TRADE IN BANKING SERVICES IN ASEAN COUNTRIES

Transcription

TRADE IN BANKING SERVICES
IN ASEAN COUNTRIES
Mario B. Lamberte
WORKING PAPER SERIES NO. 90-22
September 1990
Philippine Institute for Development Studies
The study examines
countries
lateral
that
for a c o n t i n u o u s
negotiations.
around
would
paper
ultimately
analyzes,
aspects
which
these
of
towards a more
principles
discussing
the
higher
in t h e m u l t i l a t e r a l
sector
the possibility
of
for
revolve
services
developing
sector.
trade
first
in
The
various
of.the
is t h e n
of the
increasing
key
on trade
given
banking
It
concepts
and
in
services
ends
the competitiveness
s h a r e of
such
measures
and
trade.
The paper
their
in
the
benefits
international
It
banking
examining
of the ASEAN
countries.
in t h e r e g i o n a n d s u b s e q u e n t l y
multi-
and sustainable growth
negotiations
in t h e A S E A N
in
and
in t h e r e g i o n . E m p h a s i s
implications
of
countries,
of e x p a n d i n g
regime
ASEAN
to t h e s e n e g o t i a t i o n s .
by an e n u m e r a t i o n
liberal
discuss
to t h e b a n k i n g
the ASEAN
of m a r k e t s and c o m p e t i t i o n
is f o l l o w e d
to
to t r a d e
This analysis begins by
activities
in
negotiations
developed
relevant
to a c h i e v i n g
proceeds
series
focus, w a s g i v e n on the f i n a n c i a l
as a means
This
the
benefit both
possibility
to t h e s t r u c t u r e s
system.
in
of b a r r i e r s
the
s c o p e of b a n k i n g
banks
issues
in t h e c o n t e x t
countries.
in s e r v i c e s
and more e f f e c t i v e
are considered
explores
services
costs
The
issues on trade
the gradual dismantling
countries. Primary
also
the
by
of
international
trade
in
cooperation
services.
banking
and
services
the
through
Uruguay
Round
of
trade
as
regional
negotiations
on
TABLE OF CONTENTS
I.
Introduction
II.
S c o p e of B a n k i n g
A.
B.
C.
D.
E.
III.
IV.
V.
Region
9
*
12
16
18
23
28
.
of M a r k e t s
.
and C o m p e t i t i o n
S t r u c t u r e of O w n e r s h i p
P o l i c y on Bank E n t r y and B r a n c h i n g
D e g r e e of B a n k i n g C o n c e n t r a t i o n
Pricing
37
37
39
40
40
. ..*
48
A.
B.
48
49
Benefits
Costs
The A p p l i c a b i l i t y and I m p l i c a t i o n s of the U r u g u a y
Key C o n c e p t s , Principles and Rules
Transparency
Progressive Liberalization
Market Access
National Treatment
Most-Favored-Nation/Nondiscrimination
I n c r e a s i n g P a r t i c i p a t i o n of D e v e l o p i n g
Regulatory Situation
Safeguards and Exceptions
Round
*
Countries
50
51
52
53
54
56
... 56
57
58
I n c r e a s i n g C o m p e t i t i v e n e s s o f B a n k s in A S E A N C o u n t r i e s
and I n c r e a s i n g Their S h a r e of i n t e r n a t i o n a l T r a d e
in B a n k i n g S e r v i c e s
*
A.
B.
Figure
in t h e A S E A N
B e n e f i t s a n d C o s t s of a M o r e L i b e r a l R e g i m e for
I n t e r n a t i o n a l T r a d e in B a n k i n g S e r v i c e s in t h e
ASEAN Region
A.
B.
C.
D.
E.
F.
G.
H.
VI.
Activities
Indonesia
Malaysia
The Philippines
Singapore
Thailand
Structures
A.
B.
C.
D.
1
1
2
References
Improving Competitiveness
I n c r e a s i n g the S h a r e of I n t e r n a t i o n a l
in B a n k i n g S e r v i c e s
58
58
Trade
N e t F i n a n c i a l F l o w s to A S E A N , 1 9 7 5 - 1 9 8 7
Nominal Lending Rates, Deposit Rates and
S p r e a d in A S E A N
59
.
5
Gross
42
61
LIST OF TABLES
1
Basic
2
Net F i n a n c i a l
3
Banking
4
Financial
5
The Financial
6
The
7
A u t h o r i z e d A c t i v i t i e s of V a r i o u s B a n k C a t e g o r i e s
P h i l i p p i n e s B a s e d on the A m e n d e d B a n k i n g Laws
8
9
Indicator's: A S E A N
Flows
Density
2
to A S E A N , 1 9 7 0 , 1 9 7 5 - 1 9 8 7
8
in A S E A N C o u n t r i e s , 1 9 8 8
institutions
System
Philippine
-
11
in I n d o n e s i a , S e p t e m b e r
1989
13
in M a l a y s i a , 1 9 8 8
Financial
System
17
(as o f D e c e m b e r
Philippine Offshore Banking System
and L i a b i l i t i e s , September 1989
S t a t e m e n t of
in
1988)..19
the
20
Assets
22
T r u s t a n d F u n d s M a n a g e m e n t A s s e t s of C o m m e r c i a l
in t h e P h i l i p p i n e s
31,
Banks
*
10
Money Market
11
Assets
12
Singapore Commercial Banks: Assets and Liabilities, 1 9 8 8 . .
27
13
14
F i n a n c i a l S y s t e m in T h a i l a n d , 1 9 8 8
B r i e f P r o f i l e of A c t i v i t i e s of Six T y p e s of
I n s t i t u t i o n s in T h a i l a n d (as o f 1 9 8 4 )
29
15
16
Institutions
24
of M o n e y M a r k e t
in S i n g a p o r e , 1 9 8 8
Institutions
E s t a b l i s h m e n t T r a d e in F i n a n c i a l
of t h e P a c i f i c R e g i o n
in S i n g a p o r e , 1 9 8 8
Services
in
Financial
30
Countries
in
ASEAN
*
17
ASEAN:
18
Cross-Border Interbank Claims and Liabilities and
Border Bank C r e d i t and D e p o s i t s , 1983 and 1988
19
Concentration
20
Intermediation
Operating
. . . 26
33
N u m b e r of O v e r s e a s B r a n c h e s of T o p T e n B a n k s
Countries
Intra-ASEAN
25
Commercial B a n k s , 1981
in A S E A N C o m m e r c i a l
M a r g i n , 1983 and
Banking
1986
35
Cross36
S y s t e m s , 1988
(Philippines)
3 4
.,
.. 41
46
TRADE
IN B A N K I N G S E R V I C E S
Mario B.
I.
IN A S E A N
COUNTRIES*
Lamberte**
INTRODUCTION
S i n c e its e s t a b l i s h m e n t in 1 9 6 7 , A S E A N h a s e n j o y e d
regional
peace and s t a b i l i t y .
This has been translated into high e c o n o m i c
growth
most
envied
by other
regional
groupings.
ASEAN
is,
however,
c o m p o s e d of f a i r l y h £ t e r o g e n e o u s c o u n t r i e s in t e r m s
of
level
of
development
and d e g r e e
of
sophistication
of
their
economy.
Singapore
belongs
to
the
so-called
"newlyindustrializing economies" (NIEs).
I t s p e r c a p i t a G N P in 1 9 8 8 is
more
t h a n 20 t i m e s h i g h e r t h a n t h a t of I n d o n e s i a , w h i c h h a s
the
lowest
per
c a p i t a G N P in t h e r e g i o n .
It w a s a l s o
the
fastest
growing
ASEAN
member
country
in
the
1980s
(see
Table
1).
T h a i l a n d ' s e c o n o m i c g r o w t h in t h e 1 9 8 0 s w a s p h e n o m e n a l .
This
is
likely
going
to b e s u s t a i n e d in t h e e a r l y 1 9 9 0 s w h e n
the
huge
f o r e i g n i n v e s t m e n t s it r e c e i v e d in t h e l a t e 1 9 8 0 s a r e
translated
into increased p r o d u c t i v e c a p a c i t y .
In c o n t r a s t , t h e P h i l i p p i n e s
has
a l o t of c a t c h i n g u p to d o in t h e 1 9 9 0 s .
The political
and
economic
turbulence
it e n c o u n t e r e d t h r o u g h m u c h
of
the
1980s
p r a c t i c a l l y s e t b a c k i t s c l o c k o f d e v e l o p m e n t to t h e 1 9 7 0 s .
Its
huge
d e b t o v e r h a n g w i l l c o n t i n u e to c o n s t r a i n i t s g r o w t h in
the
medium term.
*Paper presented during the UNCTAD/ESCAP Regional
S e r v i c e s in B a n g k o k , T h a i l a n d on 6 - 9 A u g u s t 1 9 9 0 .
**Vice-President,
Studies (PIDS).
Philippine
Institute
for
Seminar
on
Development
Table 1
BASIC INDICATORS: ASEAN
INDICATORS
1. Per capita 6NP: 1988 (USt)
Indonesia
438
Malaysia Philippines
1,878
638
Singapore
Thailand
9,188
1,888
2. Ave. growth rate
per
capita 6DP: 1981-89 (Z)
2.4
2.2
-8.9
4.7
4.6
3. Ave. 6DP growth rate:
1981-89 (X)
5.2
5.4
l.B
6.9
7.1
4.1 1988
13.2
69.8
19.8
94.4
37.3
4.2 1987
26.9
124.3
28.7
184.8
64.9
S.l Agriculture
28.5
21.2
26.9
8.4
15.9
5.2 Industry
48.3
41.8
33.1
36.6
33.9
5.3 Services
39.3
38.7
41.8
63.8
98.5
35.8
53.8
41.8
61.8
25.8
4. Broad aoney/GNP (Z)
5. Sectoral shares of GDP:
1989 (Z)
6. Share of services in
Eaployient: 1986 (Z)
Sources: Lines 4 and 6 froa the World Bank's World Developaent Report (1989) and Quibria
(1989), respectively; and the rest froa Asian Oevelopteot Bank's Asian
Developaent Outlook (1998).
3
Financial
d e e p e n i n g h a s t a k e n p l a c e in A S E A N
countries
in
1980s.
Indonesia, Malaysia and Thailand experienced a
doubling
o f t h e r a t i o o f br,oad m o n e y t o G N P , w h i c h is u s e d h e r e a s a r o u g h
measure
of
financial deepening.
Singapore
has
continued
its
process
of
financial deepening.
A g a i n , the only
exception
in
this
impressive
performance
of
ASEAN
countries
is
the
Philippines.
A l i q u i d i t y c r i s i s s t r u c k t h e P h i l i p p i n e e c o n o m y in
1981,
followed
by a severe b a l a n c e of p a y m e n t s p r o b l e m
in
the
mid-1980s.
T h e s e r e s u l t e d in t h e c o l l a p s e o f s e v e r a l
financial
institutions, which practically shook the people's confidence
in
t h e b a n k i n g s y s t e m a n d l e d to c a p i t a l f l i g h t .
Over the past three decades, ASEAN economies have
undergone
a p r o c e s s of s t r u c t u r a l t r a n s f o r m a t i o n , s h i f t i n g t h e i r d e p e n d e n c e
from
agriculture
to n o n - a g r i c u l t u r a l a c t i v i t i e s .
The
service
sector has i n c r e a s i n g l y become an important p r o d u c t i v e sector
in
their e c o n o m i e s .
In 1 9 8 9 , t h e s h a r e o f t h e s e r v i c e s e c t o r in t h e
GDP
of
A S E A N c o u n t r i e s r a n g e d f r o m 39 p e r c e n t
to
63
percent.
T h e i r c o n t r i b u t i o n to e m p l o y m e n t in A S E A N c o u n t r i e s h a s a l s o b e e n
significant.
Q u i b r i a (1989) u n d e r s c o r e s the i m p o r t a n c e
of
the
s e r v i c e s e c t o r in e c o n o m i c d e v e l o p m e n t :
"The
r o l e o f s e r v i c e s in e c o n o m i c d e v e l o p m e n t
is
far f r o m u n i l i n e a r .
In m a n y c a s e s , d e v e l o p m e n t o f
services
is
not
a consequence but
a
cause
of
growth.
For
example,
an
efficient
financial
sector,
an
extensive
transportation
and
telecommunication
network
and
welj.-run
public
administration:
all are preconditions
of
gfcowth
and
development.
So is a
we11-developed
infrastructure
of
health
and
education
services.
T r a d i t i o n a l l y , the service sector has not been the
s u b j e c t of c o n s c i o u s c o m p r e h e n s i v e p l a n n i n g .
As a
c o n s e q u e n c e , a l a c k o f p l a n n i n g m a y r e s u l t in
the
i n i t i a l u n d e r d e v e l o p m e n t o f k e y s e r v i c e s . " ( p . 1)
The
experience
of
Singapore serves
service sector itself can be a growth
to
demonstrate
sector.
that
the
The
quantity
a n d q u a l i t y of t h e p r o d u c t s p r o d u c e d
by
the
service
s e c t o r of A S E A N c o u n t r i e s , h o w e v e r , g r e a t l y
vary
among
each
other.
Ip S i n g a p o r e , t e c h n o l o g y - i n t e n s i v e s e r v i c e s
(e.g.,
banking
and
telematics)
are
quite
significant,
while
in
I n d o n e s i a , t h e P h i l i p p i n e s a n d T h a i l a n d , t h e r e is a
predominance
of
traditional,
labor-intensive
services
(e.g.,
restaurants,
retailing, etc.).
Such d i v e r s i t y reflects the varying levels
of
economic development among ASEAN countries.
T r a d e in s e r v i c e s h a s n o w b e c o m e a s u b j e c t o f t h e n e w
round
of
multilateral
negotiations.
The
issue
here
is
basically
s i m i l a r to t h e o n e t h a t e m e r g e d in e a r l i e r r o u n d o f
negotiations
o n t r a d e in g o o d s , i . e . , g r a d u a l l y d i s m a n t l i n g b a r r i e r s t o
trade
in
services
in s u c h a w a y t h a t b o t h
developed
and
developing
4
economies
can
benefit.
This
is
not
going
to
be
an
easy
undertaking.
Firstly,
trade
in
services
has
already
been
d o m i n a t e d b y d e v e l o p e d e c o n o m i e s , and further o p e n i n g up of
this
sector will certainly be met with strong resistance by developing
economies.
S e c o n d l y , t h e s e r v i c e s e c t o r is so h e t e r o g e n e o u s a n d
include
areas
that
are
considered
politically
Sensitive.
Notwithstanding
these,
t h e r e is a n e e d to c l o s e l y
examine
the
i s s u e s o n t r a d e in s e r v i c e s s o t h a t m o r e e n l i g h t e n e d m u l t i l a t e r a l
negotiations can p r o c e e d .
This p a p e r f o c u s e s on the f i n a n c i a l s e c t o r .
Interestingly,
the
pattern
of
net
financial flows
to
ASEAN
countries
has
s i g n i f i c a n t l y changed over the last thirteen y e a r s .
Net
private
f l o w s s h a r p l y fell a f t e r the e x p l o s i o n of the i n t e r n a t i o n a l
debt
c r i s i s in 1 9 8 2 (see F i g u r e 1 a n d T a b l e 2 f o r d e t a i l s ) .
This
has
some
implications
on
the
operations
of
branches/agencies/
representative
o f f i c e s o f f o r e i g n b a n k s in t h e s e c o u n t r i e s .
It
is
to b e n o t e d t h a t t h e y f a c i l i t a t e d t h e f l o w o f d i r e c t
foreign
i n v e s t m e n t s into these c o u n t r i e s and p r o v i d e banking services
to
multinational corporations.
T h e y w e r e a l s o i n v o l v e d in p a c k a g i n g
sovereign
loans
for A S E A N c o u n t r i e s .
After
the
international
debt
crisis,
their
a c t i v i t i e s in t h e s e
two
areas
have
been
considerably
reduced
because
of
the
slowdown
in
foreign
i n v e s t m e n t f l o w s and t h e u n a t t r a c t i v e n e s s of s o v e r e i g n l o a n s .
The
b a n k i n g s e c t o r is o n e o f t h e s e c t o r s w h i c h w i l l
likely
b e i n c l u d e d in t h e o n g o i n g m u l t i l a t e r a l n e g o t i a t i o n s o n t r a d e
in
s e r v i c e s . 1/
I t is e n v i s a g e d t h a t p i v o t a l i m p o r t a n c e
which
is
attributed
to t h e s e c t o r a n d t h 6 e x i s t e n c e o f v a r i o u s
different
banking
services
would
make the
establishment
of
norms
and
regulations
in
the area a particularly
complex
matter.
This
paper
a n a l y z e s , in t h e C o n t e x t o f t h e A S E A N
countries,
various
aspects
which
a r e d e e m e d r e l e v a n t to
these
negotiations,
and
explores
t h e p o s s i b i l i t y o f e x p a n d i n g t r a d e in b a n k i n g
services
a s a m e a n s to a c h i e v i n g h i g h e r a n d s u s t a i n a b l e e c o n o m i c g r o w t h of
these countries.
M o r e s p e c i f i c a l l y , it e x a m i n e s :
1)
t h e s c o p e of b a n k i n g
activities
2)
the structures
3)
the
benefits
international
4)
the
implications
of t h e key
discussed
in t h e m u l t i l a t e r a l
of m a r k e t s and
in t h e A S E A N
region;
competition;
and c o s t s of a m o r e
liberal
regime
for
t r a d e in b a n k i n g s e r v i c e s in t h e r e g i o n ;
concepts
and
principles
n e g o t i a t i o n s on t r a d e
in
1/
Banking
s e r v i c e s a r e a p a r t of f i n a n c i a l
services.
The
latter, apart from banking services, include insurance, brokerage
and
services
facilitating
commodity and
other
goods
trading
(Iwata 1 9 8 8 ) .
5
Figure 1
NET FINANCIAL FLOWS TO ASEAN, 1975-1987
<ln US$ M)
3.500
INDONESIA
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
TOTAL
OFFICIAL
NET
824
1083
837
941
907
1321
1258
1579
1520
1839
1346
1458
3278
NET
PRIVATE
FLOWS
1803
1615
71
504
-477
459
3310
1291
1597
1470
470
136
-155
-0.500
t
r
1075 1676 1077 1078 1070 1060 1961 1083 1083 1084 1065 1086 1087
•
offlotal not
+• rwlpHy flow
MALAYSIA
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
TOTAL
OFFICIAL
NET
164
155
194
163
213
217
258
265
359
454
380
210
137
NET
PRIVATE
FLOWS
151
152
47
41
505
472
733
569
1391
965
-147
-226
92
T
1
7
1077 107H 1879
•
cffoialnsf
1997
+
nst prrv flows
6
Figure 1 {cont'd.)
PHILIPPINES
1975
1976
1977
1978
1979
1980
1981
1982
1983
1981
1985
1986
1987
TOTAL
OFFICIAL
NET
293
380
351
422
605
534
860
621
1283
784
882
1132
970
NET
PRIVATE
FLOWS
108
705
365
639
548
442
383
323
260
162
-248
-41
-285
i
i
i
i
1
1
1
i ~T
1875 1076 1077 1S7H 1070 1960 10B1 10B2 1BH3 10B4 I K
0
official not
+
n
oflioiai rwl
+• rwl priv flow
nst priv flows
SINGAPORE
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
TOTAL
OFFICIAL
NET
50
35
8
103
95
43
11
23
-30
87
-56
-189
-220
NET
PRIVATE
FLOWS
73
136
207
262
433
709
1374
891
222
1227
-211
79
947
10BS 1687
7
Figure 1 {cont'd.)
THAILAND
TOTAL
OFFICIAL
NET
1975
158
1976
230
1977
254
1978
408
1979
638
1980
731
1981
782
1982
822
1983
1031
1984
870
1985
806
1986
583
1987
378
NET
PRIVATE
FLOWS
30
-23
31
236
308
382
781
416
246
602
73
-9
547
-0.100
1975
1070
ci
Source: Table 2
i
T
1077
187B
official rwt
1
1079
r
1080
i
10S1
1—:—r
1882
1903
not prw
1084
1SSS
1SS7
8
Table 2
NET FINANCIAL FLOHS TO ASEAN, 1970, 1975-1987
(In US* N)
1978 1975 1976 1977 1978 1979 1988 1981 1982 1983 1984 1985 1986 1987
1. INDONESIA
A. TOTAL OFFICIAL NET
413 824 1B83 837
a. ODA Grants
118 153 142 161
b. ODA Loans
355 539 527 354
c. Other Official F I O M S , Net -52 132 415 322
B. NET PRIVATE FLOWS
116 1883 1615 71
a. Direct Investments
145 12B9 747 -67
b. Portfolio Investaents
12 18 382 16
c. Export Credits
-42 584 566 123
941
192
444
386
584
418
113
-26
987 1321
281 296
448 653
1B6 372
-477 459
-383 388
-183 57
9 182
1258
324
652
.283
3318
2584
386
348
1579
315
592
673
1291
537
423
331
1528
316
428
776
1597
303
692
682
1839
327
346
1166
1478
494
47
929
1346
338
265
743
478
-311
376
406
1458 3278
379 480
332 766
747 2833
136 -155
-539 -565
551 438
124 -28
2. MALAYSIA
44 164 155 194 163 213 217 258 265 359 454 380 218 137
a. ODA Brants
17 32 28 38 36 68 61 58 60 64 93 103 189 133
b. ODA Loans
9 66 34 42 44 65 75 86 75 113 234 127
3 230
c. Other Official F I O H S , Net 18 65 9 3 123 83 88 82 115 138 182 127 158 18 - 2 2 6
B . NET PRIVATE F L O N S
a. Direct Investaents
b. Portfolio Investments
c. Export Credits
45
38
8
8
151
152
47
41
585
472
733
569 1391
965 -147 -226
92
73 133 134 -5 77 242 252 -429 234 227 148 -182 377
-3 18 -124 56 65 22 118 671 928 625 -263 -41 -278
82
1 36 -10 363 289 371 326 229 113 -23 -82 -7
3. PHILIPPINES
' A. TOTAL OFFICIAL NET
146 293 388 351 422 685 534 860 621 1283 7B4 882 1132 970
a. ODA Grants
32 185 98 104 93 112 123 146 163 259 256 245 516 461
b. ODA Lows
14 75 89 79 156 156 188 238 178 178 141 242 448 314
c. Other Official F I O M S , Net 188 113 193 168 173 338 230 484 2 8 8 854 3 8 8 396 176 195
B . NET PRIVATE FLONS
c. Export Credits
172
188
705
365
639
54B
442
383
323
268
162 - 2 4 8
-41 -285
-1 117 1§4 116 144 330 128 115 126 -168 167 -250 60 85
33 18 375 48 230 246 32 -32 132 334 -142 154 189 -169
140 -181 176 201 266 -28 282 301 65 95 137 -152 -289 -201
4. SIN6AP0RE
8 183 95 43 11 23
62 58 35
7 12 13 19 23 23
a. ODA 6rants
15
7
8
6 -5 -7 -5 -2 -2
b. ODA Loans
14
6
5
3
c. Other Official F I O M S , Net 33 37 23 -5 96 89 29 -11
B. NET PRIVATE F L O N S
53 73 136 287 262 433 789 1374 891
16 71 67 86 147 355 658 988 280
1 27 86 100 127 -11 18 154 288
c. Export Credits
36 -24 -17 21 -13 89 41 240 323
5. THAILAND
126 158 238 254 488 638 731
a. ODA Grants
55 53 126 64 184 147 178
b. ODA Loans
28 37 44 68 157 246 240
c. Other Official F I O M S , Net 52 78 61 121 147 245 313
B. NET PRIVATE FLOHS
73 38 -23 31 236 308 382
14 19 18 42 38 38 .218
10
8 -9 -9 125 205 35
c. Export Credits
49 12 -33 -3 72 65 130
782
198
217
375
781
219
159
404
-30 87 -56 -189 -220
21 28 28 37 32
-7 13 -4 -7 -8
-45 46 -80 -218 -244
222 1227 -211 79 947
418 865 252 682 781
-99 339 -402 -511 371
-97 23 -62 -12 -124
822 1031
185 218
284 222
433 599
416 246
128 200
79 112
209 -66
878
248
226
396
602
348
306
-52
Source: Lee, Jungsoo and I.P. David. 'Changing Pattern of Financial FIOMS to Asian and
Pacific Developing Countries." ADB Statistical Report Series No. 11 (March 1989).
806
264
217
325
73
-98
240
-70
583
388
188
87
-9
-6
133
-136
378
322
184
-129
547
459
117
-29
9
services
and
5)
sector
in t h e A S E A N
countries;
the
p o s s i b i l i t y of i n c r e a s i n g c o m p e t i t i v e n e s s of
banks
in
ASEAN
countries
and
increasing
their
share
of
international
trade
in
banking
services
including
through
regional c o o p e r a t i o n and the U r u g u a y
Round
of
t r a d e n e g o t i a t i o n s on s e r v i c e s .
A
section
objectives.
II.
to t h e b a n k i n g
will
SCOPE OF B A N K I N G
be
devoted
ACTIVITIES
to
each
IN T H E A S E A N
of
these
specific
REGION
Although
still
underdeveloped relative
to
the
financial
systems
of
the OECD c o u n t r i e s , the financial systems
of
ASEAN
countries
have
already
achieved
a
certain
degree
of
sophistication.
This may be gathered from the great number
and
variety
of
financial institutions that have
emerged
in
ASEAN
countries
in
the last two d e c a d e s , the m u l t i t u d e
of
financial
services
being o f f e r e d , and the financial instruments that
have
been created.
T h e s e d e v e l o p m e n t s c o u l d b e a t t r i b u t e d to
several
factors.
One
is t h a t A S E A N c o u n t r i e s s t a r t e d
the
process
of
liberalizing
their
financial
s y s t e m in t h e
1970s,
albeit
at
varying degree and s p e e d .
T h a t p r o c e s s is s t i l l b e i n g p u r s u e d a t
present.
The
response
of
the
financial
systems
in
ASEAN
c o u n t r i e s to l i b e r a l i z a t i o n h a s g e n e r a l l y b e e n p o s i t i v e .
Another
is t h e t e c h n o l o g i c a l a d v a n c e m e n t in b a n k i n g t h a t f a c i l i t a t e d
the
i m p r o v e m e n t o f e x i s t i n g s e r v i c e s a n d r e s u l t e d in t h e i n t r o d u c t i o n
of
new
services
at
a much reduced
cost
to
both
banks
and
customers.
T h e i n t r o d u c t i o n o f a u t o m a t e d t e l l e r m a c h i n e s is
one
example.
C o m p u t e r i z a t i o n h a s a l s o a l l o w e d b a n k s to o f f e r s a v i n g s
deposit
instruments
whose
interest
is
compounded
daily.
Interestingly,
this
is
one
area
where
banking
technology
developed
in
advanced economies can be easily
copied
by
less
developed
countries
at
least
cost,
especially
if
certain
i n f r a s t r u c t u r e s , such as electricity and t e l e c o m m u n i c a t i o n s ,
are
readily
available,
a n d if t h e p o p u l a t i o n
are
generally
welleducated.
Still
another
f a c t o r is
the
generally
impressive
e c o n o m i c g r o w t h o f A S E A N e c o n o m i e s w h i c h r e s u l t e d in t h e c h a n g i n g
demand
for
financial
services
by
the
corporate
sector,
individuals,
and institutional investors.
T h i s h a s led
to
the
emergence
of
new
t y p e s of
financial
institutions,
like
the
merchant
b a n k s in M a l a y s i a a n d S i n g a p o r e , t h e o f f s h o r e b a n k s
in
the
Philippines
and Singapore, among others.
A wide
range
of
instruments
has
also
been introduced by
existing
andnewlycreatedfinancial institutions.
E x a m p l e s of
these
instruments
a r e b a n k e r s a c c e p t a n c e s , n e g o t i a b l e c e r t i f i c a t e of d e p o s i t s ,
and
other
deposit substitutes.
Banks have recently
expanded
their
f e e - b a s e d s e r v i c e s or o f f - b a l a n c e s h e e t a c t i v i t i e s .
T h i s is m o s t
e v i d e n t in S i n g a p o r e , M a l a y s i a , t h e P h i l i p p i n e s a n d T h a i l a n d .
10
It
is
to
be
noted
that
the
monetary
authorities
and
governments
in
ASEAN
countries have played
a
great
role
in
developing
their
respective financial infrastructure.
In
the
main,
they
determine and regulate what kinds
of
activities
a
financial
institution,
whether owned by the g o v e r n m e n t
or
the
private
s e c t o r , c a n do,. E a c h t y p e o f f i n a n c i a l
institution
is
t h e r e f o r e c o v e r e d b y s p e c i f i c s e t of r e g u l a t i o n s .
For prudential
reasons,
t h e k i n d s of a c t i v i t i e s a l l o w e d f o r d i f f e r e n t t y p e s
of
financial
institutions
are associated
with
different
minimum
capital requirements.
E x c e p t f o t S i n g a p o r e , g o v e r n m e n t s in A S E A N
countries
f o r c e t h e i r b a n k s to p e r f o r m d e v e l o p m e n t a l
functions.
Thus,
loan
p o r t f o l i o r e q u i r e m e n t s , t h a t is r e q u i r i n g
banks
to
lend
a c e r t a i n a m o u n t of t h e i r t o t a l l o a n a b l e f u n d s to
specific
s e c t o r , a r e n o t u n c o m m o n in t h e r e g i o n .
In g e n e r a l , f i n a n c i a l i n s t i t u t i o n s in A S E A N c o u n t r i e s m a y b e
distinguished
by
the t y p e s of l i a b i l i t i e s and a s s e t s
they
are
legally
allowed
to h o l d .
Banking institutions are
allowed
to
mobilize
t r a d i t i o n a l d e p o s i t s (such as d e m a n d , s a v i n g s and
time
d e p o s i t s ) , whereas nonbank financial institutions are n o t .
Among
banking
institutions,
some
are
restricted
to
mobilize
only
certain
t y p e s of d e p o s i t s d i s t i n g u i s h e d b y d e g r e e o f
liquidity,
maturity,
size,
etc.
The nonbanking institutions
are
fairly
numerous
and h e t e r o g e n e o u s even within the same
ASEAN
country.
S t i l l , in t e r m s of a s s e t s , t h e y a r e s m a l l r e l a t i v e to t h e b a n k i n g
institutions.
H o w e v e r , t h e y h a v e s h o w n to b e i n n o v a t i v e a n d h a v e
p u t up c o m p e t i t i o n w i t h b a n k s . .
In
the
past,
competition was
encouraged,
but
this
was
limited
only
to f i n a n c i a l - i n s t i t u t i o n s b e l o n g i n g
to
the
same
category.
This
r e s u l t e d in t h e s e g m e n t a t i o n of
the
financial
markets.
A t p r e s e n t , t h e r e is a m o v e t o w a r d s u n i v e r s a l
banking.
This
requires
t h e r e d u c t i o n or b l u r r i n g
of
distinction
among
different
types
of f i n a n c i a l i n s t i t u t i o n s .
Singapore
is
way
ahead
in
this
new
approach,
followed
by
Malaysia
and
the
Philippines.
The
ongoing financial reforms
in
Indonesia
and
Thailand also suggest sucn trend. 2 /
T a b l e 3 s h o w s b a n k i n g d e n s i t y r a t i o s in A S E A N c o u n t r i e s .
It
roughly
i n d i c a t e s the e x t e n t of a c c e s s of the p o p u l a t i o n of
the
ASEAN
c o u n t r i e s to t h e i r r e s p e c t i v e b a n k i n g s y s t e m s .
The
ratio
tends
to
v a r y i n v e r s e l y w i t h the level of
development
of
the
c o u n t r i e s c o n c e r n e d ; t h a t i s , p o p u l a t i o n in m o r e d e v e l o p e d
ASEAN
c o u n t r i e s h a s b e t t e r a c c e s s to b a n k i n g s e r v i c e s c o m p a r e d to t h o s e
2/
In I n d o n e s i a , t h e d e r e g u l a t i o n p a c k a g e s w e r e
incorporated
in
PACTO
27 ( O c t o b e r 1 9 8 8 ) , P A K O E S II ( D e c e m b e r
1988),
PAKMAR
(March 1989) and PAKJAN (January 1 9 9 0 ) .
in
m
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in
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to
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12
in l e s s d e v e l o p e d o n e s . 3 /
O n l y S i n g a p o r e c a n comipare w i t h
more
developed
e c o n o m i e s in t h i s a r e a .
It is to b e no-ted
that
most
b a n k s a n d t h e i r b r a n c h e s a r e c o n c e n t r a t e d in u r b a n ' a r e a s , l e a v i n g
tne
countryside
with very little access
to
banking
services.
This
problem
is m o s t a c u t e in I n d o n e s i a ,
the
Philippines
and
Thailand.
Tne
nunjerous
and
sitiall
banks
that
have
been
e s t a b l i s h e d in t h e c o u n t r y s i d e h a v e m e r e l y s e r v e d a s c o n d u i t s
of
government
funds.
H e n c e , they do not
truly
provide
banking
s e r v i c e s to r u r a l p e o p l e .
A f t e r g i v i n g an o v e r v i e w of t h e b a n k i n g a c t i v i t i e s of
ASEAN
countries,
we
now
briefly
describe
the
scope
of
banking
activities
in e a c h of t h e A S E A N m e m b e r c o u n t r i e s .
Less emphasis
w i l l b e g i v e n to a c t i v i t i e s o f n o n b a n k i n g i n s t i t u t i o n s .
A.
INDONESIA
T h e f i n a n c i a l s y s t e m in I n d o n e s i a c o n s i s t s o f d e p o s i t
money
b a n k s , rural financial i n s t i t u t i o n s , savings b a n k s , and d i f f e r e n t
types
of
nonbank
f i n a n c i a l i n s t i t u t i o n s (see T a b l e 4 ) . 4 /
In
terms
of
assets,
deposit money banks
dominate
the
financial
system.
Deposit
money
fa&nks
may
be
classified
according
to
ownership.
There
are five banks that are wholly owned
by
the
Indonesian
government.
A r n d t (1987) s u c c i n c t l y d e s c r i b e s
their
a c t i v i t i e s in t h e f o l l o w i n g m a n n e r :
"Except
in
foreign exchange business
where
the
foreign banks are i m p o r t a n t , the state
commercial
b a n k s , favoured by a w i d e variety
of
privileges,
from
tax
exemptions,
subsidies
and
rediscount
f a c i l i t i e s to a v i r t u a l m o n o p o l y o f g o v e r n m e n t a n d
other public sector banking business, provide
the
bulk
o f b a n k i n g f a c i l i t i e s in t h e i r b r a n c h e s
all
over
the
country.
They hold the major
part
of
demand
and
time
deposits,
manage
customers'
a c c o u n t s , o r g a n i z e t r a n s f e r s of f u n d s d o m e s t i c a l l y
and
internationally,
cooperate
in
clearing
of
inter-bank
d e b t s , and conduct the w h o l e range
of
loan
b u s i n e s s , from Short-term trade
credit
and
p e r s o n a l l o a n s to m e d i u m a n d l o n g e r - t e r m l o a n s
to
t h e s t a t e and p r i v a t e c o r p o r a t e s e c t o r . " (p. 3 0 6 )
3/
In
1 9 8 2 , the d e n s i t y r a t i o n for A u s t r a l i a ,
New
Zealand,
U n i t e d S t a t e s , a n d C a n a d a r a n g e d f r o m 3 , 0 0 0 to 6 , 0 0 0 a s
compared
with Singapore's 11,000.
But this hides the fact that
Singapore
a l s o p l a y s a s a l e a d i n g f i n a n c i a l c e n t e r in t h e r e g i o n .
1/
US$1.
A s of
14 A u g u s t
1990, the exchange
rate was Rpl845.02
per
Table 4
I N S T I T U T I O N S IN I N D O N E S I A
SEPTEMBER 1989
FINANCIAL
T y p e of F i n a n c i a l
Deposit
Money
Banks
Institution
(DMBs):
N u m b e r of
Head
Offices
Total
Assets
(Rp.bil.)
*/.
141
83,740
8 6 .3
State Banks
J o i n t V e n t u r e 1/
Foreign Bank Branches
5
12
10
51,450
5 1 .8
4,626
4 .7
Development Banks
BAPINDO
Regional Development
Private
29
1
27
1
6,384
3,886
2,498
6 .4
3 .9
2 .5
—
—
85
64
21
23,469
7,510
15,959
2 3 .6
7 .6
16 . 1
7,713
7,236
477
579
55
524
0 .6
0 .1
0 .5
Savings Banks:
State Savings Bank (BTN)
Private Savings Banks
1
4
2,531
2 .5
Pawnshops
2/
1
152
0 .2
(DANAREKSA)
1
298
0 .3
Nonbank Financial
Institutions:
Development Finance Institutions
Investment Finance Institutions
Housing Finance (Papan Sejahtera)
13
3
9
1
3,564
837
2,413
314
3
0
2
0
.6
.8
.4
.3
130
30
77
5
4
14
3,906
799
844
1,930
333
3
0
0
1
0
.9
.8
.9
.9
.3
Banks
Private Banks
Nonforeign Exchange
Foreign Exchange
Rural Financial
Institutions:
Existing before PAKTO
Established after PAKTO
(State-owned)
State Securities &
Investment Fund
Insurance s
Life
Loss
Social Insurance
Reinsurers
Adjusters
Co.
3/
-
-
-
—
-
14
Table
4
(cont'd.)
T y p e of
Financial
Institution
N u m b e r of
Head
Offices
Total
Assets
(Rp.bil.)
*/.
P e n s i o n F u n d s 4/
TASPEN
Others
Securities Companies
Brokers/Dealers
130
1
129
7
129
1,329
1,105
224
—
—
Nondeposit Financial Institutions:
Leasing Companies
Factoring
Venture Capital
Credit Card
Consumer Finance
154
101
14
7
11
21
—
-
T
Notes:
1/
2/
3/
4/
Source:
0
T
A
L
8,424
1.3
1.1
0.2
—
—
1,195
1.2
—
—
—
-
—
—
—
—
99,294
100.0
These banks are joint-ventures between Indonesian and
foreign banks.
T h e r e is o n e P a w n s h o p o f f i c e with 487 branch o f f i c e s .
I n c l u d e s A S A B R I , t h e m i l i t a r y e m p l o y e e s s o c i a l insur—
ance fund.
E x c l u d e s u n k n o w n m e m b e r of p e n s i o n f u n d s t h a t a r e n o t
r e g i s t e r e d w i t h the M i n i s t r y of F i n a n c e .
C o l e , D a v i d C . and B e t t y F . S l a d e . " D e v e l o p m e n t of
M o n e y M a r k e t s in I n d o n e s i a . " U n p u b l i s h e d
(1990).
15
In
a d d i t i o n to w h a t A r n d t had m e n t i o n e d / s t a t e c o m m e r c i a l
banks
are
also
allowed
to
issue
three
types
of
certificates
of
deposits:
discount, monthly
interest
payment,
and
balloon
interest
and
principal payment.
In t h e a s s e t s i d e ,
they
were
s u p p o s e d to s p e c i a l i z e in l e n d i n g to a f e w s e c t o r s * b u t o v e r
the
y e a r s , they have progressively overlapped each other so that
the
d i s t i n c t i o n s b e t w e e n them h a v e b e e n r e d u c e d to a m i n i m u m .
Like
state banks, private national commercial
banks
raise
funds
by issuing demand and time d e p o s i t l i a b i l i t i e s .
Although
permitted
to lend at a n y m a t u r i t y , they tend to
concentrate
in
the
provision
of s h o r t - t e r m loans (usually 6 m o n t h s
or
less).
This
is
not
unusual among private commercial
banks
in
ASEAN,
countries.
Private
national
commercial
banks
used
to
be
classified
into foreign exchange and nonforeign exchange
banks.
But
under
the October 1988 d e r e g u l a t i o n p a c k a g e
(called
PACTO
27),
n o n f o r e i g n e x c h a n g e b a n k s m a y d e a l in f o r e i g n
exchange
if
c l a s s i f i e d " s o u n d " in 20 of l a s t 24 m o n t h s a n d t h e i r t o t a l a s s e t s
are greater than Rpl00 B .
Foreign
b a n k s h a v e a w i d e r a r r a y of s o u r c e s of f u n d s ,
such
as
d e m a n d , savings and time deposits as well as
borrowing
from
the
international
markets.
They may also
engage
in
currency
swaps
with
Bank Indonesia, the central bank
of
Indonesia,
or
b o r r o w in t h e i n t e r b a n k m a r k e t f o r r u p i a h f u n d s .
Foreign
banks'
loans
have
b e e n c o n c e n t r a t e d in t h e o v e r d r a f t s
and
short-term
facilities.
A n y i n v e s t m e n t l o a n s t h e y w a n t to m a k e n e e d
special
permission
from
Bank
Indonesia.
Most
of
the
multinational
companies
in I n d o n e s i a , p r e f e r t o b a n k w i t h ttiem. T o g e t h e r
with
more
than
50
representative
offices
of
foreign
banks
in
I n d o n e s i a , f o r e i g n b a n k s h a d b e e n i n v o l v e d in o n e w a y or
another
in
the
negotiation
of
foreign
loans
and
foreign
direct
investment.
Development
banks
consist
of
one
state-owned
bank,
27
development
banks
which
are either
directly
owned
by
local
authorities
or. j o i n t l y o w n e d b y l o c a l a u t h o r i t i e s
and
private
s e c t o r , and one privately-owned b a n k .
T h e s e b a n k s c o n c e n t r a t e in
investment
l o a n s , and m e d i u m - and long-term l o a n s .
The
stateowned development bank raises funds by accepting demand and
time
d e p o s i t s , and borrowing from Bank Indonesia, the government,
and
f o r e i g n l o n g - t e r m s o u r c e s of f u n d s .
The local development
banks
are
a l l o w e d to issue time and s a v i n g s d e p o s i t s .
They
may
also
have
refinancing
arrangement with the
state-owned
development
bank.
The
savings
banks include one state-owned
bank
and
four
privately
owned banks.
The state-owned savings
bank
mobilizes
deposits through the post office network.
These savings are used
to m e e t t h e c r e d i t r e q u i r e m e n t s o f l o w - i n c o m e s e c t o r s .
The
Indonesian
government
has
equity
participation
in
several nonbank financial intermediaries.
Interestingly, foreign
16
i n s t i t u t i o n s h a v e m i n o r i t y p a r t i c i p a t i o n in a l m o s t a l l o f t h e
12
nonbank financial intermediariesj
C o l e and S l a d e (1990) d e s c r i b e
the a c t i v i t i e s of n o n b a n k f i n a n c i a l i n t e r m e d i a r i e s as f o l l o w s :
" t h e y d e a l in f o r e i g n e x c h a n g e , c o m m e r c i a l
paper,
long-term
s t o c k s and b o n d s , SBIs and
SBPUs,
and
C D s , a s w e l l a s in m a n y b a n k i n g o p e r a t i o n s .
They
serve
a s ' a g e n t s ' for S t a t e - o w n e d b a n k
purchases
o f S B I s a n d a s " m a r k e t m a k e r s " in t h e S B I m a r k e t . "
(p. 2 5 ) . 5 /
B.
MALAYSIA
T a b l e 5 shows the f i n a n c i a l s y s t e m of M a l a y s i a .
In t e r m s of
assets,
the banking institutions
have dominated the
s y s t e m . 6/
The
banking
system
consists
of
commercial
banks,
finance
companies,
merchant
banks, discount houses
and
a
Specialized
commercial bank that offers commercial banking servides based
on
Islamic
principles.
P a r t i c i p a t i o n o f b r a n c h e s of f o r e i g n
banks
in t h e M a l a y s i a n b a n k i n g s y s t e m is q u i t e s u b s t a n t i a l .
Commercial
banks
in M a l a y s i a c a r r y
the
usual
commercial
banking
functions
in b o t h t h e l i a b i l i t y a n d
the
asset
sides.
They are the o n l y ones licensed as full trading and c h e q u e - p a y i n g
banks
(Lin
et
a l . 1990) . They are also
allowed
to
deal
in
foreign
e x c h a n g e and to o f f e r a v a r i e t y of
fee-based
services.
They
m a y i n v e s t in s h a r e s of p u b l i c a n d p r i v a t e c o m p a n i e s u p
to
50 p e r c e n t of t h e i r c a p i t a l b a s e .
The most important restriction
in
t h e i r l i a b i l i t y - s i d e is t h a t t h e y a r e n o t a l l o w e d
to
accept
d e p o s i t s of less t h a n o n e - m o n t h m a t u r i t y .
Finance
companies
cater
to
the
mediumand
long-term
markets.
T h e y a r e a l l o w e d to a c c e p t s a v i n g s a n d f i x e d
deposits
of
t h r e e - m o n t h m a t u r i t y or m o r e b u t n o t d e m a n d
deposits.
They
a r e n o t p e r m i t t e d to d e a l in f o r e i g n e x c h a n g e n o r g r a n t l o a n s
in
the
form
of o v e r d r a f t s .
Their loans are
mostly
of
long-term
maturity.
Merchant
banks
operate
in
both
the: c a p i t a l
and
money
markets.
In
the
capital markets,
they
provide
underwriting
facilities, corporate financing, financial investment, management
advice
and
portfolio
investment
management.
In
the
money
m a r k e t s , t h e y e n g a g e in t h e t r a d i n g o f m o n e y m a r k e t
instruments.
~ SBI s t a n d s for S e r t i f i c a t B a n k I n d o n e s i a , a d i s c o u n t b i l l ,
which
is a l i a b i l i t y o f B a n k I n d o n e s i a .
SBPU stands
for
Surat
B e r h a r g a P a s a r U a n g , w h i c h i s a n o t h e r i n s t r u m e n t u s e d in t h e o p e n
m a r k e t o p e r a t i o n s of B a n k I n d o n e s i a .
6/
US$1.
As
of
14 A u g u s t
1990, the exchange
rate was
M$2.7tf
per
17
THE
Table 5
S Y S T E M IN M A L A Y S I A ,
FINANCIAL
1988
j.
Type
I.
BANKINS
of
N u m b e r of
Head
Assets
Offices
<M« M)
Institutions
INSTITUTIONS
Commercial Banks
Domestic
Foreign
Islamic Bank
Finance
Merchant Banks
Discount Houses
TOTAL
II. NQNBANK
FINANCIAL
38
22
16
1
47
12
7
93,021
69,500
23,521
1,429
24,283
7,026
2,211
31.87
23.81
8.06
0.49
8.32
2.41
0.76
143
220,991
75.71
7
14
10
105
7
3,500
2,487
47,490
7,011
10,401
1.20
0.85
16.27
2.40
3.56
143
70,889
S3SSSSSS
24.29
INTERMEDIARIES
Development Finance
Institutions
Savings
Institutions
P r o v i d e n t P e n s i o n F u n d s 1/
Insurance Companies
O t h e r F i n a n c i a l I n t e r m e d i a r i e s 1/
TOTAL
===
G
1/
Sources
R
7.
A
Only
N
D
six
T
large
O
T
ones
A
are
L
286
291,880
— — —
100.00
included.
Lin, See-Yan et al. "Regional Research Project:
M o n e y M a r k e t s in A s i a . " U n p u b l i s h e d
(1990).
Study
of
18
Merchant
banks
a r e a l l o w e d to a c c e p t o n l y l a r g e
term
deposits
from
financial
institutions
(not
less
than
M$250,000
per
deposit),
corporations
(not l e s s t h a n M $ 1 M p e r
deposit),
and
foreign
currency
deposits
from
nonresidents
(not
less
than
M$250,000 per d e p o s i t ) .
Discount
h o u s e s o p e r a t e m a i n l y in t h e m o n e y m a r k e t s .
They
are
p e r m i t t e d to a c c e p t f u n d s at c a l l or s h o r t - t e r m d e p o s i t s
of
up
to t h r e e m o n t h s w i t h a m i n i m u m d e n o m i n a t i o n of M $ 5 0 , 0 0 0
from
financial
institutions, corporations, Federal, State, and
local
governments.
Thus,
they provide those with
temporary
surplus
funds
with
an a l t e r n a t i v e investment o u t l e t .
The
funds
they
raised
a r e m a i n l y i n v e s t e d in g o v e r n m e n t s e c u r i t i e s .
They
are
n o t a l l o w e d to l e n d to t h e p u b l i c .
C.
THE
PHILIPPINES
The
structure
of the P h i l i p p i n e f i n a n c i a l
system
is
not
entirely
different
from
the
rest
of
ASEAN
countries.
The
financial
institutions
may
be g r o u p e d into
banking
and
nonbanking
financial institutions, with the former
dominating
the
system
in
t e r m s of
a s s e t s (see T a b l e 6 ) . 7 /
The
Government's
presence
in
both
categories
is
substantial.
Foreign
participation
in t h e b a n k i n g s y s t e m is a l s o
significant.
Like
the
r e s t o f t h e A S E A N c o u n t r i e s , t h e P h i l i p p i n e s is a l s o
moving
towards
universal
banking
and
the
reduction
in
the
d i f f e r e n t i a t i o n a m o n g d i f f e r e n t t y p e s of b a n k c a t e g o r i e s .
Table
7
g i v e s a s u m m a r y of t h e a u t h o r i z e d a c t i v i t i e s o f
various
bank
c a t e g o r i e s in t h e P h i l i p p i n e s .
L e a s i n g is t h e o n l y a c t i v i t y t h a t
is
a b s o l u t e l y n o t a l l o w e d to u n i v e r s a l a n d
ordinary
commercial
banks.
O n t h e o t h e r h a n d , o t h e r t y p e s o f b a n k s ipay n o w
obtain
authority
to p e r f o r m f u n c t i o n s t h a t used to be r e s e r v e d o n l y
to
commercial
banks
provided
they
meet
certain
criteria,
like
minimum capital requirement.
The
Philippines
has an o f f s h o r e banking
system
which
is
patterned
after
Singapore's.
There were
21
offshore
banking
units
(OBUs) as of
D e c e m b e r 1988 w i t h t o t a l a s s e t s of U S $ 2 . 7 B .
T h i s d o e s n o t c o m p a r e w i t h t h o s e in S i n g a p o r e .
OBUs may use
any
c u r r e n c y , e x c e p t d o m e s t i c c u r r e n c y , in t h e i r t r a n s a c t i o n s .
Thus,
they
do not have
swap facilities.
They cannot accept
deposits
in
foreign
currency
less
than
US$50,000.
The
purpose
of
establishing
OBUs
w a s to i n c r e a s e l o c a l
residents'
access
to
foreign currency funds.
This may have been attained as suggested
by
the
d a t a in T a b l e 8 , w h i c h s h o w s t h a t m o s t o f t h e
funds
of
OBUs were lent o n s h o r e .
Recently,
the Philippine commercial banks have
active
in
their
off-balance
sheet
activities.
V
US$1.
As
of
14 A u g u s t
1990, the exchange
rate was-
been
These
P24.20
very
are
per
19
THE
Table 6
PHILIPPINE FINANCIAL SYSTEM
(As o f D e c e m b e r 3 1 , 1 9 8 8 )
N u m b e r of
Head
Offices
BANKING
SYSTEM
Amount
.(* B )
982
29
24
1
4
299.3
224.6
38.8
35.9
72.0
=== =
59.8
44.9
7.8
7.2
Thrift Banks
-Savings & mortgaye banks
-Private development banks
-Stock savings & loan a s s o c i a t i o n s
110
8
41
61
24.9
14.2
6.7
4.0
5.0
2.8
1.3
0.8
Rural
840
10.7
2.1
3
25.2
5.0
2,766
140.2
28.0
Insurance Companies
-Government
-Private
135
4
131
98.3
68.6
29.7
19.6
13.7
5.9
Investment Institutions
-Financing companies
-Investment companies
-Investment houses
233
143
75
15
21.4
7.4
5.6
8.4
4.3
1.5
1.1
1.7
12
2,386
1.8
18.7
0.4
3.7
3,758
500.3
100.0
= = =
Commercial Banks
-Private
-Government
-Foreign
Banks
Specialized
NONBANK
Government
FINANCIAL
Banks
INTERMEDIARIES
T r u s t O p e r a t i o n s (fund m a n a g e r s )
Other Financial Intermediaries
T
Sources:
T
A
L
Philippine Financial Fact Book
I n s u r a n c e C o m m i s s i o n (for d a t a
c o m p a n i e s in 1 9 8 8 ) ; a n d
Government Corporate Monitoring
C o m m i t t e e , f o r t h e a s s e t s of
Government Service Insurance
360.1
%
(1988);
on i n s u r a n c e
and Coordinating
Social Security System
S y s t e m in 1 9 8 8 .
and
Table 7
AUTHORIZED ACTIVITIES OF VARIOUS BANK CATE60RIES IN THE PHILIPPINES
BASED ON THE AMENDED BANKING LANS
(1)
Authorized
Activities
(2)
(3)
Thrift Banks
Expanded Coaaercial Banks
.
Rural
Coaaercial
(KBs)
Savings & Private
Savings
Banks
Banks
Mortgage
Dev.
and Loan
(Unibank) Domestic Foreign
Banks
Banks Association
A. Coaaercial Banking
Services
1. Accept deposits
2. Issue LCs and
accept drafts
3. Discounting of
proaissory notes
and coaaercial
papers
4. Foreign exchange
transactions
S. Lend aoney
against security
1.
1
1
1
1
1
1
1
1 a/
1 a/
1 a/
1
1
1
1
1
1
1
1
1
1
11
11
11
1
1
1
1
1
1
B. Nationwide Branching
Operations
1
1
1
1
1
1
C. Equity Investments in
Allied Undertakings
11
11
11
11
11
11
1
*
t
*
t
*
11
11
11
F. Issue Real Estate and
Chattel Mortgage,
Bonds Buy and Sell
These for its Otin
Account, Accept/
Receive in Payaent or
as Anortization of
Loan
1
1
1
1
1
1
6. Direct Borrowing
with Central Bank
1
1
1
1
1.
1
D. Equity Investments in
Non-allied Undertakings
E. Trust Operation
U
11
U
Table 7 (cont'd)
(1)
Authorized
Activities
(2)
(3)
Thrift Banks
Expanded Commercial Banks
Rural
Couercial
(KBs)
Savings ft Private
Savings
Banks
Banks
Mortgage
Dev.
and Loan
(Unibank) Domestic Foreign
Banks
Banks Association
H. Activities of an
Investaent House
1. Securities
undemriting
2. Syndication
activities
3. Business development and project
implementation
4. Financial consultancy and Investment
5. Mergers and
consolidation
6. Research and studies
7, Lease real and/or
personal properties
I. Money Market Operation
1
*
t
»
«
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
»
t
t
1
)
«
1
1 b/
1 b/
1 b/
1 1/
t b/
t b/
t b/
1
t
1
I - Authorized activities
II - Authorized but subjected to aonetary board approval
t - Not authorized/prohibited
a/ Liaited only to doaestic LCs and drafts,
b/ The lending side aay be done by all banks Nithout
The borrowing side (quasi-banking) aay be exercis
CB approval for all banks.
Source: Laaberte, Hario B. "The Financial Systea of the
Unpublished (July 1998).
iroval.
prior
Operations and Problems.'
Table 8
PHILIPPINE OFFSHORE BANKING SYSTEM
S T A T E M E N T OF A S S E T S AND L I A B I L I T I E S , S E P T E M B E R
Items
OS$
ASSETS
N o t e s and C o i n s on H a n d
Due from Banks
- Outs'.de t h e P h i l i p p i n e s
- In t h e P h i l i p p i n e s
L o a n s a n d D i s c o u n t s to C u s t o m e r s
Other than Banks
- Nonresidents
- Residents
Public Sector
Private Sector
Bills Discounted/Purchased
- Nonresidents
- Residents
I n v e s t m e n t in B o n d s a n d O t h e r S e c u r i t i e s
- Nonresidents
- Residents
All Other Assets
- Interest Receivable
Nonresidents
Residents
- O t h e r A s s e t s in t h e P h i l i p p i n e s
- other Assets Outside the Philippines
Total Assets
L e s s : A l l o w a n c e for P r o b a b l e
Total Assets After Allowance
LIABILITIES
D e p o s i t of N o n r e s i d e n t s O t h e r
D u e to B a n k s
Outside the Philippines
In t h e P h i l i p p i n e s
Other Liabilities
Interest Payable
Nonresidents
Residents
In t h e P h i l i p p i n e s
Outside the Philippines
Total
Source:
Losses
for L o s s e s
than Banks
Liabilities
Foreign
Central
Exchange Regulations Department,
B a n k of t h e P h i l i p p i n e s .
1989
(Million)
0
1,506
359
1,147
1,096
115
981
481
500
1
0
1
28
20
8
86
40
8
32
45
1
2,717
20
2,697
40
2,554
2,205
349
103
37
33
4
31
35
2,697
23
activities
t h a t g e n e r a t e income for b a n k s w i t h o u t e x p a n d i n g
a s s e t p o r t i o n of t h e i r s t a n d a r d b a l a n c e s h e e t .
Table 9 shows
phenomenal
growth
of
these
activities
among
universal
commercial banks.
D.
the
the
and
SINGAPORE
Singapore
has the largest and m o s t s o p h i s t i c a t e d
financial
system
in
the
ASEAN region.
It is
considered
as
the
fifth
l a r g e s t f o r e i g n e x c h a n g e c e n t e r in t h e w o r l d t o d a y ( A r i f f e t
al.
1990).
Its
financial
system
consists
of
commercial
banks,
merchant
banks,
finance
companies,
national
savings
bank,
discount
h o u s e s a n d i n t e r n a t i o n a l m o n e y b r o k e r s (see
Tables
10
and
1 1 ) . 8/
Given its h i g h l y open p o l i c y and
liberal
exchange
rate
p o l i c y , the n u m b e r of f o r e i g n b a n k s i n c r e a s e d
tremendously
and
has
m a d e a v e r y s i g n i f i c a n t c o n t r i b u t i o n to
its
financial
system.
All
commercial
banks may
obtain
from
the
monetary
a u t h o r i t i e s a n a u t h o r i t y to t r a n s a c t in t h e A s i a n D o l l a r
Market.
T h e y a r e , h o w e v e r , d i s t i n g u i s h e d b y the e x t e n t of t h e i r
domestic
banking
business
permitted by the m o n e t a r y
authorities.
Both
f o r e i g n a n d l o c a l f u l l _ l i c e n s e b a n k s a r e a u t h o r i z e d to e n g a g e
in
the
entice
range
of
domestic
banking
business.
Restricted
license
banks can perform domestic banking functions,
but
they
are
not
p e r m i t t e d to a c c e p t s a v i n g s a n d
fixed
deposits
below
S$250,000
from the nonbank p u b l i c .
The offshore
license
banks
are
a u t h o r i z e d to e n g a g e in a n y t r a n s a c t i o n s
with
nonresident^
e x c e p t t h a t t h e y c a n n o t a c c e p t d e p o s i t s in a n y c u r r e n c y or
fixed
deposits
below S$250,000.
A l s o , they a r e n o t a l l o w e d to
accept
any i n t e r e s t b e a r i n g d e p o s i t s from r e s i d e n t n o n b a n k c u s t o m e r s nor
lend
to t h e m in e x c e s s . o f S $ 5 0 M ( T y a b j i 1 9 8 9 ) .
This
has
made
offshore
banks
in
Singapore
regionally
and
internationally
oriented. 9/
T h i s is
s u p p o r t e d b y t h e d a t a in
Table
12.
The
shares
of
the
items
"amount
due
to
and
from
banks"
are
significantly
high
in t h e c a s e o f c o m m e r c i a l b a n k s
with
Asian
Currency Units.
Merchant
banks
in S i n g a p o r e a r e s i m i l a r in n a t u r e
to
the
merchant
b a n k s of M a l a y s i a .
T h e y a r e a c t i v e in b o t h
the
money
and
capital markets.
T h e y a r e n o t p e r m i t t e d to a c c e p t
deposits
from the p u b l i c .
But they may source funds from the bank and m a y
participate
in t h e f o r e i g n e x c h a n g e m a r k e t w i t n t h e a p p r o v a l
of
the
monetary
authorities.
T h e d a t a in T a b l e
11
suggest
that
merchant
banks
in
Singapore
are
significantly
active
p a r t i c i p a n t s in t h e A s i a n D o l l a r M a r k e t ,
8/
August
Discount
houses
were
d i s c o n t i n u e d in 1 9 8 6 .
1990, the exchange rate was S$1.80 per US$1.
As
of
14
y
In c o n t r a s t , t h e P h i l i p p i n e
domestically oriented.
offshore
banks have been
made
Table 9
TRUST AND FUNDS MANAGEMENT ASSETS
O F C O M M E R C I A L B A N K S IN T H E P H I L I P P I N E l S
(In * M )
Trust
Assets
Year
Total
1984
11,260
6,837
18,097
1985
15,453
£,484
26,937
1986
22,457
11,395
33,852
1987
21,602
1-6,657
38,259
1988
27,575
23,624
51,199
26.7
36.7
30.4
Ave. Growth
Source:
Funds
Management
Assets
Rate
(%)
Central Bank
of the
Philippines.
MONEY
MARKET
T a b l e 10
I N S T I T U T I O N S IN S I N G A P O R E ,
1988
N u m b e r of
Head
Offices
Commercial Banks
Local Full License Banks
Foreign
Full License Banks
Restricted Banks
Offshore Banks
Asj,an C u r r e n c y
Merchant
Finance
Units
Banks
Companies
Saving
Discount
Houses
International
187
63
National
Source:
(ACUs)
I
13
121
22
14
85
,
Bank
Money
31
(POSB)
1
-
Brokers
8
A r i f f , M . , B . K a p u r , and A . iTyabji.
"Money Market Study: Singapore."
Unpublished
(1990).
T a b l e 11
OF MONEY MARKET INSTITUTIONS
IN S I N G A P O R E , 1 9 8 8
ASSETS
BANK
TYPE
S*
Commercial Banks
Domestic Operations
Domestic and Offshore
96,441
586,215
Merchant Banks
D o m e s t i c O p e r a t i o n s 1/
Domestic and O f f s h o r e
Finance
Companies
Discount
Houses
National
Savings
T
1/
2/
3/
O
8,274
36,942
8,479
2/
T
M
2,458
Bank
A
L
3/
12,262
646,338
Figures do not reflect corporate financial advisory services, underwriting
a n d o p e r a t i o n s in t h e g o l d m a r k e t .
D i s c o u n t h o u s e s M e r e d i s c o u n t i n u e d in
1986.
Total depositors' balances.
Source:
A r i f f , M . , B . K . Kapur, and A . Tyabji.
"Money Markets Study: Singapore."
Unpublished
(1990).
Table 12
SINGAPORE CQHHERCIAL BANKS: ASSETS AND LIABILITIES, 1988
(In St H)
Excluding ACUs
Including ACUs
I teas
Aaount
X
568
2,371
38,148
0.6
2.5
39.6
Aiiount
I
Assets
Cash on Hand
Balances with NAS
fiiount Due froa Banks
Honey at Call with Discount Houses
St NCDS Held
Investaents in Securities
and Equities
Loans and Advances (Including Bills)
Other Assets
J46
0.2
2,660
0.5
9,053
41,849
4,307
9.4
43.4
4.5
25,616
160,293
13,731
4.4
27.3
2.3
Total Assets
96,441
100.0
6,760
42,475
993
39,328
6,886
7.0
44.0
1.0
40.8
7.1
96,441
1M.0
-
590
2,371
380,953
-
•
-
0.1
0.4
65.0
-
586,215 100.0
Liabilities
Capital and Reserves
Deposits of Nonbank Custoaers
St NCDs Issued 1/
Aeount Due to Banks
Other Liabilities
Total Liabilities
1/ Singapore dollar negotiable certificates of deposits (St NCDs)
first issued by banks in Hay 1973,
8,058
125,469
5,106
427,544
20,037
1.4
21.4
0.9
72.9
3.4
586,215 100.0
Here
Source: N. Ariff, B.K. Kapur, and A. Tyabji. 'Honey Harkets Study: Singapore.'
Unpublished (1990)
28
Finance
companies
in
Singapore
have
limited
banking
functions.
Although
they are p e r m i t t e d to a c c e p t
savings
and
t i m e d e p o s i t s a n d g r a n t l o a n s to b a n k a n d n o n b a n k e n t i t i e s ,
they
do
not have current account facilities.
Also, they cannot
deal
in g o l d a n d f o r e i g n c u r r e n c y .
The
Post
Office Savings Bank
(POSB),
a
government-owned
savings
i n s t i t u t i o n , is v e r y m u c h a c t i v e in t h e d e p o s i t
market.
It n a s 1 3 7 b r a n c h e s .
It h a s c u r r e n t a c c o u n t s and s a v i n g s d e p o s i t
facilities.
It is n o t , h o w e v e r , p e r m i t t e d t o
accept
corporate
deposits,
f i n a n c e f o r e i g n t r a d e a n d e n g a g e in
foreign
exchange
transactions.
It
may
lend
to
banking
and
nonbanking
institutions.
L a t e l y , i t h a s b e c o m e a s i g n i f i c a n t p l a y e r in
the
m o n e y m a r k e t of S i n g a p o r e .
E.
THAILAND
T a b l e 13 s h o w s t h e f i n a n c i a l s y s t e m in T h a i l a n d . L i k e
other
ASEAN
c o u n t r i e s , the banking system has dominated the
financial
s y s t e m in t e r m s o f a s s e t s . 1 0 /
I t s b a n k i n g s y s t e m is c o m p o s e d o f
3 0 c o m m e r c i a l b a n k s , of w h i c h 16 a r e d o m e s t i c a n d 14 a r e b r a n c h e s
of
foreign b a n k s , and three specialized government-owned
banks.
O f t n e 16 d o m e s t i c b a n k s , o n l y o n e b a n k (the s e c o n d l a r g e s t b a n k )
is o w n e d b y t h e T h a i g o v e r n m e n t .
T h e a c t i v i t i e s o f t h e s i x t y p e s of f i n a n c i a l i n s t i t u t i o n s in
Thailand
a r e s u m m a r i z e d in T a b l e 1 4 . C o m m e r c i a l b a n k s
mobilize
funds
by
accepting d e m a n d , savings, and time d e p o s i t s ,
and
by
borrowing frdm domestic and foreign s o u r c e s .
L e n d i n g in t h e f o r m
of
overdrafts
used
to
b e .the m o s t
popular
activity
among
commercial
b a n k s in T h a i l a n d . 1 1 /
In t h e r e c e n t
past, however,
loans
and
bills discounted, have increasingly
becbme
important
a c t i v i t i e s of c o m m e r c i a l b a n k s .
Recently, commercial banks
have
been
p e r m i t t e d t o d e a l in f o r e i g n e x c h a n g e a n d u n d e r t a k e s e v e r a l
fee-based
activities,
such
as
loan
syndication,
consultancy
s e r v i c e for m e r g e r a n d a c q u i s i t i o n , i s s u i n g c r e d i t c a r d s , i s s u i n g
L/Cs,
bill
colLecting
for
government
agencies,
etc.
Local
corporate
underwriting, stock broking, leasing, trust
business,
and
m a n a g e m e n t o f p r o v i d e n t f u n d s a r e n o t a l l o w e d to t h e m .
The
share
o f i n c o m e f r o m f e e - b a s e d s e r v i c e s in t h e t o t a l
income
of
c o m m e r c i a l b a n k s h a s s i g n i f i c a n t l y i n c r e a s e d f r o m 5.6 p e r c e n t
in
1 9 8 3 to 10 p e r c e n t in 1 9 8 7 .
T h a i l a n d s t i l l m a i n t a i n s c e i l i n g s on
i n t e r e s t r a t e on l o a n s a n d d e p o s i t s .
We
must
underscore
n a t i o n a l i z a t i o n of b a n k i n g
at this point
the
increasing
in t h e A S E A N r e g i o n .
It c o m e s
interin
two
10/
A s of
14 A u g u s t
1990, the exchange
rate was Baht25.57
per
US$1.
11/
Note
Philippines.
that
overdrafts
are not allowed
anymore
in
the
FINANCIAL
Type
of
I. B A N K I N G
Financial
Table
SYSTEM
13
IN T H A I L A N D ,
Institutions
TOTAL
Financial
V.
TOTAL
N
D
T
30
16
14
1
1
1,596,780
1,513,795
82,985
124,273
19,524
76.68
72.70
3.99
5.97
0.94
1
37,326
1.79
63
1,777,903
85.38
94
19
1,251
785
12
338
195,687
3,918
13,959
30,898
29,257
6,505
9.40
0.19
0.67
1.48
1.41
0.31
1
1
24,105
78
1.16
0.00
2,501
304,407
14.62
2,564
2,0B2,310
100.00
Intermediaries
F i n a n c e and S e c u r i t i e s C o m p a n i e s
Credit Foncier Companies
Agricultural Cooperatives
Savings Cooperatives
Life Insurance Companies
Pawnshops
Industrial Finance Corporation
of T h a i l a n d
Small Industries Finance Office
Source:
N u m b e r of
Head
Assets
Offices (Million Bahts)
SYSTEM
Commercial Banks
Domestic
Foreign
Government Savings Bank
Government Housing Bank
Bank for A g r i c u l t u r e
and A g r i c u l t u r a l , C o o p e r a t i v e s
II. Nonbank
1988
O
T
A
L
B a n k of T h a i l a n d .
"Financial Institutions
M a r k e t in T h a i l a n d . " U n p u b l i s h e d ( D e c e m b e r
and
1989).
Table 12
BRIEF PROFILE OF ACTIVITIES OF SIX TYPES OF FINANCIAL INSTITUTIONS IN THAILAND
{As of 1984)
INSTITUTIONS
1. (a) Coissercial Banks
ACTIVITY
SUPERVISES
INSTITUTION
(i) Mobilize funds by taking
Bank of Thailand
deposits froe the public
(2) Lending in the forms of loan,
overdraft and bill discounting
(3) Investing in securities
lb) 6ov't. Sayings Bank
(1) Mobilize funds by taking
deposits from the public
(2) Investing in government
securities
(3) Lending to the public
Eank of Thailand
(c) Gov't. Housing Bank
(1) Mobilize funds by taking
deposits from the public
(2) Lending to the public for
housing purposes
Ministry of. Finance
(d) Bank for Agriculture (1) Taking deposits fro® the
and Agricultural
public
Cooperatives (BAAC! (2) Lending to farmers and
agricultural cooperatives
Ministry of Finance
2. (a) Finance and Securities Companies
(b) Credit roncier Co.
3. (a) Agricultural Coop.
(1) Issuing promissory notes
(2) Purchasing promissory notes
(3) Investing in securities
Bank of Thailand
Ministry of Finance
(1) Mobilize medium-tens funds
(not less than 3 years) from
the public by issuing promissory notes at minimum amount
of Baht 1,000 per note
(2) Lending for housing purpose?
(1) Main sources of funds are
borrowings from BAAC and ®e«bers' subscriptions to
capital account
(2! Lending directly to their
members
(b) Savings Cooperatives (1! Main sources of funds are
paid-up share capita! and
members' savings
(2) Lending short-term and longterm funds to members
Ministry of
Agriculture and
Agricultural
Cooperatives
Ministry of
Agriculture and
Agricultural
Cooperatives
Table 14 (cont'd.)
INSTITUTIONS
ACTIVITY
•SUPERVISING
INSTITUTION
4. Life Insurance Companies
(ii Selling life insurance poll- Ministry of Commerce
ties to the public
(2) Lending and investing in
securities
5. Pawnshops
(1) Main sources of funds are
Ministry of Interior
their own savings and borrowings from financial institutions
( 2 ) Lending money against a
variety of articles,'jewelry,
gold, sachine, electrical
appliance;, etc.
6.: (a) Industrial Finance
Corporation of
Thailand (IFCT)
(1) Borrowing long-term funds
from both domestic and
foreign sources
(2) Extending medius- and longterns credits to industries
(b) Small Industries
Finance Office
Ministry of finance
Receiving funds appropriated Ministry of Finance
fro® the government budget and
and Ministry of
then depositing them with the
Industry
Krung Thai Bant, Krung Thai Bank
also provides matching amounts to
SIFO's account-at the ratio of 3
to 1 - for the purpose of lending
to small industries
Source: Thailand Development Research Institute (TDRI). "1986 Year-End
Conference on Financial Resources Management." Unpublished
(December 1986!.
32
fo c m s .
O n e is t h e e x t e n t o f p a r t i c i p a t i o n of f o r e i g n
banks
in
the
financial
system
of A S E A N c o u n t r i e s ; and
the
other,
the
e x t e n t o f p a r t i c i p a t i o n o f A S E A N b a n k s in i n t e r n a t i o n a l
banking.
T h e s u b s t a n t i a l p h y s i c a l p r e s e n c e of b r a n c h e s of f o r e i g n b a n k s in
all ASEAN countries has "already been noted a b o v e .
This does
not
include
the n u m e r o u s r e p r e s e n t a t i v e o f f i c e s of f o r e i g n b a n k s
in
the
ASEAN
countries.
There
are
more
than
5ia o f
them
in
Indonesia,
26
in
Malaysia,
19
in
the
Philippines,
47
in
Singapore,
a n d 37 in T h a i l a n d .
T o e c o m b i n e d a s s e t s of
branches
of f o r e i g n b a n k s r a n g e f r o m
four p e r c e n t to e i g h t p e r c e n t of t h e
total
assets
o f t h e f i n a n c i a l s y s t e m s in
Thailand,
Indonesia,
Malaysia
and
the P h i l i p p i n e s .
This obviously
understates
the
e x t e n t of p a r t i c i p a t i o n o f f o r e i g n b a n k s in t h e f i n a n c i a l
system
of t h e s e c o u n t r i e s s i n c e a s i d e from d i r e c t l y m o b i l i z i n g
deposits
and
lending
to
banks
and
nonbank
enterprises,
they
also
constitute
important
links
between
the
ASEAN
countries
and
international financial markets.
In S i n g a p o r e , t h e t o t a l
assets
of
foreign
(full
and restricted license)
and
offshore
banks
accounted
for 92 p e r c e n t of t h e t o t a l a s s e t s of
its
commercial
banking
system
in 1 9 8 8 . 1 2 /
Although the Philippines
has
the
lowest
number
of b r a n c h e s of f o r e i g n b a n k s ,
10 o u t o f
its
24
domestic
universal/commercial
banks
have
substantial
foreign
equity participation.
A S E A N b a n k s h a v e a l s o p a r t i c i p a t e d in i n t e r n a t i o n a l b a n k i n g .
As
s h o w n in T a b l e 1 5 , A S E A N b a n k s h a v e a s i g n i f i c a n t
number
of
b r a n c h e s a n d s u b s i d i a r i e s in t h e P a c i f i c r e g i o n .
This has
shown
to b e i n c r e a s i n g b e t w e e n t h e m i d - 1 9 7 0 s a n d 1983 a t l e a s t for s o m e
large
banks
(see
Table 16).
At present,
the
13
local
full
license
banks
of
Singapore have a larê
network, of
overseas
off ices
that
include
96
branches,
eight, agencies,
and
16
representative
offices.
The Thai local banks have
22
branches
overseas.
T h e P h i l i p p i n e s h a v e 14 b r a n c h e s , t w o
agencies,
and
eight representative offices overseas.
T h e r e c o r d of intra-ASEAN
exchange
o f b a n k i n g f a c i l i t i e s is n o t t h a t i m p r e s s i v e ,
however..
T h e r e is m o r e i n t e r a c t i o n b e t w e e n M a l a y s i a a n d S i n g a p o r e t h a n t h e
rest
o f ASEAN c o u n t r i e s b e c a u s e o f t h e i r s t r o n g h i s t o r i c a l
ties
(see
Table 17).
O n e e n c o u r a g i n g n o t e t h o u g h is t h a t e x c e p t
for
Brunei,
an ASEAN m e m b e r c o u n t r y has at least one b r a n c h bank
in
another member country.
ASEAN
banks
appear
to
be
active
participants
in
the
international
Interbank
market
(see
Table
18).
Indonesia,
Malaysia
a n d T h a i l a n d w e r e n e t l e n d e r s in t h i s
market,
whereas
the
Philippines
and Singapore were net
borrowers.
Their
net
p o s i t i o n s have improved b e t w e e n 1983 and 1 9 8 8 .
As regards crossb o r d e r b a n k c r e d i t to n o n b a n k s b y r e s i d e n c e of l e n d i n g b a n k , o n l y
Singapore
showed
significant
a m o u n t of
activity
due
to
the
presence
o f i t s o f f s h o r e b a n k i n g s y s t e m t h a t is
internationally
12/
See
Taole
2.3 of A r i f f
et a l .
1990.
33
ESTABLISHMENT
T a b l e 15
T R A D E IN F I N A N C I A L S E R V I C E S
OF THE P A C I F I C R E G I O N
IN
COUNTRIES
T o t a l N u m b e r of
Branches and Subs i d i a r i e s of A S E A N
B a n k s in O t h e r
C o u n t r i e s of the
Pacific Region
T o t a l N u m b e r of
Branches and Subs i d i a r i e s of B a n k s
of Other C o u n t r i e s
in t h e P a c i f i c
Region Established
in A S E A N C o u n t r i e s
INDONESIA
14
41
MALAYSIA
15
31
PHILIPPINES
33
33
SINGAPORE
52
113
THAILAND
22
30
Country
Source:
K a z u m a s a I w a t a . " L i b e r a l i s a t i o n o f T r a d e in
Financial Services."
Edited by Castle, Leslie V .
and Christopher F i n d l a y .
P a c i f i c T r a d e : in
Services.
Sydney: Allen and U n w i n , Inc., 1988.
34
NUMBER
OF
Rank
Bank
T a b l e 16
O V E R S E A S B R A N C H E S OF TOP TEN
IN A S E A N C O U N T R I E S
Name
Mid-70s
BANKS
1783
Change
INDONESIA
Bank
Negara
Indonesia
TOTAL
3
3
3
3
121
na
26
9
6
26
9
+6
0
121
35
41
+6
4
3
+1
+3
MALAYSIA
Bank B u m i p u t r a (M) Bhd
Malayan Banking Bhd
United Malayan Banking
Corp.
TOTAL
PHILIPPINES
Philippine National Bank
Allied Banking Corporation
TOTAL
3
na
b/
3
7
+
4
SINGAPORE
D e v e l o p m e n t B a n k of S i n g a p o r e
United Overseas Bank
Overseas-Chinese Banking Corp.
Overseas Union Bank Limited
Chung Khiaw Bank
Lee Wah Bank
na
4
31
19
IS
9
4
32
31
18
18
9
TOTAL
81
112
15
12
+4
+28
0
-1
0
0
a/
+31
THAILAND
Bangkok Bank
Krung Thai Bank
Thai Farmers Bank
Siam Commercial Bank
TOTAL
Notes:
Source:
0
1
-3
1
3
+
+
1
2
0
2
+2
16
18
+2
B a n k s a r e r a n k e d b y t o t a l a s s e t s in t h e y e a r t o
December 1982.
Of t h o s e b a n k s w i t h o v e r s e a s b r a n c h e s a m o n g the
ten, each country branches have been listed,
a/
Two subsidiaries,
b/
Including agencies.
31
top
J o h n N e w s o n . " T h e I n t e r n a t i o n a l i s a t i o n of B a n k i n g . "
A u g u s t i n e Tan and B a s a n t Kapur (eds.). P a c i f i c Growth
and Financial Interdependence. M a s s a c h u s e t t s :
Allen
and U n w i n , Inc., 1986.
ASEAN:
T a b l e 17
OPERATING
INTRA-ASEAN
PARENT
COUNTRY
COMMERCIAL
BANKS,
HOST
COUNTRY
BANK
Indonesia
( 1 )
Bank
Malaysia
(1)
Malayan
(2)
United
Negara
1981
Indonesia
(1)
Singapore
(3) Ban H i n L e e B a n k
(4) M a l a y a n U n i t e d Bank
(5) B a n k B u m i p u t r a M a l a y s i a B e r h a d
(1)
(2)
(1)
(2)
(1)
(1)
(1)
Brunei
Singapore
Brunei
Thailand
Singapore
Singapore
Singapore
(offshore)
Philippines
(1) P h i l i p p i n e
(1)
Singapore
(offshore)
Singapore
(1) O v e r s e a s
(2)
(3)
(4)
(5)
(6)
(7)
Thai land
Source:
Banking
Malayan
Berhad
Banking
National
Union
Carp.
Bank
Bank
(1) B r u n e i
(2) M a l a y s i a
Chung Kiaw Bank
(1) M a l a y s i a
Lee Wah Bank
(1) M a l a y s i a
O v e r s e a s C h i n e s e B a n k i n g C o r p . (1) M a l a y s i a
United Overseas Bank
(1) M a l a y s i a
Four Seasons Communication
Bank
(1) T h a i land
I n t ' l . Bank of S i n g a p o r e
(1) P h i l i p p i n e s
(offshore)
(1) B a n g k o k
Bank
Sutalaksana, Dahlan M. "Commercial
ASEAN." Staff Paper No. 15, SEACEN
Training Centre, 1986.
(1)
(2)
(3)
Indonesia
Malaysia
Singapore
Banking Links
Research and
in
T a b l e 18
CROSS-BORDER INTERBANK CLAIMS AND LIABILITIES
AND CROSS-BORDER BANK CREDIT AND DEPOSITS, 1983 AND
(In U 5 $ B )
I terns
1.
Net
Position
(=
0.92
1.80
7.71
70.33
2.11
0.64
1.64
4.02
202.95
2.-65
6.57
2.23
-5.24
-11.06
-0.23
8.33
4.61
-0.22
-9.14
3.55
1.66
0.65
32.33
0.35
ty.85*
3.46
69.22
0.78
0.05
1.22
5.28
22.35
0.32
0.03
0.22
2.31
49.47
0.67
Cross-Border Bank Deposits
of N o n b a n k s by R e s i d e n c e
of B o r r o w i n g B a n k
Indonesia
Malaysia
Phi 1ippines
Singapore
Thailand
#
8.97
6.25
3.80
193.81
6.20
Cross-Border Bank Credit
to N o n b a n k s by R e s i d e n c e
of L e n d i n g Bank
Indonesia
Malaysia
Philippines
Singapore
Thai land
5.
7.49
4.03
2.47
59.27
1.88
(1)-(2))
Indonesia
Malaysia
P h i 1i p p i n e s
Singapore
Thai land
4.
1988
Cross-Border Interbank
L i a b i 1 i t i e s by R e s i d e n c e
of B o r r o w i n g B a n k
Indonesia
Malaysia
Philippines
Singapore
Thai land
3.
1983
Cross-Border Interbank
C l a i m s by R e s i d e n c e of
Lending Bank
Indonesia
Malaysia
Phi 1ippines
Singapore
Thai 1 and
2.
1988
Only
Source:
third
quarter
International
figures
are
Financial
available.
Statistics,
October
1989.
37
oriented.
On
the
deposit
side,
again
Singapore
figured
prominently.
P h i l i p p i n e s , which has an o f f s h o r e b a n k i n g
system
t h a t i s c o n c e n t r a t i n g o n r a i s i n g f u n d s , is a d i s t a n t s e c o n d .
III.
STRUCTURES
OF M A R K E T S A N D
COMPETITION
This
section
examines
the
structures
of
markets
and
competition
of
the ASEAN banking systems.
In t h i s
regard,
we
look at c e r t a i n i n d i c a t o r s such as s t r u c t u r e of o w n e r s h i p , p o l i c y
on
bank
entry
and
branching,
degree
of
concentration,
and
pricing.
A.
Structure
Owner ship
In t h i s a s p e c t , w e f o c u s o n t h e r e l a t i v e s h a r e o f g o v e r n m e n t
and
the
private
sector
in
the
ownership
of
financial
institutions.
It
s h o u l d be p o i n t e d o u t at the
outset
that
a
government^run
financial
institution
is
not
necessarily
inefficient.
it c o u l d b e e f f i c i e n t l y m a n a g e d a s
the
privately
run
financial
institution.
H o w e v e r , if i t i s
being
conferred
w i t h s p e c i a l p r i v i l e g e s a n d s u b s i d i e s , t h e n it w o u l d b e v e r y h a r d
for
p r i v a t e f i n a n c i a l i n s t i t u t i o n s o p e r a t i n g in t h e s a m e
market
to c o m p e t e w i t h i t . A n e x a m p l e is t h a t a g o v e r n m e n t b a n k is m a d e
the s o l e d e p o s i t o r y f i n a n c i a l i n s t i t u t i o n of a l l g o v e r n m e n t - o w n e d
corporations.
A c c e s s to c h e a p f u n d s w i l l a l l o w i t s e l f to
j&rice
its loans at b e l o w m a r k e t r a t e s .
E v e n in, t h e a b s e n c e o f
special
privileges
and
subsidies,
being a government
bank
in
itself
already confers certain advantages.
T h i s i s p a r t i c u l a r l y , t r u e in
countries
where
t h e r e is n o d e p o s i t i n s u r a n c e
scheme
and
the
f i n a n c i a l s y s t e m is h i g h l y u n s t a b l e .
Governments
in
ASEAN countries are not
only
involved
in
regulating
financial institutions but also directly
participate
t h e m s e l v e s in t h e p r o v i s i o n of f i n a n c i a l s e r v i c e s t h r o u g h
stateowned
financial
institutions.
H o w e v e r , the
degree
of
their
involvement
and
their impact on the f i n a n c i a l
markets
greatly
vary
among
each
other.
In
Indonesia,
the
government
has
s u b s t a n t i a l e q u i t y p a r t i c i p a t i o n in p r a c t i c a l l y a l l k e y f i n a n c i a l
institutions.
It
owns the five largest commercial
banks
with
numerous
branches n a t i o n w i d e , the largest development b a n k ,
the
largest
savings b a n k , the largest nonbank financial
institution
(NBFI)
p l u s s u b s t a n t i a l e q u i t y p a r t i c i p a t i o n in p r a c t i c a l l y
all
N B F I , and the sole p a w n s h o p with more than-400 b r a n c h e s all
over
the c o u n t r y .
A s C o l e and Slade (1990) p o i n t e d o u t :
"State-owned
banks
have
p a i d l o w e r i n t e r e s t r a t e s on d e p o s i t s
than
private
b a n k s t h r o u g h o u t t h e p e r i o d , b u t a s t h e r e is n o d e p o s i t i n s u r a n c e
in I n d o n e s i a , S t ^ t e - o w n e d b a n k s m a y h a v e a p p e a r e d ' s a f e r ' to m a n y
depositors"
(p.
43).
It w a s o n l y
after
the
October
1988
deregulation
that
state-owned
banks ended
their
monopoly
o£
d e p o s i t s of p u b l i c c o r p o r a t i o n s .
E r q u i a g a (1987) o b s e r v e d
that:
"The state banks have come under increased scrutiny over the last
38
several
years
b e c a u s e of p e r c e i v e d
operational
inefficiencies
c o m p a r e d to t h e f o r e i g n b a n k s a n d s o m e o f t h e n a t i o n a l c o m m e r c i a l
b a n k s . " (p.55)
The
d i r e c t p a r t i c i p a t i o n o f g o v e r n m e n t in b a n k i n g
is
also
visible
in
the
financial landscape
of
Malaysia.
Government
ownership
of
f i n a n c i a l i n s t i t u t i o n s is p r o n o u n c e d in
both
the
banking and nonbanking institutions.
Lin e t a l . indicated
that:
"The
commercial
banking
s y s t e m is
dominated
by
two
largely
g o v e r n m e n t - o w n e d c o m m e r c i a l b a n k s , a c c o u n t i n g f o r 3 5 . 8 p e r c e n t of
the
t o t a l a s s e t s of a l l c o m m e r c i a l b a n k s a s a t the e n d
of
June
1989;
t h e i r b r a n c h n e t w o r k of 327 o f f i c e s r e p r e s e n t e d m o r e
than
35 p e r c e n t o f t h e t o t a l b a n k i n g n e t w o r k . " ( p . 1 1 )
However,
these
banks
are
considered
to
be
efficiently
managed.
Both
the
privately owned domestic and foreign banks consider the financial
m a r k e t in M a l a y s i a to b e c o m p e t i t i v e .
T h i s is m a i n l y
attributed
to t h e o p e n n e s s o f i t s f i n a n c i a l s y s t e m .
In
the
Philippines,
the
government
owns
the
largest
universal
bank, which has the most extensive branching
network,
and
the
largest
development
bank.
Both
of
them
suffered
financial
difficulty
in t h e m i d - 1 9 8 0 s a s a
result
of
"behest
loans"
made
by
them during the
previous
regime.
They
were
rehabilitated,
but
the
government had
to
absorb
their
non^
performing
assets
worth
over
P100 B .
The
government-owned
u n i v e r s a l b a n k i s n o w in t h e p r o c e s s o f b e i n g p r i v a t i z e d , w i t h 3 0
percent
of
its
total outstanding shares already
sold
to
the
private
sector.
The g o v e r n m e n t has still maintained the
policy
of
requiring
all
government
agencies
and
government-owned
corporations
t o d e p o s i t t h e i r s u r p l u s f u n d s o n l y in
governmentowned banks.
Even
Singapore
which has a highly
open
financial
system
a l l o w s g o v e r n m e n t p a r t i c i p a t i o n in t h e b a n k i n g s y s t e m .
However,
its
savings
bank
(POSB)
is
shown
to
be
innovative
and
competitive,
while the semi-governmental commercial
bank
(DBS)
serves
a s a c o u n t e r w e i g h t to t h e " B i g F o u r " l o c a l b a n k s s o
that
its
" p r e s e n c e h a s s e r v e d to e n h a n c e the c o m p e t i t i v e n e s s
of
the
b a n k i n g s y s t e m , . . . . " (Ariff et a l . 1 9 9 0 ) .
Perhaps,
Thailand
differs
from
the
rest
of
the
ASEAN
countries
in
this
area.
Tan
(1984)
noted
that
the
Thai
"Government
o w n e r s h i p and c o n t r o l of f i n a n c i a l i n s t i t u t i o n s
and
therefore
the
relative
importance and
number
of
specialized
i n s t i t u t i o n s a r e very s m a l l . " (p. 45)
A s r e g a r d s f o r e i g n o w n e r s h i p of b a n k s , S i n g a p o r e r a n k s f i r s t
in
terras
of
the
number
of
foreign-owned
banks
operating
domestically.
I n d o n e s i a , M a l a y s i a a n d T h a i l a n d h a v e t e n or
more
branches
of f o r e i g n b a n k s t h a t do d o m e s t i c b a n k i n g , w h e r e a s
the
Philippines
has only four.
B u t it s h o u l d b e n o t e d t h a t
foreign
banks
h a v e m i n o r i t y p a r t i c i p a t i o n in t e n d o m e s t i c b a n k s
in
the
Philippines.
39
B.
P o l i c y on Bank
Entrj£ ..and
Branching
This
is
one
area where some
ASEAN
countries
have
made
certain
progress
in
the
past
few
years
to
improve
the
c o m p e t i t i v e n e s s of t h e i r b a n k i n g s y s t e m .
However
.the d e g r e e
of
relaxation
on
bank
entry
significantly
varies
among
ASEAN
countries.
In
Indonesia, nationals may acquire
a
license
to
operate
a
b a n k a n y w h e r e in t h e c o u n t r y p r o v i d e d t h e y
meet
the
minimum
capital
requirement.
Foreign banks are
encouraged
to
have joint ventures with Indonesian nationals.
T h i s p r i v i l e g e is
a v a i l a b l e o n l y to t h o s e t h a t c o m e f r o m c o u n t r i e s w i t h
reciprocal
agreement
with Indonesia.
T h e y m a y o w n up to 85 p e r c e n t o f
the
outstanding
equity
s h a r e s of j o i n t v e n t u r e . b a n k s .
This
is
an
improvement over minority share allowed them before the PAKTO
27
(October
1988)
reforms.
However, they are restricted
to
only
s e v e n m a j o r c i t i e s a n d a r e r e q u i r e d t h a t w i t h i n 12 m o n t h s ,
their
o u t s t a n d i n g e x p o r t c r e d i t s b e a t l e a s t 50 p e r c e n t o f t h e i r
total
outstanding credits.
In t h e m e a n t i m e , n o n e w b r a n c h e s o f f o r e i g n
b a n k s w i l l be a l l o w e d .
As regards branching, banks wholly
owned
by
Indonesian
nationals
may
open
branches
anywhere
in
the
country,
whereas
existing foreign bank branches
may
open
one
branch
only
in
e a c h of t h e s e v e n m a j o r
cities..
Branches
of
foreign
banks
do
not have rediscounting
privileges
with
the
c e n t r a l b a n k of I n d o n e s i a .
Malaysia's
p o l i c y on b a n k e n t r y and b r a n c h i n g
remains
the
same.
In
particular,
no new b a n k s a r e a l l o w e d
to
enter
the
Malaysian
f i n a n c i a l s y s t e m , and its p o l i c y t o w a r d
foreign
bank
operation
d o e s n o t e n c o u r a g e the e s t a b l i s h m e n t of m o r e
branches
in t h e c o u n t r y . O p e n i n g of n e w b r a n c h e s is a l L o w e d o n l y to
local
banks.
Branches
of
foreign banks do
not
have • rediscounting
p r i v i l e g e s w i t h t h e c e n t r a l b a n k of M a l a y s i a .
The
Philippines
has r e c e n t l y relaxed its
policy
on
bank
entry and b r a n c h i n g .
The Monetary Board has been processing some
a p p l i c a t i o n s for b a n k e n t r y t h a t i n c l u d e e q u i t y p a r t i c i p a t i o n
by
foreign
banks.
T h e p r e s e n t l a w a l l o w s f o r e i g n i n v e s t o r s to
own
up
to 30 p e r c e n t o f t h e o u t s t a n d i n g s h a r e s o f a
domestic
bank.
E n t r y b y b r a n c h e s o f f o r e i g n b a n k s is s t i l l r e s t r i c t e d .
Instead,
f o r e i g n b a n k s a r e b e i n g e n c o u r a g e d to e s t a b l i s h off-shore b a n k s in
t h e P h i l i p p i n e s or b u y e q u i t y s h a r e s of e x i s t i n g d o m e s t i c
banks.
It s e e m s t h a t o n l y I n d o n e s i a a n d t h e P h i l i p p i n e s e n c o u r a g e
joint
venture banks at p r e s e n t .
E x i s t i n g b r a n c h e s of f o r e i g n b a n k s m a y
open
branches
in o t h e r p a r t s o f t h e c o u n t r y b u t
they
are
not
a l l o w e d to a c c e p t d e m a n d d e p o s i t s .
This restriction has the same
e f f e c t a s t h e r e s t r i c t i o n o n b r a n c h i n g s i n c e d e m a n d d e p o s i t is
a
k e y s e r v i c e f a c i l i t y o f f e r e d b y b r a n c h e s of foreign;; b a n k s .
Like
domestic
banks,
b r a n c h e s of f o r e i g n
banks
have
rediscounting
p r i v i l e g e s w i t h the c e n t r a l b a n k of the P h i l i p p i n e s ^
Thailand
has not allowed new entrants into
its
commercial
b a n k i n g s y s t e m for q u i t e s o m e t i m e a l r e a d y .
Instead, local
banks
have
b e e n e n c o u r a g e d t o o p e n b r a n c h e s in r u r a l a r e a s .
Branches
40
of
foreign banks are still prohibited from
establishing
branch
networks
a n y w h e r e in t h e c o u n t r y .
Like local banks,
they
have
r e d i s c o u n t i n g p r i v i l e g e s w i t h t h e c e n t r a l b a n k of T h a i l a n d .
C.
D e g r e e of B a n k i n g
Concentration
We
use h e r e two m e a s u r e s of b a n k i n g c o n c e n t r a t i o n ,
namely:
the a s s e t s h a r e of the five b i g g e s t b a n k s to the t o t a l a s s e t s
of
banks
in
each
country and the Herfindahl
index.
Only
those
domestic
and
branches
of
foreign
banks
belonging
to
the
commercial banking system are included.
T h e r e s u l t s a r e s h o w n in
Table 19.
In b o t h m e a s u r e s , i t a p p e a r s t h a t I n d o n e s i a h a s t h e
highest
degree
of
banking concentration.
The first five
banks,
which
h a p p e n to b e a l l s t a t e - o w n e d b a n k s , c o n s t i t u t e 8 1 p e r c e n t o f
the
total a s s e t s of the c o m m e r c i a l b a n k i n g s y s t e m .
Thailand
follows
I n d o n e s i a , w i t h t h e f i v e l a r g e s t b a n k s a c c o u n t i n g for 68
percent
of
the
total
assets
of c o m m e r c i a l
bank
assets.
Note
that
T h a i l a n d h a s t h e b i g g e s t c o m m e r c i a l b a n k in t h e r e g i o n w i t h t o t a l
assets
a m o u n t i n g to a b o u t U S $ 1 7 B .
P h i l i p p i n e s a p p e a r s to
have
the
lowest concentration ratio.
T h i s is b e c a u s e m o r e t h a n
half
of
the
a s s e t s of a g o v e r n m e n t - o w n e d c o m m e r c i a l b a n k
that
were
deemed
nonperforming
had
been
recently
transferred
to
the
national government.
In
g e n e r a l , t h e f i n d i n g s s h o w n in T a b l e
high
degree
of b a n k i n g c o n c e n t r a t i o n e x i s t s
countries.
D.
19 s u g g e s t
that
a
in t h e
four
ASEAN
Pricing
T h e s t r u c t u r e o f t h e m a r k e t c o u l d b e r e f l e c t e d in t h e s p r e a d
between
the c o s t of funds and the l e n d i n g r a t e .
An
inefficient
banking
s y s t e m c h a r a c t e r i z e d b y g r e a t e r c o n c e n t r a t i o n is
likely
to b e a s s o c i a t e d w i t h a l a r g e r b a n k s p r e a d .
Figure
2
shows
the
b e h a v i o r of
bank
spread
for
ASEAN
countries
for
the
period
1982
to
1988.
For
purposes
of
comparison,
the p a t t e r n s of bank s p r e a d for the
U.S.A.,
Japan,
and
G e r m a n y a r e a l s o s h o w n in t h e s a m e t a b l e . A s
expected,
the
Philippines,
Thailand and Indonesia have on the
average
larger
b a n k " s p r e a d s than Malaysia and S i n g a p o r e .
It i s , h o w e v e r , to
be
noted
t h a t t h e b a n k s p r e a d s for t h e P h i l i p p i n e s ,
Indonesia
and
T h a i l a n d h a v e d e c l i n e d in t h e p a s t t w o y e a r s .
The
openness
of
the financial systems
of
Singapore
and
Malaysia
c o u l d h a v e a c t e d as a strong p r e s s u r e on
bank
spread.
M a l a y s i a and S i n g a p o r e a r e e v e n f o u n d to h a v e lower a v e r a g e
bank
Q
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42
Figure 2
NOMINAL LENDING RATES, DEPOSIT RATES
AND GROSS SPREAD IN ASEAN
(In
per annum)
Lending
1982
1983
1984
1985
198S
1987
1988
AVERAGE
STD.DEV
9.00
19.63
20.06
20.03
21.49
21.67
22.04
19.13
4.23
Deposit
6.00
6.00
16.00
18.00
15.43
16.78
17.72
13.70
4.94
Spread
3.00
13.63
4.06
203
6.06
4.89
4.32
5.43
3.56
Ldftdlng
Lending
1982
1983
1984
1985
1986
1987
1988
AVERAGE
STD.DEV
8.79
11.08
11.35
11.54
10.80
8.19
7.25
9.86
1.61
Deposit
9.75
8.02
9.54
8.81
7.17
3.00
3.33
7.09
2.61
Spread
-0.96
3.06
1.81
2.73
3.63
5.19
3.92
2.77
1.81
^litlâjîsc-i^-:-:-:-:-:-:-:-::-:-:-:::-:-:-:-:-:-:-:-:-:-:-:-:-:-:-:-:Lending
1982
1983
1984
1985
1986
1987
1988
AVERAGE
STD.DEV
10.23
9.05
8.97
7.93
6.82
6.10
5.96
7.87
1.51
Deposit
7.22
6.31
6.98
4.99
3.91
2.89
2.74
5.01
1.74
Spread
3.01
2.74
1.99
2.94
2.91
3.21
3.22
2.86
0.39
•
Undlnfl
43
Figure 2 (cont'd.)
PHILIPPINES
Lending
1982
1983
1984
1985
1986
1987
1988
AVERAGE
STD.DEV
16.12
19 24
28.20
28.61
17.53
13.34
15.92
20.14
5.51
Deposit
13.74
13.58
21.17
18.91
11.25
8.20
11.32
14.03
4.21
Spread
4.38
5.66
7.02
9 70
6.28
5.14
4.61
6.11
1.70
THAILAfdC
Lending
1982
1983
1984
1985
1986
1987
1988
AVERAGE
STD.DEV
19.00
17.63
18.75
19.00
17.00
15.00
15.00
17.34
1.63
Deposit
13.00
13.00
13.00
13.00
9.75
9.50
9.50
11.54
1.69
Spread
6.00
4.63
5.75
6.00
7.25
5.50
5,50
5.80
0.73
Note: In the absence of data, WEIGHTED AVERAGE COMMERCIAL BANK RATES were
used for the 1983-85 Lending Rates in Indonesia.
44
Figure 2 (cont'd.)
Lending
1982
1983
1984
1985
1986
1987
1988
AVERAGE
STD.DEV
14.86
10.79
12.04
9.93
8.35
8.21
9.32
10.50
2.17
Deposit
12,35
9.09
10.37
8.05
6.52
6.86
7.73
8.71
1.92
Spread
2.51
1.70
1.67
1.88
1.83
1.35
1.59
1.79
0.33
0 Imttifl
Lending
7.23
I " 1?82
7.05
1983
6.66
1984
1985
5.52
1986
5.91
5.09
1987
4.93
1988
6.20
AVERAGE
0.85
^STD.DEV
Deposit
3.75
3.75
3.50
3.50
1.88
1.76
1.76
2.84
0.91
Spread
3.48
3,30 !
3.16
3.02
4.03
3.33
3.17
3.36
0.31
Lending
13.50
10.05
9.82
9.53
8.75
8.36
8.33
9.76
1.65
Deposit
7.54
4.56
4.86
4.44
3.71
3.20
3.29
4.51
1.37
Spread
5.96
5.49
4.96
5.09
5.04
5.16
5.04
5.25
0.33
1982
1983
1984
1985
1986
1987
1988
AVERAGE
STD.DEV
» Qvndt
<• Gfrf*
Sources of Basic Data:
International Financial Statistics, October 1989.
Erquiaqa, Philip. "Improving Domestic Resource Mobilization Through Financial Development:
Indonesia." ADB Economic Staff Paper No. 40, November 1987.
45
spreads
than
Japan and G e r m a n y .
The U . S . A .
has
the
s p r e a d a m o n g t h e c o u n t r i e s i n c l u d e d in F i g u r e 2 . 1 3 /
thinnest
The
larger
bank
spreads
observed
for
the
Philippines,
T h a i l a n d a n d I n d o n e s i a c a n n o t b e w h o l l y a t t r i b u t e d t o t h e k i n d of
market
structures
existing
in
these
countries.
Regulatory
m e a s u r e s , s u c h a s t h o s e p e r t a i n i n g to i n t e r m e d i a t i o n t a x e s ( e . g . ,
high
reserve
requirements,
mandatory
credit
allocations
to
c e r t a i n p r i o r i t y s e c t o r s , e t c . ) c o u l d a l s o b e c o n t r i b u t o r y to t h e
large bank spread. 14/
T h e p i e c e s of e v i d e n c e a v a i l a b l e for
the
Philippines
s e e m to s u p p o r t t h i s (see T a b l e 2 0 ) . F o r
Thailand,
the
cost
of
said regulations comprises
about
30 p e r c e n t
of
commercial
banks' spread between
lending and d e p o s i t r a t e s . 15/
T h u s , i n t e r m e d i a t i o n t a x e s a g g r a v a t e t h e p l i g h t o f b o r r o w e r s in a
less competitive financial system.
±3/
Indeed,
Ariff
et a l . (1990) h a v e p o i n t e d out
that
the
o p e n n e s s of t h e f i n a n c i a l s y s t e m of S i n g a p o r e " s e r v e s to p l a c e
a
l i m i t on the p e r m i s s i b l e w i d t h of s p r e a d s " (p. 2 6 ) .
A l s o , it " i s
generally
b e l i e v e d t h a t t h e D B S ' p r e s e n c e h a s s e r v e d to
enhance
t h e c o m p e t i t i v e n e s s of t h e b a n k i n g s y s t e m , in t e r m s o f a
narrowing
of
the s p r e a d b e t w e e n lending and d e p o s i t r a t e s " . (p.
29) .
DBS
is
a
semi-government bank
that
intensely
competes
with
private banks.
14/
In t h e P h i l i p p i n e s , a l l b a n k s a r e r e q u i r e d to a l l p c a t e a t
l e a s t 2.5 p e r c e n t of t h e i r t o t a l l o a n a b l e f u n d s t b a g r i c u l t u r e a n d
b e n e f i c i a r i e s of a g r a r i a n r e f o r m .
In T h a i l a n d , c o m m e r c i a l
banks
must
e x t e n d c r e d i t s f o r t h e p u r p o s e o f r u r a l d e v e l o p m e n t in
the
amount
o f a t l e a s t 20 p e r c e n t of d e p o s i t l i a b i l i t i e s a s
of
the
end
of
the
previous year.
In I n d o n e s i a ,
national
banks
are
r e q u i r e d to a l l o c a t e a m i n i m u m o f 20 p e r c e n t o f l o a n p o r t f o l i o to
small
business.
T h e s e a r e e x a m p l e s of m a n d a t o r y c r e d i t
allocations.
M a n d a t o r y c r e d i t a l l o c a t i o n s c o u l d lead to the
widening
of
bank spread.
In t h e P h i l i p p i n e s , f o r e x a m p l e , b a n k s t h a t
do
not
w i s h t o l e n d to t h e a g r i c u l t u r a l s e c t o r m a y
buy
government
s e c u r i t i e s a s a s u b s t i t u t e for t h e i r c o m p l i a n c e of the r e g u l a t i o n
that
t h e y a l l o c a t e 25 p e r c e n t o f t h e i r t o t a l l o a n a b l e
funds
to
the
said
sector.
The interest rate
on
government
securities
e l i g i b l e f o r s u c h p u r p o s e is f i x e d a t a l e v e l s u b s t a n t i a l l y b e l o w
the
prevailing
lending
r a t e s (and a t
times,
even
below
the
deposit rate).
B a n k s r e c o u p t h e i r l o s s e s h e r e b y p a s s i n g t h e m on
to b o r r o w e r s in t e r m s of h i g h e r l e n d i n g r a t e s .
15/
See T h a i l a n d D e v e l o p m e n t R e s e a r c h I n s t i t u t e (1987) .
Table 20
INTERMEDIATION MARGIN, 1983 and 1986
PHILIPPINES
1983
1986
10,02
8.02
12.67
15.01
14.26
1.59
6.99
7.32
5.86
8.92
14.62
13.89
4,97
8,76
53.40
13.35
17.67
5.00
10.57
100.00
40.05
10.01
10.96
5.00
33.77
100.00
1984
1985
1936
5.04
1.06
1.48
0.83
3.37
1.67
6.02
1.23
1.50
1.08
3.81
2.21
5.07
1.38
1.57
0.86
3.8
1.9
0.90
1.00
0.40
1.00
1.20
0.70
1.40
1.40
1.00
A. Intermediation margin,
as 2 of earning assets
1. Average cost of deposit
2. Net of 201 tax on interest incoae froa deposits
3. Cost of loanable funds
4. Average lending rate
5. (4) net of 5X gross receipts tax (GRT)
6. Bank aargin (5) - (3)
7. Total aargiti to clients (4) - (2)
B. Composition of the total aargin (7) in I
1. Depositor
2. 281 tax on/interest incoae troa ueposits
3. Reserve cost
4. SRT
5. Bank aargin
T O T A L
C. Components of bank aargin
(I of total assets)
1. Interaediation aargin
2. Staffing cost
3. Administrative cost
4. Depreciation
5. Total cost
6. Profits before taxes
Staffing expenses as I bi total assets
1. All banks
2. Sound doaestic banks
3, Foreign banks
Table 20 (cont'd.)
£. Comparative bank margin
Staffing
Cost
Phil. (1986)
1.4
Adm.
Cost
1.6
Depr.
0.9
Total
Cost
3.9
Profit
before
taxes
1.9
Selected countries ca. 1988
Belgium
Denmark
Finland
Morocco
Norway
Pakistan
Portugal
Spain
A V E R A 6 E
Total
Margin
5.8
•
2.2
2.0
1.6
2.2
2.1
1.7
2.0
2.8
2.1
0.5
8.9
1.6
8.8
1.4
8.8
8.7
0.8
0.9
B.3
8.7
0.7
0.7
0.5
0.1
1.5
8.6
0.6
3.1
3.6
3,9
3.7
4.0
2.6
4.2
4.2
3.7
0.3
0.7
8.4
1.9
0.3
0.7
0.3
1.5
0.7
3.4
4.3
4.4
4.8
4.5
3.3
4.5
5.7
4.4
Notes: The 20 percent tax on interest income from deposits is a final tax. Tfoe five percent gross
receipts tax (6RT) is imposed on all receipts (including both interest and capital gains of
a bank). It cannot be used as a credit against income tax. Cost of loanable funds includes
average cost of deposits and reserve costs (including the cost attributable to;the requirement to lend 251 of a bank's total resources to agriculture and beneficiaries of agrarian
reform program). Domestic banks were classified into sound and neak banks on the basis of
their return on risk loans, return on total assets, past due loans and provisions
therefore, potential loan losses, and adjusted capital/total assets.
Source: World Bank. Philippines Financial Sector Study (August 1788).
48
IV.
B E N E F I T S AND COSTS OF A MORE LIBERAL REGIME F O R
I N T E R N A T I O N A L T R A D E IN B A N K I N G S E R V I C E S IN T H E A S E A N
REGION
This
section
discusses the benefits and costs
of
a
more
l i b e r a l r e g i m e f o r i n t e r n a t i o n a l t r a d e in b a n k i n g s e r v i c e s in t h e
ASEAN
region'. T h e r e a r e t w o a s p e c t s of i n t e r n a t i o n a l i z a t i o n
of
finance,
n a m e l y cross-toorder and e s t a b l i s h m e n t - r e l a t e d t r a d e
in
financial
services.
This
paper
focuses
on
the
latter.
Establishment-related
trade
in
banking
services
refers
to
"services
produced
by
f a c t o r s of
production
whose
ownership
resides
in o n e c o u n t r y a n d s o l d to r e s i d e n t s o f a n o t h e r
through
some
form
of d i r e c t p r e s e n c e of the s u p p l i e r
in
the
client's
country." (MTN.GNS/W/G8, 4 Sept. 1989; p.6)
A.
Benefits
There
are
benefits
to a more liberal
regime
for
international
t r a d e in b a n k i n g s e r v i c e s in t h e A S E A N r e g i o n .
First,
it
improves
access
of t h e p o p u l a t i o n to
banking
services
in
general.
It
h a s b e e n s h o w n asbove t h a t
except
for
Singapore,
ASEAN
countries
are > still generally
underbanked.
Also,
the
distribution
of
b a n k s e r v i c e s is b a d l y s k e w e d in f a v o r
of
the
c a p i t a l c i t y ( i . e . , M e t r o M a n i l a for t h e P h i l i p p i n e s , B a n g k o k for
T h a i l a n d , and J a k a r t a for I n d o n e s i a ) .
The recent
liberalization
on
b a n k e n t r y a n d b r a n c h i n g in m o s t A S E A N c o u n t r i e s is i n d e e d
a
welcome development*
I t c o u l d p e r h a p s b e e x t e n d e d to b r a n c h e s o f
foreign banks.
B u t t h e i r c o n t r i b u t i o n to b a n k i n g d e v e l o p m e n t
in
the
country
would
l i k e l y toe l i m i t e d i f t h e y
are
confined
to
locate
only
in t h e c a p i t a l c i t y of the c o u n t r y
concerned.
As
already
pointed
out
above, all ASEAN
countries
have
already
several
branches
of
foreign banks
located
and
operating
in
capital cities.
Thus> a l l o w i n g n e w b r a n c h e s of f o r e i g n b a n k s
to
b e e s t a b l i s h e d in o t h e r p l a c e s w i t h i n t h e c o u n t r y o t h e r t h a n
the
c a p i t a l c i t y w o u l d b e m o r e d e s i r a b l e t h a n h a v i n g ' t h e m s i t u a t e d in
a
capital
city.
I t is e q u a l l y d e s i r a b l e to a l l o w
branches
of
foreign
b a n k s t h a t a r e a l r e a d y o p e r a t i n g in A S E A N
countries
to
h a v e b r a n c h n e t w o r k s in o t h e r p l a c e s w i t h i n t h e c o u n t r y c o h c e r n e d
other than the capital c i t y .
Indonesia has already started doing
this.
S e c o n d , it e n c o u r a g e s f o r e i g n i n v e s t o r s to l o c a t e t h e m s e l v e s
in a r e a s o t h e r t h a n t h e c a p i t a l c i t i e s o f A S E A N c o u n t r i e s .
This
augurs
well
for a m o r e b a l a n c e d r e g i o n a l d e v e l o p m e n t
within
a
c o u n t r y w h i c h h a s b e e n t h e o b s e s s i o n of p o l i c y m a k e r s for d e c a d e s .
It
is to b e n o t e d t h a t in t h e p a s t d e c a d e , A S E A N c o u n t r i e s
have
heavily
invested
in
infrastructural
development
in
certain
regions
w i t h i n their t e r r i t o r i e s to i n d u c e f o r e i g n i n v e s t o r s
to
l o c a t e t h e m s e l v e s in t h o s e a r e a s .
The immediate availability
of
services
from
international
banks with which
they
have
long
established
relationship will further strengthen their
decision
to
locate
in t h o s e a r e a s b e c a u s e a s i d e
from
ordinary
banking
services,
they
may
also require
from
their
preferred
banks
49
ancillary
b a n k i n g s e r v i c e s , such as p a y r o l l s e r v i c e s ,
portfolio
investment,
etc.
The d e l i v e r y of such
services
requires
the
p h y s i c a l p r e s e n c e o f t h e i r b a n k s in t h e a r e a .
Third,
i n c r e a s e d - c o m p e t i t i o n in t h e b a n k i n g s y s t e m
can
be
extended
to
other
r e g i o n s or a r e a s o f
the
country
with
the
p r e s e n c e o f f o r e i g n b a n k s in t h o s e a r e a s .
Thus, more people will
be
exposed
to a w i d e r s e t of f i n a n c i a l
instruments
with
more
a t t r a c t i v e r a t e s of r e t u r n s .
So f a r , f o r e i g n b a n k s '
competition
w i t h d o m e s t i c b a n k s h a s b e e n c o n f i n e d to. t h e c a p i t a l c i t y o f
the
country
that
benefited only wealthier residents.
This
is
so
because
of t h e h o s t g o v e r n m e n t ' s p o l i c y of d i s a l l o w i n g
branches
pf
f o r e i g n b a n k s to e s t a b l i s h b r a n c h n e t w o r k s in o t h e r p a r t s
of
the c o u n t r y .
And
lastly,
improvements
in
intra-ASBAN
trade
and
investment, which ASEAN countries have been diligently working on
as may be observed from the various activities that have
already
b e e n d o n e and a r e b e i n g l i n e d up for t h i s p u r p o s e , w o u l d
require
better
b a n k i n g i n f r a s t r u c t u r e . Such could be achieved through
a
more
liberal
regime
for regional and
international
trade
in
banking services.
T h e c o m p e t i t i v e n e s s of A S E A N b a n k s t h a t
would
result from a more liberal financial system at home will
prepare
them
to
participate
in
regional
and
international
banking.
Indeed,
the
experience
of
S i n g a p o r e in
this
area
is
worth
considering.
B.
Costs
Any
undertaking
always involves some qosts
that
must
be
weighed
against
the b e n e f i t s .
The move
t o w a r d s ^more
liberal
regime
for
international
trade in.banking
services
has
some
costs.
Deregulation
might breed
excessive
r i s k - t a k i n g âmong
competitors.
This
is
worse
in a c o u n t r y
where
there
is
a
compulsory
d e p o s i t i n s u r a n c e s c h e m e b e c a u s e of t h e m o r a l
hazard
problem
that
it
may generate.
T h e P h i l i p p i n e s is
a
case
in
point.
However,
even
in
those
countries
where
no
deposit
insurance
scheme
e x i s t s , t h e p o l i c y o f bailirig p a t
any
ailing
bank
could
be considered by market participants as
a
form
of
insurance.
Thailand
c o u l d s e r v e a s a n exartiple h e r e .
In
both
cases,
the g o v e r n m e n t c o n c e r n e d w i l l h a v e to b e a r the b u r d e n
of
those losses.
O f c o u r s e , t h e o t h e r a l t e r n a t i v e is to a l l o w
bank
failures
and let the p a r t i c i p a n t s absorb all the c o s t s .
But
it
generates
another
cost,
i.e.,
it
undermines
the
people's
c o n f i d e n c e in t h e b a n k i n g s y s t e m , w h i c h m i g h t t u r n o u t t o b e m o r e
costly
in
the
long-run.
This only setves
to
underscore
the
importance
of
having
a
strong
and
efficient
supervisory
o r g a n i z a t i o n a s w e l l a s e f f e c t i v e p r u d e n t i a l r e g u l a t i o n s in A S E A N
countries.
This,
too, involves additional costs
since
superv i s o r y s t a f f h a v e to be t r a i n e d and p a i d y e l l .
D u r i n g t h e h e y d a y of low i n t e r e s t r a t e in t h e
international
market,
s e v e r a l c o u n t r i e s r e f u s e d to m a k e a d j u s t m e n t to
correct
50
their worsening current account imbalances since cheap funds were
readily
a v a i l a b l e f r o m t h e i n t e r n a t i o n a l m a r k e t to f i n a n c e : s u c h
deficits.
The
P h i l i p p i n e s was one of t h e m . 16/
With
a
more
liberal
r e g i m e f o r i n t e r n a t i o n a l t r a d e in b a n k i n g s e r v i c e s ,
the
inflow
of foreign c a p i t a l that m i g h t be facilitated b y
branches
of
fore ign
banks
could
hide any
imbalances
in
the
current
account. 17/
Finally,
the
present
s u p e r i o r i t y of
foreign
banks
over
domestic
banks
in
technology-based
transactions,
which
most
banking services are now, could
r e s u l t in u n d u e c o m p e t i t i o n . 1 8 /
Monetary
authorities may end up supervising more
foreign
banks
than
d o m e s t ic
banks. Apart from supervisory problem
that
may
arise
from t h i s , the e f f e c t i v e n e s s of m o n e t a r y p o l i c y
could
be
undermined.
T h i s c o u l d b e o n e o f t h e reasons" w h y A S E A N c o u n t r i e s
prefer
to
promote
joint ventures than allow
new
branches
of
f o r e i g n b a n k s to e n t e r the d o m e s t i c f i n a n c i a l s y s t e m .
It is o u r v i e w t h a t t h e b e n e f i t s t h a t w i l l b e d e r i v e d f r o m a
more
l i b e r a l r e g i m e f o r i n t e r n a t i o n a l t r a d e in b a n k i n g
services
in
ASEAN . countries
outweigh
the
costs.
However,
the
liberalization
should
be done g r a d u a l l y and should be
in
step
with
the
development
of
the
economy.
The
timing
of
the
l i b e r a l i z a t i o n is a l s o i m p o r t a n t .
V.
THE APPLICABILITY AND IMPLICATIONS OF THE URUGUAY
KEY C O N C E P T S , PRINCIPLES AND RULES
ROUND
This section d i s c u s s e s the a p p l i c a b i l i t y and i m p l i c a t i o n s of
the
key
c o n c e p t s a n d p r i n c i p l e s d i s c u s s e d in
the
multilateral
negotiations
o n t r a d e in s e r v i c e s to t h e b a n k i n g s e c t o r
in
the
ASEAN
countries.
Since
MTN.GNS/35:
"Draft:
Multilateral
F r a m e w o r k f o r T r a d e in S e r v i c e s " (23 J u l y 1 9 9 0 ) , M T N . G N S / F I N / W / 1 :
"Proposal
by
tne European Community: Draft
Financial
Services
A n n e x to t h e A g r e e m e n t o n T r a d e in S e r v i c e s " (10 J u l y 1 9 9 0 ) ,
and
MTN.GNS/FIN/W/2:
"Submission by the United States
on
Financial
Services"
(12 J u l y 1 9 9 0 ) a r e a l r e a d y a v a i l a b l e , t h i s p a p e r
will
also
comment
on
some
of the
substantive
contents
of
these
W
AZ/
~
See Lamberte et a l .
(1985).
See
Iwata
(1988).
The
literature
on
the
otder
of
e c o n o m i c l i b e r a l i z a t i o n p r o v i d e s a m p l e lessons on t h i s .
S e e , for
e x a m p l e , E d w a r d s (1985) and C o r b o and d e Melo (1987).
±1/
T h i s c o u l d a r i s e f r o m e c o n o m i e s of s c a l e .
For
instance,
a
m u l t i n a t i o n a l bank m a y d e v e l o p its own c o m p u t e r
software
for
market
analysis
t h a t can be used b y its b r a n c h e s a l l
over
the
world.
51
documents.
In t h i s r e g a r d , C o r n f o r d ' s ( A u g u s t 1 9 9 0 ) c o m m e n t s
on
the
proposals
of
the
European
Community
and
United
States
concerning
an
agreement
regarding
international
trade
in
financial services are very relevant.
Befgre
w e p r o c e e d w i t h the a s s e s s m e n t of t h e
applicability
a n d i m p l i c a t i o n s of t h e c o n c e p t s , p r i n c i p l e s a n d r u l e s , it
would
b e w o r t h w n i l e to b r i e f l y c o m m e n t on t h e e m e r g i n g c o n s e n s u s on the
need
to
have
a s e c t o r a l a n n o t a t i o n to
the
general
framework
agreement
for b a n k i n g s e r v i c e s .
T h e s e r v i c e s s e c t o r in
general
is
a
f a i r l y h e t e r o g e n e o u s g r o u p of e c o n o m i c
activities.
Each
sub-sector
also
consists
of
finer
groupings
of
economic
activities.
But the banking sector clearly stands out among
tne
other
s u b - s e c t o r s in t h e s e r v i c e s s e c t o r .
Its function
in
tne
economy
is u n q u e s t i o n a b l y l a r g e .
A significant portion
of
the
trade
in
goods and services, both domestic
awd
international,
p a s s e s through the banking s y s t e m .
Thus, a dysfunctional banking
system
certainly
impairs trade.
Aside from this,
the
banking
s y s t e m a l s o p r o v i d e s p o r t f o l i o i n v e s t m e n t s e r v i c e s to
customers.
In
most
of t h e s e t r a n s a c t i o n s , t h e p h y s i c a l p r e s e n c e
of
banks
n§ar t h e i r c l i e n t s i s v e r y i m p o r t a n t .
Monetary
p o l i c y is t r a n s m i t t e d t o t h e r e s t o f
the
economy
through
the banking s y s t e m .
T h u s , t h e r e is a s t r o n g
motivation
for
m o n e t a r y a u t h o r i t i e s to m a i n t a i n a w e l l - f u n c t i o n i n g
banking
system.
It is t h e n u n d e r s t a n d a b l e t h a t t h e b a n k i n g s e c t o r is o n e
of
the
h i g h l y r e g u l a t e d s e c t o r s in t h e
economy
ostensibly
to
p r e s e r v e t h e p a y m e n t s s y s t e m a n d p r o t e c t c o n s u m e r s so t h a t
their
c o n f i d e n c e in t h e b a n k i n g s y s t e m w i l l b e m a i n t a i n e d .
The banking sector has been experiencing a rapid
innovation
especially
w i t h t h e a d v a n c e m e n t in c o m m u n i c a t i o n s a n d
computer.
This
m a y b e g a t h e r e d f r o m the v a r i e t y of f i n a n c i a l s e r v i c e s
and
i n s t r u m e n t s t h a t a r e c u r r e n t l y a v a i l a b l e in t h e m a r k e t .
With the
further
d e r e g u l a t i o n o f t h e f i n a n c i a l m a r k e t s in b o t h
developed
and
developing economies, financial institutions will
certainly
b e b u s i e r in d e v e l o p i n g m o r e f i n a n c i a l s e r v i c e s a n d
instruments.
Thus,
both
the
wholesale
and
retail
markets
for
financial
services
will
become more complex and sophisticated
than
what
they are already now.
A
framework
a g r e e m e n t t h a t is a p p l i c a b l e
to
all
service
sectors
is h i g h l y d e s i r a b l e .
H o w e v e r , if i t i s e x p r e s s e d
in
a
v e r y g e n e r a l m a n n e r a n d d o e s not a d d r e s s t h e s p e c i f i c i t i e s of the
b a n k i n g s e c t o r , i t w i l l l i k e l y l e a d t o m o r e d i s p u t e s t h a t in
the
end
would
only
render
the agreement
useless.
Thus,
it
is
n e c e s s a r y to h a v e a s e c t o r a l a n n o t a t i o n to t h e g e n e r a l
framework
to a d d r e s s t h e s p e c i f i c i t i e s o f t h e b a n k i n g s e c t o r s o t h a t r e s o r t
to d i s p u t e s e t t l e m e n t p r o c e d u r e s w i l l b e m i n i m i z e d .
A.
of
Transparency
I t is n o t u n c o m m o n t o s e e v a r i o u s b r a n c h e s o f t h e g o v e r n m e n t
ASEAN
countries
involved
in
promoting,
regulating
and
52
supervising the same business entities.
E a c h o n e of t n e m
issues
specific
guidelines
that
are
not
usually
well
circulated.
Neither are these activities well coordinated.
Going through the
exercise
of
knowing what guidelines apply and where
to
obtain
them
already
entails
too
much
effort
and
money
for
local
residents.
For
foreigners,
t h i s is a l m o s t
impossible
to
do
especially
if t h o s e g u i d e l i n e s a r e w r i t t e n in
local
languages.
Thus,
for
A S E A N c o u n t r i e s , t h e r e is a n e e d t o
consolidate
all
those
r e g u l a t i o n s and g u i d e l i n e s p e r t a i n i n g to b a n k i n g l a w s ,
in
general,
and
to
l a w s c o v e r i n g t r a d e in
banking
services,
in
particular.
Each
country
may
assign
an
office
which
can
serve
a s a " o n e - s t o p s h o p " for all t h o s e l a w s ,
regulations
and
guidelines
affecting
t r a d e in b a n k i n g s e r v i c e s .
This
may
be
patterned
a f t e r t h e " o n e - s t o p s h o p " for t h e e x p o r t
sector
that
all
ASEAN
c o u n t r i e s h a v e , a l t h o u g h in a l i m i t e d s c a l e .
It
is
preferable
that this o f f i c e be housed at the C e n t r a l B a n k .
All
government
a g e n c i e s s h o u l d be r e q u i r e d to s u b m i t to t h i s
office
all l a w s , regulations and g u i d e l i n e s , and any amendments thereof,
that
have
some e f f e c t s on banking
operations.
All
inquiries
p e r t a i n i n g t o s p e c i f i c l a w s o r g u i d e l i n e s in b a n k i n g , e i t h e r f r o m
own
citizens
or
foreigners,
will be
addressed
to
it.
All
branches
of f o r e i g n b a n k s s h o u l d l i k e w i s e be r e q u i r e d to
submit
to t h i s o f f i c e a n y i n f o r m a t i o n a b o u t t h e i r o p e r a t i o n s .
At
the
A S E A N l e v e l , the C o m m i t t e e on F i n a n c e
and
Banking
(COFAB) m a y serve as a "one-stop shop" by c o n s o l i d a t i n g w h a t each
member
had already d o n e .
Thus, any interested third party
does
n o t h a v e t o c o n t a c t e a c h i n d i v i d u a l c o u n t r y o f f i c e if h e w a n t s to
make
inquiries
about banking laws, regulations
and
guidelines
from all the ASEAN member c o u n t r i e s .
B.
Progressive
Liberalization
As
already
pointed out a b o v e , ASEAN countries are
now
in
different
s t a g e s of f i n a n c i a l l i b e r a l i z a t i o n .
Leading the
pack
in t h i s e f f o r t is S i n g a p o r e .
The remaining ASEAN countries
have
now
gradually shifted their attention from credit allocation
to
t h e g e n e r a l s o u n d n e s s a n d s t a b i l i t y of t h e f i n a n c i a l s y s t e m .
The
need
for
s t r o n g and e f f i c i e n t s u p e r v i s i o n is
clearly
felt
in
these
countries.
S i n c e s u c h s u p e r v i s i o n t a k e s time to
develop,
ASEAN
countries
should
opt
for
a
gradual
but
progressive
liberalization process.
Singapore followed this track before.
The
c h a n g i n g r o l e of e x i s t i n g . b r a n c h e s of f o r e i g n b a n k s
in
the ASEAN region m u s t also be r e c o g n i z e d .
In the p a s t , t h e y
had
been
heavily
involved
in
the
financing
of
imports
of
multinational
c o m p a n i e s , m o s t of w h i c h w e r e
established
during
the
import
substitution
regime
of
these
countries,
and
in
packaging sovereign loans.
A s n o t e d in S e c t i o n I o f t h i s
paper,
their
business
for the latter had s u b s t a n t i a l l y d e c l i n e d
as
a
r e s u l t of t h e i n t e r n a t i o n a l d e b t c r i s i s .
At the same t i m e , ASEAN
countries*
that
used
to b e i n w a r d
looking
have
now
switched
towards
export-orientation
and
more
industrial
dispersal
of
53
industries.
T h u s , t h e r e is
i n c r e a s i n g a c t i v i t y in t h i s a r e a
in
which
b r a n c h e s of f o r e i g n b a n k s a r e n o t a b l e to p a r t i c i p a t e
due
to
existing
r e g u l a t i o n s , s u c h ais p r o h i b i t i o n
against
opening
branches
outside
the capital cities.
This still
exists
today
despite
the
fact that ASEAN countries,
except
Singapore,
are
generally "underbanked."
T h u s , t h e r e s e e m s to b e s o m e s c o p e
for
allowing
foreign
b a n k s t o b e i n c l u d e d in A S E A N
countries'
ongoing financial liberalization.
S i n c e . t h e p r e s e n c e o f b r a n c h e s o f f o r e i g n b a n k s o p e r a t i n g in
the
capital
c i t i e s o f A S E A N c o u n t r i e s is
already
substantial,
branch
networks
of f o r e i g n b a n k s m a y be
established
in
areas
outside
the
capital cities.
This will extend
the
competition
between
f o r e i g n a n d l o c a l b a n k s in t h e c o u n t r y s i d e . , a n d
at
the
same
time,
surplus
units
and
foreign
investors
who
locate
themselves
in
the countryside will be offered a wider
menu
of
banking services.
This may be accompanied with.the promotion
of
joint
ventures.
Although
most ASEAN
countries
have
already
maintained
such
p o l i c y , the e x t e n t of e q u i t y
participation
by
f o r e i g n b a n k s in j o i n t v e n t u r e s m a y b e i n c r e a s e d .
C.
Market
Access
ASEAN
countries
have been exercising control
over
market
access
t o t h e i r f i n a n c i a l s y s t e m s to p u r s u e c e r t a i n
objectives,
such
as
m a i n t a i n i n g the s t a b i l i t y of the f i n a n c i a l
system
and
effectiveness
of m o n e t a r y p o l i c y , c o n f i g u r i n g t h e
structure
of
their
f i n a n c i a l s y s t e m s to m e e t c h a n g i n g n e e d s of
the
economy,
developing
banking
skills
of l o c a l
professionals,
etc.
The
framework
agreement
should allow ASEAN
countries
to
exercise
certain
flexibility
so t h a t they c a n c o n t i n u e to
pursue
those
objectives
while
they.
proceed
witn
their
financial
l i b e r a l i z a t i o n . In t h i s r e g a r d , c e r t a i n a s p e c t s o f t h e
financial
systems
of
ASEAN
countries must be
considered.
One
is
the
substantial
p r e s e n c e o f f o r e i g n b a n k s in A S E A N c o u n t r i e s in
the
form
of
branches, joint ventures, agencies
and
representative
offices.
This
serves as a testimony that
they
recognize
the
importance
of
the
commercial
presence
of
foreign
financial
institutions
in
various
f o r m s for t h e
delivery
of
financial
services.
H o w e v e r , g r a n t i n g m a r k e t a c c e s s a u t o m a t i c a l l y to
all
signatories
at
this
time
may not
be
advantageous
to
ASEAN
c o u n t r i e s s i n c e , g i v e n the s u b s t a n t i a l p r e s e n c e of f o r e i g n
banks
in
t h e s e c o u n t r i e s , i t c o u l d e a s i l y l e a d to a s i t u a t i o n
wherein
foreign
banks would dominate their financial systems.
A
quota
s y s t e m w h e r e i n A S E A N c o u n t r i e s d e t e r m i n e the n u m b e r of a d d i t i o n a l
f o r e i g n b a n k s t h a t w o u l d b e p e r m i t t e d to h a v e c o m m e r c i a l p r e s e n c e
in
their m a r k e t s may be n e c e s s a r y .
This may be applied
to
all
f o r m s o f c o m m e r c i a l p r e s e n c e o f f o r e i g n b a n k s , e x c e p t in t h e c a s e
of
joint ventures, provided that nationals retain
control
over
tne
financial institations.
The q u o t a s y s t e m should be
applied
in a n o n d i s c r i m i n a t o r y m a n n e r .
A n o t h e r a s p e c t is t n e t r e n d t o w a r d s u n i v e r s a l b a n k i n g or t n e
blurring
of
distinctions
among different
types
of
financial
54
institutions.
it
should
be noted
that
ASEAN
countries
are
gradually
moving,
though
at
different
speeds,
toward
this
direction.
T h u s , in t h e l o n g - r u n , t h e u s e of m a r k e t
access
to
develop
or i m p r o v e t h e e f f i c i e n c y of p a r t i c u l a r s u b - m a r k e t s
may
not
be relevant a n y m o r e .
In t h e s h o r t - r u n , h o w e v e r , t n e u s e
of
m a r k e t a c c e s s f o r s u c h p u r p o s e s is s t i l l r e l e v a n t .
O n e r e a s o n is
that
regulations that distinguish different types
of
financial
institutions
still
exist.
A n o t h e r r e a s o n is
that
some
subm a r k e t s of t h e A S E A N f i n a n c i a l s y s t e m s a r e n o t y e t w e l l d e v e l o p e d
and
that there are no o p e r a t i v e p r u d e n t i a l r e g u l a t i o n s
covering
those
markets.
T h u s , universal market access at this
stage
of
the
development
of
the
ASEAN financial
systems
may
not
be
granted.
D.
National
Treatment
The
Montreal
document
state
that:
"When . accorded
in
conformity with other
p r o v i s i o n s of t h e m u l t i l a t e r a l
framework,
i t is u n d e r s t o o d t h a t n a t i o n a l t r e a t m e n t m e a n s t h a t t h e
services
exports
and/or
e x p o r t e r s of a n y s i g n a t o r y a r e a c c o r d e d
in
the
m a r k e t of a n y o t h e r s i g n a t o r y , in r e s p e c t o f a l l l a w s r e g u l a t i o n s
and a d m i n i s t r a t i v e p r a c t i c e s , t r e a t m e n t "no less f a v o u r a b l e ' than
t h a t a c c o r d e d d o m e s t i c s e r v i c e s or s e r v i c e s p r o v i d e r s in t h e s a m e
market."
T h i s h a s s u b s t a n t i a l i m p a c t on the c u r r e n t
policy
of
ASEAN
c o u n t r i e s on b r a n c h e s of f o r e i g n b a n k s , b u t less on
joint
v e n t u r e s and o t h e r f o r m s of c o m m e r c i a l p r e s e n c e of f o r e i g n b a n k s .
T h e t y p i c a l f o r m s of d i s c r i m i n a t i o n e x e r c i s e d b y A S E A N
countries
against
foreign
banks
include,
among
others:
ban
on
the
e s t a b l i s h m e n t of b r a n c h e s ; l i m i t o n t h e r a n g e o f b a n k i n g s e r v i c e s
t h e y c a n o f f e r , s u c h a s t r u s t _ b u s i n e s s ; n o a c c e s s to
refinancing
facilities;
and prohibition against purchasing local
properties
for b u s i n e s s p u r p o s e s . 1 9 / O f c o u r s e , t h e d e g r e e o f
restrictiveness
varies
across ASEAN countries.
Given the
situation
that
most
areas
o u t s i d e the c a p i t a l c i t i e s of
ASEAN
countries
are
still
underbanked,
the
changing pattern
of
the
business
of
branches
of f o r e i g n b a n k s , and t h e e x p o r t - o r i e n t e d n e s s of
ASEAN
c o u n t r i e s , t h e r e s e e m s to b e a g o o d r e a s o n f o r i n c l u d i n g
foreign
b a n k s in t h e b r a n c h i n g d e r e g u l a t i o n c u r r e n t l y b e i n g u n d e r t a k e n b y
ASEAL>I
countries.
A s r e g a r d s t h e r a n g e of s e r v i c e s t h a t
may
be
offered
by
b r a n c h e s . of f o r e i g n b a n k s , t h i s
may
be
gradually
l i b e r a l i z e d in s t e p w i t h t h e m o v e t o w a r d s u n i v e r s a l b a n k i n g .
It m i g h t be a p p r o p r i a t e at this p o i n t to c o m m e n t on
the
proposals
of the EC,, and US on m a r k e t a c c e s s and
national
treatment
s i n c e both p r o p o s a l s seem to very c l o s e l y link
market
access to n a t i o n a l t r e a t m e n t (Cornford 1 9 9 0 ) . C o r n f o r d ' s view of
distinguishing
the issues under m a r k e t a c c e s s from t h o s e
under
national
t r e a t m e n t should be s u b s c r i b e d by ASEAN c o u n t r i e s .
As
These
are
mentioned
in N a y a e t
al.
(1989)
i n d i c a t e d in t h e d i s c u s s i o n in t h e p r e v i o u s s e c t i o n s .
and
also
55
regards
m a r k e t a c c e s s , the US p r o p o s a l w h i c h also r e f l e c t s
that
of
the
EC p r o p o s a l s t a t e s that: "Each p a r t y
(a)
shall
permit
financial
service
p r o v i d e r s of a n o t h e r P a r t y
to
establish
or
expand
an e n t e r p r i s e for the p r o v i s i o n of a
financial
service,
and
(b)
shall
permit such
enterprises
to
provide
financial
s e r v i c e s a n d to c o n d u c t a c t i v i t i e s a s s o c i a t e d w i t h t h e
provision
of
financial
services."
T h i s is g o i n g f a r
beyond
what
ASEAN
countries
can possibly offer.
As regards (a), ASEAN
countries
will
be
o b l i g e d to o p e n t h e i r m a r k e t s t o . a l l
signatories.
As
already
mentioned above, foreign banks can easily overwhelm
the
market
since
t h e r e is a l r e a d y a s u b s t a n t i a l n u m b e r
of
foreign
banks
currently
o p e r a t i n g in v a r i o u s f o r m s in
ASEAN
financial
markets.
I t m a y w e l l b e f o r A S E A N c o u n t r i e s t o r e s o r t to a q u o t a
system
if
they
think
that additional
foreign
banks
can
be
accommodated
by the financial s y s t e m . What may be
conceded
by
ASEAN
countries
is t h e r e l a x a t i o n o f
the
prohibition
against
foreign
b a n k s to e x p a n d t h e i r b u s i n e s s t h r o u g h b r a n c h i n g
within
each
A S E A N c o u n t r y ' s t e r r i t o r y for r e a s o n s a l r e a d y c i t e d
above.
As
regards
part
(b) , it
obliges
ASEAN
countries
to
grant
u n i v e r s a l l i c e n s e to f o r e i g n s e r v i c e p r o v i d e r s w h i l e s u c h l i c e n s e
is
s e l e c t i v e l y g i v e n to d o m e s t i c f i n a n c i a l
institutions.
Even
universal
b a n k s in A S E A N c o u n t r i e s a r e n o t p e r m i t t e d to
provide
a l l t h e f i n a n c i a l s e r v i c e s m e n t i o n e d in t h e U S a n d E C
proposals.
F o r i n s t a n c e , f i n a n c i a l l e a s i n g is n o t a l l o w e d to e x i s t i n g
ASEAN
universal banks.
A l s o , t h e r e a r e f i n a n c i a l s e r v i c e s m e n t i o n e d in
both
proposals
that
are
not
yet
well-developed
in
ASEAN
countries,
hence
there are virtually
no
regulations
covering
them.
O n c e d e v e l o p e d or f u l l y a p p r e c i a t e d b y
ASEAN
countries,
t h e r e m i g h t b e a n e e d to i n t r o d u c e n e w r e g u l a t i o n s f o r p r u d e n t i a l
reasons
that
might
include restricting
the. benefits
already
e n j o y e d b y f i n a n c i a l s e r v i c e s p r o v i d e r s of o t h e r p a r t i e s .
Under
A r t i c l e 1 , 2 o f t h e EC p r o p o s a l , t h i s c a n n o t b e d o n e a n y m o r e
onca
s i g n a t o r i e s a g r e e to t h e i r p r o p o s a l .
A s r e g a r d s n a t i o n a l t r e a t m e n t , b o t h t h e EC a n d U S
proposals
are
concerned
m o r e a b o u t the r e s u l t s of
having
a
competitive
e n v i r o n m e n t t h a n o n t h e p o l i c y o f p r o m o t i n g c o m p e t i t i o n p e r s e in
the m a r k e t s .
C o r n f o r d is r i g h t in h i s o b s e r v a t i o n t n a t " e q u a l i t y
of c o m p e t i t i v e o p p o r t u n i t y " s e e m s an u n t r i e d but p o t e n t i a l l y m o r e
intrusive obligation than like treatment as regards taxation
and
regulation"
(p.4).
New entrants may be
in
a
disadvantageous
position
c o m p a r e d w i t h t h o s e t h a t h a v e b e e n in t h e m a r k e t for
a
long t i m e , and s o m e of them m a y not s u r v i v e under an
environment
of stiff c o m p e t i t i o n .
This s i t u a t i o n m a y be interpreted as
not
promoting
"equality
of
competitive
opportunity"
since
the
results
s a e m to b e u n f a v o r a b l e to c e r t a i n p a r t i e s , a l t h o u g h
thfe
policy environment promotes competition.
Still, another
example
wherein
the r e s u l t s of h a v i n g a c o m p e t i t i v e e n v i r o n m e n t
can
be
d i s t i n g u i s h e d from the p o l i c y of p r o m o t i n g c o m p e t i t i o n per se
in
the
markets
could be c i t e d . As already mentioned
above,
ASEAN
countries,
except
Singapore,
still
maintain
loan
portfolio
allocation
policy
because they expect their banking
system
to
perform developmental functions aside from commercial
functions.
56
Thus,
they
r e q u i r e b a n k s to l e n d to p r i o r i t y s e c t o r s ,
such
as
agriculture and small and m e d i u m industries.
E v e n if s u c h p o l i c y
is
applied
e q u a l l y t o a l l b a n k s in t h e i r
territories,
foreign
banks
may
b e p l a c e d in a d i s a d v a n t a g e o u s
position
because
of
their u n f a m i l i a r i t y w i t h the sectors and p r o b a b l y , the relatively
n i g h e r t r a n s a c t i o n c o s t t h e y incur for g r a n t i n g s m a l l l o a n s
when
their o p e r a t i o n s a r e d e s i g n e d for the w h o l e s a l e m a r k e t .
Again,
this
could
be
interpreted
as
not
promoting
"equality
of
competitive
opportunity."
To
deal with
this
issue,
the
US
p r o p o s a l r e c o m m e n d s the p r o v i s i o n t h a t "No p a r t y s h a l l
establish
or
maintain any measure that requires that financial service
be
provided
by
f i n a n c i a l s e r v i c e p r o v i d e r s of t h a t
Party"
(p.3).
While
m a n y a n a l y s t s w o u l d l i k e to s e e t h i s b e i n g d o n e , it
might
take
ASEAN
countries
some
time
to
dismantle
their
credit
allocation
p o l i c y given the c i r c u m s t a n c e s under which they
were
introduced and m a i n t a i n e d .
E.
Most-Favored-Nation/Nondiscrimjnation
Under
this
concept,
all
signatories
to
the
sectoral
annotation
on banking s e r v i c e s w i l l g u a r a n t e e
that
concessions
m a d e b y o n e p a r t y w o u l d b e e q u a l l y a c c o r d e d to a l l .
This concept
in
its
purest
form
m a y lead to
unlimited
entry
by
foreign
f i n a n c i a l s e r v i c e s p r o v i d e r s into the ASEAN c o u n t r i e s '
financial
markets.
T h i s is m o r e p r o b l e m a t i c to t h o s e c o u n t r i e s t h a t d o n o t
have
yet
well developed prudential
regulations
and
efficient
supervisory
institution.
M o r e s p e c i f i c a l l y , as regards
opening
the
financial
markets,
ASEAN countries may
suggest
a
phased
l i b e r a l i z a t i o n c o n s i s t e n t w i t h the level of f i n a n c i a l d e v e l o p m e n t
of e a c h c o u n t r y .
T h u s , the speed of l i b e r a l i z a t i o n
i n a l l or in
some sub-sectors
of t h e f i n a n c i a l s y s t e m m a y be d i f f e r e n t
among
parties
—
f a s t e r for c o u n t r i e s w i t h m o r e
developed
financial
systems
and slower for c o u n t r i e s w i t h less
developed
financial
systems.
A S E A N c o u n t r i e s s h o u l d s t r e s s t h i s so t h a t t h e y w i l l b e
accorded
greater
flexibility
in
opening
up
their
financial
markets.
The quota system mentioned earlier should be
resorted
to.
Furthermore,
the
q u o t a s y s t e m to b e
used
in
allocating
a d d i t i o n a l s l o t s for f o r e i g n f i n a n c i a l s e r v i c e s p r o v i d e r s and the
rules
for
i m p l e m e n t i n g it s h o u l d a l s o b e a g r e e d
upon
in
this
sectoral
annotation.
A t t h i s p o i n t , it m i g h t b e
important
for
ASEAN
countries
to
stress
on
the
need
to
spread
the
r e p r e s e n t a t i o n of t h e b a n k s a m o n g g e o g r a p h i c a l a r e a s for p u r p o s e s
of p r o m o t i n g and d i v e r s i f y i n g t r a d e and i n v e s t m e n t .
F.
Increasing
Participation
of D e v e l o p i n g
Countries
As
already
mentioned
above,
ASEAN
banking
systems
are
a l r e a d y p a r t i c i p a t i n g in i n t e r n a t i o n a l b a n k i n g , a l t h o u g h s t i l l in
a
small way.
T h i s c a n f u r t h e r b e i n c r e a s e d if A S E A N : c o u n t r i e s
successfully
hurdle
at
least
two
obstacles.
One
is
the
strengthening
of
t h e i r f i n a n c i a l s y s t e m s , in g e n e r a l ,
and
the
i n d i v i d u a l f i n a n c i a l i n s t i t u t i o n s , in p a r t i c u l a r .
This h i n g e s on
a
number
of f a c t o r s , such as i m p r o v e m e n t
in
their
prudential
57
r e g u l a t i o n s , a v a i l a b i l i t y of s k i l l e d m a n p o w e r , a d e q u a t e
computer
and
communication facilities, etc.
Joint ventures with
foreign
banks
and
the
requirement
to
hire
local
professionals
in
i m p o r t a n t p o s i t i o n s of f o r e i g n b a n k s c o u l d be o n e of the w a y s
to
deal
with
the
p r o b l e m of lack of b a n k i n g
expertise
in
ASEAN
countries.
More
competitive
banks
at
home
managed
by
professional
bankers
can
easily integrate
themselves
in
the
international
banking
community.
This should
be
taken
into
c o n s i d e r a t i o n in t h e l i b e r a l i z a t i o n p r o c e s s b e c a u s e , p r e m a t u r e
or
i n d i s c r i m i n a t e l i b e r a l i z a t i o n c o u l d l e a d to g r e a t e r c o n c e n t r a t i o n
of
the
A S E A N f i n a n c i a l m a r k e t s in f o r e i g n
hands.
Under
this
situation,
there
w i l l b e n o A S E A N , b a n k to s p e a k of
that
could
p a r t i c i p a t e in i n t e r n a t i o n a l b a n k i n g .
T h e s e c o n d o b s t a c l e t h a t A S E A N c o u n t r i e s m u s t h u r d l e is t h a t
of
increasing
their trade and i n v e s t m e n t .
ASEAN
banks
could
follow
t h e b u s i n e s s of t h e i r n a t i o n a l s in o t h e r c o u n t r i e s .
The
v o l u m e of b u s i n e s s s h o u l d r e a c h a c e r t a i n l e v e l t h a t c a n
sustain
the
initial
o p e r a t i o n s o f A S E A N b a n k s in t h o s e
countries.
As
banking
b u s i n e s s e x p a n d s , b r a n c h e s / s u b s i d i a r i e s of
ASEAN
banks
c a n p e r h a p s s t a r t e x t e n d i n g b a n k i n g s e r v i c e s to n a t i o n a l s of h o s t
countries.
This
is
a long shot for A S E A N
countries,
and
it
greatly
depends
on h o w t h e i r e x p o r t of g o o d s
and
capital
are
t r e a t e d in h o s t c o u n t r i e s .
G.
Regulatory
Situation
The
Montreal
document
is
very
much
relevant
to
ASEAN
countries
in t h i s a s p e c t .
It r e c o g n i z e s t h e r i g h t o f
countries
to i n t r o d u c e n e w r e g u l a t i o n s .
R e g u l a t i o n s a r e n e e d e d e v e n in t h e
process
o f . l i b e r a l i z a t i o n to f i n e t u n e t h e f i n a n c i a l
system
so
that the e f f e c t i v e n e s s of m o n e t a r y p o l i c i e s s h a l l be
maintained.
As
already
n o t e d a b o v e , s o m e of the
banking
institutions
and
b a n k i n g a c t i v i t i e s m a y b e n e w to t h e A S E A N b a n k i n g s y s t e m s , h e n c e
prudential
r e g u l a t i o n s a r e n e e d e d to m a i n t a i n t h e
integrity
of
the f i n a n c i a l s y s t e m as w e l l as p r o t e c t d e p o s i t o r s and i n v e s t o r s .
Some
ASEAN
c o u n t r i e s a r e in t h e p r o c e s s o f
reorganizing
their
regulatory bodies.
In t h e P h i l i p p i n e s , f o r e x a m p l e , t h e r e a r e
a
number
o f b i l l s t h a t s e e k to r e f o r m t h e k e y
regulatory
bodies,
such as the C e n t r a l B a n k , the S e c u r i t i e s and Exchange
Commission
to
make
it
the
l e a d a g e n c y in t h e
capital
market,
and
the
Philippine Deposit Insurance Corporation.
Thailand and Indonesia
a r e n o t f a r b e h i n d in t h i s p r o c e s s .
T h e E C a n d t h e US s e e m t o h a v e d i f f e r e n t v i e w s in t h i s a r e a .
The
EC
proposal allows new regulations that may
be
introduced
a f t e r t h e a g r e e m e n t o n l y t o " p r e v e n t or s o l v e a s e r i o u s
economic
crisis
or f i n a n c i a l d i s t u r b a n c e " ( p . 8 ) .
As
already
mentioned
a b o v e , ASEAN countries may introduce new regulations
especially
in
n e w l y d e v e l o p e d f i n a n c i a l s u b - m a r k e t s for p r u d e n t i a l
reasons
even
if
there
is
no i m m i n e n t c r i s i s .
In
contrast,
the
US
proposal
accommodates
new regulations after the
agreement
for
prudential
reasons,
b u t it a d d s t h a t " s u c h
actions
shall
not
58
prevent
the
establishment
by
financial
service
provider
of
another
Party
of an e n t e r p r i s e for t h e p r o v i s i o n
of
financial
services
on c o n d i t i o n s w h i c h accord n a t i o n a l
treatment"
(p.9).
It
should be pointed out that the new regulations could
include
limiting
t h e n u m b e r o f p l a y e r s in n e w l y e s t a b l i s h e d
sub-markets
in o r d e r t o c o n t r o l t h e l e v e l o f c o m p e t i t i o n in t h o s e
particular
sub-markets.
H.
Safeguards and
Exceptions
The
f r a m e w o r k a g r e e m e n t s h o u l d i n c l u d e s a f e g u a r d s to
allow
A S E A N c o u n t r i e s t o o p e r a t e w i t h s o m e f l e x i b i l i t y . In t h e e v e n t o f
severe
balance-of-payments
crisis,
ASEAN
countries
may
temporarily
suspend the liberalization process
committed
under
the
framework
a g r e e m e n t while they sort out the causes
of
the
problem.
T h e y m a y r e s o r t t o d i s c r i m i n a t o r y m e a s u r e s if t h e r e
is
sufficient
e v i d e n c e to s h o w t h a t the i m b a l a n c e s w e t e
caused
by
excessive
a c t i v i t i e s of foreign f i n a n c i a l s e r v i c e s p r o v i d e r s
in
host countries.
T h i s is in s h a r p c o n t r a s t to t h e U S ( A r t i c l e
8)
and EC ( A r t i c l e 15) p r o p o s a l s .
Safeguards are also necessary
to
prevent
foreign
financial services
suppliers
from
practicing
p r e d a t o r y p r i c i n g in h o s t c o u n t r i e s .
VI.
I N C R E A S I N G C O M P E T I T I V E N E S S O F B A N K S IN A S E A N C O U N T R I E S
AND INCREASING THEIR SHARE OF INTERNATIONAL TRADE
IN B A N K I N G S E R V I C E S
This
section
examines some measures that can
improve
competitiveness
of
ASEAN
banks and
increase
their
share
i n t e r n a t i o n a l t r a d e in b a n k i n g ' s e r v i c e s
A.
Improving
the
in
Competitiveness
ASEAN
countries
have already identified some
barriers
to
competition
among banks operating within their own
territories.
Indeed,
t h e r e a r e s e r i o u s e f f o r t s to d i s m a n t l e
these
barriers.
One
o f t h e s e b a r r i e r s is t h e p r e s e n c e o f
several
large
stateo w n e d f i n a n c i a l i n s t i t u t i o n s in t h e A S E A N f i n a n c i a l m a r k e t s .
The
special
privileges they enjoy confer them undue
advantage
over
private
banks.
A l t h o u g h o r i g i n a l l y d e s i g n e d to
be
development
banks,
state-owned banks have g r a d u a l l y moved into
areas
where
private
banks
are
operating.
T h e r e is
now
a move
towards
privatizing
most
of t h e s e s t a t e - o w n e d b a n k s w h i l e
the
special
privileges
g i v e n to t h e r e m a i n i n g o n e s h a v e b e e n
slowly
phased
out.
This process could perhaps be a c c e l e r a t e d .
The
s e l e c t i v e c r e d i t c o n t r o l p o l i c y of A S E A N c o u n t r i e s
has
undermined
t h e c o m p e t i t i v e n e s s of A S E A N b a n k s .
It h a s
weakened
t h e i n i t i a t i v e o f b a n k m a n a g e r s to m a n a g e l o a n p o r t f o l i o s i n c e
a
big
c h u n k o f i t is e a r m a r k e d t o s p e c i f i c p r i o r i t y s e c t o r s .
The
d i s m a n t l i n g of t h i s p o l i c y , w h i c h w a s a l r e a d y b e g u n b y s o m e A S E A N
59
countries,
will hopefully develop more professional
the r e g i o n .
bankers
in
In
the p a s t , policies that encouraged
specialization
have
fragmented
the f i n a n c i a l m a r k e t s of A S E A N c o u n t r i e s and
reduced
c o m p e t i t i o n a m o n g d i f f e r e n t t y p e s of f i n a n c i a l i n s t i t u t i o n s .
The
recent
trend towards universal banking will
hopefully
increase
competition
among
different types
of
financial
institutions.
Fee-based
activities
have been encouraged.
This
is
important
since
t h e r e is a g r o w i n g m a r k e t f o r f e e - b a s e d s e r v i c e s f o r
both
domestic and foreign clients.
E x p e r i e n c e o f A S E A N b a n k s in
this
area
will
be
extremely
useful
when
they
compete
in
the
international financial markets.
Prudential
regulations
in A S E A N c o u n t r i e s h a v e
also
been
revised
to
r e d u c e i n s t a b i l i t y in t h e i r f i n a n c i a l
systems
that
might
result
from stiffer c o m p e t i t i o n .
For
instance,
capital
requirements
for p r a c t i c a l l y a l l t y p e s of b a n k
categories
have
been
revised upwards.
T h i s w i l l e n c o u r a g e s m a l l b a n k s to
merge
among
t h e m s e l v e s or a c c e p t f o r e i g n e q u i t y p a r t i c i p a t i o n .
Also,
r u l e s on l o a n s to b a n k d i r e c t o r s , o f f i c e r s and r e l a t e d
interests
h a v e b e e n t i g h t e n e d to d i s c o u r a g e t h e m f r o m c o m m i t t i n g f r a u d .
A
strong
bank
that has a good track record at home will be
in
a
b e t t e r p o s i t i o n to e n t e r t h e i n t e r n a t i o n a l b a n k i n g c o m m u n i t y .
Finally,
a p o l i c y of a l l o w i n g b r a n c h e s of f o r e i g n b a n k s
to
expand their operations within the territories through
branching
and
to d i v e r s i f y their b a n k i n g s e r v i c e s can further e n h a n c e
the
competitiveness
of
ASEAN
banks.
B r a n c h e s of
foreign
banks
operating
in
ASEAN
countries have served
as
an
impetus
for
competition.
Moreover,
they
are
key
sources
of
banking
innovations.
T h i s is i m p o r t a n t t o A S E A N c o u n t r i e s
since
there
are
no
p a t e n t s to i n n o v a t i v e b a n k i n g i n s t r u m e n t s
and
services
developed by foreign banks.
B.
Increasing
in B a n k i n g
the S h a r e of
Services
International
Trade
One
of
the ways by which ASEAN banks
can
increase
their
share
of
international
t r a d e in b a n k i n g
services
is
through
integration
of
tneir
financial
markets.
This,
of
course,
requires
h a r m o n i z a t i o n of their banking p o l i c i e s .
It m i g h t
be
w o r t h w h i l e to c o n s i d e r t h i s a t t h i s m o m e n t s i n c e A S E A N
countries
are
in
the
p r o c e s s of l i b e r a l i z i n g
their
financial
markets.
Joint
venture
banks
could be
easily
encouraged
among
ASEAN
countries
if
t h e i r b a n k i n g r e g u l a t i o n s (and
tax
systems)
are
harmonized.
There
are
already
some initiatives being
done
by
ASEAN
countries
to e x p a n d i n t r a - A S E A N b a n k i n g a c t i v i t i e s that- n e e d
to
be
encouraged
further.
O n e is t h e a g r e e m e n t
on
using
ASEAN
currencies
in i n t r a - A S E A N t r a d e .
It w i l l p r o m o t e the
expansion
of
trade particularly with ASEAN countries which are
confronted
60
with
c h r o n i c b a l a n c e - o f - p a y m e n t s d e f i c i t s or w h o s e
traders
are
covered by tight foreign exchange regulations.
More importantly,
it w i l l e x p a n d i n t r a - A S E A N b a n k i n g a c t i v i t y a r i s i n g f r o m
greater
intra-ASEAN financial flows.
Another
initiative, wnich unfortunately has not
yet
taken
off
the
ground,
is
the
development
of
the
ASEAN
bankers'
acceptance (ABA).
I t is s u p p o s e d to c a p t u r e t h e A S E A N m a r k e t s o n
acceptances
which
have been largely serviced
by
American
and
British banks.
T h e A B A s w o u l d b e e l i g i b l e o n l y to c o v e r
imports
of
goods
from
other ASEAN countries.
With
harmonization
of
banking
regulations
and
tax system as well
as
relaxation
of
foreign
exchange regulations among ASEAN countries, prpgress
in
t h e d e v e l o p m e n t of A B A s c o u l d t a k e p l a c e .
It m i g h t b e f e a s i b l e f o r A S E A N b a n k s to c r e a t e a n
interbank
market
among themselves.
I t w a s p o i n t e d o u t in S e c t i o n II
that
some
A S E A N b a n k s a r e n e t l e n d e r s in t h e i n t e r n a t i o n a l
interbank
m a r k e t , while others are net b o r r o w e r s .
T h u s , the potential
for
developing this market already exists.
Beyond
the
A S E A N r e g i o n , it m i g h t b e n e c e s s a r y
for
ASEAN
banks
to
p a r t i c i p a t e in s o m e o f t h e a c t i v i t i e s
of
established
international
banks.
T h e c o u n t r y f u n d s tfhat h a v e b e e n
recently
created
for
ASEAN
countries
could
have
been
one
of
sucn
opportunities.
All
of
these
funds
are
being
managed
by
i n t e r n a t i o n a l b a n k s with p r a c t i c a l l y no p a r t i c i p a t i o n from
ASEAN
b a n k s w h e n in f a c t s o m e o f t h e a c t i v i t i e s , s u c h a s f o r m u l a t i o n o f
p r o p o s a l s for c l i e n t f i r m s , c o u l d h a v e b e e n r e a d i l y d o n e by ASEAN
banks.
Finally,
the
framework
agreement
on
trade
in
banking
services
w i l l h o p e f u l l y g i v e m o r e o p p o r t u n i t i e s for A S E A N
banks
to
increase
their
physical
presence
in
other
countries,
especially those that have been their important trading p a r t n e r s .
There
are
strong
indications
that
a
multilateral
framework
agreement
w i l l be m o r e b e n e f i c i a l to A S E A N c o u n t r i e s as w e l l
as
other developing countries than a bilateral agreement.
61
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TRADE IN BANKING SERVICES IN ASEAN COUNTRIES

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