Financial-Services-LTB

Transcription

FINANCIAL SERVICES
+ Lifting-The-Barriers Report
Lifting-the-barriers REPORT: Financial services
About CARI
The CIMB ASEAN Research Institute (CARI) was
established in 2011 as a member of CIMB Group.
CARI prides itself on being the first independent,
transnational research institute dedicated solely
to the advancement and acceleration of the
ASEAN integration agenda. CARI was designed
to pursue research and to promote thought
leadership in support of an integrated ASEAN
Community. CARI seeks pragmatic solutions and
policy recommendations to address challenges
in ASEAN integration and connectivity. CARI’s
headquarters is located in Kuala Lumpur but the
institute has a regional presence.
About ASEAN Business Club
A fully private sector driven initiative of ASEAN’s
leading businesses coming together to support
economic integration while providing a platform
for networking. The ABC creates an avenue
for ASEAN’s businesses to engage with global
regional leaders. The club’s vision is ASEAN: Open
for Business.
About The Boston Consulting Group (BCG)
The Boston Consulting Group (BCG) is a global
management consulting firm and the world’s
leading advisor on business strategy. We partner
with clients from the private, public, and notfor-profit sectors in all regions to identify their
highest-value opportunities, address their
most critical challenges, and transform their
enterprises. Our customised approach combines
deep insight into the dynamics of companies
and markets with close collaboration at all
levels of the client organisation. This ensures
that our clients achieve sustainable competitive
advantage, build more capable organisations, and
secure lasting results. Founded in 1963, BCG is a
private company with 79 offices in 44 countries.
FOREWORD
The Lifting-The-Barriers (LTB) Initiative was designed, in conjunction with the Network
ASEAN Forum (NAF) 2013, with the theme ‘A Strategy for ASEAN’. The overall objective
was to conduct sector based research with the purpose of identifying bottlenecks and
barriers to trade in six targeted sectors within ASEAN member nations and to help realise
the goal of the ASEAN Economic Community 2015.
The LTB Initiative has three phases, Phase I, II and III, each playing a unique role in helping
achieving the wider objective.
Phase I:
Phase I of NAF involves core research and seeks to identify the existing barriers in
each sector to assist understanding of the challenges faced by the industry due to AEC
obligations as well as making recommendations to mitigate these barriers to free trade.
Phase II:
Phase II was convened around six sector-based “Lifting-The-Barriers Roundtables” at the
NAF with vertical emphasis on issues specific to the selected sectors. The roundtables
serve as a platform for different stakeholders to deliberate on the future of their sector
and our ASEAN region as a whole.
Phase III:
Phase III consists of the final outcome, the Lifting-The-Barriers (LTB) Report, as a white
paper delivered to the relevant regulatory bodies to effect real changes and accelerate
ASEAN integration efforts. This will be the consolidated materials from Phase I and Phase
II.
This publication is the final Phase III LTB Report. The objective of which is to summarise
the state of the sector within the ASEAN landscape as well as to summarise the ideas
discussed during Phase II. These key takeaways will form basis of recommendations
towards the wider goals of Lifting-The-Barriers to trade in the context of the ASEAN
Economic Community 2015.
i
Acknowledgements
The CIMB ASEAN Research Institute (CARI) would first like to thank the esteemed
Research Partner for the Financial Services Sector, Boston Consulting Group (BCG). As
part of this research collaboration, the research partner has been instrumental in the
execution of the wider LTB Initiative from its inception. BCG has provided the technical
and research expertise throughout the entire process.
We would like to give special thanks to Vincent Chin, Jen Lottner, Ravindran Deepak and
Bosky Subramaniam members of the core BCG team in this collaboration.
We are also grateful to the Chair and Co-chair organisations who championed
the Financial Services Roundtable at the Network ASEAN Forum 2013. Chartsiri
Sophonpanich (Bangkok Bank) and Budi Sadikin (Bank Mandiri) were influential in
leading the discussion at the Roundtable as well as providing direction for the overall LTB
Initiative.
We appreciate the valuable insights and contributions of all Network ASEAN Forum 2013
Roundtable participants.
Acknowledgement also goes to the CARI team, namely Sóley Ómarsdóttir, Bernard
Law, Christina Chin and Gokul Radhakrishnan who have contributed to the editorial and
creative production of this report.
CARI would finally like to recognise the ASEAN Business Club Advisory Council for their
leadership, guidance and undivided support in making this project possible.
Jukhee Hong
Director of Operations, CARI
Project Supervisor
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TABLE OF Contents
1.1
Executive Summary:
2
1.2Key Challenges for ASEAN FS integration
4
1.3Lifting-The-Barriers – Exploring solution to the actual and perceived barriers
8
8
1.3.1The PAN ASEAN Banking Pass
1.3.1.1
Overview
8
1.3.1.2Benefits of ASEAN Pass
12
1.3.1.3The way forward
12
1.3.2Free Talent Mobility
13
1.3.2.1
Overview
13
1.3.2.2Benefits of Talent Mobility
13
14
1.3.3ASEAN Alliance model
15
1.3.3.1
Overview
15
1.3.3.2Benefits of Alliance models
16
16
1.3.4Building Common Credit Bureau Infrastructure
17
1.3.4.1
Overview
17
1.3.4.2Benefits of having a common credit bureau infrastructure
18
19
1.3.5Common Credit Rating Agency
20
1.3.5.1
Overview
20
1.3.5.2Benefits of having a common credit rating agency
21
21
1.3.6Free Data Flow/Off-shoring
23
1.3.6.1
Overview
23
1.3.6.2The key benefits of off-shoring and free data flow
23
23
1.3.7Standardisation of Nomenclature, Documentation, and Common Infrastructure
24
1.3.7.1
Overview
24
1.3.7.2Benefits of standardisation
25
25
1.4Conclusion
25
1.1 Executive Summary:
Financial services (FS) throughout South-East Asia remain extensively regulated, some
of which are restrictive to regionalisation. To address that, a key component of the
ASEAN Economic Community (AEC) 2015 vision is the liberalisation of financial services.
Different parties bring different views on the pace and benefits of financial integration.
Industry and trade organisations, for example, believe financial integration can accelerate
economic gains, lower regionalisation costs, and help small and midsize enterprises
(SMEs) become more competitive. Regulators and local governments worry, however,
that integration may expose the region to unwanted volatility and that the economic
benefits may not materialise as swiftly as promised.
Among the key questions for stakeholders are:
Figure 1: Challenges
Considerations
and readiness
for FS
integration
Ways and
models to
achieve
effective FS
integration
Key Risk and
how to manage
them
•
•
•
•
•
•
•
•
•
•
•
Why is it beneficial to liberalise the financial sector, and why
should we as banking entities look beyond our home markets?
Is liberalisation really the answer?
Do ASEAN customers really want their banks to have a panASEAN presence?
What are the usual models banks have used to expand
regionally?
Are there other ways of building a pan-ASEAN network
without actually expanding?
How can regulators help these external models develop?
What else can regulators do to facilitate payment and capital
flows across the ASEAN market?
What are the ways to prevent or reduce the risk of crisis?
What is the effect of FS integration on economic growth?
How to protect domestic market from foreign bank’s home
country issues?
Will foerign banks dominate the domestic market?
In weighing those questions, several factors come into play. Banks, governments,
and regulators will need to have an open discussion on a number of important
challenges. Chief among them are :
1. Heterogeneity of regulatory frameworks and restrictive market access within
ASEAN;
2. Constraints on talent mobility;
3. Regulatory limitations on cross border data flow and off-shoring;
4. Impediments to Pan Asia trade flow and focus on China and India;
5. Lack of standard infrastructure to facilitate cross border credit;
6. Lack of standardisation across region with respect to operational process and
common infrastructure
2
The regional growth in trade in ASEAN coupled with Asian growth and concentration
of trade corridors and global uncertainties have made banks to be competitive. Indeed,
many strong banks will choose to remain and grow domestically as fits their strategy,
however for banks with regional aspiration it is important to grow and expand regionally
by being scalable and big. Such growth and expansion requires a common yardstick and
basis that will drive the growth, expansion and liberalisation of the sector. Hence the
key question is identifying the common yardstick to discuss the right set of liberalisation
measures.
It emerges from several discussions with industry leaders that customer value is the
yardstick by which regulatory and other liberalisation changes must be measured. As
banks and regulators gauge their course, the driver must be the extent to which crossborder access and regulatory integration will benefit customers in the region.
Standard Chartered bank provides one example of a customer-led approach. Their
growth strategy segmented geographies into (i.) core markets (Hong Kong, Singapore,
Korea, UAE, etc.); (ii.) city-focused markets (including China, India, Thailand, etc.); and
(iii.) niche markets (smaller countries ranging from Bahrain to Brunei). That segmentation
allowed them to tailor services and products to specific market needs, such as
introducing “15-minute loan approvals” in Hong Kong, innovations that allowed them to
compete successfully in a number of different areas across the region.
A similar, customer-centric rubric is needed to advance liberalisation within financial
services.
Figure 2: Framework
End-customer benefit and performance measures
Integration will deliver three primary customer benefits, each of which can be measured.
• Better Service: providing greater and deeper choice to the customer, by expanding
access to a wider array of products and services, and cross-leveraging other offerings,
such as wealth management services
• Better access to credit: Providing corporates and SMEs with greater access to credit
for domestic expansion and cross-border trade
• Cheaper banking services: channeling cost and operational efficiencies into improved
service and value for customers
3
Ideas to break the barriers.
Recent interactions with senior banking executives in the region generated these seven
ideas.
1. Pan-ASEAN Banking Pass
2. Free Talent Mobility
3. ASEAN Alliance
4. ASEAN Credit Bureau
5. ASEAN Rating Agency
6. Free Data flow/Off-shoring
7. Standardisation of documents/ Documentation requirements
Addressing these ideas should confer real benefits to the end customer and economic
benefits to the region at large. They provide a basis for regulators and banks to discuss
how best to bring about the changes needed.
1.2Key challenges for ASEAN FS integration
Ideas to break the barriers
The current regulatory environment means new entrants face steep, sometimes
prohibitive investment requirements, forcing some to invest at an extremely high level
and others to make sub-scale investments, neither of which is profitable for the bank,
good for customer or sufficient to spur economic growth.
To be cost and market competitive, banks must be able to leverage their infrastructure
and talent base. Regulatory restrictions around talent mobility, the free flow of
information, and offshore activities hinder the type of scale efficiencies and process
standardisation that can improve cost and risk performance and customer service. In
addition, banks must have the ability to extend credit to facilitate the expansion of the
real economy. But, the lack of “comparable” credit and rating bureaus across ASEAN
curbs lending.
As trade corridors widen between China, India and ASEAN, banks forced to operate at
sub-scale handicap ASEAN companies that rely on strong and scalable banking services
to expand into adjacent markets.
A breakdown of the key challenges follows.
1. Heterogeneity of regulatory framework and restrictive market access
Inconsistent regulatory regulations have hindered the expansion of banks within ASEAN.
For instance, Bank Mandiri’s potential entry and expansion into Malaysia, was stalled by
the amount of paid-up capital required (US$96M, -10X Indonesian standards), a figure
deemed too high by Mandiri. DBS abandoned its planned acquisition of Danamon given
the conditions for reciprocity and newly-imposed limits to foreign ownership (maximum
of 40 percent) imposed by Indonesia. Maybank, another regionally active player, also
had challenges with its acquisition in Indonesia, due to regulatory changes on free-float
requirements (minimum of 20 percent), post deal completion.
4
Figure 3: Regulation
Country
Minimum bank capital
Restriction for
foreign shareholdings in
local banks
Restriction to opening of bank
branches
•
•
No limit, but prior Finance
Minister approval required
•
Up to 50 places of business, 25 places
upon approval for qualifying full bank
license (10 may be branches)
•
SGD 1.5 Billion
(Locally incorporated)
SGD 100 mio for qualifying
subsidiary
For banks incorporated
outside Singapore, head
office capital min SGD
200 mio, except for banks
licensed before 1993
•
IDR 3 Trillion
•
Foreign banks may acquire
up to 40% of a local bank,
with exceptions given for
shareholdings >40%
•
No express limit but BI approval
required, subject to capital adequacy
•
THB 5 Billion
(Commercial bank)
THB 4 Billion
(Bank subsidiary)
THB 250 Million
(Retail bank)
•
•
25% foreign ownership
BOT permits up to 49% foreign
ownership
For > 49%, MF approval
required w/ BOT
recommendations
•
Up to 4 branches, with one in
Bangkok and three branches in other
cities, only 1 branch can be opened
per year thereafter-as a foreign
subsidiary license holder
MYR 2 Billion
(Domestic banking group)
MYR 500 Million
(Investment bank)
MYR 300 Million
(Locally incorporated
Foreign bank)
•
Foreign ownership capped
at 30% and 70% for local
Islamic and Investment banks
respectively
•
Locally incorporated foreign banks
can open up to 8 additional branches,
subject to a distribution ratio of 1
(market centre):2 (semi-urban):1 (nonurban)
PHP 4.95 Billion
(Universal bank)
PHP 2.4 Billion
(Commercial bank)
•
May acquire up to 60% of
voting share with prior approval
from the Monetary Board
•
6 branches; 3 in locations of choice
and 3 in locations approved by the
Central Bank
USD 15 Million
(Bank branch)
USD 10 Million
(Joint Venture bank)
•
Total foreign shareholding
in a Vietnamese joint stock
commercial bank is capped at
30% of the bank’s chartered
capital
•
Maximum of 2 branches in 2 main
cities
No limits for other provinces;
branches linked with bank capital
MMK 10 Billion
•
•
•
•
Only representative offices
permitted
Regulations are being
developed to allow joint
ventures
Only representative offices permitted
Regulations are being developed to
allow joint ventures
BND 1 Billion
(Head Office outside Brunei)
BND 100 Million
(Head Office in Brunei)
BND 30 Million
(Foreign branch)
•
No foreign ownership limit
•
No limit but prior approval required
KHR 150 Billion
(Commercial bank)
KHR 30 Billion
(Specialised bank)
•
No foreign ownership limits
•
No limit; but with different fees for
licensing
LAK 100 Billion (Commercial
bank)
LAK 50 Billion (Bank
branch)
•
No limit; minimum of 30%
•
Up to 50 places of business, 25 places
upon approval for qualifying full bank
license (10 may be branches)
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The Indonesian central bank issued regulations that require banks to open one branch in
a tier 5-6 location for every three branches they open in a tier 1 city, notwithstanding the
strict capital requirements that make adding more branches potentially uneconomical.
The central bank also intends to require foreign banks to be locally incorporated and may
impose restrictions that limit direct foreign investment in domestic banks to a maximum
40 percent. Such changes will likely reduce foreign bank interest in Indonesia.
Rules in the Philippines cap the number of foreign banks permitted at any one time to 14.
Thailand used to ask foreign banks to hold at least 10 billion Thai baht as Tier 1 Capital,
compared to five billion THB for local banks in addition to restrictions on the number of
5
branches a bank could opened annually.
In most cases, national regulatory frameworks limit ASEAN financial institutions — as
well as foreign financial institutions — from expanding quickly.
2. Constraints on talent mobility
The flow of talent is critical for regional economic development. Within Asia for
example, Singapore has leveraged talent mobility to its advantage. It is a relatively
easy place to relocate to. Residency rules are becoming more lenient. In some cases,
it can take as little as one day to get a working visa, depending upon the assignee’s
nationality, salary level, and qualifications. Those developments have allowed
Singapore to attract and retain highly qualified talent. But, Singapore remains a fairly
isolated example.
Across most of ASEAN, talent mobility remains a key concern. region-wide barriers,
such as the lack of a common framework for skill recognition, differences in the
quality of educational institutions, visa restrictions to protect domestic employment,
and licensing (e.g. national professional-association licenses) are among the major
impediments.
3. Cross border data flow and off shoring regulatory constraints
Harmonising the regulation of cross border data flows, technology operating models,
off-shoring and data centre sharing, is key to process integration and regionalisation.
Currently, regulatory differences concerning customer data make it hard for banks to
share basic information. For example, Bank Indonesia is pushing banks to locate core
banking systems in-country. But, many foreign banks will find limited cost efficiency
in this model. There is an inherent difference in the way local and non local banks
process, handle and distribute personal data and a one-size-fits-all approach that
prohibits global systems, restricts data sharing outside jurisdictions for all scenarios
and prevents banks from accessing important new technologies will disadvantage
customers and slow growth.
4. Pan Asia trade flow and focus on China and India
Trade corridors are changing, with China, Singapore and India emerging as hubs. The
subscale operations in the region coupled with strong domestic players in the major
markets will make it difficult for ASEAN banks to grow as Pan Asian banks. Organic
growth is bigger challenge since these markets are highly competitive with numerous
players e.g. the largest ASEAN bank is smaller than the 50th Chinese bank in terms of
asset size.
6
Figure 4: Trade Flows
An ASEAN only focus misses bulk of trade opportunities
70%
Of the trade by ASEAN
members, 70% is with
non-ASEAN partners
80%
of FDI is non-ASEAN
By 2020 major trade flows will be outside ASEAN with China as the most
significant node
2000
2020
Japan –
South Korea
China –
South Korea
4
China –
Japan
China –
Hong Kong
Hong Kong–
Singapore
4
Japan–
South Korea
8
China –
South Korea
Hong
Kong –
South
Korea
China –
Indonesia
China –
Hong Kong
China –
Singapore
Hong Kong –
Japan
Japan –
Malaysia
China –
Thailand
China –
Vietnam
Hong Kong–
Singapore
China –
Malaysia
Japan –
Singapore
5
Malaysia –
Singapore
9
China –
India
Taiwan –
Japan
Singapore –
Thailand
China –
Singapore
Japan –
Thailand
China –
Japan
India –
Singapore
Indonesia –
Japan
Malaysia–
Singapore
6
Indonesia–
Singapore
South Korea– Singapore
#
Number
of 15
toproutes
15 routes
ending
onecountry
country
# of Top
ending
ininone
Line
size
depicts
trade
volume
Line
size
depicts
trade
volume
5. Lack of standard infrastructure to facilitate cross border credit
ASEAN’ s heterogeneous liquidity needs make it vital to have a strong credit information
and ratings system, one that standardises key processes and practices to improve quality,
accuracy and decision-making on the credit side.
6. Lack of Standardisation across region with respect to operational process and
common infrastructure
Currently there is no standard infrastructure or standards for common process such as
Know Your Customer (KYC) infrastructure which increases bank operational costs and
limits the ability of banks to transfer the benefits of integration over to the end customer.
7
1.3 Lifting the Barriers: Exploring Solutions to the
Actual and Perceived Hurdles
We explored seven key ideas in conjunction with key banks in the industry to overcome
these issues and drive greater customer returns.
Figure 5: Framework
1.3.1
The PAN ASEAN Banking Pass
1.3.1.1 Overview
A Pan-ASEAN banking pass would give customers the benefit of best practices across
markets and better pricing and rates from a combination of scale efficiencies, better
collaboration and information sharing, and greater operating breadth to help ASEAN
companies expand into India and China.
However, regulators need assurance that free access into their markets would not
jeopardise the growth of domestic players, or destabilise economic growth. They worry,
for instance, that foreign banks could potentially skim the cream and leave local banks
with riskier and more structurally unprofitable business without the ability to crosssubsidise. They’re concerned also that too much foreign influence might make it harder to
steer the banking sector in the event of a crisis.
These are complex issues and no one answer will suit all markets. That said, there are
enough regulatory measures already on the books to mitigate some of these concerns
without restricting market access, such as directed lending towards specific sectors for all
banks, full subsidiarisation, and trapped liquidity pools.
It’s important also not to underestimate the strengths of the local banks in withstanding
increased competition. For one thing, domestic banks have outperformed their peers
with regional aspirations. For another, the barriers of entry are already sizeable in terms
of installed infrastructure and available risk capital even without any additional regulatory
constraints. For aspirants, achieving regional scale will require they make additional
investments before they can reap the benefits. In light of these challenges, leading local
players express very limited concern about the prospect of regional competition.
As a result, regulators may find it more valuable to focus on creating a common pan8
ASEAN framework under which “qualified” banks can freely operate across ASEAN, then
leave it to the customer and market competition to determine how banks will use that
freedom. It can be expected that the business case justification will mean only a handful
of banks will apply for an ASEAN license to expand. Once there, competitive pressures
will force all players to innovate and provide better value to customers, which is the
ultimate regulatory objective.
By way of example, the Eurozone began regionalisation with many strong domestic
banks. Over time, strong regional banks emerged to join that field.
Figure 6: Euro Bank Performance
Bank
Reach
Revenue Breakdown
Segment Breakdown
BNPP
•
•
No. of countries: 30
No. of branches in
Europe: 5511
% of branches in
Europe*: 61%
•
•
% from France 32%
% from Europe*:
45.3%
•
•
•
Retail Banking: 61%
Investment Solutions: 15%
Corporate & Investment
Banking 24%
No. of branches in
Europe: 8187
% of branches in
Europe*: 46%
•
•
% from Italy: 45%
Majority of remaining
revenue is from
Europe
•
•
F&SME Network: 39.85%
F&SME Factories (Asset
gathering, consumer finance,
leasing, factoring) : 8%
Corporate & Investment
Banking: 28%
Private Banking: 3.67%
Asset Management: 2.8%
Central & Eastern Europe:
18.8%
•
UniCredit
•
•
•
•
•
•
•
Santander
•
•
•
No. of branches in
Europe: 7584
% of branches in
Europe*: 39%
•
•
% from Spain:
% from Europe*:
43.5%
•
•
•
Retail Banking: 87.7%
Global Wholesale Banking:
10.3%
Asset Management and
Insurance: 1.9%
Note: Segment percentages are derived from total global revenues. *Does not include home country
Source: SPL, EVS Database, 2012 Financial Statements, BCG analysis
Banks such as BNPP, Unicredit, and Santander went across borders to tap the trade
corridors. They expanded branches and subsidiary networks regionally. Some of these
banks are now growing globally, using their experience and capabilities to scale up.
Within ASEAN, several banking and FS institutions having strong domestic focus have
posted strong financial performance (return on equity - ROE) and shown potential for
continued growth. They could be in a strong position to follow the example of their
European peers.
9
Figure 7: Return on Equity (ROE)
Note: Return on Equity (ROE) is a %. Data shown is for top 15 ASEAN banks by asset size. For CIMB, profit
before tax has been used instead of revenue. Revenue is defined as net interest income plus non interest
income plus other operating income
Source: Annual reports, BCG analysis
Additionally, the top banks in each of the original five ASEAN members command a
dominant share of the market, and are better capitalised than Basel III norms mandate.
As one can see to match the network of the incumbents in these markets where branches
are still important to building a sustainable franchise a new comer will have to make
substantial investments to pose any significant threat.
Figure 8: Performance
Source: EVS Database, 2012 Financial Statements, BCG analysis
10
Singapore’s aviation sector offers a good example of the effect that a liberalised financial
sector can have. Singapore is one of the few countries in the world that have instituted
an “Open Skies” policy. This means that any airline from any country in the world has
the right to fly in and out of Singapore. This has led to the emergence of Singapore as
a global hub of international passenger traffic. Those free-entry policies had a positive
impact not only on the domestic market, but on domestic players as well. The national
carrier, Singapore Airlines, has performed well in comparison to regional competitors in
terms of net profits.
This example demonstrates that openness with the right policy can help banks with
strong domestic footholds compete effectively with new entrants and potentially become
regional players.
Regional players can emerge by scaling up through freer access
Banks with regional aspirations can achieve better CI and higher ROE by being allowed to
scale up and expand quickly. Some banks that have already embarked on regionalisation
have built the right capabilities, fostered innovation, and enjoyed strong domestic
presence.
As a region, ASEAN banks have achieved strong performance. ASEAN’s Return on Assets
(ROA) is an impressive 1.5 percent, higher than the world and EU averages of 0.9 percent
and 0.1 percent respectively. Gross non-performing loans make up 2.11 percent of ASEAN
bank balance sheets, beating the world and EU figures. Furthermore, Capital Adequacy
Ratios in ASEAN, at 20 percent, are on average 5 percent higher than in the world and
EU.
Figure 9: Return on Assets (ROA)
ROA(%)
Source: BCG analysis
ASEAN banks have well-financed balance sheets with more-than-adequate capitalisation
and reserves. Such financial health puts players in a strong position both to compete
across ASEAN and withstand the entry of additional competitors within their domestic
markets.
Some players, such as DBS, OCBC, CIMB, MayBank, Bangkok Bank, and Standard
Chartered are already trying to build a business model for regional economic integration
by pushing their presence in every market in ASEAN.
The potential of banks to grow regionally and the need for to go regional in light of
changing trade corridors are critical factors in encouraging banks to scale up. Regulators
should create a common pan-ASEAN framework under which “qualified” banks can freely
operate.
11
1.3.1.2 Benefits of ASEAN Pass
The key customer benefits from an ASEAN bank pass include:
A wider product range: Banks with strong domestic businesses, such as those in Malaysia
and Singapore, can introduce their sophisticated high-end products into other ASEAN
markets.
More choices per product: Regional banks can provide more trade, cash-management,
financing products, and payment products (e.g. ASEAN wide procurement cards). They
are also better placed to manage supply-chain and liquidity requirements.
Better access to credit internationally: Established customers can gain easier access
to cross-border credit. In returns, central banks could mandate that all banks dedicate
certain portions of their loan books to politically sensitive sectors.
Lower fees: Free access to other regional markets allows banks to achieve regional
economies of scale (operational cost). The channel experience can be optimised. Hence,
“R&D” costs for innovative models across several markets will help lower costs for end
customers.
1.3.1.3 The way forward
The idea of an ASEAN passport is not new. In fact it forms part of the ASEAN banking
integration framework. However, progress in making the Pass program a reality so far has
been limited and may not be sufficiently comprehensive.
The ASEAN Banking Integration Framework was intended to address such issues.
Authorities from the 10 ASEAN central banks agreed upon four preconditions to ensure
that a framework was successfully implemented. One of these preconditions was
establishing set criteria under which ASEAN qualified banks could operate in any ASEAN
country with a single “passport.” Under the ASEAN Banking Integration Framework,
each ASEAN member country will be able to designate one or more local banks as a
Qualified ASEAN Bank (QAB) that is able to expand and operate within the region.
The number of banks so designated will depend upon the agreement between ASEAN
countries.
While these moves are a step in the right direction, they do not go far enough. For
instance, the QAB framework does not address the standing of multinational banks that
have been in the region longer than many domestics and have played a critical role in
enhancing the financial system in core ASEAN markets. Moreover it requires alignment
and consensus across all markets and it will be difficult to achieve consensus among
members and comprehensive criteria may be difficult to achieve in one go.
More thinking is needed to drive better alignment and consensus across all markets.
Given the complexity, a phased approach can be adopted whereby banks are evaluated
through a comprehensive set of criteria to gauge a bank’s overall strength and readiness.
Such criteria could include:
•
•
•
•
•
12
Financial performance: Key financial ratios on capital, profitability (cost-to-
income), liquidity, and shareholder value
Customer centricity: Satisfaction, complaint management, and security
Operational strength: Ability to scale up and increase connectivity
Innovation: Platform, products, improving financial inclusion etc.
Regulatory and compliance track record: Non-submission, non-compliance to Lifting-the-barriers REPORT: Financial services
•
•
•
local regulation, lapse in AML, and local compliance systems etc.
History: Length of stay in a country and commitment to economic contribution
Ownership structure: Shareholding pattern
Onshore talent
This model should be utilised to promote a fast-track process for banks to obtain an
ASEAN pass without subjecting qualified banks to stringent regulatory restrictions.
The final criteria should allow at least one bank from each ASEAN country to qualify
for an ASEAN pass, rather than adopting a “wait until a comprehensive ASEAN pass
emerges” approach. That’s because building banks that have regional stature and
integrating financial infrastructure will precede regulatory harmony.
Alternatively, one form of phasing could allow some core countries, such as Singapore,
Malaysia, Thailand, Indonesia and the Philippines, to grant a limited number of qualified
banks with complete access to certain markets with no discrimination between local
and foreign banks. That would mitigate “overpowering” the local banking system
because it would force entrants to innovate to compete for customers and allow strong
domestic banks to expand into other markets. Over time, as banks and financial systems
strengthen, other banks and countries could join this framework.
1.3.2 Free Talent Mobility
1.3.2.1 Overview
Talent mobility is an important element of financial services liberalisation. Several key
banks in the ASEAN region have faced significant difficulty in hiring non-citizens for
key positions within their firms. Regulatory restrictions on talent mobility may at times
hamper the realisation of the AEC dream, because it restricts banks from accessing the
best human capital that is available in the region.
In a heterogeneous labour market, there are bound to be skills gaps. It is essential to
make use of the superior skills that are available in the region in order to build capacity
and expand. There will be a tremendous need to train local talent and build the required
competencies. Efforts should therefore be made to allow mobility and to promote
knowledge transfer. The free movement of talent can bring the following benefits:
1.3.2.2 Benefits of Talent Mobility
By accessing a regional/global talent pool (either by hiring and/or transfer of people with
respective expertise) a bank can:
• Introduce a broader and deeper product set faster and more effectively. Customers gain better service, faster access, and well-developed products only when
banks are able to scale up, improve their technology and innovation, and offer a
variety of popular/tailored global products in the local market. To execute this, banks
need to hire local, regional, and global talent and/or transfer talent with the required
capabilities into new markets to help build up those businesses. When it comes to
more-sophisticated models and products, talent is usually the limiting factor.
• Foster Innovation. Recent banking innovations have been coming from emergingmarket countries. Transfer of business model innovations can help them reap
economies of scale on investments made in intellectual property, systems, and
capabilities.)
• Result in Economic growth. Talent will be deployed where it can create most
economic value. For example, there are several markets in the Euro region with high
13
unemployment (e.g. Spain), while the demand for talent in others (e.g. Germany) is
high. Talent mobility helps bridge the gap between the supply (Spain) and demand
(Germany) to a point where growth is lifted.
The ASEAN region must develop a self-sustaining ecosystem that puts plans and
programs in place to address skills gaps before they become critical. Given the
complexity of regional language needs, differences in standards of education, and the
long timeframes over which interventions occur, getting the right degree of coordination
and long-term investment is crucial.
Overcoming these barriers and increasing mobility requires a number of initiatives among
organisations and policy makers. Here’s how these changes could be phased in over time.
1.
Short-to-medium term
Fill the skills gap by forging a simple regional visa policy
To meet the current talent crunch in ASEAN FS, a special quota that is pre-approved for
banks, and based on key criteria (such as minimum years of presence in a country) would
be a useful stop-gap and should be accompanied with a fast-track process for key FS
roles.
Streamlining and simplifying processes to secure work permits, removing national visa
barriers, and even developing one regional work permit could help bridge skills gaps and
grow competencies on a local level. The European Union, for instance, established a Blue
Card scheme to attract highly-skilled migrants from outside the region. The Blue Card
provides a two-year single work and residency permit across member states. Supporting
actions include a streamlined and centralised visa application process and a travel permit
to member countries for the holder and his or her family.
In addition, a pan-ASEAN travel card similar to the APEC Bus Travel Card should be open
to all nationalities, especially senior executives of ASEAN companies.
2.
Medium-to-long term
Encourage companies to promote mobility within their own organisations/subsidiaries.
Allowing regional and multinational banks to hire local talent, offering on-the-job training,
and placing people back in their home markets in ASEAN can help leverage their learning,
improve competency, and build skills.
Moreover, allowing regional banks’ headquarter people to be placed in local markets,
and creating a link with HQ for closer understanding of that market, can result in strong
leadership. It can also enable top foreign talent to train senior management. Korean
companies such as Hyundai, Samsung have followed these principles and been successful.
In addition to enabling better mobility, ASEAN countries should set up high-quality
training institutes using senior bankers as instructors, define certification mechanism,
and create guidelines to recognise qualification across border. These will create early
involvement in the talent pipeline around specific skills (e.g. risk, finance, and payments).
Regulators should give banks incentives (e.g. tax breaks or grants) if they can show that
they develop local talent for critical positions.
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1.3.3 ASEAN Alliance model
1.3.3.1 Overview
Regional strategies often focus on integrated regional banks. However, alliance
models are also beneficial. In fact, the traditional network of correspondent banks
has been a proven concept for cross-border banking for several years. More
recently, we have seen established networks, such as KBank’s partnership with
local banks in ASEAN under the Asian Alliance model. These alliances are simple
and focused mainly on trade financing and simple referrals. Other industries have
pursued more complex alliance models. The “Star Alliance” in the airlines industry,
for example, is more far reaching, encompassing everything from using joint
infrastructure and joint purchasing to joint IT platforms and development.
Banking could take a similar approach. While banks have adopted different alliance
structures, grouped around product, geography, and sales, they could go farther,
employing risk diversification by joint underwriting of large loans using crosscountry club-deals, syndication, deploying excess liquidity and leveraging joint
infrastructure such as processing centers or training centers for senior executives,
creating joint capability hubs for areas like asset management or wealth, among
other initiatives.
For such a model to work, however, regulations will need to flex accordingly
ensuring steady cross-border lending flow and liquidity across the region.
Figure 10: Possible Types of Banking Alliances
Complexity
Low (Today)
MoU
▪  Purely contract-based
▪  Executive sounding
Key features
board drives alliance
▪  BUs of alliance partners
handle business
▪  Partners make day-to-
day operating decisions
in their own banks
Implications
▪  Employees reassigned
for alliance
or separately hired by
partners
partners
▪  Profits channeled to
banks separately
▪  Costs less significant
▪  Good testing ground to
launch alliance
▪  Weak incentives to
comply with alliance
Assessment
agreements
▪  Impact difficult to
measure
Supportive JV
Operative JV
▪  Small independent team ▪  Independent team
sets basic standards,
delivers support and
coordinates partners
▪  BUs of alliance partners
still handle business
offshore sets and
monitors standards
▪  JV and BUs of alliance
partners jointly handle
business/share tasks
▪  Partners make day-to-
▪  Partners shape strategy
day operating decisions
in their own banks
▪  Some employees from
owners
▪  Minimum compliance
structure to ensure
requirements are met
▪  Impact difficult to
measure
▪  Size may not be
significant enough to
keep momentum
and help prioritize
operational activities
▪  JV effectively performs
back-end services, frontend and client
ownership remain with
partners
▪  May be more cost-
effective to centralize
operations
▪  Stronger incentives for
partners to comply with
agreements
▪  Still difficult to monitor
partner actions
High
Independent NewCo
▪  Large sized NewCo
▪  NewCo independently
runs relevant business
▪  Alliance members refer
clients/deals to NewCo
▪  Hires new team
▪  Partners give limited
input to operations
▪  Partners each have an
equity stake in the
venture
▪  Profits distributed
equally or based on
equity stake
▪  Speed and objectivity in
decision-making
▪  Autonomy protects
assets from dominance
▪  Financial risk due to high
costs with lack of
precedence
▪  Requires new team not
easily available
Source: BCG analysis
15
1.3.3.2 Benefits of Alliance models
Value creation in the alliance model can come from many sources:
Better access to credit domestically. Many of the largest clients (mostly conglomerates)
are hitting single-customer limits. It would be easier for a group of ASEAN banks
to finance these large exposures through club deals. That would create better risk
diversification while still reducing costs for customers (compared to the traditional crosscountry syndicated loans arranged by multinational banks).
Better access to credit internationally. It is much easier to facilitate cross-border access
to credit for established customers without resorting to regional and MNC banks only.
Lower cost to customers. Alliances can facilitate lower costs for operations since the
need for fixed investment in subsidiary branches is negated. Shared technology platforms
and investments can decrease the cost of sales and increase cross-selling percentage.
For alliances to succeed, banks need to carefully evaluate whether their business models
are suitable to capitalise the growth of intra-regional trade and willingness to commit
to the alliance. For existing initiatives demonstrating the benefits of potential alliances
can be reinforcing the banks and regulators that it leads to benefit the customers by
engaging in cross-border business. For new alliance on liquidity, joint underwriting of
large loans formalising these syndicate arrangements, allowing direct foreign currency
loans can constitute the initial steps toward a more comprehensive alliance model. For
most regional level alliance there will be sharing of resource, infrastructure and systems.
Regulators should allow building of such common IT platforms, regional infrastructure for
processing training, facilitating cross border customer information sharing to make this
happen especially involving common data infrastructure (data centres, core systems). A
liberal regulation on resource-sharing, setting up business-matching services, allowing
talent mobility and customer referral can support the alliances and make it successful and
banks can focus on creating value to the customer.
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1.3.4 Building Common Credit Bureau Infrastructure
1.3.4.1 Overview
Access to credit across the SME, corporate and Consumer segments is a growing need.
This is especially true for SMEs, which represent the largest non-agricultural business
block. While the credit needs of large corporate tend to be well served by major domestic
and global banks, the majority of SMEs in developing nations rely on informal financing,
such as family, community and private financiers. Those informal channels are insufficient
to support cross-border, intra-ASEAN trade growth. To expand credit access across all
segments, a common credit bureau infrastructure must be built.
That infrastructure must reflect the needs of both credit applicants and lenders. On
the demand side, for instance, SMEs and others require a more systematic disclosure
of financial and performance information, governance and business planning, and
promoter’s credibility. On the supply side, banks and regulators must rely more on credit
information systems and find common ground on credit bureau governance, make SME
risk scoring more pragmatic, and engage in benchmarking of similar SMEs sub segments.
However empirical evidence suggests that a strong credit bureau system can remove
these obstacles. For example, A World Bank policy survey of 5,000 SME firms in 51
countries (Love & Mylenko, 2003) found that:
•
SME reporting constraints were 22 percent lower in countries with credit bureaus, than those without
•
SMEs were 12 percent more likely to receive loan approval in cases where there was credit bureau input
Bringing credit processes and standards to a common, high standard across the region
is an important pre-condition for a strong credit bureau infrastructure. World Bank data
shows that the depth of credit-related information currently varies widely. This exhibit
suggests that Malaysia’s credit depth, which is good the region, could serve as a useful
starting point to conform best practice standards.
Figure 11: Credit Depth Index
Source: World Bank Credit depth information index, BCG analysis. Note: Credit depth of information index
measures rules affecting the scope, accessibility, and quality of credit information available through public or
private credit registries. The index ranges from 0 to 6, with higher values indicating the availability of more
credit information, from either a public registry or a private bureau, to facilitate lending decisions
17
Several private credit bureaus also operate in ASEAN in places like Malaysia, Philippines,
Singapore, and Thailand, although relatively few offer public credit registers, Indonesia,
Malaysia and Vietnam being among the exceptions. Such heterogeneity limits the quality
and availability of information-sharing, particularly with respect to SME lending.
Figure 12: Credit Bureaus in ASEAN
Country
Credit Bureau
Sharing Across Border
•
•
•
Credit Bureau (Singapore) PteLtd (CBS)
DP Credit Bureau Pte Ltd (DPCB)
Dun & Bradstreet (Singapore) Pte Ltd
•
Only D&B has worldwide business information
•
Biro Informasi Kredit - under Central Bank
•
N/A
•
•
Thai Credit Bureau Co., Ltd.
The National Credit Bureau of Thailand
•
N/A
•
Central Bank Credit Information Unit – THE CREDIT
BUREAU(CBCIU)
Credit Bureau Malaysia
•
Credit reporting available for foreigners from
CBCIU
•
BAP Credit Bureau Inc Credit Information
Corporation
•
N/A
•
•
Credit Information Center
Private - PCB Vietnam Credit Information
•
CIC provides credit reports on foreign companies
to help domestic customers
•
Credit Information Bureau( to be formed with
Singapore)
•
N/A
•
Brunei’s credit bureau
•
N/A
•
Credit Bureau Cambodia
•
N/A
•
Lao Online Credit Information System
•
N/A
•
Source: Websearch, BCG analysis
1.3.4.2 Benefits of having a common credit bureau infrastructure
Having a common or centrally-governed credit bureau system with access to similar
information in all markets has several benefits:
Better access to credit domestically and internationally. Creating a common credit
infrastructure would ease the lending process, allow banks to reduce operating costs, and
reduce average lending rates. A universally understood framework for risk assessment
would also allow more banks to provide credit to companies internationally. Such benefits
have already been demonstrated in Eastern Europe, for example, where leverage ratios
are 4.2 percent higher in countries where credit information sharing is more prevalent.
Lower risk cost. Better transparency would improve risk management practices, reduce
NPLs/credit losses, and lower rates to customers. A centralised credit bureau would
also act as an enforcing mechanism, pushing clients to pay or be listed as a bad risk. For
example, in Shanghai, NPL ratios were reduced from 6.67 percent to 4.52 percent in the
year after a local centralised credit bureau was launched.
Greater product penetration. Apart from reducing defaults, centralised credit bureaus
can identify SMEs and other clients with good credit records. Banks can target these
higher value companies with greater product choice and a wider array of credit offers.
18
Common credit bureaus bring other benefits as well, such as common standards in due
diligence, the establishment of risk benchmarks (which are unavailable at the moment,
especially for SMEs), and the prevention of fraud/money laundering through widespread
and cross-border information sharing.
The following steps can help ASEAN establish a common credit bureau infrastructure that
over time can function as the repository of all relevant credit information for corporate,
individuals, SMEs, and microfinance borrowers.
i. Leverage best practices across markets to create a national infrastructure based upon
uniform standards. Gaining insight into those best practices will involve collaboration
within ASEAN nations.
ii. Harmonise credit bureau infrastructure and information across the ASEAN markets to
facilitate cross-border activities. That type of body could be jointly run by regulators and
banks and set up either as a separate entity or as part of an existing agency. In Europe,
for instance, the ECB governs several credit institutions, but does not have a central
credit bureau.
Figure 13: Harmonise Credit Bureaus
1. As a first step, banks and regulators should assess the feasibility of creating common framework based on the domestic credit bureau depth and maturity, the acceptability of a common credit-bureau infrastructure, and come up with a
list of enabling factors such as credit availability and quality of domestic bureau,
data source, regulatory difference etc.
2. Establish simple processes, build model for different customer segments, by
setting up a way to collect segment benchmarks, procure and implement
supporting technology, sign up banks to collect credit information, and create a
governance structure.
3. Further, based on feedback from the implementation, banks and regulators
should develop credit bureau processes, widen the net of credit information by
having more banks and other financial institutions participate, and provide clear
reporting.
Key success factors include:
• Consensus on leadership, strong support from banking regulators and supervisors,
and agreement on governance and control
• A pragmatic approach, and native rating mechanisms and targets
• Best practice sharing in operation and technology
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1.3.5 Common Credit Rating Agency
1.3.5.1 Overview
Ratings are key to opening up capital market intermediated funding for several reasons.
One, there is growing need for capital markets intermediated funds. Two, the capital and
bond markets are highly fragmented currently. And three, commercial banks are likely to
continue to play a dominant role in financial intermediation. All that makes the need for
credit rating capabilities in all ASEAN countries that much more important.
To date, global rating agencies have filled some of this void. But, the global financial crisis
exposed some of their limitations, especially on structured products, factors that have
helped make the case for a new, regionally-focused rating agency.
Setting up a regional rating agency will be very difficult. For one thing, a strong regional
rating agency depends on a strong network of local or domestic credit agencies and
ASEAN countries are at varying levels of development in this area. There are also
larger, structural issues that need to be resolved. They include differences in domestic
bond markets, accounting and disclosure standards, legal and regulatory frameworks,
and sovereign risk. Such differences mean that in some cases establishing common
benchmarks may not be feasible.
The idea of a regional rating agency structure, however, does have precedent. Europe
proposed an initiative to establish a European Rating Agency a few years ago. The
goal was to build a regional entity that would compete with US-based equivalents such
as Standard & Poor’s, Moody’s and Fitch, be financially independent (unlike their U.S.
peers), and feature more players and market competition. To promote transparency
and independence, the proposed model would be led by a consortium of investors that
included stock exchanges and credit institutions as well as private, non-profit foundations
with a strong academic council. As an additional check, the model also called for a special
oversight agency to ensure public monitoring. Although the idea failed to get off the
ground due to questions over the right financing model and governance, it serves as
an interesting framework for ASEAN to consider. In a survey conducted by the Asian
Development Bank for Development of Regional Standards for Asian Credit Rating
Agencies, (See Figure below), 80 percent of domestic credit rating agencies agreed that
harmonisation would enhance their credibility and help improve rating quality.
Figure 14: Survey Results
60
67
20
10
10
10
7
7
Rating Credibility
Source: ADB, BCG analysis
20
Rating Quality
The report also points out that:
•
•
•
A region-wide ASEAN Bond Market would fuel demand for regional ratings and the
need for cross-border comparability of domestic ratings
Domestic Credit Rating Agencies (CRAs) could capitalise on these opportunities using
their in-depth knowledge and familiarity with the local environment
Domestic CRAs could better serve SMEs and smaller issuers with relatively lower
rating fees
A common regional credit rating agency would facilitate the development of capital
markets, provide banks with a view on the strengths of SME customers, and help channel
regional savings to regional investment. The Association of Credit Rating Agencies in
Asia (ACRAA) is one such initiative in which 25 CRAs from 14 countries/economies are
members. They aim to develop and maintain cooperative efforts among credit rating
agencies in Asia and could be instrumental in creating common standards.
1.3.5.2 Benefits of having a common credit rating agency
There are several benefits to having a common credit rating agency:
Better access to credit domestically. A regional agency essentially converges different
rating-agency practices into a standard one. By leveraging the experiences of markets
such as Thailand, Malaysia and Singapore in other ASEAN markets —allowing operators
in these markets to set up in other ASEAN markets — lenders would gain greater
transparency around borrowers’ creditworthiness. Banks could expand their loan books
and more institutional credit information on SMEs would be made available. The regional
connection would make it easier for aspiring SMEs to tap capital markets and gain access
to loans since that agency would be more conversant with local market dynamics.
Lower risk cost and concessions in funding. Greater efficiency and common standards
will lead to improved decision-making, reduced risk, and lower operating costs. Better
and more reliable credit information can allow banks to offer preferential interest rates
based to high scoring customers.
Credibility. The absence of a credible regional credit rating agency may inhibit
the growth of SMEs because their creditworthiness cannot be easily assessed. High
performing SMEs aspiring to regional/global expansion may need to demonstrate
creditworthiness in global deals/tenders. A good credit rating from a reliable regional
body can help build SME reputations and help them win business, facilitating their
expansion.
For a successful regional integration to happen, there is a need for harmonising
credit information across all markets in ASEAN The agency should be known for (i)
independence (ii) transparency (iii) accurate ratings and high quality analysis (taking into
account local market needs/sub segments/benchmarks and (iv) charge a nominal fee to
encourage use.
Before building a regional level agency it is important to adopt a pragmatic step by step
approach to accomplish the end goal
21
1. Setting up and developing local credit rating agency in each country where there are
currently no agency or adequate coverage such as Myanmar, Laos, Cambodia and
Brunei.
2. Assist existing credit rating agency to specialise in respective country’s key segments
and markets and improve quality e.g. developing deep Micro segment, SME database
by leveraging best practice within and outside the region.
3. Harmonise credit rating information across the region by setting up common,
preferably independent rating agency created through cooperation between ASEAN
countries. The institution can help in shaping up a common standard of comparison
across borders in terms of rating methodology, rating criteria, definitions, benchmarks
and the overall rating process. As harmonisation is a complex process it has to be
done in phases as illustrated below.
Figure 15: Harmonise Credit Rating Agencies
•
•
•
•
Establish standards and framework. A central program office should be established
to facilitate the initiative and provide governing guidelines. It is important to align
differences in various rating-agency methods, tools, and practices towards creating
common standards, while also allowing for local variations. Accounting disclosure
standards, legal and regulatory elements, and base benchmarks should also be
harmonised. Common standards, information architecture, and nomenclature should
be established.
Foster data exchange among local CRAs. Establish practices, processes, controls and
channels of information sharing among different local CRAs in the region.
Set up a common infrastructure. A formal regional-information location and common
database need to be set up. Top regional banks and institutions with strong regional/
global aspirations can collaborate to fund and establish a network. This network
should leverage information from the credit rating agencies. The alliance can
eventually be expanded with minimal government support on financing needs.
Establish an appropriate governance organisation. There are many types of
structures for a governance body. This can range from a new agency that will manage
the common regional information, or a board comprised of representatives of local
players.
22
1.3.6 Free Data Flow/Off-shoring
1.3.6.1 Overview
Banks rely on the free flow of data, standardised processes and modern technologies
to ensure efficiency, scalability and quality of service. Regulators in the past have been
reluctant to allow off-shoring and more importantly the cross-border transmission of
client-sensitive data for reasons of security and privacy. While these concerns are valid
there are equally valid reasons why allowing banks to structure their data and processing
infrastructure on a regional level versus a multi-local set is important to support the
eventual goal of a Financial Services regionalisation and liberalisation with in ASEAN. The
key benefits being
•
•
•
Economies of scale (infrastructure, process efficiency and labour cost arbitrage)
Risk management (e.g. understanding the bank’s exposure holistically at any point in
time but also be able to make decisions quickly and quote best possible prices
Compliance and control (e.g. ability to easily and in real time monitor and control key
compliance processes e.g. KYC, AML etc.)
Some of the benefits around risk and compliance stated above are exactly in line with
what the regulators have been struggling with, interms of being able to speed up and
allow for regionalisation of banks. Such customer information sharing facilitates risk
management in that banks can increasingly analyse customer and third party payment
patterns cross border, facilitating anti-money laundering and anti-terrorist financing
measures internally. This avoids unhelpful situations where suspicious transaction reports
are filed in one jurisdiction or accounts closed, while these are continued in another
jurisdiction without knowledge of the account activity in the first jurisdiction.
So this particular topic on allowing for a centralised and regionalised operating model
has systemic benefits..There are multiple examples of processes that can be offshored
to create cost efficiencies. These include call centers, back office centers, and IT
infrastructure centers.
1.3.6.2 The key benefits of off-shoring and free data flow • Off-shoring non-critical processes promote economies of scales and competency
building, benefits that translate into lower cost of service and improved quality. It can
also help foster the development of local modules that meet specific market needs.
• Centralised processes and strong off-shore capabilities can promote product
innovation and allow banks to forge alliances to leverage existing infrastructure and
build products using such strong infrastructure (e.g. Trade platform).
There are pragmatic measures that can greatly help reduce the real and perceived
risks and aid the banks to pursue an effective regionalisation strategy, which will not
only benefit the bank and customers but also aid the regulator in managing risks more
effectively.
1. Alignment or ratification of data protection laws within ASEAN: This can either be
done at a regional level or a bi-lateral level or one could even look at examples of
other developed economies. UK’s FSA for example in its outsourcing regulation had
provided for off shoring to a destination where the data protection laws exist and are
comparable. It also requests for framework where it can be assured that reasonable
access and audit of the off shored infrastructure can be conducted by FSA principle.
23
Such regulation has been behind the success of offshoring and centralisation of
infrastructure of many banks in emerging economies such as India.
As a next step consumer protection can also be explored contextually with
transparency and consumer choice as a key principle. For example, exploring
alternative ways of obtaining, respecting and enforcing for the collection, processing
and use of personal data (appropriately worded consent clauses in standard onboarding terms) and informing the customer on who has their data, why and
how it will be used can enable customer to exercise an informed choice and such
transparency is over and above just consent.
2. Alignment and/or standardisation of prudential operational guidelines on
information systems and operations: This can be achieved through professional
certification on global standards on security such as ISO 27001/27002 for the
offshore facilities. This will enforce adherence to minimum set of criteria for having
their regional technology and processing infrastructure certified for a pan ASEAN
presence. This might even have second order benefits where “Pan-ASEAN” banks
might seek to locate some of their IT infra to a lower cost location within the ASEAN
as well.
3. Enabling accessibility: This is crucial element to enable any kind of cross border
operation. Reasonable, timely and un-fettered access to regulators for inspection and
audit. This can be implemented via special onetime visas (where this is not already
possible) that are available for regulatory authorities to be able to visit and inspect
premises that are based in other geographies. This is also important to apply to bank
employees should they need to access these infrastructures to remedy critical issues.
These practical measures can address some of the concerns regulators have around
having data and processing outside their jurisdictional boundaries and in the process
reaping benefits on risk and compliance over and above significant customer benefits.
A healthy dialogue on the types of data, disclosure norms, and compliance among
banks and regulators is required.
1.3.7 Standardisation of Nomenclature, Documentation, and Common Infrastructure
There are pragmatic measures that can greatly help reduce the real and perceived
risks and aid the banks to pursue an effective regionalisation strategy, which will not
only benefit the bank and customers but also aid the regulator in managing risks more
effectively.
1.3.7.1 Overview
One of the key success elements of any banking architecture or framework is the
standardisation of nomenclature. Since having varied definitions of terms can create
widespread misunderstandings, products, contract terms, banking terminologies, all
must be well defined to ensure everyone is “speaking the same language.” In Europe
ECB defines a reporting structure for products and defines classifications and publishes
glossary of all terminology periodically.
Likewise, it is important to standardise documentation, forms, and information
requirements for basic products. Regulators must also encourage banks to standardise
processes that are routine in nature such as KYC, account opening, account closing, and
scan factory as well as common platforms, such as payments. This can be a pan-ASEAN
24
initiative based on alliances and cooperation among banks.
Europe’s Single Euro Payments Area (SEPA) offers a good example. It provides common
standards, faster settlement, and simplified processing. Consumers can rely on a single
set of euro payment instruments that together cover 33 countries with one bank account,
one bank card, one SEPA Credit Transfer (SCT), and one SEPA Direct Debit (SDD).
Successful implementation will require alliances to build infrastructure, access to a
common talent pool, and support from every country.
1.3.7.2 Benefits of standardisation
Lower fees/cost to customer. Standardisation is one of the main drivers of economies of
scale. It also lowers operational risk. In addition, a common infrastructure can help pool
investments which lower costs while also facilitating multi-stakeholder integration such as
B2G, B2B, G2C, and B2C effectively.
Quicker and Efficient processes. Consistent, clear documentation and nomenclature
makes it easier for customers to complete forms and for banks to improve response times
and accuracy.
• Agree which banking terminology to standardise, define a nomenclature and build
common regional information architecture for continuous improvement.
• Simplify forms and define common types of documentation requirements for
customers.
• Identify key processes across banks and set up a shared services alliance among
banks to scale operations.
• Create a plan for region-wide payment infrastructure to facilitate more seamless
cross- border payment.
• Standardise disclosure standards
1.4 Conclusion
It is always difficult to determine the degree of openness of an economy or integration
of a region. It is even harder to align different stakeholders on the “right” amount of
openness and integration. Especially in recent years - during the financial crisis - many
regional efforts across the globe have stumbled when economic growth has been
challenged and hence their rationale has been questioned. However, when it comes
to Europe some might argue that regional growth has stumbled because of too much
integration whereas others argue that it has happened because of not enough integration.
In any case, ASEAN has chosen a unique approach to regional collaboration and
integration. The ASEAN Economic Community (AEC 2015) vision actually differs in quite
some ways from the EU-style integration. More so, it has an opportunity to develop and
refine it further in a way that will suit the region’s requirements, learning from experiences
made elsewhere as well as its own experiences in the past during the Asian Financial
Crisis.
25
Figure 16: EU vs. ASEAN
Policymakers will need to evaluate a variety of factors, foremost of which should be the
type of structure that will best benefit the customer. In making those decisions, they
will need to weigh complex issues stemming from the region’s economic diversity, such
as volatility in capital flows and differential economic growth rates, when determining
the pace and extent of the desired integration. Finding the right balance will depend on
the size of the ASEAN countries, the needs of the local market, the efficiency of their
underlying infrastructure and access to financial services, and the strength and maturity
of the legal and regulatory environment.
Creating a stable financial system immune against systemic risks or contagion effects
is of tremendous value to the society at large. However, too stringent regulation also
comes at a price – providing better access to better financial services at lower cost is
important to reap the full benefits of ASEAN 2015, spur economic growth and increase
the wealth of nations. From our discussions with some of the leading banks in the region
we believe that in some markets domestic banks feel rightfully strong enough to weather
more intense competition and customers would benefit from this competition. The
emergence of regional ASEAN banks and pan-ASEAN alliances, being able to capture the
value from operating on a regional platform, would create the right conduits to facilitate
cross-border economic activity. And reducing information asymmetry on the lending side
should help to increase the overall lending capacity in the market, especially as some
economies like Indonesia are hitting system wide Loan-to-Deposit ratios of 100%.
The stark economic and political differences between the 10 ASEAN members are a
recognised fact. For some of the more advanced markets the question is if the additional
customer value gained by more market liberalisation and reciprocal market access for
qualified institutions would not outweigh the currently perceived benefits of a more
restrictive regulatory stance. Having such a debate at a regional level, including all
stakeholders and with a broadly defined “customer value” as the guiding metric could be
an important step forward.
26
All rights reserved. No part of this report may be reprinted or reproduced or utilised
in any form or by any electronic, mechanical or other means, now known or hereafter
invented, including photocopying or recording, or in any information storage or
retrieval system, without proper acknowledgement of CIMB ASEAN Research
Institute and The Boston Consulting Group (BCG).
The views, responsibility for facts and opinions in this publication rests exclusively
with the authors and their interpretations do not necessarily reflect the views of
CIMB ASEAN Research Institute and The Boston Consulting Group (BCG).
First published:
November 2013
First print:
November 2013
Publisher:
CIMB Southeast Asia Research Sdn Bhd (CARI)
Level 6, Menara SBB, Plaza Damansara
No. 83, Jalan Medan Setia 1
Bukit Damansara, 50490 Kuala Lumpur, Malaysia
Printer:
PT Satu Solusi Intermedia Utama
Jalan Utan Kayu Raya No. 71
Jakarta Timur 13120, Indonesia
27
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