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Asean bankers brace for ‘Trump Effect’ of higher interest rates, protectionism

Nov 28. 2016
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MEMBERS of the Asean Bankers Association have been urged to prepare to deal with the “Trump Effect”, since the expected hike in US interest rates and protectionism could hinder their growth.

The ABA, including the Thai Bankers Association, yesterday brainstormed ideas and exchanged experiences and in-depth information on the economic and financial transformation at the 21st Asean Banking Conference and 46th Asean Banking Council Meeting under the theme of “Enhancing and Strengthening the Roles of Regional Asean Banks in the Context of Growing the Asean Economic Community”, running from yesterday until Wednesday.

The low interest rates in Asean are under threat from the expected economic stimulus policy of US president-elect Donald Trump.

The market believes the Fed will raise the US policy rate next month, Mark Young, managing director of Asia-Pacific financial institutions at Fitch Rating, told the session on the overview of the banking industry and its outlook. As a result, the low interest rates of banks in the region may be affected.

Protectionism might have an impact on China, which has high trade exposure in Asean. If the Asean economy is impacted, the banking industry will also be, he told the members of the ABA.

Bank of Thailand governor Veerathai Santiprabhob, in his keynote speech, said the world is facing the New Mediocre, a state of multiple “lows” – low growth, low investment, low trade, low interest rates, low commodity prices and low inflation. 

The spillover effects of the New Mediocre go beyond the growth dimension, extending well into the realm of financial stability. 

Given the low-interest rate and low-yield environment in advanced economies, investors have shifted their portfolios to many emerging economies.

Innovative technology is fast changing the financial business landscape and banks have to be proactive in embracing technology. 

Given the low-growth and low-interest rate environment, banks’ income is facing pressure from declining spreads and fees. 

Consumers’ needs and behaviour have changed and they now demand faster and more convenient services.

Many banks have already embedded technology in their businesses to lower costs, increase efficiency and better serve their customers. 

However, technology has developed at a faster pace than in the past. 

To remain competitive, banks should adopt new financial technology fast enough while making sure that their organisational structure, corporate culture and business models are agile and adaptive.

More importantly, large non-bank fintech players are becoming significant players in the financial landscape. Banks cannot afford to wait and see the landscape change before acting. 

Every day, new business models are being developed. Technology adoption by banks is unavoidable should they wish to stay ahead, he said. 

In Thailand, the government and the Bank of Thailand, together with the banking industry, are committed to supporting the use of technology for greater efficiency and productivity in the financial industry and the economy. 

Early next year, Prompt Pay or the fast P2P payment system will be implemented. Prompt Pay will be an impetus in changing consumer behaviour to using electronic payment for everyday goods and services. 

Transactional banking could be easily completed online or via mobile phone rather than by going to a bank branch. 

This move toward less reliance on cash will reduce the cost of cash handling and boost the efficiency of the banking industry and the whole economy.


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