This newsletter provides context and insight into current economic and financial sector developments in the Asia-Pacific region.
This Asia Focus discusses Asia’s experience with priority sector lending, reviews the current state-level priority sector lending policies in several Asian economies, assesses the implications for the respective domestic banking systems, and examines potential alternative mechanisms to encourage lending to priority sectors.
This Asia Focus report explains the importance of interest rate liberalization in China, reviews historical progress and current efforts made to date, and discusses the potential impact on the banking sector.
This Asia Focus report explores the use of m-payments in Asia and evaluates the challenges it faces regarding wider adoption. Specifically, this report clarifies what an m-payment is, identifies which factors are facilitating and hindering the use of m-payments by consumers in certain economies of Asia, and summarizes key issues this new payment technology presents to government regulators.
This Asia Focus provides an overview of shadow banking activities in China, their close ties with banks, reasons behind their rapid rise, the range of participants and products, and regulatory issues.
Global money laundering and terrorist financing activities impose significant costs on the world economy by damaging the effective operations of national economies. This Asia Focus report reviews some of the unique factors that contribute to money laundering in Asia, describes international AML/CFT standards, analyzes the region’s progress towards fuller compliance with FATF recommendations, and outlines challenges that remain.
On June 11-12, 2012, the Federal Reserve Bank of San Francisco (FRBSF) held its fifth Conference on Asian Banking and Finance in San Francisco, entitled “Challenges in Global Finance: The Role of Asia.” Conference participants discussed how the ongoing economic and financial uncertainties in Europe will impact the Asian economies, banking sectors and trade flows; and how Asian banks and financial institutions themselves are addressing these issues.
Banks in Asia are looking into the opportunities, and risks, that cloud computing can bring to their industry as they expand domestically and regionally.
Accounting regulatory regimes play a critical role in ensuring the reliability of financial data and the credibility of a company, and ultimately in supporting the stability of an economy. Prompted in part by the U.S. actions taken pursuant to the Sarbanes-Oxley Act, many Asian economies have established similar regulatory bodies and standards for their domestic accounting industry.
In September 2011, FRBSF hosted its sixth event in this symposium series entitled Asian Financial Institutions: Risk Management in a Global Environment. Symposium participants considered the current financial crisis with a focus on understanding the policy, regulatory, and industry responses undertaken to mitigate the effects of the crisis and prevent similar events in the future. In addition, panelists considered the efforts undertaken by Asian financial institutions to structure internal systems of governance to better manage risk.
Rising personal income levels and increasingly competitive lending markets have led to rapidly growing consumer credit in Asian economies during the past decade. However, in many cases this expansion of credit outstripped financial institutions’ ability to manage the associated increase in credit risk. The rising number of credit card defaults and subsequent personal bankruptcies in economies including South Korea, Hong Kong, and Taiwan in the early- to mid-2000s demonstrated the need for Asian lending institutions to employ more robust credit risk management tools.
Vietnam’s banking sector is expected to have one of the highest growth rates in Asia during the next few years due to the country’s continued economic expansion, rising household incomes, and relatively low penetration of existing banking services. Over the past two decades, the Vietnamese government has undertaken a series of reforms to strengthen and modernize the sector as part of the country’s move towards a more open and market-oriented economy.
Since the outbreak of the global financial crisis, regulators have increased their focus on the ability of banks to measure and manage liquidity risk. Recognizing the key role of illiquidity in the crisis, the Basel Committee included two global minimum liquidity standards as part of the recently announced Basel III supervisory framework to be implemented over the next seven years. Notably, regulators in a number of Asian economies have had prudential liquidity standards in place for many years.
Technology has transformed the banking industry with the introduction of mobile banking services that offer unprecedented convenience and accessibility to customers. This Asia Focus report describes the various approaches to mobile banking in Asia, and examines how particular countries have addressed regulatory issues.
This Asia Focus report provides highlights of perspectives on the global financial crisis that were shared at the Federal Reserve Bank of San Francisco’s biennial Conference on Asian Banking and Finance, held on June 7 and 8, 2010.
In 2004 Thailand began to implement the Financial Sector Master Plan (FSMP), a long-term reform program aimed at creating a more efficient, transparent, and internationally competitive financial sector that can serve a larger proportion of the Thai population. With the first phase of the FSMP completed in 2009, Thailand announced that a second phase of financial sector reforms will begin in 2010. This Asia Focus report provides an overview of the FSMP’s development, highlights key reform measures completed under Phase I, and describes measures proposed under Phase II and some of the challenges regulatory authorities may face during implementation.
Although China’s banking and financial markets have undergone significant reforms in the last two decades, its rural banking market remains relatively underdeveloped. To address this situation, the Chinese government has focused considerable attention on increasing access to financial services in rural areas through policy initiatives such as easing market-entry requirements and creating new incentive mechanisms. This Asia Focus report presents an overview of China’s rural banking system, historical and recent reforms, and additional areas for improvement.
In the wake of turmoil in global financial markets during the past two years, there has been much discussion about the weaknesses that led to the crisis and how to avoid a similar crisis in the future. Some discussion has focused on financial regulatory architecture, comparing the relative merits of existing structures. Regulatory oversight structures around the world generally employ one of three approaches for supervising financial services industries: 1) a single agency that oversees multiple financial services industries, including banking, insurance and securities; 2) separate agencies for each industry; or 3) a hybrid of these two approaches.
During the last few years, the volume of microfinance activity has grown considerably in the Philippines and an increasing number of financial institutions have engaged in retail microfinance operations. While this sector has been traditionally dominated by rural banks, non-governmental organizations (NGOs) and finance cooperatives, in 2009 a number of commercial banks sought entrance into the retail microfinance market. This Asia Focus report reviews the growth of the Philippines microfinance industry and discusses the implications of commercial banks entering this market.
On June 25, 2009, the Federal Reserve Bank of San Francisco held a symposium entitled “Asian Banking in Challenging Financial Times.” The symposium was part of the Country Analysis Unit’s Asia Program, which aims to share information on issues and developments in Asian financial sectors with business and community leaders in the 12th Federal Reserve District and more broadly. This Asia Focus provides a brief summary report on the discussions held at that symposium.
Japanese banks’ financial results for the Fiscal Year Ending (FYE) March 2009 marked their worst performance in recent years, with the six major banks reporting a collective loss of nearly JPY1.2 trillion (USD12 billion).i Although soaring loan loss charges contributed to the banks’ weak performances, losses on equity securities were also a key driver. These losses have drawn renewed attention to the practice of Japanese banks owning stock in the companies to which they lend through so-called “cross-shareholdings,” and the market risk resulting from these holdings. Despite reducing cross-shareholdings since the early 1990s, banks still retain significant equity portfolios. This Asia Focus provides a brief background on the development of crossshareholding and the elements of Japan’s regulatory system that permit banks to hold equity securities. The report also examines some of the problems associated with shareholdings that Japanese banks have begun to face since the mid-1990s and considers measures that banks and the government have taken to unwind these shareholdings.
Over the course of the last four decades, Islamic finance has evolved from a market with one institution in a single country in 1975, to one with more than 300 institutions operating in more than 75 countries today. Analysts estimate that total assets in the Islamic finance market are between US$750 and US$800 billion as of July 2009, and may exceed US$1 trillion in 2010. Among Asian countries, Malaysia’s role in Islamic finance is unique.
The financial crisis has ignited worldwide debates about numerous policy issues in the financial services industry, among them is the treatment of loan loss allowance. This Asia Focus provides a brief background on loan loss allowance and the associated supervisory guidance in the United States and compares different applications of loan loss allowance regulatory and accounting standards in some Asian economies. The report also highlights proposed alternatives for reconciling the varying goals of loan loss allowance practices and provides a brief assessment of their potential impact on Asia.
The current financial market turmoil has sparked debates across the globe about the supervision and regulation of the financial services industry. As the Basel II capital framework is implemented worldwide, many critics have highlighted weaknesses underscored by the crisis. The most prominent criticisms of the framework include its lack of an explicit liquidity risk capital charge, its over-reliance on credit rating agencies, and its pro-cyclical nature.
In the last two years, Japanese and Chinese financial institutions have made a number of investments in their U.S. and European counterparts, many of which have experienced difficulties as a result of the global financial crisis. The form and timing of these investments have varied. This Asia Focus report compares some of the more significant investments by Japanese and Chinese financial institutions in both the U.S. and Europe, highlighting trends and offering thoughts on the direction of future investments.
Mainland China, Hong Kong and Taiwan have operated under different systems of governance for many years, preventing full economic integration across Greater China. Nonetheless, these three regions complement each other in many ways, and given their various stages of economic development, there are distinct opportunities for gains through cooperation.