Pacific Exchange Best of 2018

December 31, 2018

EUC Coins

The Federal Reserve Bank of San Francisco’s Pacific Exchange Blog covers issues important to banking in Asia and the Pacific Rim. Here’s a roundup of our five most popular posts of 2018.

India’s Digital Payments: Growing Consumer Trust, but Merchants Needed

More than a year after the shock of demonetization, Indian consumers continue to adopt digital payments as an alternative to cash. Though overall transaction volumes remain small relative to cash, the growth of mobile payment products indicates growing trust. Recent successes in promoting new products could also point the way to greater merchant adoption, providing insight for India and a number of other countries transitioning to new payment technologies.

China’s Household Credit Boom

China’s rapid credit growth has generated increasing concern over the past several years. Recent regulatory action and debt restructurings have slowed the pace of corporate debt build-up, but new risks are emerging as Chinese households lever up. On the whole, continued increase in household credit is aligned with China’s efforts to rebalance its economy towards consumption, but the fast growth of the sector warrants close monitoring.

Asia Prepares for New Bail-in Bonds

A decade removed from the global financial crisis, the world’s most systemically important banks are preparing to meet new rules on total loss-absorbing capacity (TLAC) by 2019. New TLAC-eligible debt securities, popularly known as “bail-in” bonds, have emerged post-2008 as part of efforts to minimize the need for taxpayer bailouts in future crises. In Asia, banks in Japan and China will face tailored versions of these requirements based on the unique features of each country’s banking system. We examine the state of TLAC in Asia.

China Bond Market: Slower Growth but Better Product and Investor Mix

Domestic bond issuance in China declined in 2017. Growth in outstanding onshore bonds and trading volume also moderated. Notwithstanding the lackluster performance, the products offered by the Chinese bond market continued to grow in sophistication. The investor base has also become more diversified as overseas investors and non-bank domestic investors play a bigger role. These developments will likely contribute to the resilience of the bond market in the long run.

Asian Banks Search for Yield Overseas

Asian bank profitability has been squeezed in recent years, driven to some extent by intense competition among the large number of banks in the region. To boost profitability, banks from some developed Asian economies have expanded operations into Southeast Asia by setting up branches and investing in local institutions. What began as a search for yield is likely to persist because banks’ strategies to increase profits align with their governments’ initiatives in the region.