Further shakeout seen for vulnarable ASEAN banks<\/p>\n
Eileen Ng, Agence France-Presse, Kuala Lumpur<\/p>\n
Southeast Asian banks remain vulnerable five years after the
\nregional financial crisis and a further shakeout in the sector is
\ninevitable over the next five years, industry experts say.<\/p>\n
ASEAN banks face a new \"strategic crisis\" driven by new
\ntechnology, more demanding customers, deregulation and increased
\nforeign competition, said Jens Lottner, a principal with U.S.
\nconsultancy firm McKinsey and Co.<\/p>\n
Lottner told AFP on the sidelines of an Association of
\nSoutheast Asian Nations (ASEAN) banking conference last week that
\nregional banks have not fully recovered from the 1997\/98
\nfinancial turmoil.<\/p>\n
Singaporean banks are way ahead of the pack but their non-
\nperforming loans (NPL) level of 8.1 percent this year, down from
\n12.2 percent in 1997, is still far from the 3.9 percent mark in
\n1995, he said.<\/p>\n
Mixed progress is seen in Malaysia where banks' capitalization
\nand profitability have been strengthened by the merger of its 54
\nbanks and financial institutions into 10 core groups but NPL
\nremain high at 11 percent compared to 4.9 percent in 1995, he
\nsaid.<\/p>\n
Thailand's financial institutions are still struggling, banks
\nin the Philippines and Indonesia are \"in trouble\" with weak
\nprofitability and high NPLs while those in Cambodia, Myanmar,
\nLaos and Vietnam lag far behind, he said.<\/p>\n
\"Despite progress, ASEAN banks have not returned to their pre-
\ncrisis growth paths and remain in a vulnerable position either in
\nterms of high non-performing loans, weak capitalization or low
\nprofitability,\" he said.<\/p>\n
Lottner said the number of ASEAN banks have shrunk to between
\n200 and 300 after the 1997 crisis but many small sub-scale banks
\nremained.<\/p>\n
Banks with less than one percent market share make-up 88
\npercent or 130 out of 148 remaining local banks in Indonesia,
\nwhile in the Philippines they account for 73 percent or 33 out of
\n45 banks left.<\/p>\n
Lottner, who presented a paper to some 150 ASEAN bankers on
\nboosting competitiveness in the globalization era, said there was
\na general consensus among delegates that \"banks must get their
\nacts together.\"<\/p>\n
\"There is an urgent need to clear the deck and get things
\nsorted out. Over the next five years, we are going to see some
\nsignificant changes. It is very clear that there will be a
\nfurther shake-out,\" he said.<\/p>\n
European and U.S. banks currently \"dominate winning positions\"
\nin the region and to compete, ASEAN banks must close gaps in
\nterms of skills, scale and scope of products, revamp their risk
\nmanagement, add new capital and manage NPLs aggressively, he
\nsaid.<\/p>\n
They must seek strategic alliances with foreign institutions
\nor form a regional consortium to pool their resources to cut cost
\nand build economies of scale, yet maintain their independence.<\/p>\n
\"There are enough examples in the world where not the biggest
\nwon but the smartest and fastest, so it's hard to predict who
\nwill be winners.<\/p>\n
\"There will be banks coming up over the next five years which
\nwill not be on the radar screen right now. The ultimate end game
\nis likely expansion beyond ASEAN shores to become a regional
\npowerhouse,\" he added.<\/p>\n
The biennial ASEAN conference, which ended Friday, was aimed
\nat exploring ways to boost regional banking alliances.<\/p>\n
The Association of Banks in Malaysia chairman Rozali Mohamed
\nAli has urged banks to discard obsolete practices and be
\ninnovative to cope with market liberalization under the World
\nTrade Organization.<\/p>\n
He said \"cross-industry mergers and alliances\" would be the
\nway forward for regional banks.<\/p>\n
\"ASEAN banks are picking up the pieces after the 1997 crisis
\nand we must now evaluate to see what's in store for us,\" said Nik
\nHassan Nik Mohamad Amin, Malaysia's Bumiputra-Commerce Bank vice-
\npresident.<\/p>\n
\"We must be ready before the floodgate opens. We must change
\nthe way we do our business and build new operating models to
\nsurvive.\"<\/p>",
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