Since the Asian financial crisis, it has been increasingly recognized that one of the major factors behind the crisis was the aggravation of currency and maturity mismatches of financial institutions, particularly those of the banking sector. The massive, short-term capital inflows that took place prior to the crisis were largely in the form of short-term borrowing from foreign banks, which were intermediated through domestic banks. Therefore, there are those who stress that Asian countries should place less emphasis on bank loans and should develop capital markets, particularly domestic corporate bond markets, as alternative and more important sources of financing.
While such views are understandable from an intuitive point of view, it is important to deepen our understanding of the current financial market structure and then examine whether a policy to develop domestic corporate bond markets can be implemented in the short term in Asian countries. In this context, it is also essential to recognize the extent to which these countries depend on the banking sector, and to carefully investigate the factors affecting the extent of such dependence.
This paper undertakes an overview of the financial structures in the Republic of Korea, Malaysia, Thailand, and Indonesia. It stresses that while the Asian countries have lowered their dependence on bank loans, especially since the crisis, the banking sector has remained dominant. Given the fact that alternative financing sources have been limited and unstable, it suggests that commercial banks will continue to be dominant financial institutions, and to act as major financiers for the economy, in the foreseeable future.
Moreover, this paper demonstrates that corporate bond markets in Asia are largely underdeveloped because issue sizes are small; maturity is concentrated on the short- to medium-term; and secondary markets are highly illiquid. The underdevelopment of corporate bond markets can be attributed to various factors, including underdeveloped government bond markets; tax and interest rate policies; stringent asset requirements imposed on institutional investors; a narrow investor base; and a narrow issuer base. The narrow investor base may be related to the low levels of income per capita and wealth accumulation, but it is also closely associated with the lack of adequate informational, legal, and judiciary infrastructure. These factors suggest that it may take time for Asian countries to develop viable corporate bond markets and that a policy to quickly develop domestic bond markets may not be feasible. This paper also emphasizes the importance of the role played by the banking sector as issuers, investors, guarantors, and underwriters in the corporate bond markets.
- Overview of financial market structures in Asia
- Shirai, Sayuri
- Asian Development Bank Institute
Overview of financial market structures in Asia
Cases of the Republic of Korea, Malaysia, Thailand and Indonesia
Tokyo:Asian Development Bank Institute
|Series Title; No||ADB Institute Research Paper Series / 25|
|Subject Country||Indonesia(Asia and Pacific)
Malaysia(Asia and Pacific)
South Korea(Asia and Pacific)
Thailand(Asia and Pacific)
|Subject||Economy < Financial Policy|
|Holding||Asian Development Bank Institute|