APAC-BFSI-Outlook-2017

with the post-crisis environment has been a challenging task for financial institutions in general. In the case of large-scale multinational banks, adhering to tightened regulations is an arduous process, often extending for years. It is critical for real estate managers to understand these new rules and how they impact the banking industry at large to gauge the e¥ect on property and the workplace. Post-crisis regulations can be broadly classified into three categories: i) Capital & Liquidity ii) Risk & Reporting iii) Governance, Organization & Reforms. Higher minimum capital standards, liquidity and leverage ratios help prevent defaults and help banks to continue business as usual without government support. The latest Basel regulations, agreed upon in 2010-11, stipulate capital requirements of almost 12%, a six-fold increase from pre- crisis levels (2%) for major global banks. This is an expensive proposition which would reduce returns for shareholders, increase pressure from creditors and thus force financial institutions to streamline operations by cutting down on non-profitable markets and service lines. Higher capital bu¥ers and risk weightage for commercial real estate could encourage banks, funds and insurance companies to shift to other asset classes or products that o¥er higher return on capital. On the other hand, these companies could continue to lend at higher costs, thereby pushing up commercial property rents and cap rates while bringing down capital values. Stress testing is another regulatory requirement in the banking industry to manage capital levels. Introduced in 2009, this has become an e¥ective tool for regulators to assess a bank’s capital adequacy, governance structure, risk and preparedness. Repeated failures in these tests could dent a bank’s reputation, adversely impacting the management, and may push the bank to shrink operations and/or sell assets to raise capital.

Following the Global Financial Crisis (GFC, 2007-09), national governments and regulators around the world have drafted stringent rules to strengthen the banking system and safeguard the industry. The current financial sector landscape forces banks to adapt and evolve to remain profitable amidst a tougher regulatory environment, sharpening their focus on costs and performance. Pressure on profitability is compelling many banks to close poorly performing service lines, and ultimately cut jobs and reduce their oŸce footprint, the two biggest operating costs. Banks are often under tremendous pressure to automate and outsource functions that were traditionally held in-house. A number of banks are cutting space requirements in CBD areas and shifting back-oŸce services to cheaper locations, such as business parks in suburban areas. For example, in Singapore, Standard Chartered Bank has consolidated its footprint in Changi Business Park while reducing its presence in Marina Bay Financial Centre Tower 1, and Barclays gave up space in One Raªes Quay South Tower last year. In London, several banking groups are subletting space in Canary Wharf and moving to lower-cost locations following job cuts. Credit Suisse has sublet nearly 300,000 sf that was occupied by Bank of America Merrill Lynch after relocating 1,800 jobs. Global financial institutions are already struggling under intense regulatory scrutiny. Further regulations can only mean that the landscape will be under intense pressure in the coming years. Tightening regulations post-GFC The GFC proved that the then-existing rules were inadequate to protect the banking system and highlighted the vulnerability of financial institutions during catastrophic events. However, the regulatory aftermath of the GFC has taken a toll on the banking system worldwide, and coping

16 ASIA PACIFIC BFSI OUTLOOK 2017