Re: Banking Sector

[yellow knifeTop contributor]

As a murderous financial crisis brewed in the Philippines in the early 1980s the CB did ever more re-discounting pumping money into the economy-because it was the only way to keep the financial system afloat . With US interest peaking at 19% and output shrinking, the Philippines could not cover the interest demanded to roll over foreign debt. Marcos instituted a repayment moratorium in October 1983. However, this only caused capital flight to accelerate, facilitated by the fact that most capital controls had been lifted in the early 1970s in line with IMF and WB advice.

Printing money became the only form of fiance left. Like Korea, Philippine used to elevated inflation rate because of re discounting.

but price rises accelerated greatly in the mid 1980s. the inflation rate was 50% in 1984 and currency slid from 7.5 pesos to USD to 20 from 1980 to 1986.

Following bank run , bank nationalization and the closer of large investment houses in 1981, another four banks had to be shut.

In 1986 amid large-scale protests Marcos fled on a US government air plane at the zenith of a crisis in which Philippine economy shrank by a quarter.

[yellow knifeTop contributor]

[You must be registered and logged in to see this image.]

[yellow knifeTop contributor]

[You must be registered and logged in to see this image.]

[yellow knifeTop contributor]

I still remember the TV shows Imelda Marco's shoe collection when mob reached them after the President Marcos and others fled to US.

It reminded me Ranjan Ramanayaka waving a golden sword immediately after MR left temple trees.

Where is that Golden Sword ?

[You must be registered and logged in to see this image.]

[කිත්සිරි ද සිල්වාTop contributor]

We (all) are born crooks and only the system can make us straight but unfortunately the system is also us.
So, it is unlikely we see any credible change in a foreseeable future.

[yellow knifeTop contributor]

We (all) are born crooks and only the system can make us straight but unfortunately the system is also us.
So, it is unlikely we see any credible change in a foreseeable future.

We the Apes are born crooks and you are right Kith.

[You must be registered and logged in to see this image.]

Yet some nations developed well while if you are born in some other you suffer a lot.

" Why Nations Fail ? " try to answer that.

Banking is widely used by ...... to get others money towards their direction.. Its worth learning banking sector seriously.

Budget Proposal 2016 had good motives and directions towards Banking sector. Now they are mostly diluted.. Banks are powerful...

[yellow knifeTop contributor]

After a lengthy break we can take time to study banking sector again.

Just to refresh our minds on how big banks are in our economy and how poorly we have managed our economy lets have a look at following Revenue Charts.


[You must be registered and logged in to see this image.]

[yellow knifeTop contributor]

[You must be registered and logged in to see this image.]

[yellow knifeTop contributor]

Thus when we compare South Korea and our situation, we are highly depending on Service sector and within that on Bank & Fiance where SK was depending on Manufacturing.(above is on market cap of South Korean companies  [You must be registered and logged in to see this link.] )

The disadvantage of highly depending on Service sector is you cannot increase Foreign Income unless you invade and  create colonies like India is doing to us with ETCA.

Just look at export tree of SL and SK




[You must be registered and logged in to see this image.]

South Korea Export Tree

[You must be registered and logged in to see this image.]

[Yin-Yang]

Thank You @YK.
This has been a very inspiring thread.

[yellow knifeTop contributor]

Back to international banks...

If the Philippines learned that developmental success is not simply about the mobilization of money, Malaysia and Thailand learned a harsher version of Taiwan's lesson-that financial prudence is less important than an acute focus on technological upgrading.

Malaysia did not launch its own currency until 1967. thereafter it maintained a fixed peg to the Singapore dollar until 1973.

*************************************

So we are learning something new.. a country instead having its own currency can use another country's currency. We call it

Currency substitution - Wikipedia, the free encyclopedia

[You must be registered and logged in to see this link.]
Wikipedia
Currency substitution or dollarization occurs when the inhabitants of a country use a foreign currency in parallel to or instead of the domestic currency.

[You must be registered and logged in to see this image.]

[yellow knifeTop contributor]

So a country under Dollarization need not to have a Central Bank but a Currency Board.

Before 1967 Malaysia was using..

The Malaya and British Borneo dollar (known as the ringgit in Malay, Jawi: رڠڬيت) was the currency of Malaya, Singapore, Sarawak, North Borneo, Brunei and Riau archipelago from 1953 to 1967. The currency was issued by the Board of Commissioners of Currency, Malaya and British Borneo. Prior to 1952, the board was known as the Board of Commissioners of Currency, Malaya.
The Malaya and British Borneo dollar was used in Malaya after independence in 1957, and in Malaysia after its formation in 1963, as well as in Singapore after its independence in 1965. After 1967, the two countries and Brunei ended the common currency arrangement and began issuing their own currencies. However, the Malaya and British Borneo dollar continued to be legal tender until 16 January 1969

[yellow knifeTop contributor]

The Central Bank, Bank Negara Malaysia, was not truly independent of government, but it was raised in a tradition of orthodox monetary management and closed supervision of banks.

The institution was lead by a single governor, Tun Ismail Mohammad Ali, before and after the currency split with Singapore since 1962 to 1980.

[yellow knifeTop contributor]

So
Ismail Mohd Ali was leading Malaysian finance for 18 years.

[You must be registered and logged in to see this image.]

Alan Greenspan was leading US economy as FED Chairman for 19 years.

[You must be registered and logged in to see this image.]

Such long tenures for Central Bank Governors is recommend by Gerorge Bagehot the writer of Lombard street.

[yellow knifeTop contributor]

Does selecting the right and most suitable person matters as the Governor of Central Bank ?

Answer is yes.

In Banking personal traits are very important despite the belief banks are highly depending on Systems than Individuals.

One very good example is Ben Barnanke, who became the FED Chairman after Alan Greenspan.

Common belief among capitalist economists is when banks fail , Government / Central Bank should do nothing. If a bank is going to bankrupt so let it be.

Yet Ben who has studied deeply on Great Depression of 1929 argued impressively to assist failing banks from bankruptcy.

" Bankruptcy to Capitalism is like Hell to Christianity" is the dictum.

If no hell is taught in religions, what is the point of doing good and not doing bad.

In the same manner if companies are not allowed to go bankrupt how can you identify the difference between taking right decisions in business.

Evan I believed in similar .. yet Ben argued with right Metaphors...

" A man goes to bed smoking. Again and again his neighbours advice him to get rid of this bad practice. Yet he ignored and continued.

One day his neighbour awoke in midnight to see the room of the smoker under fire.

Should the neighbour call Fire Brigade or allow the man to get burnt die and make lesson for others.

That option yet if you are living in a wooden house and if the entire neighbourhood is wooden houses..

Isn't it worthwhile calling the fire brigade, douse the fire, save the culprit from death, and jail him and impose laws on public safety and ensure preventing similar incidents in future .."

Men of such caliber do the difference
[You must be registered and logged in to see this image.]

[yellow knifeTop contributor]

[You must be registered and logged in to see this image.]

[yellow knifeTop contributor]

Like in Taiwan, in Malaysia government had the control fo the financial system that would be necessary in order to pursue effective development policies.

AS well as two large state controlled banks, the government operated a mandatory Central Pension Fund and others, voluntary savings schemes that could be used to direct savings to development objectives.

One study put the government controlled share of not just banks but all assets but all financial assets at a peak of 64% in 1980s , the year Mahathir came to power.

This reminds us Sri Lankan situation now. Two large state banks and a voluntary savings bank ?

[You must be registered and logged in to see this image.]

[yellow knifeTop contributor]

Unlike South Korea , Bank Negara was not actively forcing export business with re discounting but just using a token amount.

The main pro-active role played by Bank Negara wa in affirmative action, where it foreced subordinate banks to meet minimum lending quotas for Bumiputera borrowers.

********************************************************

. Loans to the Bumiputera Community

The quota under the 1998 Guideline on loans to the Bumiputera community is set at 30% of loan base outstanding as at end-December 1996

[You must be registered and logged in to see this link.]

[yellow knifeTop contributor]

When it came to funding his big industrialization projects Mahathir, circumvented the Central Bank. Instead he used foreign loans guaranteed by the treasury and aslo tapped two domestic state banks, the government run saving funds and the national oil company, Petronas. None of these institutions enforced export requirements and over the years each was forced to write off billions of dollars of bad  debts. Bank Bumiputera, a state owned invest bank created in 1960s required repeated bail-outs.

[yellow knifeTop contributor]

Even though Malaysian Industrialization was a poor effort, the country survived the rough weather thanks to its Central Bank.

The Central Bank took the edge off the government's deregulation impetus, tightening its monitoring of banks in the late 1980s  and again in 1994, while continually pressing for consolidation of small institutions.

If we evaluate Sri Lankan situation at the latter stage of former Regime central bank wanted to see a merging of Banks and NBFIs and to consolidate. If we look at the figures small banks like NTB, PABC have to engage in non-banking activities like pawning , leasing to earn revenue. Even NDB's revenue is simialr to PLC.N. In this backdrop its a worthy exercise to continue .

[You must be registered and logged in to see this image.]


In Malaysia Central Bank  attempted to enforce a longstanding 20% cap on individual ownership of banks, even though politicians repeatedly overrode this in the 1990s.

NBFIs were kept under close controls. And the central bank was able to ensure that the flood of foreign debt prior to the financial crisis was on average of a longer maturing than in Thailand and Indonesia, and more widely hedged against the currency depreciation.

During the crisis no Malaysian financial institution had to be shut down, although there were plenty of large bailouts of banks and politically linked companies involving such traditional cash reservations as Petroanas and the EPF.

[You must be registered and logged in to see this image.]

[yellow knifeTop contributor]

Now lets look at setting upper ceilings on ownership of banks and NBFIs equity ownership.

In most countries there are some limitations on how much a bank can invest in NBFIs. In a recent sruvey of 55 countries , eight had a total prohibition on a bank owning  any part of an industrial firm.

Where a bank requires more than 10% of the equity of a NBFI, the EU rules restrict single investment to a maximum of 15% of the bank's capital with an aggregate exposure limit to all Non-Financial firms of 60% of the bank capital. The US Bank Holding company Act prohibits ownership by the bank or it holding of more than 5% of the Voting Shares of a NFBI.

Canada requires larger banks and insurance companies to be widely held. Only China totally prohibits any ownership of a bank by an industrial company.

[roshana7549]

Very Good Knowledge sharing exercise, YK.....

[sereneTop contributor]

Thanks YK..
Superb effort..

[yellow knifeTop contributor]

Thanks for encouraging friends,

Now lets look at another Asian Country which was the culprit of Asian Financial Crisis.

Thai Land

[You must be registered and logged in to see this image.]



It was a financial crisis that gripped a better part of east Asian countries in 1997. It started at Thailand with the collapse of Thai Baht and spraed to other countries. The countries worst hit were South Korea, Thailand and Indonesia. The IMF initiated a $40 billion program to stabilise the currencies of above stated countries

[yellow knifeTop contributor]

Thailand is an Asian country which was not conquered by British and never was a colony. They enjoyed world deadly sport Muay Thai or popularly known as kick boxing.

Thai Government , remained the star pupil of the IMF and World Bank. The country has a long history of accepting bad advice. From the time the Bowring Treaty with Britain in 1855 and 1926, Thailand was persuaded by British negotiators to run the lowest import tariff in Asia-just 3%.

[You must be registered and logged in to see this image.]

This ensured there could be no protectionist infant industry policy, a a result of which no internationally competitive Thai firms developed.

Domestic financial institutions also remained weak meaning that foreign firms dominated any part of the economy that required concentrated capital. This included tin mining, saw mills and shipping -not to mention banking itself. The most capital-intensive activity domestic entrepreneurs successfully engaged in before the end of absolute monarchy was in 1932 was rice milling, where the requisite equipment was relatively cheap.

***********************************