ASEAN Needs to Tear Down Borders for Banks: ADB Report | The Jakarta Globe
(The Insider Stories) — Association of Southeast Asian Nations member states need to scrap restrictions and allow their banks to operate across borders within the region if Asean is to achieve financial integration by 2020, according to the Asian Development Bank.
An ADB report on the matter was released in Brunei Darussalam on Monday as Asean nations’ central bankers held their annual meeting there to discuss an Asean Banking Integration Framework.
Last year Asean leaders affirmed their commitment to launch the Asean Economic Community by the end of 2015. The single market and economic community — in the mold of the European Union — aims to transform the region into a free market with unfettered movement of goods, services, investment and skilled labor.
The “Road to Asean Financial Integration” report, endorsed by the bloc’s central banks, argues that freedom of movement for capital is essential for economic integratio n . Allowing banks to operate across borders will allow savings from the more-developed economies to help support growth in developing countries by lowering the cost of capital, its authors say.
According to the report, commercial banks dominate the financial institutions landscape in Asean, accounting for more than 82 percent of its total financial assets in 2009.
“With respect to cross-border banking, this study proposes that the member states immediately start phasing out most of the remaining restrictions on wholesale banking as part of capital account liberalization,” the development bank said.
“It may, however, be prudent for Asean-5 to delay the completion of the liberalization of cross-border retail [deposit-taking] banking,” the report goes on, referring to the original Asean member states Indonesia, Malaysia, Philippines, Singapore, and Thailand.
The report also said that the Asean Banking Integration Framework should enable Asean banks to enter and operate in banking markets in other member states, eliminate discrimination against Asean banks operating in member countries, and create a consistent banking environment throughout the region.
The ADB further suggested that the bloc identify banks in the region that were ready to comply with certain requirements on capital adequacy and consolidation, restrictions on large exposures, and accounting and transparency requirements.
“The Asean-based banks that satisfy all such qualifications are referred to in this study as qualified Asean banks. The member states should agree to facilitate QAB access to their respective domestic banking markets,” ADB said.
But there’s a caveat in the ADB’s urging for freer capital mobility within the region, the report said, to allow Asean member states to choose between a stable exchange rate and an independent monetary policy. “The policy mix of a stable exchange rate and independent monetary policy will become increasingly difficult to maintain.”
Halim Alamsyah, deputy governor of Indonesia’s central monetary body Bank Indonesia, said the country was ready for and welcomed Asean banking integration. Halim said Indonesia had forged ahead with multilateral agreements under ABIF to allow Indonesian commercial lenders to get the most out of market opportunities in the region.
“There are some members that want ABIF to be based on bilateral regimes, but we think that would not bring about concrete financial integration in the region,” Halim said. He said Indonesian banks are “well capitalized, liquid with manageable risk,” and hence well positioned to compete.
