiate through
product design, packaging and pricing. The challenge will be around
funding for many of the Asian markets. In Japan and Korea, there is
a good legal framework and infrastructure for securitisation but in
some others, funding can be an issue for new entrants competing
against incumbents that have significant branch networks and retail