asean:free flow of financial services 19 june 2015 wilhelmina c. mañalac managing director,...

ASEAN:Free Flow of Financial Services

19 June 2015

Wilhelmina C. MañalacManaging Director, International Sub-Sector

Bangko Sentral ng Pilipinas

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Outline of Presentation

ASEAN Background What, Who and Why? The Road to ASEAN Economic Community (AEC)

ASEAN Economic Integration Overview of the AEC What, Who, Why, How, When? Impact on the Economy: Benefits and Challenges

ASEAN Financial Integration Focus on Banking, Finance and Capital Markets Integration

Way Forward and Key Messages

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The ASEAN ASEAN Economic Integration Focus on Banking , Finance and Capital Market Integration


“A concert of Southeast Asian nations, outward looking, living in peace, stability and prosperity, bonded together in partnership in dynamic development and in a community of caring societies.”

What is ASEAN?

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ASEAN-5• Indonesia• Malaysia• Philippines• Singapore• Thailand

BCLMV• Brunei

Darussalam• Cambodia• Lao PDR• Myanmar• Vietnam

Who is ASEAN?



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“… in an increasingly interdependent world, the cherished ideals of peace, freedom, social justice and economic well-being are best attained by fostering good understanding, good neighborliness and meaningful cooperation among the countries of the region already bound together by ties of history and culture …”

Bangkok Declaration of 1967, considered ASEAN’s Founding Document

Why ASEAN?



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1977 - ASEAN Preferential Trading Arrangements

1992 - ASEAN Free Trade Area (AFTA)

1997 - ASEAN Vision 2020“transform the ASEAN into a stable, prosperous and highly competitive region with equitable economic development and reduced poverty and socio-economic disputes.”

2003 - ASEAN Community Three Pillars: ASEAN Economic Community, ASEAN Socio- Cultural Community and ASEAN Security Community

2007 - ASEAN Economic Community 2015

The Road to the ASEAN Economic Community

From politics to economics...



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PH Economy AEC Overview Way Forward and Key MessagesThe ASEAN ASEAN Economic Integration Focus on Banking , Finance and Capital Market Integration


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Who will integrate?COUNTRY

TOTAL LAND AREA

(sq km)

TOTAL POPULATION (thousand)

GDP Per Capita Government Language

BRUNEI DARUSSALAM 5,769 400 42,445 Monarchy Malay

CAMBODIA 181,035 14,741 978Parliamentary/

Monarchy Khmer

INDONESIA 1,860,360 244,776 3,588 Presidential Bahasa Indonesia

LAO PDR 236,800 6,514 1,394 Marxist-Leninist Lao

MALAYSIA 330,290 29,337 10,338Federal

Parliamentary Bahasa Malaysia

MYANMAR 676,577 60,976 861 Presidential BurmesePHILIPPINES 300,000 97,691 2,565 Presidential Filipino/English

SINGAPORE 716 5,312 52,069 Parliamentary English/Malay/Mandarin/Tamil

THAILAND 513,120 67,912 5,391Parliamentary/

Monarchy Thai

VIETNAM 330,958 88,773 1,596 Marxist-Leninist VietnameseASEAN 4,435,624 616,614 3,748

(Source: ASEAN Community in Figures 2013)

(Source: ASEAN Community in Figures 2013)



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ASEAN Security

Community

ASEAN Economic

Community

ASEAN Socio-Cultural

Community

A Single Market and Production Base;

A Highly Competitive Economic Region;

A Region of Equitable Economic

Development; and A Region Fully

Integrated into the Global Economy.

ASEAN Community 2015

When to integrate ? What are the objectives?



ASEAN and the imperatives for integration

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*Source: IMF Regional Economic Outlook as of April 2014

Ten member states at varying levels of economic development

Combined income (GDP) of USD2.4 trillion

Combined land area of 4.4 million sq. km

5.3% GDP growth by 2015*

ASEAN embodies unity, collaboration and cooperation: for mutual protection,

greater positive impact and growth

Bigger market of 616 million people

An ASEAN community provides a stronger clout: 10 is better

than 1



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Strategic Schedule: Snapshot

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Regional integration may affect our economy…

- Trade opportunities- Services sector

development- Movement of skilled

professionals- Potential

investments from outside and inside the region

- Greater capital mobility

ChannelsBOP

- Balance-of-payments- Foreign Director

Investments- Production input and

transaction costs- Quality and prices of

goods and services- Foreign exchange - Level of reserves- Contagion risks

Potential Impact



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AEC Implementation Scorecard

ASEAN Member %

Brunei Darussalam 86.0

Cambodia 86.1

Indonesia 84.0

Lao PDR 84.3

Malaysia 85.5

Myanmar 84.3

Philippines 86.1

Singapore 87.3

Thailand 87.7

Vietnam 87.3

Implementation Rate of AEC Scorecard Key Deliverables for 2008-2013

(as of end 2014)

Source: Department of Trade and Industry



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end-goal of financial integration; • Subject to initial conditions and

preconditions; and• Own milestones and timelines

Free flow of services Free flow of capitalFinancial Services

Liberalization`Capital Account

LiberalizationCapital Market Development

Harmonization of Payments and Settlements System

ASEAN Financial Integration

Framework

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AFIF Goals and Impact to Business

Financial Services Liberalization`

Harmonization of Payments and

Settlements System

Capital Market Development

• removal of restrictions on financial services by (2020)

• presence of qualified ASEAN banks in ASEAN5 (2018)

• Deep, liquid and integrated capital market

• Building capacity and infrastructure

Impact on business:

• Linkages of equity exchanges

• Cross-border equity transactions

Harmonization of domestic laws and regulations and

linkage of systems (beyond 2015)

Impact on business:

• Efficient and convenient electronic payments for businesses

Removal or relaxation of restrictions on capital flows

across the region (2015 to 2020)

Impact on business:• Relaxed rules on

investing in other ASEAN countries

Impact business:

• Entry of foreign banks• Market access of PH

banks• Access to new financial

products

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Banking Integration

Outcome

Driven

Reciprocal

Comprehensive

Inclusive and

transparent

Progressive and

based on readiness

QAB

Meets the prudential requirements of the Host

Country

Indigenous ASEAN Bank

Strong and well-managed bank

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With R.A. No. 10641, the rules on foreign bank entry are now further liberalized…

Details RA No. 10641

Mode of Entry and Equity Ownership

Removes specific limits on the number of foreign banks Re-opens the three (3) modes of entry (i.e., branch, investment in existing

domestic bank or new banking subsidiary) Allows up to 100 percent foreign ownership in an existing bank and a new

banking subsidiary

Qualifications for foreign banks

Removes the qualification to be part of the top 150 foreign banks in the world or the top 5 banks in their country of origin as of the date of application

Provides the following requirements for foreign bank entrants: (a) established, (b) reputable, (c) financially sound, (d) widely owned and (e) publicly listed (unless owned and controlled by the government of its country of origin)

Branching Privileges

Allows foreign branches to open up to 5 (instead of 3) sub-branches as may be approved by the MB (instead of locations designated by the MB)

Provides locally incorporated subsidiaries of foreign banks the same branching privileges as domestic banks of the same category

Limit Allows foreign banks to hold up to 40% resources/assets of the entire banking system, instead of 30%

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New Foreign Banks under R.A. No. 10641

Bank Home Country Date of Approval

Sumitomo Mitsui Banking Corp. Japan 20 February 2015

Shinhan Bank Korea 19 March 2015

Cathay United Bank Taiwan 10 April 2015

Industrial Bank of Korea Korea 30 April 2015

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With the new law, this is now how we compare with the neighbors…

Conditions on Foreign Bank Participation in the ASEAN RegionASEAN

MemberAllowed Foreign

Equity Participation

Other Conditions

Indonesia 99% Entry through foreign bank branches is limited to 11 banks. Foreign banks must form a JV with local partners.

Malaysia No hard limits Determination of equity will be subject to prudential criteria and 'best interest of Malaysia' criteria.

Philippines 100% 60% of total banking assets must be held by domestic banks.

Singapore No hard limits The Government will not allow a foreign takeover of its three major local financial institutions.

Thailand 25-49%>49% case to

case

Banks must be locally incorporated and established as a limited public company. Each foreign bank is allowed to establish one branch. Foreign banks may apply for increased foreign participation up to 49% subject to approval of Finance Ministry. A strong case is required for application above 49%.

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Impact of Banking Integration

Benefits

Better availability of specialized financial services and products

Reduction in the cost of financial intermediation

Mobilization of more savings

Market deepening and regional risk sharing

Enhancement of information linkages thru closer cooperation among individual member states

Risk

Increase in volatility of capital inflows into a specific member state

Additional risks attendant to cross- border transactions

Possibility that the domestic banking market will be dominated by foreign banks

Challenges in terms of complexity and management of regional banks’ operations that can strain supervisory infrastructures

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“Right

Size”

Compliance with

regulations, international

standards

Enhancing risk

management

Expansion of operations

Preserving competitive advantageBanking/

Financial Technology

Introducing new products and services

Strategic considerations for banks

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Total assets of Php10.4 trillion, by end of September 2014

Asset quality remains extremely strong with an NPL ratio of only 2.1% (October 2014)

Moody’s rated the PH banking system positive in terms of operating environment; asset quality and capital; funding and liquidity; profitability and efficiency; and systemic support .

1. PH banking system maintains a sound and stable performance:

2. Outlook on PH banking system is positive:

Source: BSP website as of Q2 2014

Role of BSP: Maintaining the Competitiveness of the Banking Sector thru responsive regulation

2005 2006 2007 2008 2009 2010 2011 2012 2013 41942

0

1,000

2,000

3,000

4,000

5,000

0

4

8

124,712.03

2.1

Total Loan Portfolio (LHS) (Php bn)NPL ratio (RHS) (%)

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3. Capital Adequacy Ratio (CAR) bespeaks of PH banks’ strong capitalization:

Indonesia – 19.7% (Aug 2014)

Malaysia - 15.2% (Dec 2014)

Philippines- 16.66% (Jun 2014)

Thailand – 16.67 % (Dec 2014)

Singapore – 11-12.5 % (June 2014)

CAR serves as an equalizer among banks

Source: BSP website as of Q2 2014

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The share of foreign banks in total assets of PH banking system is less than legal limits

4. Appropriate safeguards are in place:

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What comes next?

ASEAN will officially declare the establishment of an AEC by end-December 2015.

For the ASEAN economies and citizens, it will be business as usual – mainly because the key agreements and regulations that will govern our business and economic relationships under the AEC are already in place and operational.

AEC 2015 will be the beginning of renewed integration efforts.

ASEAN is now working on Post-2015 Vision.



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Take away points...

Regional integration including financial/banking integration offers benefits and opportunities. But there are also challenges that need to be addressed.

There has been significant progress in all areas of financial integration and the Philippines is on track in its deliverables.

The BSP continues to lead initiatives to ensure that benefits will be realized and risks are well-managed.

What will happen in December 2015? ASEAN will officially declare the establishment of the AEC by end-December 2015 and it will be business as usual because the preparations have been underway.



ASEAN: Free Flow of Financial Services

19 June 2015

Wilhelmina C. MañalacManaging Director, International Sub-Sector

Bangko Sentral ng Pilipinas

asean:free flow of financial services 19 june 2015 wilhelmina c. mañalac managing director,...

Documents

asean community

asean vision

asean security community

capital market integration

key messages

equitable economic development

asean free trade area

community of caring