EMERGING TREND AND ISSUES IN EAST ASIAN BANKING SECTORS

Abstract

Much attention has been given to the East Asian region due to their rapid economic growth in the 20th century. Factors such as the outward oriented trade and investment policies, high saving rates and well-directed government interventions have attributed to their success. Besides these factors, the financial sectors play a major role as well. The banking systems in the East Asian economies are essential in allocating resources to support the plans for economic development. In general, the banking sectors have been the main financial intermediaries for the East Asian economies. The objective of the study is to evaluate the soundness and the performance of the East Asian banking sectors, using three approaches. This is achieved by examining the impact of the real sectors on the banks, evaluating the past performance of the banks and qualitatively assessing the banks' structure. In recent years, the East Asian countries faced volatility in their economies as a result of the internationalisation of their economies and the financial liberalisation of their financial systems. In the 1997 Southeast Asian financial crisis, many weaknesses in the East Asian banking sectors have been revealed. From this study, we see that there is a close relationship between the macroeconomic conditions of an economy and the soundness of the banks. As the banks' main business is to lend funds to the business sectors, an unstable economy would cause banks to face problems eventually. Similarly, unsound banks would be a destabilising factor to the economy. This is evident from the 1997 Southeast Asian financial crisis. A study on the pe1formance of the East Asian banks was done based on four criteria. They are profitability, efficiency, capital adequacy and loan performance. From the study, Singapore and Malaysia's banking sectors performed well generally. However, Japan and South Korea's banking sectors exhibited poorer results due to the bad loan problems of previous years. The other ASEAN four's banking sectors performed well generally. However, the performances of the East Asian banking sectors would drop tremendously in the second half of 1990s, due to the 1997 financial crisis. This includes the better performing ones like Singapore and Malaysia's banking sectors. Hence, much has to be done to restructure the East Asian banking sectors. It is not just an issue of increasing profits but includes ensuring capital adequacy and efficiency. In addition, co-ordination among the governments, banks and the international bodies is crucial in maintaining a stable financial system. In the long term, the traditional roles of banks would decline. They would take on some of the functions of non-bank financial institutions and vice versa. In this way, the East Asian banks would be well managed and function better as the financial intermediaries in dynamic economies. This will facilitate economic growth and increase the standard of living in the East Asian countries.