Financial and Capital Market Developments in the ASEAN

Financial and Capital Market Developments in the ASEAN

DIWA C. GUINIGUNDODeputy Governor

Monetary Stability Sector

37th Federation of ASEAN Economics Association (FAEA) Annual ConferencePICC, 29 November 2012

2

I. Overview of ASEAN Financial and Capital Market Integration

II. Status and Progress of Financial and Capital Market Development and Integration

III. ASEAN and Other Regional Finance Cooperation Initiatives

IV. Issues and Challenges

Outline

3





Outline

4

Overview of ASEAN financial and capital market integration

Rationale for capital market development and integration

Strengthen financial intermediation, capacity, and risk management to support national and regional growth

Cooperate to reduce vulnerabilities to external shocks and market volatility

Contribute to financial stability by facilitating diversification and reducing domestic volatility resulting from global shocks

Address growing competition from global players, and the pressures for consolidation and efficiency enhancements

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The AEC Blueprint aims to achieve freer flow of capital through:

Greater harmonization in capital market standards Facilitating mutual recognition arrangements or agreements Achieving greater flexibility in language and governing law

requirements for securities issuance Enhancing withholding tax structure to promote the broadening

of investor base in ASEAN debt issuance Establishing exchange and debt market linkages, including

cross-border capital raising activities

Overview of ASEAN financial and capital market integration

6





Outline

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Trade integration

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201122

23

24

25

26

27

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Intra-ASEAN Trade Shareas % of Total Trade

Intra-regional Trade Share

Intra-ASEAN Trade has increased through the years…

Source: ARIC ADB

Intra-ASEAN Exports and Imports

Intra-ASEAN Trade Share(as % of total trade)

8

Trade integration

The Philippines trade intensity index vs ASEAN has grown from 2.2 in 1990 to 3.2 in 2011

Trade share of ASEAN to Philippine total trade has risen from 9.3 percent to 21.1 percent from 1990 to 2011

19901992

19941996

19982000

20022004

20062008

20100.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Trade Intensity Index vis-a-vis ASEANBruneiCambodiaIndonesiaLao PDRMalaysiaMyanmarPhilippinesSingaporeThailandViet Nam

19901992

19941996

19982000

20022004

20062008

20100

102030405060708090

Trade Share of ASEAN (in percent)

BruneiCambodiaIndonesiaLao PDRMalaysiaMyanmarPhilippinesSingaporeThailandViet Nam

Source: ARIC ADB

9

FDI integration

Foreign direct investments from ASEAN region to the Philippines has declined from 1997 levels while inflows from the World has generally increased from the same period

Cambodia Indonesia Malaysia Philippines Thailand

(200.0)

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

Foreign Direct Investment Inflows from ASEAN

(in $'million)

1997 2000 2005 2009

2001 2002 2003 2004 2005 2006 2007 2008 200905

1015202530354045

Intra-ASEAN FDI Share to Total

FDI ShareSource: ARIC ADB

Source: ARIC ADB

10

Growing portfolio investment assets to ASEANW

orld

ASEA

N+3

ASEA

N

Wor

ld

ASEA

N+3

ASEA

N

Wor

ld

ASEA

N+3

ASEA

N

Wor

ld

ASEA

N+3

ASEA

N

Indonesia Malaysia Philippines Thailand

05,000

10,00015,00020,00025,00030,00035,000

Total Portfolio Investment Assets (in $'million; 2010)

Debt Securities Equity Securities

2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

200400600800

1,0001,2001,400

4005400104001540020400254003040035400404004540050400

Total Portfolio Investments in ASEAN(in $'million, 2001-2010)

Indonesia Philippines ThailandMalaysia (right axis) Singapore (right axis)

1997 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.005.00

10.0015.0020.0025.0030.0035.0040.0045.0050.00

Share of Portfolio Investments in ASEAN (in percent)

Indonesia Malaysia PhilippinesSingapore Thailand

Source: ARIC ADB citing IMF Coordinated Portfolio Investment Survey

2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

5000

10000

15000

20000

25000

30000

35000

Intra-ASEAN Share of Equity and Debt Securities to Total

Intra-ASEAN Debt Securities Intra-ASEAN Equity Securities

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Rising local currency bond issuance

ASEAN+3 Local Currency Bonds Outstanding

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Lending rate differential

Banking market integration is a work in progress

From 12.2 percentage points differential in 2000, the Philippine differential has come down to 7.13 in 2008 (last year data is available)

Singapore has the lowest differential among ASEAN economies that have available data in ARIC database 2000 2001 2002 2003 2004 2005 2006 2007 2008

0.00

5.00

10.00

15.00

20.00

25.00

Lending Rate Differential vs ASEAN

(in percent)

Indonesia Malaysia Philippines Singapore ThailandSource: ARIC ADB

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Asia is fast becoming a regional finance hub…

Singapore Hong Kong Shanghai

And Malaysia is fast rising as a center of Islamic finance in the region…

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Outline

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Various Regional Finance Cooperation Fora under the ASEAN Finance Process

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Key Asian capital markets initiatives

May be categorized as follows:

Improvements in Infrastructure (e.g., ASEAN Payments and Settlements System, ASEAN+3 Regional Settlement Intermediary, ASEAN Exchange Linkages)

Enhancing Credit Ratings (e.g., harmonization of credit rating standards, ASEAN+3 CGIF)

Harmonization of Rules and Regulations (e.g., ASEAN Disclosure Standards)

Promoting and Developing Capital Market Products (ASEAN 100 FTSE, AFMIS, ASEAN Corporate Governance Scorecard)

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Improvements in infrastructure

ASEAN Payments and Settlements System

ASEAN+3 Regional Settlement Intermediary

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Enhancing Credit Ratings ASEAN+3 Credit Guarantee

and Investment Facility (CGIF)

Studies on Harmonization of credit rating standards


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Capital Market Harmonization

ASEAN Disclosure StandardsASEAN Exchange LinkagesASEAN+3 Bond Markets Forum (ABMF)


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Developing and Promoting Capital Market Products

FTSE/ASEAN Index SeriesASEAN Finance Ministers

Investors SeminarASEAN Corporate

Governance Scorecard


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ASEAN Finance Cooperation Initiatives

ASEAN Working Committee on Financial Services Liberalization (WC-FSL)

ASEAN Working Committee on Payments and Settlements System (WC-PSS)

Task Force on ASEAN Banking Integration Framework (TF-ABIF)

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Other Regional Finance Cooperation Activities

ASEAN+3 Asian Bond Market Initiative (ABMI)

EMEAP Asian Bond Funds APEC Capacity Building

Programs on Bond Market Development

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Outline

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Issues and Challenges

Wide differences in the levels of financial and economic development

The need for institutions that will champion integration in the national level

Domestic concerns on displacement of businesses

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Conclusion

Is the Philippines ready? Structural reforms over the years:

Investing in the Philippine economy’s future

Reaping the dividends of reforms: stronger macroeconomic fundamentals

Growing third party recognition

Openness to trade: share of ASEAN in PH’s total trade rose from 9.3% in 1990 to 15.5% in 2000 to 21.2% in 2011

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Structural reforms, 1993-2012:Investing in the Philippine economy’s future

1993-1998

1993: Creation of the

Bangko Sentral ng Pilipinas

Source: Philippine Mid-Year Economic Briefing, 17 September 2012

1994: Liberalization of

foreign bank entity

1995: Liberalization of

telecommunications industry

1997: Privatization of water

services

1998: Deregulation of the

oil industry

2000-2004

2000: Passage of General

Banking Law and Phil. E-Commerce

Act2001:

Liberalization of the power sector

(EPIRA)

2002: Adoption of inflation targeting framework

2003: Passage of Special Purpose Vehicle Act

2004: Passage of Govt.

Procurement Reform Act

2004: Adoption of

Basel 2

2005-2009

2005: Passage of E-VAT Law

2005: Passage of

Securitization Act

2006: Establishment of the Wholesale Electricity

Spot Market (WESM)

2007: Implementation of risk-based bank

supervision

2008: Passage of

Renewable Energy Act

2009: Passage of Tourism

Act

2010

Applied Zero Based Budgeting Approach in preparing the 2011

Budget

Implementation by the Bureau of

Customs (BOC) of Electronic to Mobile

System; Enhancement of the agency’s post-entry

audit capability

Launched PPP Program

Reinvigorated implementation of programs against

corrupt officials, tax evaders and smugglers

Simplified and shortened business

practices through web-based

applications at the BIR

Set up the Debt Management Office at the Department of

Finance

2011

Enhanced Business Name Registration

SystemPassage of the Government-Owned-and-Controlled

Corporations (GOCCs)

Governance Act of 2011

Issued guidelines on the adoption of

Philippine Financial Report Standards

(PFRS) 9: Adopted phased-immigration

to Basel III

Issued EO 29 on Open Skies Policy

BOC National Single Window

2012 and beyond

2012:Issued EO 79

Institutionalizing and Implementing Reforms

in the Philippine Mining Sector

Providing Policies and Guidelines to Ensure

Environmental Protection and

Responsible Mining in the Utilization of

Mineral Resources

2012:Program Budgeting

Approach

2012:Nationwide Launch of Philippine Business

Registry Facility

2012 and beyond Full implementation of

the Government Integrated Financial

Management Information Systems

(GIFMIS) in 2013

2012:Launched Food Staples

Sufficiency Program

2012 and beyond: Sin Tax Bill and Rationalization

of Fiscal Incentives Bill

2012: Passage of

Amendments to the Anti-Money Laundering

Act of 2001

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Key Macro Indicators 2002-2006 Ave

2007-2011 Ave 2012

Sustained growth momentum Real GDP growth (2000=100) 5.1 4.7 6.5 (Q1-Q3)

Manageable inflation Headline inflation (2006=100) 4.4 4.8 3.2 (Jan-Oct)

Improving fiscal position Fiscal balance (% of GDP) -3.4 -2.1 -0.7 (H1)

Ample liquidity and credit supportive of economic

activity

Domestic Liquidity (% of GDP) 43.5 48.0 46.9 (H1)

Domestic Credits (% of GDP) 53.9 47.8 49.4 (H1)

Sound and stable banking system

Non-performing loans* (% of total loans) 11.1 3.2 2.1 (Aug)

Capital Adequacy Ratio (consolidated basis)** 17.6 16.3 n.a.

Robust external profile

Current Account Balance (% of GDP) 1.6 4.0 3.1 (H1)

GIR (in months of imports) 3.9 8.3 11.9 (Oct)

External debt (% of GDP) 58.3 31.7 26.6 (H1)

External debt service burden (% of exports of goods, receipts of services & income)

14.7 9.6 2.8 (H1)

Reaping the dividends of reforms: Stronger macro fundamentals

*UBs and KBs**Computation based on the combined reports of parent bank (head office and branches) and its subsidiaries engaged in financial undertakings but excluding insurance; also excludes trust department.

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Philippine Credit Ratings

BB+

• Upgraded credit rating to BB+ from BB with stable outlook (4 July 2012)

• Revised outlook to positive from stable (16 Dec 2011)

• Upgraded credit rating to BB from BB- with stable outlook (12 Nov 2010)

Ba1

• Upgraded credit rating to Ba1 from Ba2 with stable outlook (29 Oct 2012)

• Revised outlook to positive from stable (29 May 2012)

• Upgraded credit rating to Ba2 from Ba3 with stable outlook (15 June 2011)

• Revised outlook to positive from stable (6 Jan 2011)

BB+• Upgraded credit rating to BB+ from

BB with stable outlook (23 June 2011)

8 positive rating actions by S&P, Moody’s and Fitch Ratings since June 2010

Upgrades in 2012 real GDP growth forecasts by WB and ADB

PHL Real GDP Growth Forecasts, in %

2012 2013as of Oct

2012 5.5 5.0as of Jul

2012 4.8 5.0

as of Oct 2012 5.0 5.0

as of Jul 2012 4.6 n.a.

as of Oct 2012 4.8 4.8

as of Jul 2012 4.8 4.9

Growing third-party recognition

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*2011/2012 vs 2010/2011 for indicators with 2011/2012 data.Source: World Bank, Transparency International and World Economic Forum¹ World Bank Government effectiveness Indicators and Transparency International values are for the year 2010 / World Economic Forum Competitiveness Rankings values are from the 2011-2012 report.² Heritage Foundation 2011 ranking.³ Heritage Foundation 2012 ranking. 4 Environmental Performance Index by Yale & Colombia Universities in collaboration w/ WEF and EC. 2012 report.5 World Competitiveness Rankings values are from the 2012-2013 report. World Bank Government Effectiveness Indicator value from the 2011 report.

Significant gains on governance and competitiveness indicators

Financial and Capital Market Developments in the ASEAN

DIWA C. GUINIGUNDODeputy Governor

Monetary Stability Sector

37th Federation of ASEAN Economics Association (FAEA) Annual ConferencePICC, 29 November 2012

Documents

Financial and Capital Market Developments in the ASEAN