I find it rather peculiar that the ASEAN Economic Community, which envisages a European Union-style single market in Asia, was launched officially in late 2015.
The reason is that in Asia, where I live and work, nobody mentioned it at the time, much less so in the intervening years. This is a project that should arouse the same sort of passion in people living in Asia – and more so, I think I can say, for those who were born and raised on that continent – as Brexit in the UK. Instead, the intitiative seems to have assumed from inception the aura of a backdoor stitch-up by a group of civil servants.
On the other hand, when has ASEAN ever been a bastion of democracy? One suspects that quite a few of the 10 countries in that grouping would do away with elections altogether if they could get away with it.
But unlike the EU, the AEC (doesn’t that sound rather like a doomed acronym?), which is planned to come into existence in 2020, is not going to be the subject of referenda in the ASEAN economic region. One wonders just why that is, apart from the cavalier attitude towards democracy.
Might it be because there is immense scepticism towards the project among its prime movers? Is it all just jam tomorrow and let’s head off on another AEC-focused junket?
SOME HARDENED SCEPTICS certainly believe that to be the case. Several told me that most ASEAN nations – with the exception of super-rich Singapore – are not willing to shoulder the short-to-medium term (or perhaps longer) economic pain that will come with the tariff cuts mooted in the AEC plan.
An economic union without extensive tariff reductions would not be worth the name. Nevertheless, that’s the spectre haunting the AEC. Meanwhile, the lack of referenda on the issue makes it look as if politicians saw the whole project as an almighty challenge to sell to their electorates.
Still, setting aside scepticism that the organisation can thrive - or even come into being in the context of historic national rivalries and fiercely guarded sovereignty - the project has profound implications for Asian banking.
This is because the AEC also promises to bring with it the ASEAN Banking Integration Framework (ABIF), alongside integration in the capital markets and fund management industry (ACMI and CIS, in case you were wondering).
If this part of the AEC has legs, the resulting competition among financial industry players – but particularly those in the banking industry staring down ABIF – will be intense. It seems highly likely that many regional banks will disappear, either as the result of M&A or failure. This would be the result of downward pressure on margins, a seeming boon for ASEAN and a key element in the thinking of the AEC’s ideas people who aim to super-charge the region’s international competitiveness.
BUT THE ABIF is grounded in the concept of Qualified ASEAN Banks (QAB – yes, another acronym) playing a key role in facilitating intra-ASEAN trade and investment. Doesn’t that seem a little bit like looking after the big household name banks which dominate the QAB lists?
With a timeline for these integration plans between now and 2020, the next three years arguably represent the most transformational, and potentially exhilarating, three years in the history of banking in Asia. The proof, as they say, will be in the pudding.
But while all this endogenous stuff is going on around banking in the AEC, it strikes me that the fundamental issue is exogenous. Banking is rapidly changing across the globe, and tweaking a part of Asia for hyper-competitiveness is to miss the big picture.
The last few years have been the stuff of nightmares for CEOs at the big incumbent banks. The most vivid dreams come from the so-called challenger, or neo, banks that have sprung up to address the needs of the iPhone generation - virtual banks, existing online only and looking to steal a march. To say nothing of the latent fears that the likes of Google and Facebook are about to deliver the traditional banking industry its final blow.
One thing’s for sure: the AEC’s grand vision of building ASEAN’s economic future out of the central plank of the banking industry providing low-cost funding to the region’s corporate enterprises will raise a few wry smiles around Asia’s syndicated lending departments.
They’ve been moaning for the best part of two decades about the never-ending compression of lending spreads in the region. Perhaps the ABIF will usher in an era of banks lending below their cost of funding. It’s been known on the odd occasion thanks to cross-selling pressure. As a business discipline, it would be ruinous.
