Asia In Better Position To Face Global Volatility - Zeti

KUALA LUMPUR, 14 MAY 2012 (Malaysian Reserve) - Asian financial institutions are in a better position to face rising volatility in the global financial market, Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz said yesterday.

Source from (Bernama): http://www.bernama.com/bernama/v6/newsbusiness.php?id=666100
Published: May 14, 2012

She said this was due to them having more developed financial systems and greater resilience in their domestic economies.

"Yes, we are affected but we are in a better position to cope with this increased volatility," she told reporters after the second meeting of the Financial Stability Board (FSB) Regional Consultative Group for Asia in Kuala Lumpur.

She said some buffers had been built and the financial reforms that took place in recent decades had provided a tremendous pay-off.

"Our macroeconomic conditions are sound and we are still experiencing growth. While our growth may be moderate but it is a reasonable pace of growth given this more difficult environment," she said.
The central bank governor was responding to a question on how the Asian financial system can cushion the impact of rising volatility in global market.

When asked about the possibility of the deleveraging exercise by European banks having an impact on the Asian financial system, Dr Zeti said the general consensus between Asian central banks is that there would be varying degrees of impact.

"It had limited impact on financing. Well, there are some jurisdictions where the dollar liquidity would he affected, but generally for domestic financial institutions, credit growth will continue."

"Domestic, as well as foreign financial institutions in our jurisdiction, and financial markets such as bond and equity markets which are more developed now, provide continued access to financing," she added.

According to the International Monetary Fund in its Global Financial Stability report released recently, European banks are likely to reduce their balance sheets by US$2.6 trillion (RM8.02 trillion) over the next 18 months, and this could jeopardise financial stability and economic growth in Europe and beyond.

Dr Zeti said most Asian bond markets are more developed now and have successfully reduced the degree of their vulnerability.

"One area, which especially the Asean and East Asian economies have been working on, is developing the regional bond market," she added.

On whether the rising global financial instability can stop product innovation in Islamic finance, she said the Islamic financial system does not operate in isolation.

"Therefore, when there's an economic slowdown or financial market downward adjustment, it will have an implication on the industry."

"However, it will not curtail product innovation activities in lslamic finance. This follows the implementation of a Shariah framework that oversees and encourages product innovation activities in the industry," said Dr Zeti.

At their meeting yesterday, members of the FSB Regional Consultative Group for the Asia discussed issues relating to vulnerabilities and regional financial stability, particularly the implications on the macroeconomy, markets and funding liquidity arising from the deleveraging of European financial institutions.

The meeting was co-chaired by the Bank of Korea governor Kim Choong Soo and Dr Zeti.
Apart from Malaysia, the membership also includes financial authorities from Australia, Cambodia, China, Hong Kong, India, Indonesia, Japan, South Korea, Thailand and Vietnam.