Asian Banks – Leading the Way to Recovery
by Karen Fawcett, Group Head, Transaction Banking, Standard Chartered Bank
Operating in Asia for over 150 years, Standard Chartered Bank has witnessed first-hand many economic cycles in the region. As Asia emerges from the latest financial downturn, Karen Fawcett, Group Head of Transaction Banking at Standard Chartered, highlights the rewards the region’s banks are reaping from lessons learned during previous financial crises and suggests how international banks can compete in this new environment.
At the Nikkin conference in Tokyo late last year, I gave a speech to an audience of Japanese bankers on the state of Asian banking, focusing on the remarkable turnaround experienced by the sector across the region. Considering their geographical proximity, Japanese banks have a relatively small presence in Asia – something the bankers stressed that they were trying to rectify. Yet, when answering their questions afterwards, it was reinforced that while entering the Asian market offers huge opportunities, it also poses great challenges – especially given the resilience shown by the region’s local banks during the economic downturn. Indeed, we can go as far as to say that the Asian banking sector has had a very successful crisis.
We can go as far as to say that the Asian banking sector has had a very successful crisis.
First of all, let us take a look at what did not happen. There were no major international payments problems in any Asian country. FX markets were volatile but remained open, with no worries about government-imposed constraints or the threat of collapse. And credit, while restricted, did not disappear from the supply chain.
Many predicted that Asia would topple as the contagion spread from the West. However, far from true, rather than behaving like dominoes, this crisis has shown Asia’s emerging market economies to more closely resemble dynamos – able to generate self-sustained, domestically-driven demand. Given this, Asia is now seen as the growth centre of the world.
Asia’s financial lessons
When asked why Asia has fared so well, we feel compelled to provide a lesson in history. A financial crisis of this magnitude is not completely new to this region, of course, and the Asian crisis of 1997–98 stands out as a watershed event. At that time, Asia had experienced two decades of very strong economic growth which had fuelled lax lending and careless investment practices. When foreign investments (which until then were huge) slowed and governments became unable to support their currencies, the region began to witness a major meltdown.
Asia’s success in riding out the storm this time is no accident. It is clear that Asia learned a number of crucial lessons from the depth and severity of the 1990s crisis – and they determined never to go that way again. Since then, Asia has been preparing itself to withstand future crises. So while other regions were caught woefully unprepared, Asia was leaner, meaner, and more ready for the shocks.
Foreign exchange reserves, for instance, have surged across the region since 1997 and there is a far greater emphasis on fiscal discipline, as well as on the credibility of monetary policy. Most importantly, the previous crisis reduced the level of indebtedness built up within Asian economies. This proved key to ensuring that the debt-induced crisis in the west did not spread eastwards.