1-1.Class policy etc
BY Three Lectures
Tabata⇒Suzuki⇒Kawaguchi
⇒ Tabata ⇒…
We discuss the financial institution and Asian
economy from three views
1. Macro-economic view
2. Business view
3. Financial theoretical view
1-2.Various background of three
lectures
• Tabata
• Economist for international finance and banking in private institutions
• Professor at Nishogakusha
• Suzuki
• Skilled business man in Foreign countries as investment
bankers
• Consultant in DIR ; specialist in Asian financing and strategy
• Kawaguchi
• Top frontier on real estate study in Japan
• Professor in Waseda for real estate and economics
1-3.Homework and Testing
• Homework;
You should hand in using Waseda net
You should hand in your homework in English as
long as you can. However, we accept Japanese
one
• Final EXAM; English only; no-open book or
lecture note. However, please contact if you
have some request.
We also evaluate your attendance and effort
Enjoy class.
2-1. Introduction
From 1990s, Asian countries enjoy high economic
growth. Especially Chain become the second largest
economic country in the world . Some people
believe the era witch Western countries dominated
the world economy and politics was over.
Niall Ferguson says ,in recent published book
“CIVILIZATION”, Western civilization has faced to risk
to collapse the dominancy and moved into the Asian
countries. He also points out the risk to reduce the
sudden stop of growth in this Area.
2-2 Risk to stop the growth in Asian
countries
• Japanification ; aging, fixed system, financial
depress
• Inner struggle with upper class and middle or
lower class
• People loose hungry spirit.
• Struggles with Asian countries
2-3 How to deal with these Asian
emerging
• Jacques Attari “History of 21 Century” also point out that Asia become the
largest economic countries. He also predict that the conflict among this
area will be serious before going super democracy.
• Japan should seek for establishing voluntary economic zone in EastAsian Countries and pacific Area.
Philippine- Indonesia- Taiwan - Vietnam -Malaysia
We meet serious situation to discuss and decide how the Japanese banking
and financial industries seek for the future business corresponding with
Asian economic growth.
3-1. Financial Designs in Asian
Countries
• Non-EU style ------ non-policy power
• Asian countries adopt non-EU style economic zone in which economy or
business should be priority to the policy issuing. We take care for market
oriented or market progressive.
• Japan Leadership NO
China Leadership NO
• Majority Voting No ⇒ Unanimous all nations agreement
• ASEAN + three countries( China, Korea , Japan)
• Two engine
• After 1997 Asian financial crisis, Asian countries recognizes the weakness
of their own countries banking system. They add the new policy to add the
strengthen the bond financing Asian bond market initiative (ABMI)
Basic Idea of ABMI
Philippine
Indonesia
JP
Vietnam
Korea
China
Cambodia
Malaysia
Myanmar
Thailand
Philippine
Singapore
Indonesia
JP
Vietnam
Korea
China
Cambodia
Malaysia
Myanmar
Thailand
Singapore
Result ;Bank credit and Securities almost equal
Thailand Outstanding THB mn
Credit
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
Stock
Bond
Result 2 ; Debt financing
3-2 Basic question
• ASEAN + three countries
• Three countries try to coordinate the Asian financial market by developing
bond market.
• Simple question
1.
2.
3.
How should banking industry deal with financing?
If coordination circumstances will meet to collapse, ABMI should stop or
not.
How should the US- European financial industry play in this area?
Present financial situation in Asian and world
We meet the serious puzzle in Asian Financial situation.
4-1 Present Asian circumstances
(Direct investment)
• Japan has invited in Asian countries by means of direct
investment. Korea has invested into China and Vietnam etc.
Chain has invested into Thailand and other countries through
HK. Firms across Asian countries are linked through Direct
investment. Japanese firms have been main investor in Asia.
Direct Investment
Philippine
Indonesia
JP
Vietnam
Cambodia
no data
Korea
China
Malaysia
Myanmar
Thailand
Singapore
4-2 Japanese financial institution
strategy
• To develop the domestic financial business by Japanese banks.
Japanese banking industry earns about 20% of total profit in
foreign business.
Japanese bank industry should accept more risk to expand
Asian business. Still low.
---- Why Japanese industry is less incentive to expand ?
• To facilitate using public financial institution (JBIC etc)
I believe that Japanese financial institutions have not worked as
financial institutional players.
One reason is less credit demand from Asian residence.
4-3 Present circumstances in bond and equity
investment among Asian countries (Bond and equity)
Japanese financial portfolio investment into Asian countries is quietly weak .
Portfolio Investment
Philippine
Indonesia
JP
Vietnam
Korea
China
Cambodia
Malaysia
Myanmar
Thailand
Singapore
5-1 Asian Financial Circumstances
( low investment)
• Low investment and quality improvement in
Asian countries
• Puzzle; low incentive to invest across the Asian
countries.
5-2 improving credit quality
• loan decreasing
⇒
• Selection of credit
quality
⇒
• Default ratio
improvement
⇒
• Evaluation of Low
credit risk
5-3 risk and interest rate
• Interest rate
• Theoretical Interest rate = risk free rate+
default risk
By Rating Companies
Default risk down due to the credit quality improvement
In Asia, rating credit risk is not real risk , but order or ranking among Asian
countries.
Market Interest rate ≠ theoretical interest rate
Background
This source from NRI (Nomura Institute of Research ) Study
International borrowers get the credit, enjoying more discounted cost
through Asian countries
5-3 Low investment and Asian financial
attitude for new business
• Asian banks don’t have pressures to establish
sophisticated management. It brought the
Asian banks less incentive to introduce new
financial service.
Derivative, Securitization ⇒ Mr. Suziki review
It is one of circumstances why Asian
governments do not make effort to seek the
further credit demand.
6-0 International capital flow and
international financial system
• Current account surplus
⇒ out-flow to the world + accumulation of
foreign reserve
• Current account deficit
⇒in-flow from the world + reducing foreign
reserve
6-1 Philippine flow of funds 1
• Summary ; Flow of Fund Analysis
Monetary
Asset
Cash
Bank
Asset
Liability
Cash
Loan
Bond
Authority
Liability
Foreign Res
Foreign countries
Asset
Liability
Foreign Res
Remittances
Direct Inv
Foreign Bond
Deposit
Remittances
Government
Asset
GOV InV
Liability
Tbond
6-2 Flow of fuind analysis (2)
Credit absorber
World
Government
Credit supplier
Financial Institutions
Household
Non-financial sector
Financial Institution
2004-7
loan
15.1
24.3 Deposit
-18.5
-29.2
Securities
17.4
44.1 others
-10.8
-35.7
supply
3.4
2008-2010
2004-7
2008-2010
Remittances
4.0
World
2004-7
2008-2010
2004-7
2008-2010
3.9 Foreign Reserve etc.
-14.3
0.5
Loan
---9.0
-30.0
Shares etc
12.3
Securities
-20.3
-33.4 loan (or Others)
-6.8
absorb
-7.3
Domestic Liquidity
Overseas financial protforio
6-3 Why low investment?
• Low productivity ; industrial changing speed is still low
• Trade deficit; high investment has tendency to bring
serious trade of deficit. Government always take care for
trade deficit.
• Firm structure; Family firms dislike to compete with other
families.
• Direct investment; Direct investment from foreign
countries discourage to make efforts to develop own
business by themselves.
• Non-arbitrage between investment and other assets
• ⇒ Prof. Kawaguchi
7 Basic knowledge for this class
• Trade surplus = international portfolio position
(negative)
• International exchange rate system and capital
flow
• credit and quality
Next lecture
• Asian banking behavior
• China problem