DESPITE the uncertain market conditions, close to half (48%) of banks in the Asia-Pacific region plan to enter or expand their presence in foreign markets while nearly two thirds (65%) of global banks look set to focus on core activities, according to a study by the Economist Intelligence Unit (EIU).

The study titled Beyond the home market: The future of crossborder banking was conducted by the EIU together with financial software provider SunGard. A total of 275 senior executives from the banking and financial services industry across the globe participated in the study’s online survey from October to November last year.

The EIU, a unit of the Economist Group, which publishes The Economist weekly, is a provider of country, industry and management analysis.

“Many large banks have already expanded overseas in Asia, the region widely predicted to drive global growth post-crisis and which still has a large number of unbanked consumers,” Manoj Vohra, EIU senior editor said in a March 6 statement.

The study found that broadening the customer base was the key motivation for 49% of the respondents. The EIU said the Asia-Pacific region might be seen as both populous and relatively unsophisticated in terms of financial services.

Among the survey respondents, 60% have already expanded overseas in Asia, while just one-third has moved into Latin America, 45% into North America, 45% into the Middle East and 49% into Western Europe. A toehold in Asia appears to be a minimum requirement for many banks with global ambitions.

When it comes to expansion, regardless of the location, nearly two-thirds (64%) of the respondents said that regulatory barriers remain the biggest hurdle despite increased understanding and acceptance of globalisation. Other respondents cited risk and compliance regulations (39%), bureaucracy (35%) and skill shortages (35%).

To expand successfully though, 37% of the respondents believe customer service to be a critical aspect. While face-to-face contact is still seen as an important element of customer service, 40% of bankers believe that multi-channel banking is “extremely important” compared to 9% of those who believe it as “not important”.

Multi-channel banking requires IT platforms but bankers find it challenging to incorporate them in foreign markets.  Only 10% of those surveyed said they have had no problems implementing IT strategy in foreign markets.

Assessing IT infrastructure in foreign markets required the greatest focus on risk management, according to 57% of the respondents. Amid the current market difficulties, banks are putting a higher premium on risk management.

“Old-school virtues are back for now and the focus will be on core banking and home regions, but emerging Asia will continue to offer growth opportunities,” Vohra said.

This article appeared on the Management page, The Edge Financial Daily, March 16,2009.