LBR: Asia being the engine of growth for global economic growth in future and it is also likely to lead the way out of the looming crisis. What role do you think Asian banks will play in this context?
A: Banking will play a critical role in this whole growth as we are aware 60 percent of the world foreign reserves are concentrated in china at the moment. I think we are seeing a reversal of what happened in the 17th century where 15 percent of the global GDP was in Asia. But progressively over almost three centuries we saw a progressive decline which came down to an all time low of 16 percent in 1960. But now I guess we are seeing the roles reverse and economists predict that Asia will account for in excess of 50 percent of global GDP by year 2050. We are seeing a progressive shift of resources and dominance of Asia again and banks are very much in the center of this growth.
LBR: Nearly 42 percent of global growth in 2010 came from Asia and a similar trend is seen in 2011 too. What is your growth projection for the region?
A: To give you a barometer, in 2010 the top ten Asian nations totally accounted for 1.2 million high net worth individuals. These are people who had in excess of USD one million of investable assets in addition to their primary residence. That is expected to increase by nearly 140 percent to about 2.8 million high net worth individuals by 2015. So this gives you an indication of the creation of wealth and concentration of wealth in the center of Asia.
LBR: India hikes interest rates for the 13th consecutive time. Where do you think interest rates in the region is heading?
A: I guess they are gradually heading north. What we have seen in India and China is a reflection of strong regulatory moves o manage inflation. We have seen 13 times in India, six times in China since 2010. These are really an attempt to contain inflation which has also been fueled by the property market. This is something that will continue to attract regulatory attention in the nest few years with view of managing Asian growth and containing concerns such as inflation.
LBR: Rising inflation is a worrying factor for the Asian region. What role do you think banks can play to containing this?
A: I guess to continue encouraging savings. Asia is very much a savings based region and some of the growth and also high income levels are a factor of high income levels are a factor of high savings rates. So I guess banks can play a major role in capturing and re-cycling this savings in to productive investments rather than unproductive ones.
LBR: Do you think Asian banks have sufficient and strong liquidity positions compared to their western peers to comply with the Basel III requirements?
A: Numbers appear to indicate so. Just to make two comments; I believe in terms of capital as well as the quality of assets, in general there is a belief that Asian banks have been less affected by the recent crisis visa vie the 1997 crisis. As an indication of the USD 1.5 trillion of equivalent credit losses and loan write-downs which took place between July 2007 and July 2009, less than three percent appear to have come from Asian banks, which I think gave a very good indication as to their solidness.
There is also an increased focus on balancing liquidity and strong capital buffer rather than only focusing on asset growth or profitability. So I think these banks are far better positioned than their European or western peers and probably will accelerate meeting the Basel 111 requirements before some of the Western peers.
Because if you look at the Basel III guidelines, the road map stretches up to 2019. It gives a huge period of stretch to meet these guidelines but my gut feeling is that Asian regulators will not wait for that period but actually push for stronger banks to meet them well ahead of the overall time frame.
LBR: As the President of the Asian Bankers Association can you comment on what role the ABA is playing in the context of growing and expanding Asian economies?
A: The forum apart from being a very powerful networking fraternity, it plays a very important role on policy advocacy. Couple of key initiatives worthy of note are, recognizing the importance of micro finance and bringing it in to the formal banking system in Asia, given that that an estimated two thirds of those below the poverty level are believed to be in Asia.
Secondly, the journey towards Basel 11 and 111 has been taken by the body and a very important policy document has been presented to the South East Asian regulators which is an umbrella body known as SEASEN. It recognizes that the structures of economies in west of Singapore are quite different to those of South Asia so the ‘one size fit all’ approach does not work. so there has to be granularity in the adoption.
Third thing is that there is still a belief that the bulk of Asia’s external reserves are still being invested in the West and the US and there needs to be a forum and a framework to encourage a better inflow back in to Asia. In that process the ABA is working with a number of governments and regulators in facilitating in what is known as Asia’s Funds Passports Scheme, which is literally like a visa, a movement to facilitate a smooth flow of capital and funds across Asia to facilitate the redeployment of capital back in to Asia.
And the last thing is the development of a framework to identify climate change. I think this is one of the least understood things by banks and given the recent increasing incidents of earthquakes, typhoons, storms..etc, specially in countries like Japan, Taiwan and Philippines there has been a concerted move to to include climate change as a risk management ingredient by sharing experiences across Asian banks.