Developing Asian Bond Markets Initiative(ABMI)

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Developing Asian Bond Markets Initiative(ABMI)
- Bonding Asia -
May 7, 2013
Kwang-Yeol Yoo
Director General / Ph. D
Ministry of Strategy and Finance, Korea
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1. Establishment of ABMI and Progress Up to Date
2. Evaluating Performances during a Decade
3. Future Direction and Implications
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1. Establishment of ABMI and Progress Up to Date
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 Lessons from the 1997/98 Asian Financial Crisis
Local Currency
Long-term Lending
Foreign Currency
Short-term Borrowing
Asian Financial Crisis
Double Mismatch
Absence of well-functioning
bond market in the region
ABMI (proposed by Korea to ASEAN+3) in 2003
2
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1. Establishment of ABMI and Progress Up to Date
 ABMI aims to :
① Avoid the double mismatch of maturity and currency
② Recycle more Asian savings into Asian economies
③ Promote financial harmonization and integration in the region
LCY Bond Markets in Each Country
Korea
Japan
China
ASEAN
Cross-Border Bond Markets
Korea
Japan
China
ASEAN
3
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1. Establishment of ABMI and Progress Up to Date
 ABMI : Progress Up to Date
- Revised New Roadmap+ (2012)
· 3 Basic Directions
· 9 Priorities
- ABMI
ACMI
- ABMI New Roadmap with 4 TFs* (2008)
* Supply, Demand, Regulation, Infrastructure
- Credit Guarantee & Investment Facility (2010)
- ASEAN+3 Bond Market Forum (2010)
- Launching ABMI as per Korea’s proposal
- Asian Bonds Online (2004)
- Asian Bond Monitor (2004)
ABMI New Roadmap+
Implementation Level
ABMI New Roadmap
( 2012~ )
ABMI Roadmap
Policy Level
(2008~2012)
European Fiscal Crisis
Cognitive Level
(2003~2008)
Asian Financial Crisis
Sub-prime Mortgage Crisis
4
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1. Establishment of ABMI and Progress Up to Date
 Directions and Priorities of ABMI New Roadmap+, 2012
Direction 1
Direction 2
Direction 3
Tangible Outcomes
Strengthening Momentum
Global Change
Launching Credit Guarantee
and Investment Facility
Programs
Developing infrastructurefinancing
Fostering an investmentfriendly environment for
institutional investors
Enhancing ASEAN+3 Bond
Market Forum
Facilitating the establishment
of the Regional Settlement
Intermediary
Further developing the
government bond
markets
Raising financial
awareness, etc.
Enhancing financial
access to consumers
and SMEs
Strengthening the
foundation for a regional
credit rating system
5
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1. Establishment of ABMI and Progress Up to Date
2. Evaluating Performances during a Decade
3. Future Direction and Implications
6
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2. Evaluating Performances during a Decade
 LCY Bond Outstanding
- Total outstanding : USD 5.7 trillion (2011)
- Annual Increase Rate : 16.5% (average)
6000
5671
LCY Bond Outstanding in ASEAN+3 (Ex. Japan, USD Billion)
5000
4000
Corp
Govt
3000
2000
1349
1000
0
415
126
1995
1997
1999
2001
2003
2005
2007
2009
2011
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2. Evaluating Performances during a Decade
 LCY Bond Outstanding in Major Markets ( % of World Share)
- ASEAN+3 (Ex. Japan) Share : 2.1% (1996)
8.4% (2011)
45
40
35
30
25
20
15
10
8.4 (2011)
5
0
US
Japan
Germany
UK
2.1(1996)
Emerging East
Aisa Asia
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2. Evaluating Performances during a Decade
 Domestic Financing Profile
- Bond Market
Diversification
“Spare Tire”
60
 ASEAN+3, Share of Total Financing
50
40
31,56
28,26
30
22,80
20
10
0
Domestic Credit
Bonds
Equity
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2. Evaluating Performances during a Decade
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 Foreign Participation in Bond Markets
Foreign holding of LCY government bonds (% of total)
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2. Evaluating Performances during a Decade
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 Overall Evaluation
Evaluation items
Evaluation
Developing robust
bond markets
- Contributed to a financial stabilization in the midst of the global
financial crisis (IMF, G20, and BIS)
Diversifying financing
channels
- Increased financing through the Asian bond markets
Addressing maturity
mismatch
- Generated of yield curve at various terms to maturity
Addressing currency
mismatch
- Issue of an original sin remains due to lack of using local currency
at the international trade and strict regulations on cross-border trade
Mobilizing more Asian
savings into the region
- Investment concentration in the US and Europe than that of Asia
- Legal/ regulatory barriers to cross-border bond investment
- Higher costs of regional securities exchanges
Harmonizing with
regional financial
integration
- Suggested Asian Bond Standard(2005)
- Undergoing discussion on the harmonization of bond standards at
the ASEAN+3 Bond Market Forum(2010)
Progress
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2. Evaluating Performances during a Decade
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 However, Still a Long Way to Go ...
• Bond Issuance in 2011 (% of World Share)
: Japan 18.7%, China 5.0%, Korea 1.8%, ASEAN 1.3%
• Intra-Regional Bond Investments in 2010 (% of Total Investment)
: 7.3%
*Trade 55.5%, Stock Investment 23.7%
The extent to which ABMI contributes to LCBM development is
not clearly identified
Obstacles and Challenges
① High Ambition and Expectation
② Lack of Concern and Risk-averse Behavior by Regulators
③ NATO (No Action Talk Only)?
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1. Establishment of ABMI and Progress Up to Date
2. Evaluating Performances during a Decade
3. Future Direction and Implications
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3. Future Direction and Implications
 Towards a Cross-border Bond Market in Asia
Regional Market Infrastructure
Regional Settlement Intermediary (RSI)
Regional Guarantee System (CGIF)
New Regional Credit Rating Agency
(NRCRA)
Asian
Regulator
ASEAN+3 Bond
Market Forum(ABMF)
Asian
SRO
Asian Bond Standards
(ASEAN+3 Bond Market Forum)
Information Exchange
Harmonization of heterogeneous
rules and regulations
Domestic
Regulatory/Supervisor
Authorities
Domestic SROs
(Exchanges, Industry &
Domestic Trade Association etc.)
markets
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3. Future Direction and Implications
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 Future of Bond Markets Development in Asia
Asian Capital Markets
Initiative (ACMI)
2nd phase of ABMI
1st phase of ABMI
Cross-Border Bond Markets
(Foreign Bond Markets)
Part of a Domestic Market
Cross-Border
Intra-Regional
Professional Bond Market
in Asia
Local Bond Markets
(Domestic Bond Market)
Domestic
Heterogeneity
Intra-Regional
Homogeneity
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3. Future Direction and Implications
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 Implications to LCBM Development
1) Start with a Pilot Project
- Deliver Concrete Output (Infrastructure, Institution)
2) Involve Regulators
- Cross-Recognition or Harmonization
3) Prepare Medium-Term Action Plan
4) Technical Assistance(TA) for Underdeveloped Countries
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Thank You !