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Friday, May 22, 2015, 14:43

Banking deal gives boost to ASEAN trade

At present, payment and settlement systems in member countries are at different stages of development, he says.

“If the countries with less-developed domestic systems improve their systems to meet economic needs and standardize their systems, eventually ASEAN will reach a state where common standards are in place and members’ payment and settlement systems would be fairly developed and uniform.”

Liew says that in the long run, the ASEAN member countries could then seek to link their systems and even connect to international systems.

“At present, the focus should be for banks to acquire a strong regional foothold and develop banking services that contribute to the development of the regional economy, rather than for the ASEAN banks to become internationally active super-banks,” he adds.

Liew is of the view that competition among ASEAN banks will also lead to product innovation as the banks strive to retain revenue and profits.

“ASEAN banks will also be compelled to operate more regionally and this can help with the growth aspirations of the corporate sector,” he adds.

Echoing this view, Vikas Kakkar, an associate professor in the department of economics and finance at City University of Hong Kong, says competition among qualified ASEAN banks will increase gradually, and this will help the corporate sector in the longer run by lowering the cost of capital.

“Standardizing the banking system will bring down the cost of finance which will eventually benefit the corporate sector and in turn the customers,” Kakkar says. “Cross-border investment will also benefit from the additional availability and ease of financing.”

According to the latest ASEAN investment report, the growing interest of companies from ASEAN member states in investing and expanding regionally continues to drive intra-ASEAN investment.

“In 2013, the more developed ASEAN member states received the preponderance of intra-ASEAN investment but regional investment to the Cambodia, Laos, Myanmar and Vietnam (CLMV) countries also rose,” says the ASEAN Investment Report 2013-2014: FDI Development and Regional Value Chains.

Increasing investment

“ASEAN companies invested some $21 billion in the region in 2013, which is 13 percent more than the combined intraregional investment between 2000 and 2005,” the report says. “Intra-ASEAN investment contributed about 17 percent to the total inflows in ASEAN and is a major source of investment in most ASEAN member states.”

A few of the bloc’s members dominated as major recipients and sources of regional investment in 2013. Intra-ASEAN investment into Indonesia, Vietnam and Thailand rose significantly, concentrated in manufacturing activities.

For instance, more than 75 percent of intra-ASEAN investments in Vietnam, 39 percent in Thailand and 35 percent in Indonesia were in manufacturing.

Indonesia received the greatest amount of intra-ASEAN investment in finance after Singapore. About 50 percent of ASEAN investment in Malaysia went to the manufacturing sector, primarily from Singapore investors.

Singapore remained an active destination for ASEAN investments in finance and real estate. More than 60 percent of ASEAN investment in Cambodia in 2013 went into agriculture and forestry, but manufacturing remained important.

ASEAN investment in manufacturing in Brunei doubled, albeit from a low base, to $12 million, and the Philippines received $35 million, a striking contrast to the loss of $4 million in 2012. Intra-ASEAN investment in agriculture, manufacturing and real estate activities rose.

The finalizing of ABIF will create a positive perception of the AEC, the report says.

Sumit Agarwal, vice-dean of research at the department of economics and finance at the National University of Singapore, says that the ABIF will increase intra-ASEAN investments and push further growth in cross-border mergers and acquisitions in the region.

“The improved policy environment, strong macroeconomic fundamentals and regional market prospects will have a positive investor sentiment,” he says.

“Investors will like to raise the capital within the country. If the banks can provide funds at the investors’ door steps, it will give a fillip to overall trade and investment among the economic bloc members.”


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