Six years since the Asian financial crisis of 1997-98, doubts about Asia and its banks still linger. While the profits of the world's top 1,000 banks outside Asia grew an average of 18 percent a year between 1996 and 2001, the Asian banks in the top 1,000 excluding Japan eked out only 6 percent annual growth in profits. In the same period, Japanese banks in the top 1,000 went from generating $7 billion in profits in 1996 to bleeding $50 billion in losses by 2001.

By all measures of financial health, virtually all of Asia’s banks have failed to rebound to pre-crisis levels. The overhang of non-performing loans and their drag on earnings are a persistent problem for most. Because of this and the region's protracted recovery, many multinational institutions have substantially lowered Asia’s importance in their global strategies. Are they right to do so?

Financial institutions that write off Asia risk foregoing one of the largest growth markets of the coming decade. Retail banking alone is expected to add approximately $180 billion in new revenues over the rest of this decade, as much new growth as occurred in the United States in the boom period between 1994 and 2001. By 2010,close to 100 million Chinese are expected to sign up for their first credit card, creating the third-biggest market in the world (in terms of card holders) after the United States and Japan.

Greater competition, fewer business boundaries, the rise of domestic mergers and acquisitions, and increased access to foreign capital are planting the seeds for stronger players to grow and rise to the top. They are forming the foundation for more resilient and rational banking markets across Asia.

To spot these seeds of new growth, bankers must look beneath what seems on the surface to be a messy or even forbidding landscape. The budding opportunities lie in six major trends that will drive much of the growth in Asia’s banking markets: the rise of the modern consumer, the aging population, a growing concentration of wealth, a likely doubling of the bankable population, the emergence of powerful small and medium sized enterprises, and Asia's fascination with new technologies.

Banks that are able to position themselves well in anticipation of these trends stand to benefit from growth rates that the saturated banking markets in developed economies are unlikely to match.

But while the seeds of opportunity are there, no player can afford to ignore the pernicious “weeds” that can stymie growth. These include the growing stock of NPLs that continue to weaken financial systems and impose a tax on economic growth; underdeveloped capital markets that do not yet provide a meaningful alternative to intermediated capital flows; the lack of true markets for corporate control that would allow the full pursuit of strategic M&A;powerful domestic political interests that are unwilling to take the pain of transforming the financial sector; and slow progress in instituting the changes in corporate governance required to promote greater transparency and real accountability to shareholders.
 
The growth opportunities in Asia are among the biggest and potentially most lucrative anywhere. But the interplay between the seeds of gain and the weeds of pain means that while possible profits may be huge, uncertainty is high. Proactively anticipating and leveraging market volatility will be essential.

These balancing acts are the critical context underlying the need for banks to acquire a new mindset to win. This entails accepting that the traditional corporate businesses that make up 70 percent of bank balance sheets have to shrink and that retail banking will rive profits for the next decade. It requires the foresight to build new standardized, low-cost processes that can serve millions of customers through revamped distribution networks. And it means lucking up the courage to abandon legacy personnel policies that protect protect performers and prevent banks from building highly effective sales-oriented cultures.
 
Above all, banks will need a new mindset to win. This includes:

	Employing a shrink to grow strategy
	Leveraging discontinuities
	Revamping distribution networks
	Abandoning legacy personnel policies
	Abandoning the fixation with universal banking

Local banks in particular will have to drop their fixation with universal banking. Instead of creating “one-stop shops” designed to meet all the needs of all their customers, they must focus more on building specialized market positions and business models. They have to adopt customer-centric structures, reconstituting and centralizing the management of their largely independent branches.

For foreign players to adopt the profit mindset, they must give up the old strategy of “flag-planting.” Instead of collecting a string of outposts, they should make heavier, well-considered bets in selected Asian markets to generate material profits on their global balance sheets. They will have to overcome their longstanding organizational inability to develop and execute a coherent, long-term vision. Asia, after all, cannot be won in three years.