IMF sees larger foreign bank role in Asia
IMF sees larger foreign bank role in Asia
SEOUL (Reuters): Foreign banks will likely have a larger
presence in Asia's highly-protected financial sector under recent
reforms agreed with the International Monetary Fund, IMF Asia-
Pacific director Hubert Neiss said yesterday.
"That could well be, and in principle, this is very
desirable," Neiss told Reuters in an interview.
"The banking system now needs additional capital and
additional managerial expertise and both can be obtained through
greater openness to foreign participation," he said.
The IMF has spearheaded bail-outs totaling some US$116 billion
for Indonesia, Thailand and South Korea. Reforming their
financial systems was a key element in the rescue packages.
In all three countries, impediments to foreign ownership in
the financial sector have been removed, although a number of
restrictions remain.
Asian nations have in the past been reluctant to open up their
financial sectors, fearing their underdeveloped systems could not
stand up to foreign competition.
"It is a legitimate worry about the process," Neiss said.
"The process has to be very carefully handled. Local banks
have to be strengthened by this process. But if you shut out
competition, then local banks will not restructure. They will
deteriorate and sooner or later you have another crisis.
"But the way to introduce proper competition, yes, that has to
be carefully handled," Neiss said.
Weak banking systems were at the heart of the "Asian
contagion" that started with the bursting of a real estate bubble
in Thailand a year ago and swept across Southeast Asia into the
Northeast.
Reforming them is key to solving the crisis, Neiss said.
"These are reforms that by their very nature take time. You
cannot reform a banking system overnight, or in weeks or in
months. This will take a couple of years.
"But what is more important is to make a strong and credible
beginning and that is being made," he said.
The reforms are focused first on recapitalizing banks. They
are also aimed at streamlining operations so banks can meet
international standards for capital adequacy, debt provisioning
and defining bad debts and assets. Finally, they seek to set up
more efficient bank supervision systems, Neiss said.
One of the lessons being drawn from the Asian crisis was that
the banking system had not grown in tandem with economies which
had been fueled by massive amounts of foreign capital.
Banks were financing themselves through short-term foreign
borrowing and making medium- to long-term loans to sometimes
questionable projects, Neiss said.
"So the banks ended up with non-performing loans and as their
repayment flows came into difficulties the banks themselves had
difficulties to repay their own foreign loans and that led to a
loss of confidence not only in foreign markets but in domestic
markets.
The rapidity with which capital flew out of the region "was
shocking", Neiss said, describing it as a "new aspect of this
crisis".
"Therefore it was so important to restore and maintain
confidence," he said.
"The outbreak of the crisis was made very rapid by the immense
amount of foreign capital that is now very mobile and very
volatile.
"Therefore, all programs in all countries are centered on
strengthening the domestic economy through long-term structural
reform in the financial sector," Neiss said.