Banking in 2050: How big will the emerging markets get?

In March 2006, we published a report highlighting the rapid growth and increasing global significance of what we called the 'E7' emerging economies: China, India, Brazil, Russia, Mexico, Indonesia and Turkey. By 2050, we estimated that the E7 economies could be larger than the current G7 by between 25% and 75%, depending on the measure used. In this new report, we show that the E7 economies are also likely to become increasingly significant in the world of banking. Specifically, our projections suggest that: Over time, the banking sector is going to grow significantly faster than GDP in these emerging economies as they develop; In our main scenario, total domestic credit in the E7 economies is likely to overtake total domestic credit in the G7 economies within the next 40 years; Total domestic credit in China is likely to overtake the UK and Germany by 2010, Japan by around 2020 and the US by 2045; India is likely to emerge as the third largest domestic banking market in the world by 2040 and could grow faster than China in the long run; Brazil, Indonesia, Mexico, Russia and Turkey all have the potential to develop banking sectors of comparable scale to major European economies such as France and Italy before 2050; Many E7 economies already have relatively profitable banking sectors, and our estimates suggest that total profits from domestic banking in the E7 will be around half those in the G7 by 2025 and larger than in the G7 before 2050; M&A activity in the emerging market banking sectors is likely to show correspondingly strong growth over the next few decades as domestic and international banks jockey for prime position; Restructuring of emerging market economies will give rise to many more opportunities for private equity firms; and Banks from emerging economies will start to make major acquisitions in developed markets to gain better access to capital markets and to acquire expertise and know-how.In short, no bank can afford to ignore the E7 in its future strategy, but this also means that these markets will be highly competitive. Adopting the right strategy and maintaining a competitive edge in these emerging markets will pose a major challenge for North American and European banks seeking to make the most of these markets and identify the right local acquisition targets and strategic or joint venture partners download