Asian financial institutions were able to weather the storm of the Lehman Brothers bankruptcy in 2008 because they had learned their lessons in the wake of the regional financial crisis inflicted on them a decade earlier, according to Shane Dardis, vice-president for regional structured products advisory at DBS.
The changes introduced include new counterparty credit risk mitigation systems, restrictions on bank proprietary trading activities and, more recently, the revival of the securitisation market.
"There was no broad-based regulatory framework," says Dardis. "A lot of the Asian banks are still [working] off Basel I and looking to implement Basel II. Asia had its banking crisis in 1998. As we saw after the financial crisis, Asian banks remained in good health, they had strong balance sheets and strong capital ratios. So Asian regulations have been driven on a country-by-country basis and by the banks themselves."
But he says there is little doubt that the implementation of the Dodd-Frank Act in the US and Basel III in Europe is having an impact on Asian financial institutions. "We're seeing a change in how a lot of our financial institution counterparties fund themselves," he says. "We're seeing a lot more secured collateral funding transactions. They are extending the duration of these transactions past one year, and they are changing the type of collateral they can use. So it's already having a major impact on the banking industry and how it funds itself."
However, Dardis emphasises that there is less potential regulatory arbitrage between Asia and the US or Europe as a result of these new rules. He points out, for example, that regulators in Singapore and South Korea have issued statements saying their capital rules will meet or exceed the standards set by Basel III.
In terms of financial product growth, Dardis says that with Asia's economic recovery the region is also seeing a renewed interest in securitisation. "We see Asia as very much a promising market over the next two years for increased issuance in ABS, CMBS, auto-receivables and RMBS," he says. "There are regulatory changes going on in the Philippines, Malaysia, and Thailand that should also open these markets going forward in the short term."
The video interview is based around the follwoing questions:
1. What are the major changes in the banking industry as a result of the global financial crisis?
2. What are the key regulatory changes affecting the financial landscape?
3. How have banks set up credit value adjustment (CVA) businesses, and how have these developed?
4. Has Basel III had an impact on the way banks fund themselves?
5. What are the competitive challenges that have come with uneven regulatory environments and enforcement?
6. What are the main themes for the DBS business in Asia over the past year?
7. How has the CNH market developed?
8. Is the securitised market in Asia re-emerging?
9. What considerations do investors have?