How an ageing population is reshaping Asian finance

Asia is undergoing a demographic transformation, with the population anticipated to peak in the next 15 years; by 2050, the population aged 65+ is expected to double. These changes will lead to a rising dependency ratio and have a substantial effect on Asian economies and banking systems. It is essential to comprehend how the pace of these demographic changes differs across markets, recognize the uniqueness of each market, and evaluate how banks and financial institutions in those individual markets are equipped to navigate these challenges.

Our analysis identifies three significant megatrends stemming from an ageing population:

1. A reduction in consumer savings
2. A shift in asset allocation from deposits to investments
3. A deceleration in the growth of consumer loans.

We also examine how different economic conditions and specific policy initiatives can lead to variations from the generally observed savings patterns.

The three significant trends mentioned above will have a direct effect on the profitability and strategies of banks in Asia. Firstly, as both deposits and lending activities decelerate, with lending experiencing a more pronounced slowdown, net interest margins of these banks are expected to enter a long-term decline. As this unfolds, banks will be forced to seek alternative income streams, driving them to shift their focus towards wealth management and insurance services. Lastly, we can expect an increase in banking consolidation. With growing challenges, diminishing profitability, escalating regulatory demands, substantial technology investments, and ongoing pressure on profit margins, the trend towards consolidation in the banking sector is likely to intensify.