Banking sector still tied up in red tape
Malaysian lender CIMB Group Holdings scrapped a planned merger with two domestic financial institutions.
WATARU YOSHIDA, Nikkei staff writer
SINGAPORE While manufacturers
gush over the abolition of tariffs within the ASEAN Economic Community,
companies in the service sector see relatively little reason for
optimism. Banks, in particular, are unhappy with the pace of progress.
Yes, the AEC aims to free up the flow of capital. Yet after a long
preparatory period, the establishment of the community is close at hand
and banks are still looking for tangible benefits.
"I am not seeing any signs on the horizon that the situation is
going to change very rapidly," Piyush Gupta, CEO of Singapore's DBS Group Holdings, said at the end of August. "Banking is the most protected industry," he added.
Gupta began to doubt the AEC in mid-2013. DBS, Southeast Asia's largest
bank, had announced in April 2012 that it would buy all the shares of
Bank Danamon Indonesia, a midsize Indonesian institution. The goal was
to gain a foothold in the ASEAN bloc's most populous nation.
The plan fell through because of growing anxiety within the Indonesian government about foreign ownership of banks.
Bank Indonesia, the country's central bank, in May 2013 decided to
allow the Singaporean bank to buy only a 40% stake in the Indonesian
bank. DBS was disappointed that it would not be able to take charge of
Bank Danamon's management and dropped the bid that July. The Indonesian
authorities' policy still bothers Gupta, who says they are "going the
wrong way."
A major Thai bank encountered a
similar barrier. It had been preparing to apply to open a branch in
Indonesia, hoping to move into the country by the end of this year. The
government, though, insisted the only option for accessing the market
was to take a stake in a local bank. "We will not be looking to
Indonesia for a while," an executive of the bank said.
The AEC's banking integration framework allows member countries to
designate their banks as Qualified ASEAN Banks, or QABs. These banks
will be allowed to do business more freely across the region.
Nevertheless, it is up to individual countries to strike agreements with
one another to implement the rule. Until that process is further along,
banks will continue to face high hurdles.
POWER DISPARITY
One reason for the delay in liberalizing the banking sector is the
vast gulf between more and less developed markets. In a ranking of
listed ASEAN banks by total assets, Singaporean institutions take the
top three spots, with DBS at No. 1. Malaysian banks round out the top
six. Indonesia, on the other hand, still has numerous relatively small
banks. And authorities in less advanced countries worry that if they
open up their financial markets, it will put them at the mercy of the
big players.
The stock market, meanwhile, seems to have lost interest in the AEC and its potential impact on finance. CIMB Group Holdings,
Malaysia's second-largest bank, announced in July 2014 that it was
preparing to merge with two major domestic financial institutions. The
bank was aiming to bulk up and expand regionwide. Yet after the merger
talks started, CIMB's stock plunged nearly 30% over about half a year.
Having failed to win the backing of
investors, the banks scrapped the merger plan this past January. CIMB
Chairman Nazir Razak said he was "frustrated" at the slow progress of
AEC liberalization.
One ray of hope for
financial services companies is the rapid spread of smartphones across
the region. Citibank, which has branches in six ASEAN countries, sees
mobile banking and other online services as critical. "Thinking about
moving people and building physical distribution is no longer the
ambition for financial institutions," Michael Zink, head of ASEAN
countries at the U.S. bank, told a Bloomberg-sponsored seminar in
Bangkok on Dec. 3.
"The ambition is to be
allowed to deliver our financial services right through the iPads you're
looking at this moment, and I don't have to build the branches," Zink
said. The trouble is, regulations still need to be tweaked to
accommodate this new age. The original plans for the AEC were adopted in
2007, the year Apple released the first iPhone. "The men who created
the AEC weren't thinking about the network flow we now have," Zink said.
"We want transparency and clarity on what we can and cannot do."
Gupta said DBS, too, is focusing on using its "digital platform as opposed to a brick-and-mortar platform."
Nikkei staff writer Yukako Ono in Bangkok contributed to this story.
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