Emerging Trends and Challenges in

Liberalizing ASEAN Banking Industry:

A Closer Look at Labor Concerns

Dr. Rene E. Ofreneo

From AEC 2015 to AEC 2025:

Asean commitment to

deepening economic liberalization

Under AEC 2015 Blueprint,

December 2015 was target date for full

implementation of ASEAN program of economic

community-hood. The ASEAN Economic Community

(AEC) would develop because the region would have

-- free flow of goods

-- free flow of capital/investment

-- free flow of services

-- free flow of skilled labor

Reality:

Full liberalization on paper,

slow integration on the ground

Intra-ASEAN trade has remained stuck at around 20 per cent

compared to 60 per cent in Europe (before the Brexit) and 50 per

cent in the case of North America under NAFTA involving US,

Canada and Mexico.

Truth is that while ASEAN has adopted a bundle of liberalization

measures, integration is a slow and gradual process on the

ground due to uneven development across the region and the

historical, economic, political & cultural differences among

ASEAN Member States. This is particularly true for the financial

sector, w/c is the reason the target full liberalization was set for

2020, not 2015.

Meantime, AEC 2015 now replaced by AEC 2025, w/c seeks

continuation & deepening of AEC 2015 liberalization measures

AEC Implementation Scorecard

4

ASEAN Member %

Brunei Darussalam 86.0

Cambodia 86.1

Indonesia 84.0

Lao PDR 84.3

Malaysia 85.5

Myanmar 84.3

Philippines 86.1

Singapore 87.3

Thailand 87.7

Vietnam 87.3

For Key Deliverables for 2008-2013 as of end 2014

Financial integration calibrated under

overall services liberalization

Asean Framework Agreement on Services (AFAS)

promotes integration 4 liberalization modalities:

Mode 1 – sending service across borders

Mode 2 – service consumer travels across borders

Mode 3 – service provider sets up shop across

borders

Mode 4 – service provider sends personnel

Finance liberalization thrust:

liberalization of domestic/national banking --

(essentially, liberalization of entry of foreign banks)

cross-border flow of capital/financial services

target year for the full implementation of the program

for economic community-hood leading to the formation

of an ASEAN Economic Community (AEC).

As publicized, AEC 2015 means the

-- free flow of goods

-- free flow of capital/investment

-- free flow of services

-- free flow of skilled labor

within the ASEAN bloc

Finance liberalization fleshed out under

ASEAN Bank Integration Framework (ABIF)

-- harmonization of domestic regulations across region

-- liberalization of entry of foreign banks

-- elimination of discrimination against foreign banks (equal national

treatment)

-- certification of “Qualified ASEAN Bank” (QAB), which can operate

freely across the region

-- assistance to bank upgrading for BCLMV countries

Supplemented by

-- formation of ASEAN Capital Market Development

-- capital account liberalization

-- commitment/compliance with BASEL III targets on reserve

adequacy and risk monitoring as proposed by G-20

Plus overall alignment of finance w/ AFAS/ATISA

Now what is ATISA?

AFAS or the ASEAN Framework Agreement on Services is the

regional version of the WTO’s General Agreement on Services

(GATS), w/c seeks the inclusion of services under global trade

rules (Modes 1-4).

Because of advances in ICT, logistics & global value chains &

liberalization of entry of service multinationals (e.g., banks),

global service trading now a big global agenda of MNCs. Hence,

the global push for a stronger GATS through Trade in Services

Agreement (TISA). Privatization of basic services such as health,

education, infrastructure devt, etc. intensifies TISA investments.

In 2014, ASEAN finance ministers agreed to re-baptize or strengthen

AFAS through ATISA. Share of services in GDP of ASEAN

countries – between 40-70 per cent.

Two major service liberalization happening: movement of skilled

workers via mutual recognition agreements (MRAs) and movement

of capital via commercial presence across the region

Emerging trends in

liberalizing ASEAN financial sector

Big national banks going regional (especially banks from Singapore, Malaysia, Thailand, e.g., DBS, Maybank) & expanding esp. in CLMV countries

International banks (non-ASEAN) also establishing presence across the region

Competition pushing technology upgrading & full-service banking everywhere, ATM establishment everywhere

Digital/mobile banking growing, esp. among millennial professionals & SMEs

Competition for new sources of profits: Islamic banking (Malaysia ahead), remittance business, payment hubs, participation in logistics/GVC management, etc.

But there are painful competition adjustments for

workers & other stakeholders

Mergers & acquisitions continuing – displacements for losers & acquired banks (smaller national banks and specialized banks such as rural banks highly vulnerable)

Stressful work environment due to

-- technology changes

-- reorganization & re-deployment, outsourcing

-- changing skills requirements & work assignments

-- endless efficiency & productivity drives, including

reengineering, leading to very lean & mean set-up

All this aggravated by lack of

-- consultation/prior information

-- transition & adjustment program for affected

-- consultation/dialogue mechanisms &

-- safety nets, etc.

Also, other societal concerns not being

addressed fully

Devt gaps between rich & poor ASEAN countries remain huge (bigger ASEAN banks from richer countries getting bigger)

Exclusion of large number of “unbanked” sectors (esp. in ASEAN 7 [CILMPTV])– farmers, micro enterpreneurs, fisherfolks, vendors, etc. – dependent on relatives & informal lenders

Social inequality deepening (rich getting richer). NUBE Phl proposing progressive taxation on wealth (T Pikkety wrote that globally income/wage growth lagging behind wealth growth)

Frauds by big-time hackers (example: Bangladesh dollar reserves hijacked by con artists in Manila) show weaknesses of ICT-based bank security and uncommitted middle-level work force

Above all, banking in support of development unanswered by mere liberalization of sector

Moreover, there are unsettled debates:

liberalization vs. regulation/control

Past financial crises spawned by speculative investments

Asian financial crisis 1997-98: preceded by financial & investment liberalization

Global financial crisis 2007-2010: also preceded by financial investment liberalization

(in US, Glass-Steagall law separating banking & investment repealed in 1999)

In both AFC & GFC, bank workers & TUs suffered a lot

Major lesson: Unregulated cross-border capital flows can generate risks/crises

And yet,

Basel III addressed capital adequacy but failed to propose regulations on speculative banking activities

Malaysia’s 1997-98 solution, capital controls, worked. IMF agreed years after. And yet, AFAS & ABIF do not talk about this.

Hence,

ABUC past proposals remain relevant

Calibrate liberalization with the AEC goals: poverty

reduction, job generation, economic development for all

No to one-size-fits-all development formula

Sequencing of liberalization important (as what Vietnam

seems to be doing) –

establishing sound macroeconomic & prudential

policies, strong domestic financial system, strong

central bank & monetary authority

undertaking liberalization after imbalances have been

addressed

showing government readiness to intervene when

extreme volatility in markets occurs

ABUC proposals… Social partnership in support of competitiveness

Studies show that bank competitiveness requires committed

and fully engaged employees, not only ICT knowhow and

other competencies.

But employee commitment and engagement cannot develop

if management is not equally committed to their employees.

It takes two to tango. For example, employees can hide bad

transactions and bad practices from bad managers, as what

happened in the case of the RCBC branch involved in the

Bangladesh dollar hijacking in the Philippines.

Genuine partnership requires mutual respect of each other’s

rights, mutual commitment to each other’s welfare,

readiness to hold frank & honest dialogue with one another,

and shared vision of growth and development.

Other recommendations of ABUC

-- ensure smooth integration processes via continuous info sharing, consultation, concertation

-- address difficult integration issues via social dialogue (tripartite dialogues in Philippines & Singapore)

-- strengthen rules in support of inclusion & transparency – adhere to “real banking” principles

-- uphold rights of employees, right to skilling

-- develop life-long learning program linked to career dev’t and employability

-- manage flow of talents/skills for benefits of all workers and labor-sending/labor-receiving countries

There are benefits due to globalisation

and regionalization but there are also

risks and downsides. We need to

maximize social and labor gains while

minimizing pains. As UNI Apro keeps

saying, we need to put people at the

centre of regional and global integration.