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Shadow Banking System in ASEAN
Dr. Yong PAN
Professor
Institute of Sino-ASEAN Research ,
Guangxi University
Email Address:[email protected]
The Defination of Shadow Banking
What is Shadow Banking?
Shadow Banking's Four Standards
Features of Shadow Banking
Shadow Banking in ASEAN
Causes for Shadow Banking's appearence
in ASEAN
Main patterns of Shadow Banking in
ASEAN
Shadow Banking's development in ASEAN
The Defination of Shadow Banking
The shadow banking
system is the collection of
non-bank financial
intermediaries that
provide services similar
to traditional commercial
banks.
Shadow Banking's Four Standards
Although there are still a few disputes about the
defination and scope of Shadow Banking,here we list
our own four standards to give a description of
shadow banking talked below.
A、institution standard
B、business standard
C、risk standard
D、regulation standard
Institution standard
Primarily,shadow banking must be those
institution which are standing out of the
banking system.(Like insurance company、security company、fund company etc)
Business standard
The Business that Shadow Banking involves
belongs to be credit intermediary.Different from
traditional banks,Shadow Bank usually absorbs
capital by debts solely.
Risk standard
The business provided by Shadow Banks
can not effectively isolate the rigid
redemption risk business from the
providers of funds, which differs a lot from
banking system
Regulation standard
Shadow banking is free from financial
regulation, namely they are not affected
by or almost not affected by financial
regulation
Shadow Banking in ASEAN
Causes for Shadow Banking's appearence in ASEAN
Tightening of monetary policy
Affected by financial crisis,most governments of ASEAN
countries took several tightening of monetary policies ,thus the
profit space for banks has suffered a short decrease recent years.
Changes of discount rate and base interest rate in Vietnam which is not beneficial
totraditional banks.(http://www.sbv.gov.vn/portal/faces/vi/vim/vipages_trangchu)
Causes for Shadow Banking's appearence in ASEAN
To absorb social idle funds
Inflation rate is much higher than bank interest rate, making
the real interest rate be negative actually.The purchasing
power of currency in most ASEAN countries gradually
reduces, which turns investors and capital owners to the
shadow banking system for a better yield, such as non-bank
financial institutions or private finance.
The inflation rate in Vietnam 2011 is 18.1%,and the rates for
2010 and 2011 are respectively as high as 8.9% and 8.9%,
which means there have existed negative real interest rates.
In Thailand and Malaysia, their political interest rate was kept
at about 3% , however, the inflation rates have reached 3.8%
and 3.8% respectively.That is to say the demand for gains of
social idle capital still can not be met.
Main patterns of Shadow Banking in ASEAN
Vietnam
The financial market is regulated by The State Bank of Vietnam,which
includes 5 State-owned credit institutions(Joint Stock Commercial Bank for
Foreign Trade of Vietnam、Vietnam Bank for Industry and Trade、Bank for
Investment and Development ofVietnam、Vietnam Bank for Agriculture and
Rural Development and Housing Bank ofMekong Delta)、34 Joint-stock
commercial banks、6 financial companies and 10 leasing companies.
Two main patterns of Shadow Banking are:
financial company and leasing company
No Name of companies Charter capital
No Name of companies Charter capital
1 Vietnam Textile and Garment Finance Joint stock Company
VND500 billion
10 PPF Vietnam Finance Company Limited. VND500 billion
2 Rubber Finance Company VND1,588,970,707,414
11 Song Da Finance Joint Stock Company VND686 billion
3 Post and Telecommunication Finance Company Limited
VND 500 billion
12 Cement Finance Joint Stock Company VND604.9 billion VND
4 Vietnam Shipbuilding Finance Company Limited.
VND 1,623 billion
13 EVN Finance Joint Stock Company. VND2,500 billion
5 Petro Vietnam Finance Joint stock Corporation
VND 6,000 billion
14 Toyota Việt NamToyota Financial Services Vietnam Company Limited
VND500 billion
6 Handico Finance Joint Stock Company.
VND 550 billion
15 Vinaconex-Viettel Finance Joint Stock Company
VND1,000 billion
7 Prudential Vietnam Finance Company Limited
VND 615 billion
16 Vietnam Chemical Finance Joint Stock Company
VND600 billion
8 Mineral and Coal Finance Company Limited.
VND1,000 billion
17 JACCS International Vietnam Finance Company Limited
VND500 billion
9 Sociéte General Viet Finance Company Limited.
VND550 billion
18 Miare Asset Finance Company (Vietnam) Limited
VND500 billion
Financial Company in Vietnam and its Charter capital
No Name of leasing company Chapter
capital No Name of leasing company
Chapter
capital
1 BIDV Finance Leasing Company VND447
billion 7
Vietnam International
Leasing Company Limited
VND350
billion
2 VCB Leasing Company Limited. VND 500
billion 8
Kexim Vietnam Leasing
Company
USD 13
million
3 Industrial and Commercial Bank of
Vietnam LeasingCompany Limited
VND800
billion 9
Sacombank Leasing
Limited Company
VND 300
billion
4 Agribank no.1 Leasing Company. VND200
billion 10
Chailease International
Leasing Company Limited.
VND 200
billion
5 Agribank no.2 Leasing Company VND350
billion 11
Asia Commercial Bank
Leasing Company Limited
VND200
billion
6 ANZ/V-TRAC Leasing Company VND103
billion 12
VINASHIN Finance
Leasing Company Limited
VND200
billion
Leasing Company in Vietnam and its Charter capital
Thailand
Main patterns of Shadow Banking in ASEAN
Except the central bank(Bank of Thailand),there are 14
Thailand Commercial Banks、one retail bank、2 financial
companies、22 Assets Management Companies 、8 Specialized
Financial Institutions and 27 Personal Loan Companies.
Main patterns of Shadow Banking in Thailand are:
Financial company、Assets Management Company
and Personal Loan Company.
Examples:
Advance Finance PCL is a leading financial services firm offering innovative
and creative solutions to a niche and diversified client base that includes
governments, financial institutions, corporations, SMEs, and high-net-worth
individuals.
Its core business includes:
Funding services
Raising fund from public and institutes in form of “Certificate of Deposit”
(CD) with the full protection of deposit and interest by Deposit Protection
Agency Act B.E. 2551
Lending services
Offering Corporate and Personal Loans in various products
Structured Finance
Providing the services of Financial Advisor, Equity / Debt arranging,
Syndication loans, Debt restructuring and Merger & Acquisition (M&A).
Main patterns of Shadow Banking in ASEAN
Malaysia
In Malaysia, shadow banking is defined as a ‘system of credit
intermediation that involves entities and activities outside BNM’s
regulatory capture.
Based on this definition, the Malaysian shadow banking system
comprises non-bank entities that engage in (i) loan origination, (ii)
purchase of debt securities, (iii) securitisation, (iv) credit guarantee or
enhancement exercises and (v) credit rating or scoring activities,
which account for approximately 93% of GDP.
Assets of Banks and NBFIs in Malaysia
You can see that the share of NBFIs almost keeps at a stable level of
about 27.5%
Table indicates the size of NBFIs in Malaysia in
comparison with the banking institutions. The data used
to measure the size of these entities were obtained
through the annual Sources and Uses of Funds survey
undertaken by BNM, which has been the central bank’s
approach in monitoring NBFIs since the early 1990s.
The market share of assets held by NBFIs has shown
gradual increment in the past decade, with 27% of total
assets in the financial system in 2000, rising to 28% in
2010. Unit trust funds recorded the highest growth at
14.8% in the observed period, indicating an increase in
wealth accumulation activities by the household sector.
The gradual growth of the Malaysian shadow banking system reflects the increase in the complementary role assumed by NBFIs in deepening the Malaysian financial system. On the other hand, banks’ assets market share remains above 50% every year, reflecting the position of the banking institutions as the backbone of the Malaysian financial system. In addition, credit intermediated by banks accounted for 61% of total credit intermediated in 2011 while the remaining was dispersed among various NBFIs.
Credit Intermediation by non-banks in Malaysia
Main patterns of Shadow Banking in ASEAN
Singapore
Singapore enjoys a very advanced financial system and plays
as the financial center of ASEAN.Shadow Banking in
Singapore mainly includes 24 Merchant Banks 、3 Financial
Companies、37 Advising on Corporate Finance、26 Real
Estate Investment Trust Managements etc.
The forms below shows all types of
financial institutions in Singapore
Type of Institution Number
Type of Institution Number
Type of Institution Numb
er
Commercial Banks 122 Holders of Financial Adviser's Licence 61 Finance Companies 3
Financial Holding Companies
5 Registered Fund Management Companies 124 Money Brokers 9
Merchant Banks 42 Exempt Financial Advisers 317 Singapore Government Securities Market - Primary Dealers
13
Representative Offices of Banks
37 Persons exempted from the requirement to hold a Capital Markets Services licence under Section
116 Singapore Government Securities Market - Secondary Dealers
20
Institutions with Asian Currency Units
160 Exempt Financial Advisers - Companies providing financial advisory services to not more than 30 accredited investors
120 Approved Holding Companies 3
Money Changers 384 Exempt Fund Managers - Companies providing fund management services to not more than 30 qualified investors
272 Approved Exchanges 3
Remittances 76 Exempt Corporate Finance Advisers - Companies advising on corporate finance to only accredited investors
101 Designated Clearing Houses 3
Holders of Capital Markets Services Licence
322 Holders of Trust Business Licence 51 Recognised Market Operators 25
Lloyd's Asia Scheme 25 Exempt Persons Carrying on Trust Business
37 Insurance Brokers Licensed To Place Business With Lloyd's
6
Representative Offices of Insurers and Reinsurers
2 Registered Insurers 161 Exempt Insurance Brokers Carrying on Business as Direct Insurance Brokers
24
Insurance Brokers 70 Authorised Reinsurers 6 Other Relevant Organisations 16
Shadow Banking's development in ASEAN
The number and scale of shadow banking
institution is increasing at a quick rate.
Type of non-bank financial institutions in Singapore is the
most abundant among ASEAN. The development of the
shadow banking is also advanced.
But, compared to Singapore, the shadow banking pattern
of the countries like Vietnam with relatively low levels of
financial development are not diversified.
Surveillance framework for shadow banking in Malaysia
The diversity of Shadow Banking in ASEAN
Circle 1 contains entities that raise potential systemic risk
concerns through their high level of interconnectedness with
the banking system, which includes, inter alia, banks’ funding
exposures to the shadow banking entities, deposit placement
with banks and ownership of financial institutions, apart from
maturity and liquidity transformation activities.
Circle 2 encompasses entities that are involved in
the extension of credit, either directly or as part of
the credit intermediation chain. Most NBFIs are
grouped in this circle, making it an integral part of
the monitoring framework.
Circle 3 encompasses entities that do not fall under
the shadow banking definition yet facilitate the flow
of capital between end-supplier and end-user of
funds, which is part of the financial intermediation
chain at large.
Thailand
Assets of non-bank financial companies
The scale of Shadow Banking in ASEAN
From the change of non-bank assets, we can
simply see that the assets of non-bank financial
intermediaries is decreasing in all, and this is
closely related to the intensive financial
supervision in Thailand.
Malaysia
Non-bank credit intermediaries in Malaysia are generally
not reliant on complex market-based funding to undertake
maturity or liquidity transformation. This reduces the
susceptibility of non-bank credit intermediaries in Malaysia
to a sudden market liquidity shock or liquidity
dislocations. The small share of debt securities issued by
non-bank credit intermediaries as a
proportion of total outstanding debt securities further limits
any impact of stress faced by these
intermediaries on overall market liquidity.
While the Malaysian bond market has grown in size and depth
over the years, reliance on debt securities by non-bank credit
intermediaries to fund credit activities remains relatively in low.
For the larger non-bank credit intermediaries, the majority of
the credit activities are funded from member contributions
whilst for the remaining, the main source of funding is
internally-generated funds. The private debt securities issued
by non-bank credit intermediaries amounted to RM29.6 billion
or 3.5% of outstanding debt securities as at end-2011. Of the
debt securities issued by the non-bank credit intermediaries,
commercial paper accounted for 2.2%, amounting to RM651
million or 11.2% of total commercial paper outstanding. While a
small number of non-bank entities have relied on commercial
paper, any potential impact on credit intermediation to financial
stability arising from any decline in market liquidity is limited,
given the small scale of their activities as well as size of
standing facilities and credit lines from banks. The exposure of
non-bank credit intermediaries to maturity mismatches is also
limited, with an average maturity tenure of private debt
securities issued of 8.2 years, whilst the financing granted by
these entities, which formed the majority of assets, is largely for
the medium-term not exceeding nine years.
Direct financial interlinkages between non-bank credit intermediaries and the
banking system primarily take the form of deposit placements with banks and
counterparty risk exposures. Such counterparty risk exposures arise from banks’
lending to, or holdings of debt securities issued by, the non-bank credit
intermediaries. On an aggregate basis, deposit placements by non-bank credit
intermediaries accounted for approximately 10% of total banking system deposits
as at end-2011. Provident and pension funds, insurers and takaful operators,
and a few large unit trust funds account for the bulk of these deposits
(69.7%),with the balance dispersed among other small non-bank financial entities.
The placement of deposits by the provident and pension funds, insurers and
takaful operators, and unit trust funds are spread out across a number of banking
institutions, hence, minimising the risk of funding concentration at the individual
bank level. While lending to and holdings of debt securities issued by non-bank
credit intermediaries by the banking institutions have expanded over the years,
such credit risk exposures remain small, accounting for only 2.9% of total
outstanding loans and debt securities held by the banking system or 21% of the
capital base of the banking system. Given the relatively small size of non-bank
credit intermediation in the financial system, interlinkages among these
intermediaries are also limited.
Singapore
Singapore is one of the most important financial center in the world
and is the highest level of financial development in ASEAN . So, we
will study the development of shadow banking in Singapore from the
perspective of the world.
Share of assets of non-bank financial intermediaries
From the above chart ,although the share of non-
bank intermediaries in Singapore to world
remained 1%, the statue of Singapore is equal to
some large economy entities like China,
Australia, Canada, this is enough to illustrate
that the development level of shadow banking in
Singapore is very advanced.
Before the financial crisis, the growth rate of
shadow bank in Singapore is very
high(18%),while after the financial crisis, the
growth rate declined significantly(4%-5%)
Share of total assets
From the above chart , in the total assets of Singapore, bank accounted
for 60%, non-bank financial intermediaries accounted for20%-30%,the
central bank accounted for 10% and insurance companies and pension
funds accounted for 5%. Therefore, we can conclude that non-bank
financial intermediaries in Singapore has developed rapidly.
Our Prospections for Shadow Banking In ASEAN
Monitoring challenges
1、Data limitation remains the biggest challenge faced by
financial stability authorities in their surveillance of the
shadow banking system.
2、Another key challenges faced is lack of granular and
quality information for risk assessment.
3、Finding the common financial soundness indicators
for shadow banking entities and activities is still placed
on our future research.