Risk Management In Asia Essay

3996 words - 16 pages

Risk Management in the Asian Banking Sector

“What is the best strategy for the implementation of Enterprise Risk Management in the banking sector of the highly expansive but volatile Asian economy?”

I chose to do an in-depth study of this area of risk management because as I am Australian, it is extremely important for me to start to fully understand the workings of our closest economic partner and the future of our economy which is driven by the expansive growth that is rolling through Asia.
I was also intrigued into the steps needed to fully adopt a risk management system in an entity.
It should be noted that the focus of this paper is on the developing region of South-East Asia ...view middle of the document...

Risk management is a hard task to undertake due to the increasing variability of standards across countries and these countries being in different stages of their economic life. The world’s financial markets are constantly given guidelines in how to manage their capital as in the Basel 2 framework and along with their own countries central bank’s rules and regulations
What is being concentrated on in this paper is how the enterprise risk management approach should be utilized to be best suited to the Asian financial sector as a whole. There will be an in-depth discussion on the elements that must be included in a sound risk management strategy. There will also be discussions into the main risks to the Asian Banking sector and an overview of Asian financial crisis in 1997 and the current state of the South – East Asian economy.

The Asian Financial Crisis of 1997 and the Result on Risk Management
The Asian Financial Crisis was a time of economic turmoil that gripped Asia beginning in 1997. The meltdown started in Thailand when the Thai baht collapsed after it was taken off its peg to the US dollar and floated. This occurred due to a lack of foreign currency to support the fixed system.
As the crises began to overtake South-East Asia, most of the area started to experience sinking currencies, crashed stock markets, and extreme devaluation of other assets. This led to a condition of rising debt in the region.
This turmoil was unpredicted by much of the commerce world as in the years previous the Asian region was going through a time known as the “Asian Economic Miracle”. The developing South-East Asian countries were receiving almost half of the total capital inflow in Asia to go along with extreme 8% - 14% growth rates. These developing countries had high interest rates to attract foreign investment and this created an asset price bubble.
The credit that was available in the economy was an extreme amount which was a cause to the dramatically increased asset prices. As these asset prices began to collapse it created a credit crunch on the Banks of the region as many organisations and individuals started to default on their debt. As foreigners begun to pull out their funds from the region as fast as possible it left banks and the economy in turmoil.
This graph depicts the volatility in housing prices from 1991 to 2010. It can be seen that prices vary a lot in the developing Asian areas compared to the western world. This shows the variability in asset pricing in the region and can be used as an example as to how asset price bubbles are prevalent in the region
This graph depicts the volatility in housing prices from 1991 to 2010. It can be seen that prices vary a lot in the developing Asian areas compared to the western world. This shows the variability in asset pricing in the region and can be used as an example as to how asset price bubbles are prevalent in the region
It was this crises that predominantly brought risk management to the...

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