Tougher reforms cripple growth of Asian lenders
Post-Lehman measures have created confusion for both the industry players and investors
Medicine for finance has proved to be poison for industry, say analysts looking back at the momentous collapse of Lehman Brothers five years ago that triggered a spate of regulatory changes.
While the 2008 global financial crisis mainly hit banks in the United States and Europe, Asian lenders have also been forced to prepare for the tougher Basel III capital requirements and implement over-the-counter derivative regulations and curbs on bankers' remuneration even though they themselves were not afflicted with the problems seen elsewhere and largely catered to the local market.
A survey by KPMG showed local lenders, in order to meet Basel III capital rules, were likely to cut lending to boost reserves.
"One feature of the global crisis was that many of Asia's financial institutions were not directly exposed to the causes and yet they were subject to the fallout and implications," said Mark Konyn, the chief executive of Cathay Conning Asset Management. "A key concern going forward relates to trade finance. Asia depends very heavily on trade for economic growth and remains exposed to banks pulling back from supporting trade finance."
UBS chief executive Sergio Ermotti said he believed regulation was important, but too many diverse reforms across different markets were confusing for both banks and investors.
"This is a bad idea because it creates confusion for both banks and investors," he said. "Regulatory reform has not been implemented on a global basis but, rather, each market has had its own voice. There are far too many voices and new regulatory ideas. Sometimes, the public debate about new regulatory ideas takes place even before the existing reform is completed."
Reforms by the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission have targeted mis-selling by banks and brokers. They came in the wake of complaints by more than 20,000 investors that they were mis-sold risky Lehman-related products that became worthless overnight when the company collapsed.
Meena Datwani, the executive director of banking conduct at the HKMA, said the reforms, including customer risk appetite tests, audio tapes of sales process and mystery shopper programmes, had improved investor protection.
"Investors are given clearer information about the products and provided more time to consider whether to make an investment. The sales process is more standardised while investors are more aware of their rights and obligations," she said.
However, Hong Kong Institute of Directors chairman Kelvin Wong said these measures made it hard for investors to buy products.
"Investors now need to do an hour-long test before they can buy any products. Bank staff may now spend 28 minutes explaining the risks and two minutes presenting the products. This affects Hong Kong as a financial centre as investors find it too difficult to buy even simple products from banks," he said. "We have to review if we have gone too far after the crisis."