Bankers bracing for challenging times ahead

PUBLISHED : Friday, 01 June, 2012, 12:00am
UPDATED : Friday, 01 June, 2012, 12:00am

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Bankers and regulators yesterday painted a challenging picture for the global economy but stressed that many aspects would have a resounding impact in the next few decades if properly handled.

Addressing the Asia Global Dialogue, the annual forum of the Fung Global Institute, HSBC chief executive Stuart Gulliver (pictured) said the euro zone lacked four vital elements to keep it together.

These, according to him, are: a Europe-wide deposit insurance provided by the European Banking Authority in euros, to ease concerns on bank solvency and currency value; a European version of the American Troubled Asset Relief Programme (TARP) to help recapitalise banks, supported by a permanent rescue fund to succeed the temporary European Financial Stability Facility (EFSF); a joint euro bond, with the money going to the troubled nations so that they do not need to tap global capital markets when in trouble; and a stronger fiscal union.

But, he said, 'there is no evidence of the political will necessary to make this happen ... in particular from the stronger countries, all of whom will lose out massively should the euro zone eventually collapse'.

Gulliver also sees red flags in China, including labour shortages resulting from an ageing population. In Shanghai, for example, 25 per cent of the population is over 60. By 2050, more than a third of the country's population, or about 450 million people, would be over 60. Policymakers also face a bumpy road as they grapple with social inequality, and try to rebalance the economy and protect the environment, as set out in its 12th five-year plan.

Speaking at the same forum, Liu Mingkang, former chairman of the China Banking Regulatory Commission, said China made the most homes from 2006 to 2010, adding 7.42 billion square metres in housing space during the time.

Liu said he expected this trend to continue in the next five years. The population is expected to peak at 1.6 billion in 2020 and more than 130 million people will have migrated from rural areas to the city. Another 100 million urban residents will look to get housing upgrades as well.

If houses could be built with proper insulation materials supported by green technology, it would tremendously cut down the country's carbon footprint and energy intensity, said Liu.

Recalling the problems he faced in reforming the country's banking sector as head of the banking watchdog, he said that he found talking about the 12th five-year plan was much easier than talking about banking reforms. Liu said the early 2000s, when he helped launch the bank reforms, was one of the most difficult periods of his life.

Cutting to the present crisis, Fu Yuning, chairman of China Merchants Group, said potential bad loans related to local-government financing vehicles posed the greatest threat to the banking sector.