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Friday, May 22, 2015, 14:43

Banking deal gives boost to ASEAN trade

Banking deal gives boost to ASEAN trade
Cargo ships berthed at a container terminal at Jakarta’s international port. Intra-regional trade among the ASEAN countries is growing rapidly and will increase further once a new banking integration agreement is established. (AFP)

The newly signed ASEAN Banking Integration Framework (ABIF) is expected to give a fillip to cross-border trade and investment flows, harnessing the growth potential of the Southeast Asian region.

The ABIF is designed to enable wider regional financial integration for the ASEAN Economic Community (AEC), due to be established by the end of this year. The framework is expected to improve banking services in the region and subsequently facilitate trade and investment in the 10-member Association of Southeast Asian Nations bloc.

“ABIF will encourage banks to facilitate intra-ASEAN trade and investment,” says a joint statement issued after the framework was signed during the first-ever meeting of ASEAN’s finance ministers and central bank governors in Kuala Lumpur on March 21.

Chris Devonshire-Ellis, managing partner at consultancy Dezan Shira & Associates, says the ABIF makes the issue of cross-border trade simpler by allowing better, faster and more transparent movement among participating currencies.

“Services will improve. Getting payments and currencies into and out of participating nations will be far easier than in the past. It’s like building a financial communications highway from what were previously dirt roads,” he tells China Daily Asia Weekly.

“Anything that makes transactional processing easier will impact positively upon trade and investments.”

Total trade in ASEAN posted a six-fold increase, from $430 billion in 1993 to $2.5 trillion, in 2013. During the same period, intra-ASEAN trade surged from $82 billion to $609 billion, while extra-ASEAN trade grew from $348 billion to $1.9 trillion, according to a recent ASEAN trade report.

Intra-ASEAN trade increased at a faster rate than either overall ASEAN trade or extra-ASEAN trade, with annual growth averaging at 10.5 percent as compared with 9.2 percent and 8.9 percent, between 1993 and 2013, says the report, titled ASEAN Community in Figures — Special Edition 2014.

“Intra-ASEAN trade share in overall ASEAN trade has been on an increasing trend from 19.2 percent in 1993 to 22 percent in 2000 and 24.2 percent in 2013,” it says, adding that intra-ASEAN trade accounted for 25 percent of the region’s total GDP.

Spurring competition

Teo Wing Leong, head of the school of economics at the University of Nottingham’s Malaysia campus, says there will be further increases in cross-border trade once the ABIF is in full swing.

“As ASEAN banks expand their operations across the region, they will be in better positions to support ASEAN corporations to expand.”

Teo says increased competition as a result of the ABIF will spur banks to innovate and improve their competitiveness.

“Therefore, we can expect them to improve their service offerings. Increased competition from banking integration can help make banks more efficient. It will also allow banks to exploit larger economies of scale.”

At present, many ASEAN members have different banking standards, which might make a regional payment and settlement system difficult to implement and make linking the systems more costly.

“If key actions are undertaken to ensure full integration including the adoption of common best practices and standards, an efficient cross-border payment and settlement system can be in place, which will facilitate greater cross-border trade and investment,” says Liew Nam Soon, financial services advisory leader for ASEAN at consultancy firm EY.


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