Opportunity knocks for Asian banks: Tony Tan

Source: Business Times Published August 7, 2009

GIC deputy chairman says worst is over but challenges remain - along with chances By TEH SHI NING (SINGAPORE) The worst is over for Asia and there are unique opportunities ahead, says Tony Tan, deputy chairman of the Government of Singapore Investment Corporation (GIC). These include the chance for Asian banks and capital markets to step in to meet the massive capital demand needed to finance Asian growth, as their Western counterparts retreat. But, to quickly develop regional capital markets will demand more cooperation than ever before between the regulatory and development authorities of financial sectors in the region, said Dr Tan, who is also GIC's executive director.

He was speaking at the Economic Society of Singapore's annual dinner last night. In his last speech in this vein, delivered in April last year, Dr Tan warned that the global economy could sink into its worst recession in 30 years - a warning many had then dismissed as too gloomy but which now rings with prescience.

Last night, it was with a cautious optimism that Dr Tan outlined the implications and opportunities for Asia as the worst of the global financial crisis impact fades, while pointing out the lingering risks.

'Asia experienced a dramatic slowdown, but Asia's fundamentals are strong,' he said.

'Now that there are signs of stabilisation in the global economy, Asian economic growth will recover.'

But he had a different overall prognosis for the US and other major developed economies. While they are expected to register positive growth later this year, Dr Tan says that sustained growth in 2010 and beyond remains uncertain, given deleveraging headwinds.

It is also this uncertainty which Dr Tan sees as the 'greatest risk' to Asia's outlook - 'a global economic and financial environment that does not stabilise and recover by 2010'. Other risks, Dr Tan pointed out include weak demand and deflation risk from the US, as well as the threat of a dramatic rise in protectionism if there is no recovery next year.

The major challenge ahead, he said, is the uncertainty raised by the apparent failure of Western or American models, and the 'serious unanswered questions on the role of markets and the state, including the appropriate level of regulation and state intervention'.

However, it is in such an environment that 'Asian banks and capital markets will face both a tremendous challenge and opportunity to intermediate huge regional savings to meet massive capital demand from Asian growth', Dr Tan said.

As the Western banking system remains 'hampered by capital constraints and re-regulation', Dr Tan said, this 'leaves the playing field unusually open for Asian financial institutions and markets, particularly for the next 3-5 years'.

Asian banks entered the crisis healthier than their global counterparts, relatively unleveraged with debt.

But to take advantage of this, regional authorities need to coordinate financial regulatory architecture and practice, and build up regional capital markets, while avoiding over-regulation's dangers, Dr Tan said.

Also, as 'low global interest rates combined with ample liquidity could give rise to volatile capital flows and asset bubbles across Asia', managing this will be a 'major task' for policymakers, he said.

Dr Tan also highlighted the reorientation of Asia's economic growth model as a key implication of the global crisis on this region. Particularly for the more populous countries, economic growth will shift from being export-driven to a more balanced model of growth, which is as dependent on domestic consumption as on export growth.

He sees this as helpful, because domestic demand would help mitigate weak demand from the developed world for the next few years, and also because some of the domestic investment involved in such rebalancing would also boost productivity and economies' productive capacity.

'Rebalancing growth will not be an easy process,' Dr Tan said, noting how the Chinese authorities are already 'walking a fine line between restructuring the economy for longer- term sustainability and attempts to mitigate the short-term pain'.

He said: 'Understandably, much of the focus has been on the negative aspects of this adjustment, but I am optimistic that Asia will come out of this crisis in a stronger position.'

a blog on: Financial Planning Advice - Christopher Pua