Financial Times

Macroeconomic factors will not weaken banks in Asia
By Duruthu Edirimuni
A derivative market expert said last week the increase in both oil prices and US dollar interest rates would not destabilise banks in Asia. "This year Asia has had a much more positive growth in the banking business than what was expected and also more than that of last year," Amit Gupta, Head of Sales, Global Markets for HSBC told The Sunday Times FT in an interview.

He said that in the past 18 months, the increase in foreign exchange reserves in Asia was US $ 390 billion and 96 percent of this came from current account surpluses and foreign direct investments. "Therefore all the money that is in Asia today with the central banks is superior quality, long term money," he said. Gupta said that in a period where the economy has slumped, corporates are very concerned about their bottomline and strategies are aimed at mitigating risks, reducing costs and making the balance sheets healthier.

Stating that the banking business is the best barometer for basic economic growth or slowdown, he said that if the US dollar interest rates were to rise substantially, the monies that will flow out of the region will not be 'hot' money, which is good for the balance sheets across the region. "In this high growth time the balance sheets are basically held in Asia," he said, adding that the banking business has positively impacted so far in the region.

He said that for Sri Lanka, import of oil remains a big risk factor, as it is a substantial portion of the country's imports. "We expect oil prices to stabilise and expect positive benefits on inflation and currency and also the interest rates in Sri Lanka," Gupta said. He said that since Sri Lanka has a very small linkage with China, it has not capitalised from China's growth like the other Asian countries. "So in future if there is a slowdown in China, Sri Lanka will not be adversely affected materially," he said.

He emphasised that from a local risk management framework, HSBC team is seeking to develop the derivative markets together with market regulators and end users. "It is imperative that an interest rate and currency derivative market develops well in Sri Lanka in the coming months and we are looking to bring in the best practises and being an active participant, even an initiator of this," he said.

He said that from a statutory perspective, the onshore market needs to have more tools for end users to manage their financial risk at all times, be it currency or interest rate risks and currently HSBC is working with the regulators on issues in accounting, credit and documentation.

Gupta who was closely involved with the Reserve Bank of India in the development of the Indian options and derivative market, said that HSBC has established a local presence in Asia with 17 offices and from corporates to institutions, the bank has developed solutions for them in each of these markets for several decades.

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