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Region's strong growth, low financial reach big pluses for Asian banks

MAS chief says onus is on Asian banks to expand financial inclusion, which offers growth opportunities while serving a social purpose
Tuesday, May 30, 2017 - 05:50

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Mr Menon said using innovative fintech solutions, banks can mobilise untapped savings and provide access to credit for under-banked individuals and businesses.

Singapore

THE prospects for Asian banks are good chiefly because the prospects for Asian economies are good, said Ravi Menon, Monetary Authority of Singapore (MAS) managing director.

At the same time, financial inclusion remains low in many parts of the region, he said on Monday at the Symposium on Asian Banking and Finance. The symposium is jointly organised by the Federal Reserve Bank of San Francisco and the MAS.

The region is expected to continue registering relatively high growth rates in the medium-term, about 6 per cent on average over the next five years, compared to the global average of 3.7 per cent, he said.

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"Higher Asian incomes will drive demand for financial services, leading to more opportunities in banking. At the same time, financial inclusion remains low in many parts of Asia," said Mr Menon.

He added that a 2015 World Bank study found that of the two billion adults on the planet with no bank accounts, more than half were in East and South Asia.

A more recent study by the Asian Development Bank covering Cambodia, Indonesia, Myanmar and the Philippines found significant gaps between demand and supply in several financial services, including payments, savings and credit.

It estimated that using digital finance to enhance financial inclusion would boost growth by between 9 per cent and 14 per cent in large economies such as Indonesia and the Philippines, and up to as much as 32 per cent in Cambodia.

Global banks will continue to play an important role in the region, especially in wholesale banking and the intermediation of US dollar flows, Mr Menon said.

"But the onus largely falls on Asian banks to expand financial inclusion, especially at the retail and small business level. Using innovative fintech (financial technology) solutions, they can mobilise untapped savings and provide access to credit for under-banked individuals and businesses," he said.

Asia is fertile ground for digital innovation in banking, Mr Menon noted.

In Indonesia and Vietnam, only around a third of the population have access to banking services. Yet, their mobile phone penetration rates are above 100 per cent - that is more than one phone per person on average.

This, coupled with a young and tech-savvy population, makes for a ripe environment for mobile banking, he said.

Mr Menon cited innovations across Asia, bringing banking services to the broader population.

In Indonesia, the Financial Services Authority runs a branchless banking programme with participant banks.

Called Laku Pandai, or "smart man", the programme offers banking and financial services to the under-banked, supported by mobile phones and IT facilities.

In Singapore, DBS Bank is collaborating with peer-to-peer (p2p) lending platforms to cross-refer clients.

DBS will refer to the p2p lenders some of the smaller businesses that it is unable to lend to. In return, the p2p lenders will refer borrowers who have completed two successful rounds of fundraising to DBS for larger commercial loans and other financial solutions such as cash management.

The road to financial inclusion is neither short nor easy, said Mr Menon. But it is an important one, he stressed.

"Broadening access to financial services will offer Asian banks and fintechs the opportunity to grow their business while serving a social purpose," he said.

Financial inclusion will be a key priority in the economic cooperation agenda when Singapore assumes the chairmanship of Asean next year, he added.

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