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JAKARTA (TheInsiderStories) – Moody’s Investors Service says that rapid and divergent demographic changes in Asia Pacific will lead to opportunities for some banking systems in the region and challenges for others.

“Over the next decade, of the 17 banking systems in Asia Pacific, banks in Japan, Hong Kong, Korea and Taiwan, in particular, will face challenges from the effects of shrinking prime-age populations and declining proportions of working people,” says Christine Kuo, a Moody’s Senior Vice President.

By contrast, banks in India, Indonesia and the Philippines will see growth opportunities in the same period from the effects of rapidly growing prime-age populations and increasing proportions of working people, adds Kuo.

Moody’s also says that favorable demographic trends will benefit banks the most when accompanied by income growth and technological advancements.

Moody’s identifies India, Indonesia and the Philippines as banking
systems where income levels are growing, against the backdrop of
favorable demographic trends. Moody’s also says that technological
advancements in Indonesia and the Philippines will help banks in these two economies acquire more customers.

Moody’s explains that banks in several Asian economies are facing
shrinking core customer pools. In particular, prime-age populations — comprising people aged 25-64 — are set to shrink in many Asian countries, and for banks, this situation means that their core customer bases will dwindle.

Between 2017 and 2030, prime-age populations will fall in China, Japan, Hong Kong, Korea, Taiwan and Thailand by 3 percent to 10 percent. The shrinking core customer pools will hurt bank profits, a credit negative, as banks try to offset the effects of shrinking core customer pools through price competition; offering more attractive interest rates or fees to lure new customers from their competitors.

In addition, markets with rising proportions of retirees will show slower economic growth; a situation which will also prove detrimental to bank profits. And, banks that are under profitability pressure will start focusing on cost management, affecting branch operations and staff numbers.

Another focus area for banks facing shrinking customer pools will be the tapping of underserved customers, while deepening relationships with existing customers. However, achieving either will be challenging in some economies with a shrinking core customer pool, as well as high penetration rates and leverage.

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