On the role of regional banks and improving capital flows
What needs to be done on the regional regulatory level to liberalise cross-border capital flows in ASEAN and increase financial integration?
TAN CHOON HIN: ASEAN is a fast-growing and dynamic region. Between 2016 and 2020 we predict that the region will grow at an average annual rate of 5.2%, which is twice the predicted rate of global economic growth over the same period. By 2030 we expect ASEAN to be the fourth-largest economic region in the world. The ASEAN nations agree that we must improve integration for the region to compete against western economies.
While the ASEAN Economic Community (AEC) included economic integration in its 2025 blueprint, it does not expect full financial liberalisation and integration across ASEAN. This is due to the complex dynamics between the 10 countries involved. We can subdivide ASEAN in two big groups: ASEAN 5, comprised of Singapore, Thailand, Malaysia, Indonesia and the Philippines; and Brunei, Cambodia, Laos, Myanmar and Vietnam (B-CLMV). The economic maturity of these two groups is very different. B-CLMV is still talking about how to build economic resilience, develop basic banking frameworks and construct policies. ASEAN 5 faces different issues, given that they are more developed. The difference in priorities poses a challenge to achieving cohesive financial integration.
Two issues must be addressed to accelerate financial integration. The first is the removal of barriers to foreign exchange (forex) transactions that inhibit capital flow across the region. Second, the biggest challenge will be to achieve regulatory alignment across the jurisdictions. Some progress has already been made towards these two aims. For example, the Bank of Thailand (BOT) has both simplified the documentation process and eased regulations for forex transactions. Increasing economic integration will require a cautious approach and regulators across the region would benefit from considering initiatives such as those introduced in Thailand. Although harmonising regulations between nations may be challenging, capital flow across the region can be enhanced if regulators prioritise this.
What advantages do Qualified ASEAN Banks (QABs) have in corporate loan provision for mega-projects?
TAN: In theory QABs were conceived to allow regional banks to compete with local banks. Cultivating these QABs is beneficial in terms of improving competition within the banking industry. However, in terms of providing corporate loans and supporting projects in the Eastern Economic Corridor or Belt and Road Initiative, there are no comparative advantages.
In reality, although a small number of bilateral agreements have been signed to create QABs, none have yet been formed. There are two reasons for this. First, the banking industry in mature ASEAN economies, like Thailand, is saturated. Second, even without QABs, there are strong regional banks in many markets across ASEAN that also operate as local banks. This means that both local and regional banks already have enough capacity to support the development of major projects. QABs may have comparative advantages over western banks, but not over regional or large local banks.
Which services can foreign and regional banks target to remain competitive?
TAN: The Thai banking industry is extremely competitive but hybrid and regional banks must also be able to compete on an equal footing with local banks. Naturally, there are differences in how the BOT regulates foreign branches compared to local banks. In order to remain competitive, foreign banks need to understand their strengths in both local and global markets. This includes tapping on a regional and global network to connect customers to business opportunities overseas. The presence of regional banks that are comprehensive in their network coverage and a wide range of financial facilities can contribute to the continued growth of Thailand’s domestic banking industry and economy.
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