Banks seek buffer against new crises

Business Asia, Dec 13, 1999 by Randolph Ramsay

Asian countries have undergone sufficient financial reforms to underpin growth in the new millennium, but more changes are yet to come as governments seek to protect themselves from the huge financial risks of further crises, a new report has found.

"Asia's Financial Markets: Capitalising on Reform", a report by the Department of Foreign Affairs and Trade's East Asia Analytical Unit (EAAU), found that virtually all governments in Asia had undergone significant financial reforms in response to the crisis in 1997.

These reforms included dramatic market openings (in South Korea, Indonesia and Thailand), adoption of global regulatory reforms, rapid growth of new financial products, and the implementation of new technologies including Internet banking.

The report predicted more changes such as further market openings, rapid consolidation and more universal banking systems.

EAAU executive director Dr Frances Perkins said while change had been rapid in some countries, others would need more time to implement reforms.

"Countries like Indonesia and Thailand are trying to succeed in bringing in new legislation for bankruptcy -- these type of changes will take at least a generation to achieve," she said.

The report found:

* Indonesia has major challenges to address in the accounting sector, corporate governance and government transparency.

* Thailand needs to focus on prudential reforms, with the report warning against vested interests placing pressure on the government to resist change.

* Malaysia has addressed its financial system weakness rapidly and effectively, but it is unlikely to further open its market to international competition.

* The Philippines' uncompetitive banking system needs more consolidation, more competitive pressure and less onerous taxation and reserve requirements.

* Hong Kong lost international competitiveness during the crisis because of its dollar peg.

* Singapore's decision to abolish foreign equity limits and permit financial holding companies should stimulate mergers and alliances.

* Taiwan is still "overbanked" and more consolidation needs to occur.

* Japan's financial sector has a new pre-occupation with profitability.

* China has accorded top priority to financial reform, with the sector's role in the economy set to expand after the country enters the WTO.

* South Korea's reshaped financial industry will have a greater role for foreign investors.