In a slowing global economy, how can ASEAN’s financial institutions drive growth?
ASEAN’s profile and dynamic digital economy makes it an important growth opportunity for FIs in 2019.
The International Monetary Fund (IMF)’s downgraded outlook for advanced economies – on the back of weak Purchasing Managers' Index (PMI) data, ongoing US-China trade tensions and China’s slowing growth rates – sets the scene for a challenging year for the world’s financial institutions (FIs). The IMF is calling for policy makers to resolve their trade issues quickly.
Against this backdrop, ASEAN’s strong ties to China mean the region’s growth also looks set to soften in 2019. Although economies like the Philippines and Vietnam are likely to outperform other countries, the slowdown will take its toll in Southeast Asia, with growth being characterized as “steady” not “strong”.
Yet, the region’s demographic profile and dynamic digital economy still makes it an important growth opportunity for FIs this year.
ASEAN is in a “demographic sweet spot” with a youthful workforce and generous consumer base of more than 659 million people. Unlike more mature Asian countries, the region’s working population surpasses its older dependents, spurring economic expansion, generous consumer and investment spending and wealth accumulation.
At the same time, ASEAN is one of the world’s most dominant mobile-first internet regions. Last year, e-commerce established itself as one of ASEAN’s fastest growing sectors, with gross merchandise value exceeding US$23 billion.The region, which is experiencing some of the fastest urbanization rates in the world, is also forging ahead with smart city solutions. Progress is being driven by the ASEAN Smart Cities Network, enabling cities to learn from one another’s experiences in adopting smart technology, identify solutions, and create an ecosystem of industry and global partners.
Growing market share in this fast-changing business climate will require FIs to focus on:
- Inclusive, sustainable growth – FIs need to continue working with policy makers to improve SME participation by enhancing the ease of doing business with digital channels, self-service options and social media interactions. In tech-literate but financially underserved populations, partnering with the FinTech ecosystem will support innovation that brings financial services to the unbanked; for example, by developing new algorithms to overcome the lack of credit histories.
- Talent management – The war for talent will require FIs to become people-driven businesses, where gender and cultural diversity are top priorities. As demand for scarce, digital skills increases, institutions must both reskill their existing workforces and make themselves more appealing to different types of talent. Purpose-led organizations will be particularly attractive to millennials and other youngers generations who are increasingly prioritizing “worthwhile” work over salaries.
- Financial governance – FIs need to consolidate their governance progress to date and start focusing on individual accountability. Updated or enhanced policies or regulation similar to that of the UK’s Senior Managers Regime will help to increase personal accountability and maintain the discipline of senior people in the financial services industry, mitigating against the misconduct that can lead to financial instability and crisis.
- Operational resilience – FIs must improve their capacity to respond to and absorb shocks, and stress from extreme weather, terrorism or cyber-attacks. FIs can no longer rely solely on historical analysis to predict future threats. They need advanced data analytics to gain more accurate and comprehensive threat and vulnerability assessments and dynamic threat analysis and predictive modelling to support proactive planning and response.
- Differentiated products – With financial services customers demanding more customized products, FIs need to look at non-traditional offerings and outcome-oriented solutions. Using aggregated data from multiple sources will help them to differentiate themselves in a crowded marketplace and build better customer experiences.
In 2019, the fastest path to growth will come from collaboration. FIs need to embrace innovative business models and digital offerings. But they also need to work alongside governments and FinTechs to expand financial services to meet the needs of everyone in ASEAN’s highly entrepreneurial societies.