Banks must gear up for the Asian economic era

Asia, with its huge thirst for capital and infrastructure investment, will be an area of increasing importance for Japanese financial institutions in the years ahead, according to the chairman of Fuji Bank.

Asia has the potential to log continued economic growth and it is only natural for banks to expand their lending business in the area, Toru Hashimoto said in a recent interview. “But because Japanese banks would be facing fierce competition from their American and European counterparts in Asia, it is imperative for them to accelerate the writeoff of their bad loans and work to offer better financial products and services,” he said.

Hashimoto will participate in round-table discussions at a seminar on developing Asian financial markets to be held in Fukuoka on Saturday, jointly organized by the Asian Development Bank and the Institute of International Finance. The seminar is one of the events slated for the ADB’s annual Board of Governors Meeting.

But as the need for capital grows in Asia, Hashimoto pointed out, it is becoming increasingly evident that multilateral aid institutions such as the ADB are not enough, and that additional financing from the private sector is needed. The ADB calculates that over $1 trillion worth of infrastructure development will be needed in the Asia-Pacific region for the five years beginning in 1996 if the area is to sustain its current pace of economic growth.

Hashimoto pointed to the limits of official development assistance as industrialized nations have begun to place greater priority on clamping down on government spending to reduce their fiscal deficits. Japan is no exception, with Prime Minister Ryutaro Hashimoto instructing the government to reduce policy-related spending in fiscal 1998 from the initial budget for the current fiscal year in an effort to regain fiscal health.

In recent years, private financiers have been calling on Asia-Pacific governments to take steps to improve their financial markets and remove barriers to capital flows so more money could be channeled to development projects. Fuji Bank’s Hashimoto said that while he served as chairman of the Japan Federation of Bankers’ Associations from 1995 to 1996, the issue was discussed by private financial institutions of the members of the Asia-Pacific Economic Cooperation forum. “Debate centered on two main themes — the growing demand for private funds for infrastructure development and the need for more speedy, accurate economic statistics (for Asian countries,)” he said.

The development of domestic bond markets in Asia, for example, could greatly help utilize the savings of these countries, Hashimoto said. But at the same time, private banks must keep in mind that while these emerging markets have huge potential, there is also a greater element of risk than similar businesses in industrialized countries, he said.