By Catherine Weerakkody
Hatton National Bank Managing Director and Chairman Asian Banks Association (ABA) Rajendra Theagarajah says the ABA plays a critical role by stimulating high level regional networking, developing policy advocacy initiatives and strengthening the regional voice in global economic forums. Following are excerpts of an interview:
Q: What role does the ABA play in the South Asian Region?
A: The ABA is a premier body of banking professionals comprising over 100 member banks representing South, South East and East Asia. The main objectives are to improve the regional financial environment through trade, industrial and investment co-operation through the activities of the member banks.
Achieving these goals becomes critical for South Asian economies in today’s unpredictable global economic environment with the mature economies in almost perpetual economic crisis mode. The ABA plays a critical role by stimulating high level regional networking, developing policy advocacy initiatives and strengthening the regional voice in global economic forums.
Q: What is the rationale for holding the conference in Colombo?
A: The decision to hold the first-ever conference in Colombo is a recognition of our country by our regional colleagues as a rapidly emerging economy and an opportunity to explore the new opportunities we have to offer. It is in this context that we organised a session titled ‘Discovering ABA’ a day ahead of the conference to give our foreign delegates a perspective of Sri Lanka as a resilient and exciting business destination.
Q: What are some of the key topics that will be discussed at the conference?
A: The theme ‘Asia Taking the Lead in the Global Economy – A Banker’s Perspective’ captures a forward-looking perspective for Asian banks in the midst of an increasingly uncertain global economic environment and will examine Asia’s growing influence and identify ways in which further momentum can be built by penetrating new products, markets and alliances to benefit Asia and in turn the global economy.We will have three technical sessions on ‘Fundamentals of Asian Banking,’ ‘The China-India Equation,’ and ‘Asia’s Contribution to Sustainable Banking’ and a CEO Forum featuring thought leaders from leading banks and financial institutions in the region to share their valuable perspectives on topics such as corporate governance, regulation, financial inclusion and the advent of mobile phone banking in to the banking space among others.
Q: In your view, what are some of the emerging trends that could impact the region’s banking sector?
A: There are three key trends that I believe are particularly relevant in today’s context.
First, managing in an increasingly turbulent global economic environment – wide fluctuations in commodity prices, demand pressures from advanced economies and rising social issues leading to heightened discussions on the need for a strong domestic economy without undue reliance on trade, need for value addition and productivity in primary sectors and bridging the income gap through financial inclusion and literacy.
Second, significantly increasing incidents of natural disasters on a scale never witnessed before which have implications for risk mitigation strategies, contingency and business continuity planning. Third, the challenges to the conventional banking business models arising from rapid innovations in telecommunications and technology, e.g. mobile phone banking that combines greater reach with lower cost.
Q: How would the Eurozone crisis impact emerging economies like India and China?
A: India and China are regional powerhouses in the export of services and manufacturing capacity respectively, of which Eurozone economies are significant beneficiaries. These two powerhouses have also become visible investors in these Eurozone economies through gradual M&A activity in key industries and more recently in sovereign paper.
Although both countries have very significant domestic economies and have largely been resilient despite the prevailing global economic crisis (assisted by a bigger role played by the state in stimulating the economy to counteract shortfall in exports) how far this can be sustained is a question mark if the position in Western economies does not improve in the medium term.
Presently the challenges relate to managing capital flows, exchange rates and inflation but potentially economic impacts can flow in to social issues given the massive populace these countries possess. On the positive side new business opportunities in the areas of BPR, Outsourcing, M&A could arise although the availability of capital would be a key issue to capitalise on opportunities that presents themselves.
Q: What impact would the China-India equation have on global financial markets?
A: Very significant as they represent over 60-70% of Asian trade and capital flows and also because their impact on other Asian economies is high given their informal hub status in South and East Asia. India and China have also been given more prominence in global policy formulation as key members of the G20 summit. One of the conference technical sessions has been allocated this important topic to examine the China India equation from two perspectives. Firstly their role in the global economy and secondly their influence on rest of Asia with a view to identifying ways in which these two economies can play a leading role in financial markets.
Q: What are some of the challenges faced by Asian banks to meet the Basel 11/111 framework?
A: The progress achieved by Asian banks to gear up to Basel Advanced Approaches where the challenge is to increase the quality and quantity of capital to commensurate with risks has been commendable. The underlying causes for the global economic crisis were well understood following the Asian economic crisis experienced over a decade back and consequently learnings were translated in the form of strong regulatory supervision and capital controls in these economies which were in my opinion the main reason for their relative resilience today.
However the key challenges relate to questions such as applicability of some of the provisions to Asian economies (a one size fits all solution), the prevalence of large informal economies, relatively small debt and capital markets, weak legal and regulatory structures and challenges to financial inclusion initiatives. One of the papers presented at the conference will examine the Basel II/III framework specifically on its adequacy and applicability to Asian Banks, the need for Asia to be at the forefront to developing international standards (Basel IV) and the need to incorporate regional specific factors in current guidelines.
Q: Finally, what would our Sri Lankan banking fraternity get out of these sessions?
A: I have no doubt this will be a transformational learning experience and a unique networking opportunity to our banking and stakeholder community.