Bank Negara has announced four developments that may provide a foundation for sustainable banking in the future. Following the recent financial crisis, these developments are necessary in order to strengthen the banking sector for the future.
The four prospects for the sector include reduced complexity and increased transparency; stronger focus on more responsible and sustainable financial business practices; strengthening of boards’ effectiveness and accountability, and sound governance of financial institutions; and reinforcing buffers to withstand future shocks.
Post the crisis, governor Tan Sri Zeti Akhtar Aziz said there was an increasing need to go back to basics and rid of higher risk-taking activities. This initiative is to provide for a safer global financial system.
“Asean will have to pursue an outcome that facilitates innovation and efficiency, without resulting in undue risks and unwanted costs on both the financial system and the overall economy,” Zeti said in her keynote address at the 19th Asean Banking Conference 2012.
Additionally, a stronger international emphasis has been placed on appropriate risk-aligned mechanisms, in particular on compensation frameworks.
These mechanisms will provide incentives for financial innovation and growth, without compromising financial stability.
Through this, financial institutions would have a vital role in creating positive conduct and behaviours among financial participants in the industry, as well as contributing towards uplifting the state of financial education and consumer awareness, Zeti said.
As corporate governance practices in the financial industry have been constantly under scrutiny, there is an expectation for the improvement of them especially in the risk-management policies and procedures.
Furthermore, corporate governance standards at an international level have been substantially enhanced.
“The growing expansion of Asean banks in the region must therefore be accompanied by an increased emphasis for the boards and senior management of financial institutions to provide the leadership and oversight of group-wide risks arising from cross-border operations,” she added.
In a statement, Zeti also mentioned that “it is important to reinforce buffers to protect any future shocks.”
“The standards will see financial institutions holding larger amounts of capital, including buffers which can be drawn down as losses occur.
“At the same time, the standards will also require banking institutions to significantly strengthen their liquidity and funding positions,” said Zeti.
Asean’s growth prospects is bright with the region’s gross domestic product expected to triple to US$3 trillion (RM9.15 trillion) by 2017 on benefits from the demographic dividend, abundant workforce, growing middle class and consumption patterns.
Zeti said that economic expansion “is expected to be sustained at a rate of 5.8% in the next five years, significantly outpacing global growth.”
She added that the share of the region’s middle-class population was expected to increase by 65% by 2030, which would contribute to the change in the global consumer landscape.
Mewnwhile, in another statement, Bank Negara said its international reserves amounted to RM423.9bil as at Oct 31, 2012.
The reserves position was sufficient to finance 9.3 months of retained imports and was 3.8 times the short-term external debt.