Asian countries must make their financial systems more innovative to better prepare for a changing external environment and tighter liquidity conditions, Asian Development Bank president Takehiko Nakao said.
The region is facing new challenges, Nakao said at the Asian Financial Forum in Hong Kong on Monday.
Asia used to enjoy the “economic tail winds” from technology transfer, foreign direct investment, exports and, most recently, ample liquidity after the 2008 global financial crisis, he said.
But now the region is seeing those tail winds become head winds, in large part owing to tighter liquidity as the US Federal Reserve tapers its bond buying programme, he said.
Nakao warned regulators not to be complacent about the banking system and called on them to adopt innovative measures, in particular to help the development of small and medium-sized companies.
“Asia should develop its capital markets further, in particular the corporate bond market, and the investor base, such as life insurance and pension funds,” he said.
“Meanwhile, Asia needs to continue to improve financial regulation and supervision to reduce financial risks.”
Developing Asia should provide more inclusive financing to reach households and smaller enterprises, Nakao said.
The bank forecasts growth of 6.2 per cent for its 45 developing-country members this year, slightly higher than the 6 per cent last year.
Nakao ruled out a repeat of the 1997 financial crisis in Asia.
“The Asian financial market is much more resilient than in the 1997 Asian financial crisis,” he said. “Many Asian economies continue to have current account surpluses and low external debt, and most countries’ banking systems are sound.”