Although they are making progress, the banking systems in most countries in South Asia (including Turkey) are still saddled with inefficiencies, poor asset quality, and weak risk management practices.
There are exceptions. In Thailand, for example, banks have overhauled their risk management systems in recent years in a bid to avoid a repeat of the 1997 financial crisis. In Malaysia, too, the central bank has been busy this year strengthening the capabilities of domestic banking groups.
Generally, though, more needs to be done. The probe launched into Indonesia's Bank Mandiri highlights the problems still facing some banks. The country's prosecutors have launched an investigation into more than $110 million in loans extended by Indonesia's biggest lender. The prosecutors allege that the bank has made suspicious loans to some Indonesian companies.
While the prosecutors' backers say that this is the first sign of President Yudhoyono's campaign to root out corruption, others believe there could be political motives behind the move. The big question is: what impact will the investigation have on the industry in general?
Foreign players are still interested in the market, according to Klaus Felsinger, senior investment officer at the ADB. "Indonesia has been a firm favourite, with a number of banks being acquired by foreign players," he says. The country's large population, economic growth potential and attractive spreads are all appealing reasons, he adds.
Poor asset quality is another obstacle facing banks in the region. In the Philippines, for example, the banking sector "is saddled with a non-performing assets (NPA) ratio estimated at 28%", according to a recent report by Standard & Poor's. "The NPA ratio has shown only marginal improvement over the past years."
A first interest rate rise in four years in the country could make matters worse as that could slow down the disposal of NPAs, in turn increasing loan loss provisioning. The tightening of monetary policy could also choke demand for loans in the country.
Although lending levels are poor, they were improving earlier this year. In February, Banko Sentral ng Pilipinas, the central bank, reported that commercial lending levels grew by 5.8% year-on-year from 4% in January. That was the highest rate of growth since March last year.
Elsewhere, other countries are making progress. In Malaysia, the central bank is pursuing liberalization measures. It recently announced that foreign banks would be allowed to open more branches in the country so making the industry more competitive. The announcement is one of the key initiatives in the second phase of the Financial Sector Masterplan.
Bank Negara Malaysia has been keen to boost investment and retail banking. In March, for example, the central bank announced that the framework for the creation of investment banks had been finalized and was ready for implementation in the second half of the year.
"The framework is among the key initiatives to strengthen the capacity and capabilities of domestic banking groups to contribute towards economic transformation and to face the challenges of liberalization and globalization," reads a statement from Bank Negara. "It also aims to rationalize the discount house industry towards developing a more resilient, competitive and dynamic financial industry."
Profiles
Best banks in South Asia
Maybank (photo of Datuk Amirsham A Aziz, ceo and chairman)
With over 400 branches nationwide and a network covering 13 countries, Maybank is the biggest financial services group in Malaysia. The group offers a range of services from investment banking to stock broking and insurance to offshore banking.
In an effort to become a one-stop financial services group, Maybank introduced various services that have benefited from the network strength of the group. These include cross-banking transactions that were first introduced in 1997.
In addition, the Maybank Group was also the first in South-east Asia to offer free personal financial planning services to customers – Bankassurans. Under this concept, specially trained financial executives at Maybank and Mayban Finance branches assess the financial needs of customers and recommend various savings and investment packages.
Maybank is also strong in internet banking through its online banking portal, Maybank2u.com. The bank accounts for 60% of all e-commerce transactions in Malaysia.
Another important target group is small- and medium-sized businesses. The bank is targeting a 14% growth in loans to SMEs for the fiscal year ending June 30. At the end of last year, Maybank's loans to SMEs amounted to over M$21 billion or a fifth of the bank's total loan base.
Maybank offers a range of customized packages for SMEs' financing needs such as their petrol station dealers' package, vendor financing package, suppliers' package, ITplus, a comprehensive online cash management solution and Islamic financing services.
Public Bank (photo The Hong Piow, chairman)
Conceptualized as "a bank for the public" by its chairman and founder, the Public Bank Group serves Malaysia's people and businesses through a range of financial products.
The bank is particularly strong in providing finance to consumers and retail mid-market commercial enterprises, especially small- and medium-sized businesses, through efficient multiple delivery channels.
The group recently consolidated its branch network and now has 250 outlets nationwide. The group has also implemented measures to improve its online delivery channels, such as its internet banking service, PbeBank.com; telebanking; ATMs and self-service machines for cash and cheque deposits.
Unity lies at the heart of the bank's philosophy. The group's 12,500 employees are rewarded by generous incentives, employee share options and performance bonuses. The group also has over 95,000 shareholders.
Public Bank was founded in 1966 with an initial paid-up share capital of M$16 million. Led by Teh Hong Piow, the group is one of the biggest financial providers in Malaysia. As at December 31, 2003, the group's shareholders' funds stood at M$8.68 billion, the second highest among domestic banking groups in the country.
At the same time, the bank's market capitalization stood at M$18.7 billion, representing a 70% increase from the level reached at the end of 2002. Based on this market capitalization, Public Bank ranked as the fifth biggest company listed on the main board of MSEB.
Akbank (photo of Zafer Kurtul, ceo)
Akbank is Turkey's biggest privately-owned bank in terms of profits and market value. It offers a range of retail, corporate and private banking services as well as international trade financing. Investment banking, brokerage and other non-banking services are provided by Akbank's subsidiaries.
With over 600 branches, the bank has one of the strongest and most extensive service networks in Turkey. Akbank is one of the most sophisticated financial institutions in the country. As well as being a traditional delivery channel, the bank distributes its products through retail and commercial internet branches, call centres, 1,400 ATMs and 150,000 POS terminals.
In addition, the bank has seven branches in Germany, one branch in Malta, and Akbank International is based in the Netherlands. It also has a 37% stake in Sabanci Bank and a 39.99% stake in BNP-AK-Dresdner Bank. It also maintains an international representative office in Paris.
Akbank is the only bank in Turkey to receive a rating over the sovereign from the international ratings agencies. The bank continues to tap funding in international markets favourably. In 2003, the bank's balance reached a total of $2.538 billion in credits from abroad, according to the website.
As of December 31, 2003, Akbank's market capitalization was $6.33 billion, placing the bank at the top of the Istanbul Stock Exchange (ISE) in terms of market value. Just over one-third of the bank's shares are listed and traded on the ISE.
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More needs to be done