TRADE INTEGRATION AND IMPLICATIONS
Currency regimes aside, MNCs are already reaping the benefits of the AEC's trade integration although the region's cross-border complexities in terms of consumer preferences, social behaviour, politics, religions, competition and even languages continue to require a degree of local customisation.
For banks, the differences between member countries are arguably more pronounced as regulatory sophistication, capital market markets depth and banking sector scale add a layer of complexity.
ANZ has identified “reach" as a critical success driver for MNC banking decisions in Asia. International network banking was a 'Top 4' area highlighted by large Asian corporates while for US large corporates, the breadth of a bank's footprint/franchise was a key determinant on lead bank status and becoming increasingly important for European large corporates.
We see three interesting trends emerging as ASEAN financial development and regional integration accelerates over the next 10 years.
- The growing importance of Cambodia, Myanmar, Laos and Vietnam to MNCs, necessitating improvements in bank service levels and connectivity intra-regionally.
- The proliferation of bilateral treaties between ASEAN member countries giving rise to indigenous Regional banks and encouraging harmonised banking regulations across the region.
- The logical extension of intra-regional trade into local currency cross-border flows to mitigate against external shocks arising from USD currency exposures and reducing transaction costs for MNCs across ASEAN.
ASEAN: The Next Horizon forecasts Cambodia, Laos, Myanmar and Vietnam to grow so rapidly that by 2025 their combined economies will be larger than that of Malaysia.While many Regional and Network banks have operations in Thailand and Vietnam, only a handful have local operations across all of the Greater Mekong economies, including Mekong Frontier economies, Cambodia, Laos and Myanmar. Partnership Banks from outside the region therefore have fewer partners to rely upon at a time when these countries are featuring more prominently in the economic expansion plans of MNCs globally.
For the Mekong Frontier then it is the prospects for growth that are attractive, offsetting the relative small economies of today.
Improving bank servicing levels and intra-regional connectivity will be vital as production platforms migrate to the Greater Mekong region.Depending on focus, banks can expect their MNC clients to seek out banks who can address supplier risk; inventory, partnership and/or distributor risk; foreign exchange risk; interest rate risk and potential take-outs.
A GAME CHANGER?
With no ASEAN central bank, all agreements operate on a policy of consensus. Under the ASEAN Banking Integration Framework (ABIF), member countries sign reciprocal bilateral deals for their banks to operate in a partner country on the same terms as local banks. Prima facie, the ABIF therefore provides indigenous Regional banks more access and flexibility relative to Regional banks from outside the ASEAN bloc.
However, bilateral deals under the ABIF could end up highly customised based on qualifying banks' commercial interests and each country's strategic imperatives.It is intuitive that governance, capital and liquidity standards on bilateral deals would be at the minimum standards of the country with lower risk tolerance rather than harmonised regionally to consensus.
This likely advantages incumbent Regional banks, both indigenous and outsider, who are already complying with home host regulations.
While ASEAN member country governments demonstrate their desire and intent to push forward with financial integration, improving consumer banking experience remains the clearest goal.
ANZ's whitepaper, Shaping the Future of ASEAN Banking, was launched today at the SIBOS conference in Singapore.
Carli Renzi is Director, Industry Insights, Global Financials; ANZ International & Institutional Banking