Commentary

Approximately 2.5 billion people globally lack access to financial services and are forced to rely on inconvenient and often risky means to manage their money. These people are classified as ‘unbanked’. There is a high concentration of unbanked citizens in developing economies across South East Asia, Africa and Latin America. Let’s focus on Indonesia.

Bank management teams have faced many challenges in the decade post the global financial crisis. After stabilising balance sheets in its immediate aftermath, there was a need to build capital as the Bank of International Settlements’ (BIS) regime was tightened. More recently banks have had to conceptualise the threats and opportunities posed by fintechs, and more latterly by ‘big tech’ companies and invest to meet the challenge. In addition, within South East Asia, banks have had to deal with the GDP slowdown post 2013, and the impact this has had on loan growth and credit quality.

Economic inclusion can seem like a faraway goal for many, if not most, countries around the world. Achieving it would mean being able to lift people out of poverty, create equality between genders and socio-economic backgrounds, and build socially inclusive futures for our children.

Buoyed by trends such as ongoing digitalisation, the use of big data, and the rise in seamless mobile internet connectivity, Southeast Asia’s financial services sector is transforming. With 360 million internet users across the region, accounting for approximately two-thirds of its population, 90 percent access the internet via their mobile phones. The increased emphasis on the digital experience has largely catalysed change across the global financial sector, giving rise to the digital banking phenomenon. As one of the region’s leading financial hubs, Singapore has a key role to play in this new regime.

Collaboration holds the key to unlock the pathways for traditional bank incumbents and technology entrants in the disrupted world of financial services, where disruptive companies can offer compelling alternatives to the huge customer base of unbanked and underserved across Southeast Asia.

The success of neobanks has raised challenges amongst the fintech industry. Providing a digital alternative to traditional banking, neobanks are, without a doubt, playing a key role in the evolution of banking.

Many large institutions and individuals are interested in the benefits that Security Token Offerings (STOs) could bring to Asia. These offerings give investors and companies alike a more formal and regulated framework for blockchain fundraising.

In the past 12 months, we witnessed a range of companies racing to qualify for a spot among Singapore’s first digital banks, mirroring what happened with Hong Kong’s virtual bank licenses the year before. The sense of urgency is understandable - the nature of what it means to be a bank is changing, and this shift is opening a gap in which newer operators can assert themselves. The importance of this is underscored by the fact that the Asia Pacific region has an astonishing share of the world's digitally native population; in markets like India, Vietnam and Thailand, it’s common to become "digitally banked" without having had a credit card – or even a bank account. While Asia Pacific is diverse in its financial systems, there are some unifying factors which are going to change the face of banking across the region.

Sustainable banking is getting momentum in developing countries and Bangladesh has been one step ahead now by initiating particular sustainable banking activities in various fields. The country has many success stories surrounding corporate governance, corporate social responsibility, social awareness of stakeholders, preparing sustainability reporting under globally accepted method-GRI (Global Reporting Initiative) and leadership with green banking being one of the most notable initiatives. In 2011, Bangladesh Bank (‘BB’), the regulatory authority of commercial banks in Bangladesh, issued “Policy Guidelines for Green Banking” to implement and promote green banking activities across the country in three phases.

As digital banking proliferates through the developed world, its adoption in emerging markets in Southeast Asia continues to lag. A McKinsey study in 2018 noted that whilst digital banking penetration has grown by as much as 300%in certain emerging Asian countries, the median level is only around 52%.

 

Understanding the intricacies of global best practices and adapting to it will set machine learning (ML) on a successful course; highly skilled accountants are vital to that process – including those in the banking industry.

Although growth is decelerating, the performance of Chinese banks has been resilient so far. Net profits of listed banks grew robustly in Q3 2019, higher than the same period in 2018. Such general improvement was also backed by a reduction in provisioning led by large banks. While the performance of large banks remained steady, the rebound came from small banks. The question really is why small banks have rebounded and whether it is sustainable. Thus, it is a good time to examine the recent financial results of Chinese banks and the reasons behind the improvement, especially for small banks.

The trade finance gap is a serious issue that is impacting the health of global trade and business development in many countries across the world. Trade finance is the fuel of global trade, upon which 80 to 90% of world trade relies, and if access to trade finance is compromised for certain companies, global trade will be unable to reach its full potential.

The origination of the ongoing crisis of Non-Performing Assets (NPA) in India cannot be attributed to a single event nor can it be confined to a particular timeline. It was only in the mid 1990’s; post the economic liberalization when the country entered into the new millennium that the banks realized the sudden compounding of bad loans. The NPA situation essentially propelled in the mid 2000’s following over-optimism in the economy specifically between 2006-2008, on the back of strong economic growth and pending infrastructure projects completing on time and within specified budgets, a thing largely unheard-of till then. This irrational exuberance was followed by number of bad loans being advanced by the banks often by compromising due diligences. Riding on this positive environment, corporations were being granted loans based on recent performances and growth. Loans were being advanced at an alarming rate, and these corporations grew highly leveraged which led to most of the financing through external borrowings rather than internal equity. However, though post the global financial crisis of 2008, the bubbled economic growth stagnated and the repayment capability of the same corporations substantially decreased causing unparalleled financial stress on the banking and the corporate sectors. The strong projections for various projects started seeming unrealistic and it became increasingly clear there was no set structure in place to recuperate these loan advancements.

Deteriorating asset quality led to enhanced provisioning, reduced profitability and a subdued capital position has created a challenging period for the Indian banking system. Poor asset quality levels also necessitated capital infusion into several banks, especially in the government owned banks. Policy measures like resolution under the Insolvency and Bankruptcy Code (IBC) has helped the banks in recoveries of certain bad accounts. The government has taken decisive measures towards consolidation of the banking sector by creating fewer banks of significant size which would be easier to operate and capitalize. Further, the government has announced infusion of capital to enable transition of these banks.