Creating wealth in post currency crisis Asia : opportunities for financial services in Singapore

Abstract

The Asian currency crisis revealed the structural weaknesses of the banking systems in Asia, following the devaluation of Thai Baht on 2 July 1997. With freedom of movement of capital, economies in Thailand, Indonesia and Korea were affected adversely by the liquidity squeeze when capital flowed out. Banks had to raise interest rates and nonperforming loans (NPLs) mounted, leading to severe stresses on banking systems. Post crisis, there were signs of limited recovery of the region in sight, but the region-wide reforms would take some time to complete. In the interim, Singapore could use the crisis to position the entire financial sector has to better respond to future challenges. The thesis would analyse the causes of the crisis as starting point to derive the directions the financial sector should take. Preserving the stability of the banking sector whilst engendering a more efficient use of capital remains a central issue in this thesis. The crisis has shown that an over-reliance on the debt capital model could lead to a systemic weakness in the economy, and this motivated the need to develop the financial market to ensure diversification. The thesis then evaluates the liberalisation measures adopted by the regulatory body (Monetary Authority of Singapore) in its bid to enhance the financial sector, and identifies some of the main opportunities and challenges ahead. Beyond leveraging on Singapore's time-tested regulatory, accounting and legal systems, financial institutions will need to take into account the impact of technology and financial innovation. Globalisation, electronic and online trading are potentially going to disrupt the traditional models of banking and exchanges. Consequently, both the banking and financial market industries need to respond to this new challenge, and the traditional advantages of geography were being eroded. To remain as a vibrant international financial market, banks and exchanges have to upgrade, creating new and more sophisticated value-added products and services through specialisation.