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.