No signs of another regional financial crisis but challenges exist: World Bank expert

KUALA LUMPUR: Twenty years down the road since the 1997 Asian Financial Crisis, there are no tell-tale signs of another regional crisis looming.

World Bank Group lead financial sector specialist Jose De Luna Martinez said there does not seem to be signs of a looming economic crisis, with the Asian economy as a whole faring well. However, challenges outside the financial system with the likes of cybersecurity are ones to pay heed to.

“From what we see we don’t see any sign. We don’t see any issue … everything looks fine but there are definitely challenges from outside the financial system,” he said at a panel discussion held in conjunction with the launch of the World Bank’s Malaysia Economic Monitor Report.

However, Martinez noted that there were no tell-tale signs too when the 1997 crash happened.

“Malaysia developed its capital markets ... the corporate bond markets were developed immediately after the crisis,” he said.

There appears to be a shift in direction with the corporate sector now being more reliant on the capital markets rather than the banking sector for financing, compared to the situation in 1997. At present the banking sector has been lending out more to households than to corporates.

The World Bank noted in its Turmoil to Transformation: 20 years after the Asian Financial Crisis report that Malaysia has emerged with a significantly stronger banking system after the crisis.

Prior to 1997, there were 77 banking institutions in Malaysia, and following measures of consolidation, the number was reduced to 34 and further receded to a core-group of ten well-capitalised banking groups.

Malaysia was seen as having taken an unconventional stance to manage the crisis, differing from its counterparts who were also affected by the crisis. Corporate and financial sector restructuring, selective capital controls and ringgit stabilisation, counter-cyclical monetary and fiscal policies and establishment of National Economic Action Council were among the measures taken.