Commentary

Stirring beneath the Banking Royal Commission and amplified by the recent interest rate hikes is a sense of agitation amongst the Australian public that things can be better when it comes to banking in Australia.

The global financial services industry including Asia is being plagued with the pervasive nature of financial crime and the ever-changing typology of threats. These threats include money laundering, tax evasion, bribery and corruption, and fraud – and financial institutions are grappling to find the right balance to ensure that their compliance programmes are able to adapt and respond.

Asia’s banks have been in a sweet spot this year: operating performances, asset quality, and credit quality are all relatively stable, and macroeconomic and financing conditions continue to be favorable. But some threats loom. 

Increased competition and rising costs are forcing private banks globally and in Asia to focus more on profitability and less on volume growth. In an evolving and competitive landscape, innovation will require smart pricing strategies to protect margins, as the effect of pure price adjustment is limited. Maximising profitability all comes down to improving management of individual client conditions through more effective pricing, discounting practices and negotiation approaches.

Why do banks in Asia and the rest of the world have so much trouble managing operational risk?

Against very clear headwinds due to the trade war and decelerating investment, China's State Council has unveiled plans to take a more aggressive fiscal policy in 2018 with a reduction of corporate and household burden by RMB 1.1 trillion. In the whole year, tax reduction will amount to RMB 800 billion for enterprises and individuals, which is equivalent to 5.5% of total tax revenue in 2017. This includes the adjustment in value added tax, the reduction in corporate tax rate of manufacturing, transportation, and other industries, and the rebate from research and development expense. Another RMB 300 billion will come from reducing non-tax burden on costs in logistics and utilities. The total amount is roughly equivalent to the reduction in corporate burden from the US tax reform of $150 billion (RMB 1 trillion).

The topic being discussed most nowaday is “Opportunities and Challenges of Digital Transformation in Southeast Asia”. OECD-SEARP has been engaged in active discussions on policies to make digitalisation work for better lives and inclusive growth. Japan has actively lead those discussions. OECD has been working on a horizontal project to assess the potential and impact of digitalisation on various aspects of human lives. It is essential to recognise digital transformation as an opportunity, not as a problem.

Artificial intelligence has been a topic of conversation and a part of business for years, from rogue robots in movies to neural networks that detect fraud at credit card companies, but only recently have companies really started experimenting with and implementing it more widely.

When it comes to growth opportunities for digital payments, Indonesia is in a league of its own. The prospect of tens of millions of new digital payment customers is too much for digital companies and investors to ignore. The likes of SoftBank, Alibaba’s Ant Financial, and Chinese ride hailing giant Didi-Chuxing are injecting billions of dollars into companies with a chance of gaining a foothold in the market.

It might seem as though vertical division of labor and horizontal disintegration have already proliferated enough.

Banks that focus on customers over products have the best shot at standing up to Amazon's juggernaut when it steams into their market.

Banking executives today not only have to deal with running the bank, but also transforming it to grow in a sustainable manner. Banks have to balance these goals against the exigencies of the day, and those that are able to do so will be amply rewarded. This holds true for all banks, even those operating in Southeast Asia (SEA).

In general, an API refers to a technical specification for operating a specific program by another program, and it defines command statements (commands and functions) used when the program is operated, a format of data to be transmitted and received, and the like. For example, many businesses today display a Google map when publishing their location on the website. This is realised by outputting map data (Google Maps) using Google's API (Google Maps API).

This is now an inflection point for foreign asset managers as China vows to allow foreign players to take controlling stakes and operate domestically in the private securities fund management (PFM) and even mutual fund management markets.

As we move into 2018, Asia-Pacific banks are facing a range of challenges — from implementing Basel III reforms and keeping pace with technology advancements, to responding to the disruption and opportunities posed by new, non-traditional market entrants. Pressure is also coming from investors, who are demanding that banks improve returns on capital in an environment where economic growth continues to be modest and competition fierce.

Chinese banks seem to have made meaningful progress in the resolution of problem loans. The aggregate amount of the announced debt-to-equity (D/E) swaps has reached 1 RMB trillion, to 19.5% of problem loans by the end of 2017. However, words are louder than actions as only 15.7% of the total announced D/E swaps have been executed. Banks clearly need to move faster in their cleanup and Chinese regulators are not only aware but also increasingly supportive. To this end, the big five banks have established their own asset management companies (AMCs) to help carry out debt-to- equity swaps. The way in which banks and their asset management companies will operate for the loan cleanup was clarified in a new guideline jointly published by regulators last January.