POSTCRISIS OPPORTUNITIES FOR CENTRAL ASIAN BANKS

1

• POST-CRISIS OPPORTUNITIES FOR CENTRAL ASIAN BANKS

• Presentation of Istvan LENGYEL
• Secretary General
• Banking Association for Central and Eastern
  Europe

2
CENTRAL ASIAN BANKS AND THE CRISIS

• Two very different patterns of pre-crisis
  development
• Kazakhstan excess to large-scale foreign funding
  of the largest banks, boorowing-driven aggressive
  strategies, high loans-to-deposits ratio (at the
  peak over 200, very high pre-crisis growth rates
  (2006 96 p.a.)
• Other Central Asian countriesLower growth rates,
  more limited access to foreign borrowing, lower
  LTD (Kyrgyzstan - September 2008 104)
• BUT SUBSTANTIAL DIFFERENCES BETWEEN COUNTRIES
  BELONGING TO GROUP 2 (Kyrgyzstan, Tajikistan,
  Turkmenistan)

3
CENTRAL ASIAN BANKS AND THE CRISIS

• LESSONS OF THE CURRENT CRISIS
• MACROECONOMICS in this crisis, countries with
  more closed economies were hit less
• BUT
• indirectly (through decreasing workers
  remittances, export earnings) the crisis also
  reached relatively closed economies
• - BANKING SYSTEM relatively small size of the
  banking system was another advantage
• banks relying more on domestic funding suffered
  less
• BUT
• international turbulences, fear of problems in
  banks also spread to banks which seemed to be
  relatively isolated from world financial markets
• DECISIVE ROLE OF THE STATE AND BANK REGULATORS IN
  AVOIDING LARGE-SCALE PANIC

4
WHAT HAVE WE LEARNT (HOPEFULLY)?

• Modern world is highly interconnected and
  interrelated
• Information spreads with incredibly high speed
  (Is Hungary the next Iceland?)
• Events are driven by correct or incorrect
  information
• Markets are driven by greed and fear
• Markets are not efficient
• Self-regulation does not work
• Deregulation creates new bubbles (is China the
  next one?)
• STILL
• With proper policies, financial discipline and
  self-restrict of foreign borrowing, countries may
  counter-balance market forces

5
PERSPECTIVES OF CENTRAL ASIAN BANKS

• STRATEGIC STARTING POINT WHERE SHOULD WE GO?
• Classical principles of banking are not dead
• The crisis was the result of ignoring these
  principles
• Learning process by CEE/CIS banks should not stop
• BUT
• Critical understanding of Western banks
  experience is needed
• Western banks should also learn from us

6
PERSPECTIVES OF CENTRAL ASIAN BANKS

• Recapitalisation from domestic sources, state
  intervention, foreign ownership
• INCREASED ROLE OF INTERNATIONAL FINANCIAL
  INSTITUTIONS
• Pension reform, life insurance, Bausparkasse
  system
• IFIs, intergovernmental funds

• STRATEGIC PROBLEMS AND POSSIBLE ANSWERS
• LOW CAPITALISATION
• 2. LACK OF LONG-TERM FUNDING SOURCES

7
PERSPECTIVES OF CENTRAL ASIAN BANKS

• 3. EXPENSIVE DOMESTIC FUNDING
• 4. LOW PROFITABILITY, DIFFICULTIES IN BUILDING UP
  CAPITAL, INVESTING IN BRANCH NETWORK DEVELOPMENT,
  IT AND OTHER SYSTEMS
• 5. LACK OF TAILORED DEPOSIT AND LOAN PRODUCTS
• 6. LOW LEVEL OF RISK MANAGEMENT

• Proper macroeconomic policies, reasonable
  budgetary policy, support of savings, deposit
  insurance
• Cheaper funding, cost-efficiency, control over
  asset quality, training
• Product development, training
• Investment in RM, staff training
• TRAINING OF THE MANAGENT AND THE SHAREHOLDERS

8
PERSPECTIVES OF CENTRAL ASIAN BANKS

• TRAINING IS OF KEY IMPORTANCE IN DEVELOPING THE
  BANKING SECTOR IN CENTRAL ASIA
• A CRITICAL APPROACH IS NEEDED
• THE GOAL OF THE TRAINER SHOULD BE TRANSFER OF
  EXPERIENCE, KNOWHOW AND KNOWLEDGE ALWAYS TAKING
  INTO CONSIDERATION LOCAL EXPERIENCE AND KNOWLEDGE
• (Should ex-Lehman bankers teach risk management?)

9
SUMMARY

• CENTRAL ASIAN BANKS HAVE UNIQUE OPPORTUNITIES OF
  DEVELOPMENT
• THEY MAY AVOID REPEATING PROBLEMS COMMITTED BY
  THEIR PEERS IN THE REGION AND IN THE WEST
• TO REALIZE GROWTH OPPORTUNITIES, SUPPORT OF THE
  GOVERNMENT, THE CENTRAL BANK AND INTERNATIONAL
  FINANCIAL INSTITUTIONS IS NEEDED
• BANKS SHOULD INVEST (MAYBE JOINTLY WITH THE
  GOVERNMENT) IN THE EDUCATION OF CLIENTS
• CLOSE CO-OPERATION WITH THE PRESS IS ALSO NEEDED
  TO PROVE THAT
• BANKS ARE SOCIALLY USEFUL, RESPONSIBLE
  INSTITUTIONS!