SMEs propel growth in Asia’s corporate banking

Asia’s CIB is projected to grow by 7% annually through 2027.

Asia's corporate and investment banking (CIB) accounts for nearly half of global CIB revenues totalled at US$1.4 trillion, and the small and medium enterprises (SMEs) are the key driver of this growth. 

Nilesh Gupta, Partner at McKinsey & Company, pointed out that SMEs are playing an increasingly prominent role in the region’s CIB sector, particularly in transaction banking.

“SMEs actually make up over half of the overall Asia CIB opportunity and Transaction Banking. SMEs themselves makeup over a quarter of the total opportunity pool,” Gupta explained.

Once overlooked, SMEs are now a top priority for financial institutions. "[Before], they would tell me that they don't actually have enough data. It is very manual, and therefore they’re quite wary about operating with the segment. Fast forward to now, and they can't stop talking about the SME segment in any conversation,” he added.

One of the factors driving this shift is the increasing formalisation of SME operations, with many businesses adopting digital tools and payments. “SMEs are becoming a lot more digital and modern in their business themselves,” said Gupta. 

“SMEs adopting a lot more low-cost ERP solutions, preferring digital banking solutions a lot more than going to the branch,” Gupta noted, adding that this digital transformation has made SMEs more attractive to banks by lowering operational costs.

In the broader context of Asia’s CIB sector, Gupta highlighted that corporate lending and transaction banking dominate the revenue pool, accounting for 93% of the total opportunity in 2022. These areas are expected to continue growing at a compound annual growth rate (CAGR) of 7% through 2027. In contrast, investment banking and sales and trading represent only 7% of the market and are projected to grow at a much slower pace of 1-2% annually.

Growth across Asia’s CIB landscape is also uneven, with countries like China, India, and Indonesia—the “growing giants”—leading the charge. 

Gupta noted that these markets benefit from low risk costs, which have been at their lowest in the past decade. “Risk costs in India, China, and Indonesia have been around one to 2%, which are actually the lowest they have been in the last 10 years,” he explained. This has created a favourable environment for banks, allowing them to confidently deploy capital and invest in these fast-growing markets.