ASEAN banks told to forge pacts to face competition
ASEAN banks told to forge pacts to face competition
SINGAPORE (AFP): Local banks in rapidly-growing Southeast Asian economies should team up to face competition arising from financial liberalization, a regional banking conference was told yesterday.
Singapore's Finance Minister Richard Hu said that as global financial markets opened up, banks in the Association of Southeast Asian Nations (ASEAN) region might find themselves unable to compete effectively on their own.
"ASEAN will, therefore, have to consider ways to sharpen the competitive edge of the major ASEAN banks through cooperation alliances with each other," Hu said in a keynote address at the 11th ASEAN banking conference here.
ASEAN, comprising Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, has been growing at a faster rate than developed nations over the past decade.
Hu cautioned that the larger and more established international banks were increasingly expanding their operations into the ASEAN region, thereby presenting greater competition to the locally-incorporated banks.
Citing Europe as an example, he said that with the advent of the European Union, a number of banks there rationalized their operations through mergers or alliances with each other to remain competitive.
Hu said that the environment for such alliances to occur in this region would be more conducive when the ASEAN financial markets were further liberalized.
Opening up the financial sector is one of the programs under ASEAN's move to establish a free trade area in the region by 2003, officials said.
Member economies launched negotiations in January to liberalize their lucrative services sector, which includes financial services.
Talks to achieve an ASEAN Framework Agreement on Services are scheduled for completion in 1998 but the grouping is confident of an earlier date.
The three-day ASEAN banking conference with the theme "Risk Management in ASEAN banks" is organized by the ASEAN Bankers' Association. The conference, held every two years, includes participants from both ASEAN incorporated banks and foreign banks.
Strategies
The association is simultaneously holding the 26th ASEAN Banking Council meeting, restricted to ASEAN incorporated banks and held every year.
Council meetings will chart strategies on cooperation in finance, investment and trade as well as enhance inter-regional relations, officials said.
Hu also cautioned that ASEAN financial markets had to establish an effective regulatory framework before allowing financial liberalization.
"The experience of some countries have shown that it is very difficult to rebuild investor confidence once this is eroded by a financial crisis exacerbated by the inability of regulatory authorities to exercise effective prudential control," he said.
Hu said that banks on an expansion drive should evaluate whether they had adequate internal control and management systems as well as the financial resources to cope with the increased activities and accompanying risks.
On risk management practices, he noted that financial institutions often focused on the more esoteric end of risk measurement techniques.
However, the many recent incidents of huge losses incurred by institutions in derivatives trading, such as the Barings, Daiwa Bank and Sumitomo Corporation incidents, were due to a breakdown of relatively basic controls, he said.