Asia's Financial Sector: 12 Things to Know

Since the Asian financial crisis in 1997-1998, the financial sector in the region has become more resilient to external shocks. Yet the challenge of ensuring stability amid market volatility remains as the region continues to pursue capital market development and financial integration. Here are 12 things to know about financial sector development in Asia and the Pacific.

  1. Asia’s emerging economies account for nearly half of the world’s total accumulated foreign exchange reserves.
    Source: ADB document Financial Sector Operational Plan
  1. Asia is simultaneously a large exporter and an importer of capital. This reflects an inability of the region’s financial system to channel its surplus funds effectively into intra-regional development financing.
    Source: ADB document Financial Sector Operational Plan
  1. The global financial crisis 2007-2008 did not affect the region’s financial sector because of adequate capital and liquidity. However, this resilience was the result not only of the financial sector’s conservative business approach, but also its lack of innovation and competition.
    Source: ADB document Financial Sector Operational Plan
  1. One of the most valuable lessons learned from the Asian financial crisis was the need to develop local currency bond markets as an alternative source of funding to bank loans.
    Source: ADB publication In Focus: Finance Sector Development
  1. Since the launch of the Asian Bond Markets Initiative (ABMI) in December 2002, the emerging East Asia’s local currency bond markets have grown to $6.7 trillion in size at the end of March 2013.
    Source: ADB publication Asia Bond Monitor – June 2013
  1. Asia and the Pacific’s financial systems are as diverse as its economies.
    Source: ADB document Financial Sector Operational Plan
  1. Large countries such as Bangladesh, the People’s Republic of China (PRC), India, Indonesia, and Pakistan need to develop a full-fledged financial sector - from microfinance to capital markets - as well as a banking sector that can meet the diverse needs of the economy.
    Source: ADB document Financial Sector Operational Plan
  1. Most of the medium-sized, middle-income countries, such as Malaysia, Philippines, and Thailand, have attained a significant level of financial sector development and now require focused assistance to address specific capacity building and reform issues.
    Source: ADB document Financial Sector Operational Plan
  1. Small economies, like those of Pacific island countries, are faced with a special challenge because of the lack of scale economies in their financial industry and market.
    Source: ADB document Financial Sector Operational Plan
  1. The regional integration of the financial sector in Asia and the Pacific is lagging behind that of the manufacturing sector, which is more open, competitive, and liberalized. Integration is needed to allow the channeling of savings from net saving countries to net borrowing ones, which is key to regional cooperation and integration.
    Source: ADB document Financial Sector Operational Plan
  1. Financial integration increases the exposure of emerging Asian markets to greater volatility in returns driven by external factors, such as the US Federal Reserve’s plans to withdraw its quantitative easing program.  Market liberalization must be counterbalanced by appropriate regulatory supervision.
    Source: ADB blog Asian financial integration: How much has it come true?
  1. ADB identified financial sector development as one of the five core operational areas in its long-term strategic framework, Strategy 2020.  Financial sector operations from 1966 to 2010 have accounted for 10.8% of total ADB operations in number and 11.9% in amount. In 2012, ADB approved $3.59 billion in assistance to the financial sector.
    Source: ADB document Financial Sector Operational Plan; ADB Annual Report 2012
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