Asia makes headway in banking revamp

Asia makes headway in banking revamp

By P. Parameswaran

SINGAPORE (AFP): Crisis-hit Asian economies embracing reforms
to their battered financial sectors have made much headway in
restructuring banks but are lagging in the key area of corporate
governance, experts say.

Citing the current Bank Bali scandal in Indonesia, experts
from the influential Pacific Economic Cooperation Council (PECC)
cautioned governments that half-hearted bank restructuring would
create even bigger problems.

The financial sector was the worst hit in the Asian financial
crisis which erupted in mid-1997 and plunged much of the region
into a recession.

Most of the affected economies are now feverishly phasing in
reforms and attempting to rehabilitate the financial sector by
cleaning up banks' balance sheets, closing down unviable
institutions and strengthening regulatory supervision.

"There has been good progress on financial restructuring and
the next priority should be corporate sector regulation and
development of management systems for the corporate sector," said
Christopher Findlay, chairman of PECC's Coordinating Group.

He was among the experts who attended a closed-door technical
workshop here this week on financial sector reforms and the
restructuring of bank and non-bank corporations.

The meeting was organized by PECC, a unique partnership of
business leaders, researchers and officials from 23 Asia-Pacific
economies, as well as the World Economic Forum and the Institute
of Southeast Asian Studies.

Findlay said that corporate governance principles to be
adopted should be "credible and compelling to the market place."

"I think the market is not sufficiently impressed by the
extent of restructuring in the corporate management side," he
told AFP.

Jesus Estanislao, chairman of PECC's financial markets
development group, said a specific example of slow progress in
corporate governance in crisis-hit nations was in the area of
valuation of assets in line with market procedures.

"It is a difficult process in different economies. For
example, even if you set up institutions to handle asset
disposal, that does not necessarily mean that asset disposal is
going to be done in a very nice, smooth way.

"There are still institutional, cultural, confidence problems
that come up," said Estanislao, a former Philippine finance
secretary.

He said that based on market feedback, the "most significant
progress" in financial reforms in Asia was in bank restructuring
"with still work to be done in corporate governance."

"It's very easy for governments to come and say they want to
bail out banks and convert debt into equity but the moment you go
into the enterprise level, the corporate level, that is not so
easy," Estanislao said.

Marie Pangestu, PECC's trade policy forum program coordinator,
said the issue of who banks lent money to was vital because "you
can rehabilitate banks but if the non-performing loans are bad,
then a restructured bank may be an insolvent bank again."

Citing the Bank Bali scandal, she said: "It is a major setback
to financial sector reforms because it brings to the forefront
the issue of rule of law and whether some people can be above the
law."

Bank Bali paid US$80 million in commission to a private
company owned by an executive of Indonesia's ruling Golkar party
for the recovery of its loans to three banks closed by the
government.

The Bank Bali scandal threatens a costly bank restructuring
and recapitalisation drive and has weakened foreign and domestic
confidence in Indonesia's banking sector and the government,
economists say.

"The job of supervising the banks that have been restructured
is very important because if you don't do it properly obviously
you may have to either close more banks down or have another
round of recapitalisation," Pangestu said.