Salutations
Dr. Eva Hupkes
Secretary General, International Association of Deposit Insurers
Dr. Tien-Mu Huang
APRC Chair
En. Rafiz Azuan Abdullah
Chief Executive Officer of PIDM
Distinguished Speakers and Delegates
Ladies and Gentlemen,
Comprehending risks in Asia Pacific in its broadest sense
May I thank Perbadanan Insurans Deposit Malaysia (PIDM), together with the International Association of Deposit Insurers (IADI) and the Asia-Pacific Regional Committee (APRC) for inviting me to speak at this important gathering of deposit insurers, resolution authorities and regulators from across the Asia-Pacific region.
And it’s my honour as well to be here with you to celebrate the 20th anniversary of the International Association of Deposit Insurers (IADI).
Deposit insurance and resolution frameworks are often discussed in technical language from coverage limits, triggers and tools. But your mission is very noble and your functions and roles are extremely important: to protect financial systems by keeping confidence level and securing deposits’ hard earned savings.
Maintaining financial stability is a collective responsibility that requires trust, coordination and constant readiness as crises and a sudden collapse of confidence could transmit across the globe at lightning speed, thanks to digitalisation.Modern financial systems rarely fail slowly. They fail when confidence evaporates, often before balance sheets visibly deteriorate.
And, what if black swan events that we used to think of as rare and outside chances happen more regularly? What should we be looking out for?
The theme of this Conference “Convergence in a Fragmented World: Shaping Stronger Financial Safety Nets Through Shared Principles, Innovation and Collaboration” aptly describes the challenges and the complexities of our times.
The Asia-Pacific environment, being one of the world’s most interconnected regions, presents both resilience and vulnerability. The region today accounts for close to 60% of the world’s population and contributes about 60% of global growth, despite external and domestic headwinds.
I know you have all done your job diligently but I hope this audience will broaden your understanding of risks and invest in the capabilities to comprehend new risks in its broader context and broadest sense, especially in the context of Asia Pacific, as the financial systems could be impacted by anything outside the usual financial risks.
First, geopolitics
A few years ago many would not have thought geopolitics and geoeconomics would have such huge repercussions on the global economy as well as the financial sector.
In fact, the term “Asia Pacific” that is part of the name of your committee denotes a different era -the 1990s – when this region was a lot more sanguine about its future and collaboration was the flavour of the time.
The world is now dealing with a war in Europe – the Ukraine war since February 2022, a region-wide world in the Middle East since October 2023, and multiple flash points in Asia, including the Korean Peninsula, the Taiwan Straits, and the South China Sea.
How long would the war in Iran continue before its end is now on everyone’s minds, as it already has implications for all of us, especially the Asia Pacific, from the point of energy crisis. And even if the war ends tomorrow, the crisis might last for 12, 18 or 24 months.
As the world moves from a unipolar world dominated by the United States to a multipolar world with quite a lot of “unknown unknown”， I would like to encourage the deposit insurance community to invest in capabilities to understand geopolitics more, before it is too late.
Second, geoeconomics
Apart from military might, the United States has been able to sustain a world order in which it is at the centre since the end of the Second World War thanks to three factors: technological prowess, the United States as the market of the last resort and first choice, and the US dollar as the almost sole global currency.
These pillars are now under strain. US technology is now faced with constant near-peer challenges from China.
On the trade front, the declining middle class in the US has resulted in the public sentiment in the US no longer being receptive to the import of cheap goods, providing the basis for President Donald Trump to launch his trade war. Yet Trump’s trade war is met with China’s control on global rare earth supply, which clearly shows the limits of US power.
As far as the US dollar as global currency is concerned, there are more and more alternatives, and perhaps within our lifetime we may see the Dollar’s decline, though I doubt there would emerge a singular new replacement. We are likely to see the multipolar effect of geopolitics and geoeconomics in the choices of currency as well.
The interlocking relationship between China’s producers and other producers in Asia may also result in financial stresses in the region, as demand in China is currently low while productive capacity is at all time highs thanks to automation and AI. The impact on manufacturing jobs across Asia has to be closely monitored, as the effects will feed back to the financial systems in the forms of firm closures and bankruptcies.
Third, sustaining the middle class amidst crises
Asian societies have been exporting to the US and its prosperity over the last 80 years are essentially thanks to this. But as the US is no longer willing to play the role of the market of last resort, there is a dire need to build and sustain a strong middle class in Asia.
Yet Asian middle classes are precariously positioned. The Covid-19 pandemic set many middle class Asians back, and we can now anticipate that the war on Iran and the shock that reverberated throughout Asia will see the middle class suffer.
I hope the deposit insurance community watches this and voices out to your national authorities as well as the wider community that Asian societies must do everything within their power to ensure that the middle class keeps expanding to sustain quality of life, and also sustain the production capacity and most importantly, jobs, in Asia.
Fourth, climate risk
Many Asian societies, especially those in Southeast Asia, are prone to climate risks, we will have to accept that this will have an impact on the financial system.
We must encourage financial regulators across the region to not just look at finances but look at how climate risks would impact vulnerable communities and precarious jobs, as they would mean any climate crises could be a threat to the stability of a huge segment of society in their ability to repay loans or continue to consume.
Fifth, property bubble
It has been almost 30 years since the Asian Financial Crisis in 1997. We should always be reminded that the original source of the crisis was exuberance in the property market across the region. And we must be reminded that the bubble in Japan that burst in 1990 and 1991 which caused more than 3 “lost decades”，the Global Financial Crisis, and the China property bubbles which is dragging the Chinese economy down, all have a common source: property bubbles.
We must all be vigilant in guarding property bubbles across the region and be prepared to act to quell exuberance if necessary.
Further, let me share with you three recent cases of how transformative changes happening around us may suddenly upset the financial system in ways we never anticipated.
First, transformation in the automotive industry
The provision of public transport in many parts of Asia is generally poor and not meeting the needs of the commuters. Thus, the dependence on private cars is common. Yet as these societies are generally low or middle income, most private cars are owned through a very long loan period, in some cases, up to nine years.
What happened in Thailand is that suddenly the nation went through a twin-transition: from conventional internal combustion engine (ICE) cars to electric vehicles; and from a Japanese-dominated supply chain to Chinese EVs which did not require much local Thai workers.
Within a very short time, the decline of domestic sales of Japanese cars resulted in job losses in the automotive manufacturing sector , and further resulted in less purchasing power among the working population. Also, the Chinese EV brands were engaging in price wars which disrupted used car values in Thailand, resulting in the banks lending even less as no one was sure anymore what would be the used car value. What is unfolding in Thailand is a telling case of the interconnectedness of the fate of the working/middle class, technological rivalry between the Japanese and Chinese automotive makers, and the banking sector.
Second, data centre
Data centres are hotels for data. When we think about the actual hotels, we do not see them as an end in itself. We know that hotels are built to promote and facilitate tourism. So we must get our perspective right, the hotels for data are built to promote and facilitate digital transformation of our society and the world.
Therefore, when we think about data centres, we want to ensure that data centres bring sufficient spillovers into our economy. For instance, we want to see more locally sourced supplies of equipment and a lot more commitments from the end-users to do more to proliferate AI and digital transformation in Malaysia.
We are also wary of overbuilt or under-utilisation of capacity in the data centre sector. Unlike hotels when the occupancy rate is low, it is only the owner that actually suffers. In the case of data centres, the utilities, especially Tenaga Nasional would have to invest into capex in accordance with the demand required by the data centres. If there is phantom demand, it would mean huge losses to the utilities.
As more and more data centres are sourcing funding from the domestic banks and the capital market, the authorities will keep a watchful eye on the development of the sector.
Third, non-bank financial services
Across the region, systemic importance increasingly extends beyond traditional banks to non-bank financial institutions, payment systems and digital platforms. Digitalisation is reshaping how quickly confidence can shift across institutions and borders. This raises a question for all of us gathered here: Are our safety nets evolving in line with where risks are actually emerging?
Malaysia has recently established the Consumer Credit Commission to regulate part of the non-bank sector. But I am keenly aware that more has to be done.
In conclusion, no single institution can manage a financial crisis alone. Liquidity stress, operational disruption and confidence dynamics cut across mandates and institutions. We need more international cooperation as ever. In this regard, platforms such as the IADI Asia-Pacific Regional Committee play an important role. By bringing together deposit insurers, resolution authorities and regulators across jurisdictions, the APRC provides a trusted space to share experiences, strengthen mutual understanding and build habits of cooperation.
It is my pleasure to declare the APRC International Conference opened. Thank you.