DISINTERMEDIATION AND GLOBALIZATION
By Thomas Clouse
Piyush Gupta is CEO of Singapore’s DBS Group Holdings and DBS Bank.
Global Finance: What have been the key financial trends since 1987?
Piyush Gupta: On a global level, disintermediation, not just in the classic sense of capital markets taking over from bank lending but also disintermediation of the credit rating processes, disintermediation of risk. A second trend is globalization. Capital and risks now flow easily.
In the Asian context, the most profound changes have happened in the past 12 to 15 years, post–Asian financial crisis. We came out of the crisis with smaller, better-capitalized banks, in better control of their currency dispositions.
GF: As Asian banks grow, how will they avoid the mistakes of Western banks?
Gupta: Western banks faced three issues: size, product cycles and compensation. Most Asian banks are not that large. Also, some incentive structures in the West created incorrect motivations. To the extent that compensation is income driven, the measures should be adjusted for time as well as credit and risk costs. Banks should also have broader measures reflecting stakeholder interests in terms of community, customers, employees and longer-term agenda items.
GF: What opportunities do you see in Asia´s increasing financial integration?
Gupta: Multinational Asian companies, large local companies and even SMEs are no longer just cogs in a supply chain, servicing intermediate demand. They are trading with each other directly, which provides opportunities for banks to work with companies across borders, helping them set up in new markets, finance supply and distribution chains and manage currencies, risks and working capital. Asian financial markets are less developed, and many countries still have capital restrictions. Cross-border connectivity, mutual recognition and harmonization regimes are not in place. So more work needs to be done. But Asia´s ability to intermediate its own capital flows is already changing fundamentally.
GF: What are the key emerging risks?
Gupta: Over the next five to ten years, Asia will attract a lot of capital from the West. Managing inflows deftly will be challenging for Asian central banks and regulators. Further out, we must think about the unintended consequences of regulatory change. I worry banking activities will deviate from the regulated into the shadow-banking sector.