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2002
(Issue No. 122)
Synopsis
Contagion
in Financial Markets: Are the Causes and Solutions Economic, or
Banking and Finance, in Nature?
by Dr John L Simpson
In the past two decades, a number of financial crises have
occurred. They are broadly categorised as the Latin American debt crisis, the
Mexican debt crisis, the Asian currency crisis and the Russian banking crisis.
The key questions are whether or not these crises have underlying economic or
banking and financial causes, consequences and solutions and whether or not
systemic crises and their debilitating effects may be prevented or pre-empted.
In this largely descriptive paper the work of Sell (2001) is reviewed and
commented on. In the conclusion it is agreed that contagion can sometimes be
confused with international business cycles. However, the writer feels that
rather than model contagion in less developed countries the onus is on the
banking sectors in Western economies to pre-empt financial crises by adhering
to prudent lending practices, sound credit risk assessment and credit risk
management practices and proper country risk identification, conceptualisation
and the use of portfolio diversification. If lending behaviour is not improved,
more rigid prudential supervision is required. Future research directions are
also discussed. We move towards the development of market risk adjusted
systemic earnings at risk models for individual banking sectors. The purpose is
to locate an optimal level of systemic economic capital, before further
modification of the calculation of the regulatory capital of banks within a
system.
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Creating a Robust Credit Culture
by Philip W. Forrest
In the 10 years to 1997, most economies in South-east Asia enjoyed
unprecedented economic growth. It was a period when banks were largely
protected from the consequences of undisciplined or inappropriate lending; the
strength of the economy took all before it, and made almost every credit
decision-making process look competent. Then the Asian crisis, followed in
fairly short order by a global recession, changed the game completely. Many
banks were swamped by the severity of their bad loans, and not a few would be
bankrupt were it not for government support.
However, whether through government assistance, the efforts of
management and staff, the contributions of shareholders, or a combination of
all of these, some of these banks have happily now reached the stage where they
can stop directing all their attention to their problem loan portfolios, and
can once again start to focus on the marketplace. Senior management is
recognizing that the old ways of extending credit ?often depending on the
personal contacts of the CEO, or on the apparent strength of collateral without
concern for ability to repay ?is no longer acceptable. In fact, the more
enlightened of these banks are now seeking to create a "credit culture", but
there is often confusion about what this means, how it is achieved, and how
long it takes. This paper attempts to provide some answers.
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Bank Risk Management in Asia: The Prescriptive Effect of the New Basel Accord
by Philippe Delhaise
In the article, the writer looks at the many facets of banking risks and risk
management. He argues that the preferences, or aversion, for risk exhibited by
bank shareholders and decision-makers show which risks, once identified, are
tolerated. This indicates which risks should be sought, which should be
reduced, perhaps with the taking of other (hopefully, counterbalancing) risks.
It is important to establish what the preferences of each bank will be as a
corporate objective.
While it is difficult to assess what induced effects the new
Basel Accord will have in Asia, bank shareholders and management will want to
extract the best deal for themselves within the new constraints imposed on
financial institutions. However, this is not necessarily incompatible with the
objectives of the regulators. The writer believes that the Accord will provide
banks with opportunities to create value, to satisfy their regulators, and to
improve their image in the international circles.
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Operational
Risk Management in the Malaysian Banking Industry
by James Chong
In the beginning of 2002, KPMG Consulting Sdn Bhd embarked on its first
Operational Risk Management Survey targeting Malaysian financial institutions,
in particular commercial banks and development banks. This article details the
findings from the survey, which attracted feedback from more than 50% of the
relevant financial institutions. The survey provides an understanding of the
level of operational risk management sophistication in these financial
institutions and their preparation towards complying with the new Basel Capital
Accord in 2005.
How
Effective is Business Process Re-engineering in Malaysian Banks and Finance
Companies?
by Khong Kok Wei
Management techniques determine how well companies operate and
they have been practised for centuries. With the passage of time, management
techniques began to evolve to suit the enterprise and the environment. However,
these techniques still retain the essence of what was contrived a century ago.
Therefore, the question is whether these traditional techniques can still
withstand the challenges facing enterprises today. Business Process
Re-engineering (BPR) is up to this task. BPR fundamentally rethinks and
radically redesigns the business processes to achieve dramatic improvements in
areas such as business performance and customer service management. As
competition rapidly increases, change is essential. Despite the dramatic
improvements offered by BPR, many enterprises failed to achieve what was
expected. To ensure successful BPR initiatives, ingredients of BPR were
examined. The aim of this paper is to examine the effectiveness of BPR in
Malaysian domestic banks and finance companies.
With the assistance from Institut Bank-Bank Malaysia (IBBM),
questionnaires completed by 128 respondents from 10 anchor banks and finance
companies were analysed. The results of the analysis and implications are
discussed. Several hypotheses were tested concerning the relationships between
the ingredients of the BPR implementation process and the performance of the
enterprise, ie customer service management and business performance. Findings
revealed that the ingredients of BPR lead to improved customer service
management and business performance. Further findings revealed that improved
customer service management leads to improved business performance.
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Rise
of Islamic Banking in Australia
by Abdel Halabi, Alfieya Hanuum Ridzwa and
Dr Bala Shanmugam
Islamic or Shariah compliant banking services is becoming increasingly
popular around the world. Although a relatively new concept to be introduced to
the financial world it is one of the fastest growing segments of global
financial services and has grown tremendously since the late 1960s. From a bare
handful of financial institutions set up in the 1970's to provide services
compatible with Shariah law, the number of Islamic banks has grown to more than
250 as at end of 2000, with an asset accumulation of US$200 billion. Today
various forms of Islamic banking services are available in more than 60
countries, including many non-Islamic nations and generates financial
transactions of more than US$200 billion a year.
Islamic banking in Australia was introduced quite successfully through a
cooperative formed a decade ago by a small group of young Australian Muslims in
the face of growing demands from the community. This paper looks at the
activities of this and other such institutions that offer Shariah compliant
financial services and the future of Islamic banking in Australia.
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