Strengthening Asia Financial Markets Through Regional Collaboration - Speech by Mr Ng Nam Sin, Assistant Managing Director, Development, at the OCBC Global Treasury Forum
Dr Halim Alamsyah, Deputy Governor, Bank Indonesia
Dr Roong Poshyananda Mallikamas, Director of Monetary Policy Group, Bank of Thailand
Mr Samuel Tsien, Group Chief Executive Officer, OCBC Bank
Ladies & Gentlemen
1 A very good morning to everyone. It is my pleasure to address you today. I am delighted to see this strong turnout.
The global financial crisis is still with us
2 The theme for this year’s forum is “Winds of Change Affecting Asia”. This is indeed fitting given the turbulence we have experienced in recent years. In the near term, there is continued uncertainty over Europe’s sovereign debt crisis and the US’ fiscal deficit issues. These developments will have a significant impact on the rest of the world, including Asia. Despite our deepening domestic markets, Asia is not insulated from the rest of the world. Outcomes in the developed markets have a profound global impact through trade, commodities prices, and in the valuation of currencies and financial instruments. Through these channels, global winds of change can shake Asia from its long-term path of growth and development.
3 Global regulatory reform is also reshaping our financial industry. To meet new standards, financial institutions are building higher capital and liquidity buffers, and also re-orienting and re-shaping their business models. Many institutions are choosing to focus on core strengths and key markets, others are under intense pressure to consolidate and streamline.
Developing Asia’s financial markets
4 It is therefore critical for countries in Asia to further develop and strengthen their financial sectors. As global banks consolidate their balance sheets, there is scope for Asia to develop more effective ways to mobilise indigenous capital to provide funding for growth opportunities within the region. In particular, Asia’s capital markets need to become better developed, in order to assume a greater role in financial intermediation.
5 Notwithstanding the forces reshaping our landscape, the core qualities that underpin Asia’s prospects remain unchanged. Asia’s banks, households and governments remain relatively well-capitalised; the region’s demographics are relatively more favourable, supporting both production and consumption. Although these fundamental strengths will not shield Asia, they will allow the region to better withstand the global winds of change.
6 Asia’s fundamental strengths translate into growth opportunities and thus, an increased need for financial services: corporate activities will boost demand for a wide range of financial products and services, including corporate banking, treasury services, foreign exchange and capital market activities. Rapid urban development has created a demand for infrastructure finance, while rising production and consumption support the need for trade finance. As Asians accumulate savings and wealth, demand for insurance and asset management will also rise. In this regard, deeper financial markets and increased provision of financial services will be crucial for supporting the region’s growth and development.
Strenthening regional collaboration, integrating markets
7 In this regard, the priority for Asian financial markets is three-fold. First- to broaden and deepen; second, to connect; and third, to safeguard and foster resilience. These three elements are mutually reinforcing and will underpin a robust financial market that can best support the region’s growth and prosperity.
8 Let me touch on the various initiatives that ASEAN as a region has taken toward achieving these three priorities. First, broadening and deepening our financial markets entails fostering growth in both the demand and supply sides of the market. This means cultivating a wider investor base while encouraging companies to raise capital in ASEAN markets.
9 To this end, a key initiative has been to promote recognition for ASEAN as an asset class, encourage higher regulatory standards and practices, foster mutual recognition regimes, and facilitate flow and access into ASEAN markets through the development of integrated infrastructure. This work is being undertaken by the ASEAN Capital Markets Forum, or ACMF, comprising capital markets regulators from the 10 ASEAN jurisdictions.
10 The ACMF is collaborating with the ASEAN Working Committee for Capital Market Development or WCCMD to support further capital market integration, including an independent study to streamline various initiatives and facilitate the development of a diverse range of regionally-focused market offerings. Work that the WCCMD and the ASEAN+3 Asian Bond Markets Initiative does in promoting the issuance of local currency-denominated bonds is important, as facilitating the development of local currency capital markets serves to alleviate the pressures and volatility caused by large capital flows. Deeper regional capital markets may not only help to buttress financial stability by more effectively absorb and redeploy foreign capital, but also enhances the supply of liquid assets and promotes price transparency.
11 Second, to achieve greater connectivity, there is the ASEAN Trading Link intiative, which aims to provide a single access point for ASEAN products to global investors. Malaysia and Singapore’s stock exchanges have agreed to link up, with Thailand’s likely to join later this year. In time to come, we look forward to the participation of other stock exchanges in the region and the continued development of ASEAN as an investment class.
12. ASEAN has also come together to study payment & settlement linkages. The ASEAN Central Banks’ Working Committee on Payment and Settlement Systems has made recommendations on the development and harmonization of areas such as trade settlement, retail payments system, money remittance and capital market settlement. The harmonisation and integration of these systems will be important in encouraging intra-regional capital flows and mitigating risks arising from financial flows
13 Third, to safeguard and strengthen the resilience of our collective market, the region has developed a safety net mechanism. This is the ASEAN+3 Chiang Mai Initiative Multilateralisation or CMIM. Under this initiative, countries facing balance-of-payments or external liquidity problems may swap its local currency for US dollars from a common US-dollar liquidity pool of USD 120 billion. This regional safety net mechanism is an important complement to both domestic policies and multilateral support from organizations like the IMF, in bolstering the region against global headwinds.
14 The surveillance function underpinning the CMIM is the ASEAN+3 Macroeconomic Research Office, or AMRO, which opened earlier this year in Singapore. AMRO works to identify risks on the horizon, facilitates remedial action for these risks, and informs decision-making of the CMIM.
15 While the benefits of closer integration are clear, we need to be cognizant of potential risks and challenges. For instance, we should manage the opening of markets, while mitigating the effects of large capital flows. More progress will also have to be made in harmonizing rules and standards across the region’s markets. There should also a strong emphasis on raising competencies of financial sector players. In this way, by our cooperation to build a deeper, more integrated and more resilient market, the whole can be greater than the sum of its parts.
16 In closing, I would like to commend and affirm our region’s efforts in mutual support and collaboration to deepen, integrate and safeguard our economies and financial systems. These efforts will be crucial in sustaining the region’s growth, girding us in a shifting and uncertain world, and enabling our region to participate even more fully in our global economy.
17 Thank you for your attention; I wish you all a fruitful conference throughout the day.