Scotiabank CEO sees Thailand as 'example of Asia's strength'

What’s your view on the Asian economy in light of fears of a global recession and slower Asian growth amid the euro zone’s debt crisis, struggling US economic recovery and weakness in China?
We believe that Asia will remain the global economic pacesetter, as domestic demand in most countries within the region remains firm in the context of subdued growth in developed economies. However, Asia is not immune to the challenges facing Western economies and it will feel some of the effects.
On the positive side, we expect that the downshift in global demand will bring about a fall in local inflation as global fuel and food costs stabilise, providing Asian central banks with important wiggle room for manoeuvring [during] the slowdown.
A great example of Asia’s strength is Thailand’s manufacturing sector, which has had a strong bounceback from the declines seen earlier this year.
We believe that Thailand is going to continue to benefit from its geographical position in Asia and see the strength of its manufacturing base well placed to continue to benefit from intensifying activity within the China-India corridor.

Are these factors expected to hurt the bank’s operations and growth in Asia and Thailand? Why?
While Scotiabank is not immune to what is happening in global economic markets, we have strong partners in Thanachart Bank here in Thailand and elsewhere around Asia and are positive that our investments will remain strong and grow for years to come.
We see Asia as a market with great potential and will continue actively to seek other strategic investments in the region. We believe in taking a long-term approach. Our bank is now 179 years old.

Looking forward especially to 2012, what are risks and challenges for you in Asia and Thailand? And what strategy will you pursue to gain more profit?
The global challenges mentioned above will impact Asia and may cause exports to decelerate from recent levels.
However, with easing inflation and still-robust domestic demand, we expect Asia to continue to lead the world in growth levels. We strongly believe in the positive long-term future for this region and will continue to invest in our organic business in more than 10 countries and territories around the region and to work closely with our partners in Thailand and China to introduce international best practices to these banks and help accelerate their growth.
As well, we continue to be receptive to other opportunities to invest in banks in the region that wish to work with a leading international bank such as Scotiabank.

What is your view on higher capital standards and other new regulations under Basel III?
I believe the core elements of Basel reform together with other measures and improved industry practices will increase future financial stability. We support strong capital and liquidity. It is also very important to have strong risk management.
For regulation to be effective, key elements must be in place. It is essential that regulation balance safety and growth and that the timing and application be consistent across all major jurisdictions across the Group of 20.
Emerging-market economies are not decoupled from the global financial markets or from the economic developments beyond their borders and thus have a vital stake in a strengthened G20 coordination approach.
Global policy coordination means that key emerging-market economies need to be very active in seeing that consistent, mutually supporting policies are formulated that promote growth and address global imbalances. The delineation that remains so popular between so-called mature economies and emerging-market economies is becoming irrelevant. We all share very common problems and we all recognise the benefits of finding solutions that serve the best interests of the world economy as a whole.
Among the financial community, it is widely agreed that the root cause of the crisis can be attributed to not just a lack of capital in some banks, but also fundamentally a lack of attention by many financial institutions to the basic, proven principles of good risk management, and an absence of an appropriate risk culture.
The real key to creating financial-system stability is to ensure strong, well-capitalised banks with sustained profitability with low to moderate risk appetite. Scotiabank is an example of this. Risk management is one of our key strengths, we have a business model that is not complex and we have ensured accountability and sound underwriting. Thanachart Bank is also an example in having a goal to balance capital and liquidity, with growth and sound risk management.

Will the regulations impede the ability to lend and hurt banks in Asia and particularly Thailand?

In general, there has been considerable enhancement of regulatory regimes in the region post the Asian financial crisis and as a result of this and the hard work by the industry, Asian banks are much stronger than in the past. Capital levels are much higher and of better quality, non-performing loans are substantially decreased and liquidity and currency mismatches have been greatly reduced. As well, local banks are primarily deposit-funded and for the most part have relatively simple business models focused on meeting customer needs.
With this strong foundation, local banks in Asia already meet many of the proposed new capital and liquidity regulations and as such should be well positioned to continue to lend and support growth. Thanachart Bank is an example of this and has shown strong lending growth over the last several years in line with the robust economic growth here in Thailand. We are confident this will continue into the future.