Citigroup sanguine about Asean despite social tensions
[SINGAPORE] Citigroup remains optimistic on Asean, as the 10 Southeast-Asian nations in the economic bloc make strides in creating standardised rules to smoothen cross-border trade within the region, said Michael Zink, Citi's head of Asean, and country officer for Singapore.
This sanguine view comes despite risks on the horizon, Mr Zink told The Business Times in a recent interview. The dogged efforts by Asean countries to meet next year's deadline to implement the Asean Economic Community Blueprint - which sets out goals to "transform Asean into a single market and production base" - are being pitted against social tensions such as income equality, and in Singapore's case, the fear over a reliance on foreign labour.
"It's the aspiration of the community," said Mr Zink, referring to the blueprint. "Nobody's backing away from this."
The central plan in the blueprint is the Asean Single Window that would, among other things, speed up cargo clearance. This, according to a protocol published by the economic bloc last year, would involve the use of a single set of customs documentation, and a synchronised data-processing system. Such efforts to boost cross-border trade presents Citi with "the biggest opportunity" today to tap on intra-Asean trade - which hit some US$600 billion in 2012, said Mr Zink.
"It's a reflection of the vibrant supply chains that have emerged here," he told BT. "Sometimes it's as simple as saying, 'when you get to the border, you don't have to change trucks'. And how much friction does that take off? A lot. Some people might say it's prosaic, but this is how commerce works."
Non-US operations of Citigroup already make up more than half of the American bank's business, with Asia and Latin America as key regional markets. Citigroup does not publish a detailed geographical breakdown of revenue and profit contributions, though Mr Zink could say that the Asean business, which made up "less than half" of the total Asian operations, has already met the targets set for measures such as return on assets and operating efficiency. Citi is operating in all Asean countries except Laos, Cambodia, and Myanmar.
Having Asean align with a single set of cross-border trade standards fits Citi's strategy to host data centres and transaction-processing hubs in key cities in Asean - with three of five, including one in Singapore, based in the region - that would allow Citi to take advantage of its scale, he said.
Even as the Asean blueprint seeks to encourage a liberal flow of investment, and a freer flow of capital, there are clear signs that the capital markets in Asean are already maturing. In analysing the US$9.4 billion acquisition of China's Ping An Insurance by Thailand's CP Group, Mr Zink noted that the equity capital markets in the region have already grown to about US$2 trillion, or around the size of the region's collective GDP.
"The debt capital markets are about a trillion dollars, also up fivefold since 2000. So suddenly, we have markets deep enough to finance a nine-billion-dollar deal," he noted. "There is a confidence, coupled with the availability of assets, and the ability to finance it."
This also comes as banks such as Citi try to reach customers in both the business and consumer segments through digital channels, especially as countries in the region have resisted from lifting restrictions on the number of branches that foreign banks can set up.
"Even corporate managers today are perfectly happy to initiate their transactions on their devices. They are no longer chained to their offices," said Mr Zink. "We spend less time pushing for branching today, and more time trying to reach the customer, which changes the conversation with the regulators. Now, the conversation around cyber-security has become one of the top issues in the world."
Some of that regulatory pressure can be eased through trade deals such as the Asean Single Window, which would allow the region to set expectations about data protection, he added.
But a more worrying wave of social tension has emerged. "The uneven distribution of income is becoming a very common conversation. Cambodia's having that discussion - the garment workers are saying, 'we are not asking for a zillion dollars, we are asking for $165 a month'. You come to Singapore, and there's a conversation about talent and workers, and whether Singaporeans are getting an equal opportunity," the banker said.
"They all seem to have come at once," he added. "Derail would be far too strong a word. But these are questions that have an impact on the shape of the economies that emerged, and we, as business people, have to play our position."
Mr Zink recalled the "collective gasp in the room" in 2011, when Singapore lenders were told about "Basel+2" - banks had to hold two percentage points more of top-quality capital as a ratio to risk-weighted assets, compared to requirements under Basel III. "He (Minister Lim Hng Kiang) explained ... 'we want to position Singapore as the best capitalised, most secure, most stable financial service in the region, maybe in the world. Any questions?'," said Mr Zink.
"Sir, no sir, we got it sir."
Citi has also been sensitive to the call by the government for companies to give Singaporeans a fair chance to rise up the ranks as their global peers.
"Singaporeans should run Singapore. The Koreans should run Korea, and the Indians should run India," said Mr Zink, noting that this has also been part of Citi's culture. "If you walk the halls, and you want to find Singaporeans, you'll trip over them," he added. "If policies shift, we just adapt. We don't resist it."
