ASEAN Financial Integration: Towards a Unified Economic Community

1. ASEAN FINANCIAL INTEGRATION Bankers Institute of the Philippines General Membership Meeting 29 October 2013 WILHELMINA C. MAÑALAC Managing Director

2. Outline of Presentation

3. Outline of Presentation

4. ASEAN Economic Community ASEAN at a Glance (2012) Ten member states at varying levels of economic development Combined income (GDP) of US$ 2.3 trillion Average GDP per capita of US$ 3,745 Different political regimes Combined land area of 4.4 million sq. km Population of 616 million people 5.6% Growth Source of data: World Economic Outlook September 2013

5. ASEAN Economic Community ASEAN Community 2015 ASEAN Security Community ASEAN Economic Community ASEAN Socio-Cultural Community A Single Market and Production Base A Highly Competitive Economic Region A Region of Equitable Economic Development A Region Fully Integrated into the Global Economy Free movement of goods, services, investment, skilled labour, and freer flow of capital by 2015.

6. ASEAN Economic Community ASEAN will become the largest single integrated market with 616 million people 10 Member States ASEAN’s Key Trends

7. Outline of Presentation

8. What is Financial Integration?

9. ASEAN Financial Integration ASEAN Community 2015 ASEAN Economic Community Financial Integration Financial Services Liberalization and Banking Integration Capital Account Liberalization Capital Market Development Harmonized Payments and Settlement Systems Supporting Initiatives

10. ASEAN Central Bank’s Initiatives Combined Studies on ASEAN Financial Integration • ASEAN Financial Integration Framework • Establishment of ASEAN Senior Level Committee on Financial Integration • Establishment of Task Force on ASEAN Banking Integration Framework • Establishment of Steering Committee on Capacity Building • Establishment of Working Committee on Payments and Settlement Systems

11. ASEAN Financial Integration General Frameworks

12. ASEAN Financial Integration Summary of Objectives

13. ASEAN Financial Integration • Financial Services Liberalization/Banking Integration • Goals? • Free flow of financial services (banking services, insurance services, investment companies) among ASEAN countries • Operation of ASEAN banks, to be known as Qualified ASEAN Banks (QABs), in each of the ASEAN-member economies • How to achieve it? • Progressive liberalizationof ASEAN financial services (Insurance, Banking and Capital Market subsectors) through series of negotiations – gradually removing restrictions in allowing ASEAN banks, insurance companies, etc. to provide services in other ASEAN countries. • Adoption of one common framework for ASEAN Qualified Banks, based on countries’ readiness • Achievements so far? • Progressive liberalization. ASEAN members have submitted financial services liberalization commitments through five rounds of negotiations – Commitments to allow banks, insurance companies, investment companies to supply services in other ASEAN countries but most are still subject to existing restrictions. • 6th round is ongoing • Framework. Approved in principle the ASEAN Banking Integration Framework

14. ASEAN Financial Integration Conditions on Foreign Bank Participation in the ASEAN Region Source: World Bank Services Trade Database, World Trade Organization Trade Policy Review

15. ASEAN Financial Integration Philippines’ Commitments in Financial Services under AFAS

16. ASEAN Financial Integration • Capital Account Liberalization • Goals? • Freer flow of capital among ASEAN member economies, not necessarily a fully open capital account! • How to achieve it? • Progressive removal of restrictions, where appropriate and possible, on current account (CA), foreign direct investments (FDIs), portfolio investments (PIs) and other flows (OFs) as identified in the member countries’ individual milestones blueprint. • Achievements so far? • Assessment. Assessment and identification of rules in CA, FDIs, PIs and OFs were completed. • Roadmap. Individual Milestones Blueprints, which show member countries’ plan to progressively liberalize their capital account drafted. • Monitoring. Monitoring tool for implementation of the roadmap for CAL and updating of assessment of CAL regime has been agreed upon. • Policy Dialogue. A dialogue process on safeguard mechanism is being discussed

17. ASEAN Financial Integration Summary of Assessment of Rules on Current and Capital Account 0 means capital account is fully restricted, while 100 means fully liberalized or with minimal restrictions.

18. Philippines’ CAL Initiatives Foreign Exchange Reforms

19. Philippines’ CAL Initiatives Foreign Exchange Reforms

20. ASEAN Financial Integration • Capital Market Development • Goals? • Build capacity and lay the long-term infrastructure for development of ASEAN capital markets to achieve integration of capital markets in ASEAN • How to achieve it? • Harmonization of domestic laws and regulations and linkage of market infrastructure. • Achievements so far? • Roadmap • Development of the Implementation Plan to Develop an Integrated Capital Market • Linkage. Operationalization of the ASEAN Trading Link and interconnection of the stock exchanges of Malaysia, Singapore and Thailand • Monitoring. Development of the Bond Market Development Scorecard • Rating of Companies. Launching of ASEAN corporate governance scorecard

21. ASEAN Financial Integration • Capital Market Development • continued.. Achievements so far? • Supporting Issuers. Setting-up of the Credit Guarantee and Investment Facility (CGIF) • Transparency • Completion of ASEAN Disclosure Standards • One-stop clearinghouse of information on sovereign and corporate bonds through the Asian Bonds Online • Launching of the ASEAN+3 Bond Market Guide • Harmonization. Identification of initiatives towards the launching of the Asian-Multicurrency Bond Issuance Framework (AMBIF)/Program (AMBIP)

22. ASEAN Financial Integration Capital Market Development and Integration Capital Markets as Percentage of GDP

23. ASEAN Financial Integration • Harmonized Payment and Settlement Systems • Goals? • Harmonization of ASEAN payments and settlement systems as a financial infrastructure to support the AEC 2015 • How to achieve it? • Adoption of common standards to allow efficient payments and transfer transactions across the region • Achievements so far? • Assessment of gaps. Conducted 5 (five) studies in the areas of cross border trade settlement, cross border money remittance, cross border retail payment systems, cross border capital market settlement and standardization • Roadmap. Formulated prioritized policy recommendations in the development and harmonization of ASEAN payment and settlement systems

24. ASEAN Financial Integration • Almost 86 percent of the measures committed under the AEC to facilitate FSL and CAL have been completed. • Financial deepening and integration in ASEAN have improved over time. • However, financial integration in the region is still far from complete.

25. Outline of Presentation

26. Issues and Challenges • Opportunities, Risks, and Implications of Integration on Philippines’ Inclusive Growth Strategy • Benefits. The deepening of banking integration in ASEAN will generally contribute to the overall health of the Philippine banking sector and produce more jobs for Filipinos. • Promotes domestic financial development through greater • competition • Leads to increased foreign direct investments • Risks. Financial contagion may arise from banking market integration if Member States are not properly prepared or the speed of integration is faster than optimal. • Capacity-building and preconditions. Training programs in financial market development, institutional quality, governance, sound macroeconomic policies, and trade integration. • Finding donors for capacity-building needs • ASEAN-5 Countries to provide capacity-building support to newer ASEAN

27. Issues and Challenges • Foreign Bank Entry • The objective of ASEAN financial integration does not contemplate full market access of Qualified ASEAN Banks into the banking system but respects the approval processes of the host AMS and existing foreign equity participation in domestic banks. • Public Awareness and Consultation • Regular consultation with the banking industry are being conducted. Public awareness campaign on AEC are being intensified.

28. Outline of Presentation

29. BSP’s Role • Proactive engagement in international and regional financial and monetary cooperation and integration initiatives. • Chairing of working committees on financial integration (WC-CAL, SLC, TF-ABIF Work stream on Capacity Building, ABMI Task Force, Task Force on Remittances). • Consultation of stakeholders on commitments to financial integration initiatives. • Continuous review of the regulatory frameworks to recommend necessary policy reforms and/or legislative actions. • Identification of capacity building needs as well as offer technical assistance on areas of expertise

30. ASEAN FINANCIAL INTEGRATION Bankers Institute of the Philippines General Membership Meeting 29 October 2013 WILHELMINA C. MAÑALAC Managing Director