The Asian Banker Summit 2007
Day 2: 26 March 2007
 
Bank Indonesia governor opens Summit’s three conferences

One decade after the Asian financial crisis, speakers at The Asian Banker Summit 2007 in Jakarta look to the legacy of the last crisis, and think about how to prevent the next one.

Dr. Burhanuddin Abdullah, governor, Bank Indonesia, delivering the opening keynote address.

On March 26^th, the opening day of The Asian Banker Summit 2007 in Jakarta, over five hundred bankers attended an opening keynote address by Dr. Burhanuddin Abdullah, the governor of Bank Indonesia, the central bank of Indonesia. He explained the challenges the country has faced in its ten-year odyssey to recover from the Asian financial crisis, and the long way it still has to go. “We are in the process of rebuilding our house with a better design, stronger conditions, and better materials,” he said metaphorically, before adding “but there are some issues with the wiring.”

Paul Keating, the former prime minister of Australia, continued where the governor left off by explaining the impact of the event on a rapidly growing Indonesia, while tying it into the context of Asia’s current rising star, China. Keating repeatedly argued the case for China to loosen the currency controls on the renminbi, although he did not advocate a free float. Keating, the man who set about privatising Commonwealth Bank of Australia, also pushed for bank privatisation, noting that “it’s the government’s job to steer the boat, not row the boat.” Three out of Indonesia’s top four banks are still largely government owned.

In the follow-up to The Asian Banker Achievement Awards ceremony for individual leadership, held on the evening of March 25^th, high level leadership dialogues between senior bankers took place in a special closed door leadership forum. Anchored by Paul Keating and other senior figures, the discussion focused on the topic of whether or not banks should be allowed to fail, especially considering the general feeling by all that the bullish capital market cycle of the last 25 years was finally losing steam. Preparations needed to be made for a downturn, even if the economic cycle was strong, and reduced liquidity and a shortage of inexpensive funds was seen as one of the inevitable conditions.

After the closing keynote session, the delegates went to attend the various conferences: The Interbank Conference on Cash, Trade, and Treasury, The Technology and Operations Council Annual Meeting, and The Risk Management and Governance Conference.

The Interbank Conference on Cash, Trade and Treasury kicked off with Paul Burstein, managing director of strategic initiatives at GE corporate treasury, who noted the importance of an integrated business ERP [Enterprise Resource Planning] line by creating a global treasury that uses all resources available to control costs and maximise efficiencies. This would be aided by advancements in telecommunications, internet utilisation, ERP and standardisation across the globe. Burstein noted the company’s standardisation through a SWIFT funds transfer initiative uses GE’s Treasury as a central cash pool.

Bank of America’s senior vice president Paul Johnson noted that while globalisation does improve efficiencies, it can also create inventory and supply chain issues resulting from widely disparate organisations. To solve this, he advocates improving core functional areas such as inventory payments which can improve cash flow, balance sheet and the income statement.

In The Technology and Operations Council Annual Meeting, senior IT specialists discussed how technology investments can be aligned with business strategy needs and IT benchmarks. Also discussed were core banking implementation and the driver of innovation. Pravir Vohra, CTO, ICICI Bank, India, indicated the milestones that his bank had hit in the last eight years. He explained how he built up IT capabilities to enable these evolutions which include the bank branching into retail banking, acquiring another bank, venturing into overseas businesses and rural lending.  He believes that the job of the CTO is not to solve a problem, but to build up a capability to meet future needs, especially for a bank like ICICI that is scaling up rapidly. 

During one of the sessions in The Risk Management and Governance Conference, Khoo Guan Seng, head of innovation at Singapore Exchange noted his “BDA” definition of operational risk: Business Discontinuity Anticipation. Khoo also pointed out that one of the challenges of operational risk is that it is siloed in pillar one of Basel II, away from interrelated concepts such as reputational risk and liquidity risk in pillar two.

Delegates listening attentively during one of the conference sessions (picture on the left). One of the delegates asking a question during the Q&A session (picture on the right).

One of the key concerns for many of the speakers was the implications on credit risk in the ongoing sub-prime lending in the U.S., and what similar events could occur in other markets. One danger that speakers pointed out was that, despite banks having sophisticated analysis procedures and software, training on the effective use of these tools is not mature. Keith Shachat, CEO of Peninsula Capital Corporation in South Korea, noted that during the credit card crisis in Korea, employees in many banks, from the managers down to the junior staff, were not using the scoring systems that they had.

The paradigm was placed in the context of the tenth anniversary of the Asian financial crisis, during which time the region has seen unprecedented growth.  But some noted that the arrival of new participants in the market, such as hedge funds and private equity, and new conditions mean that an economic downturn will have an effect on the holders of risk that nobody can predict.

During the conference several speakers took note, as in the leadership session, of the runaway development of sophisticated financial services and their uncertain effects on an economy should there be a downturn. “For the first time in my lifetime,” noted Keating, “the job of financial institutions is beyond the remit of central banks.”

The day closed with a reception for the winners of the inaugural Asian Banker IT Implementation Awards ceremony, which was attended by over 250 people. The prizes were awarded jointly to banks and their IT partners for successful technological projects that enhanced the capability and efficiency of the banks’ various operations. Click here to read the full press release and list of winners.

Today, the three sessions will continue, with speakers such as Rob Close, the CEO of CLS Bank in the interbank conference, Donald Mackenzie, chief risk officer of Kookmin Bank in the risk management conference, and Patrick Chew, head of delivery at OCBC Bank in the technology and operations annual meeting. The closing keynote will feature Jaime Caruana, former chairman of the Basel Committee on Banking Supervision, former governor of the Bank of Spain, and current director of monetary and capital markets at the International Monetary Fund.