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Click Here For Page 2 of this feature
Asia's crisis-affected economies have made a substantive effort to clean up, recapitalize, and restructure their banking system and adopted diverse approaches.
But while consolidation and restructuring has occurred, the banking systems are not robust and real nonperforming loans (NPLs) are higher than reported, said Ms Shamshad Akhtar, Director General of ADB's Southeast Asia Department at a seminar on Banking Sector Reforms in Asia, held alongside ADB's 37th Annual Meeting.
Aside from issues of weak credit growth and governance of banks, competitive forces arising from World Trade Organization (WTO) commitments and other global developments require regulators and banks to continue to reposition themselves to deal with emerging developments, Ms. Akhtar pointed out. While Asian banking has good potential for growth, particularly in consumer finance, sustained economic growth and increases in personal income levels will be a condition for this process.
Deborah Schuler, Vice-President of Moody's Financial Institutions and Sovereign Risk Group, said that with the exception of Hong Kong, China and Singapore, and possibly Malaysia, most banking systems remain undercapitalized.
Although asset quality was improving across the region, Moody's estimates actual NPL levels in many countries are higher than officially reported. The share of consumer lending, particularly unsecured credit card business, is rapidly increasing. Although portfolio diversificationis a good development, systems would need to be put into place to control associated risks.
She said that many Asian banks are still not earning a risk adjusted return. Future bank profitability remains constrained by excess liquidity and capacity. Moody's expects excess capacity and policymakers' Financial Sector Master Plans to lead to a further consolidation of the banking industry.
Dominic Barton, Asia Pacific Chair of McKinsey, said his company expects considerable consolidation of the industry over the next five to seven years, and the emergence of three or four regional champions in Asia.
There is increasing interest from foreign banks in Asia, which represents the single fastest growing retail market in the world. McKinsey expects new growth in revenues from personal financial services in Asia of about US$180 billion by 2010, which is equivalent to the new growth in the US between 1994 and 2001. He pointed out that revenue pools from low-income urban populations could be substantial and Asia's high mobile phone penetration may create a unique opportunity for reaching the "unbanked."
He said major challenges for Asian banks include macroeconomic stability in a number of countries, continued NPL problems, lack of resilience at the bank level, increasing foreign competition, and demographic shifts, which could lead consumers away from traditional deposits.
.... GO TO PAGE 2
.... Asian Development Outlook 2004
.... Domestic Credit Rating Agencies in Asia - Roles, Issues, and Challenges
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