Asia is not new to financial crises. But what makes this different and “What’s ahead for Asian Banking?” This was the topic of the Asean Bankers Conference held at RCBC last week. President Gloria Macapagal Arroyo addressed the conference while Governor Say Tetangco was the guest speaker at the luncheon hosted by Ambassador Alfonso Yuchengco. RCBC Chair Helen Dee, Cesar Virata, Roy Navarro, Pres. Lorenzo Tan, Mike de Jesus, Rey Magno were present and many others such as UCPB Chair Do Ejercito, Union Bank Pres. Vic Valdepeñas, ING head Zondi Garcia, BPI President Gigi Montinola and China Bank President Peter Dee in this significant conference.

Speaker Steven Roach, Chairman of Morgan Stanley Asia who has a new book “The Next Asia” said that this is a lingering financial crises. He said that in this post-crises world, which is not a normal business cycle, there are imbalances and bubbles. He noted that the American consumers, demand side focus, have realized that they have spent for goods with money that they don’t have and now buying less; demand at much lower levels. China producer, is on the supply side focus. He says that Premier Wen Jiabao diagnosed China so well, beneath the surface, when he described its situation in 2007 as “unstable, unbalanced, uncoordinated and unsustainable.”

In the 1997 financial crises, Roach said Asia was able to depend on US consumption at that time, but it can no longer depend on it this time. He expects multi-year downshift of global growth with recovery only within 3-5 years. Dr. Jim Walker, of Asianomics Limited shares the same view except that recovery to be much slower, extended to 5-10 years. He said “we are in the eye of the storm” and recovery happens long after the storm. On China, he asked “is it the next great crash?” He said that the Chinese are the best entrepreneurs in the world as they respond to the price signals like no other. However, he emphasized, the price signals sent out by Beijing are wrong; for example the exchange rate is undervalued that it prompted Chinese businesses to build capacity to service the export market. Interest rate has been set too low and capital is perceived as free. China has a current account surplus.This is good. But, Jim says that “ big surpluses can be as bad as big deficits.” We know that in life, we need a balance and any good thing if in excess can also be harmful. With China geared towards exporting its production which has weakened, their domestic consumption is not big enough, then there will be slower growth. Unless it can grow its consumption. This is the same with other Asian countries where consumption is not that strong. Walker said that Asia “decoupling” is not in sight and that the Philippines, together with Indonesia and Singapore are in the right track. Dr. Walker was not able to touch on Japan, which he considers” the worst recession in the world,” as it has suffered output losses a multiple of the US.

Former Secretary of Finance Isidro “Lito” Camacho said that there are new realities with the recent events which brings us back to Basics and Simplicity. Keep it simple and don’t venture in things you don’t understand. He highlighted what got us into the verge of global depression, mainly the prolonged period of excessive liquidity and low interest rates that created an intoxicating but explosive cocktail of low cost of capital which pushed investors, (private individuals and institutions) to seek higher yields, thus taking more risks, leading to a breakdown in credit and investment disciplines. This combination created an environment for unhindered financial engineering and complex layered financial instruments that the regulatory agencies were not able to keep up with.

With this background, he said that the financial industry will have to adapt to new realities such as :

1. Back to Basics. Simple services and strategies. Banks will now focus more on client needs and retreat from products with complex financial structures especially those that are not easily understandable. More transaction banking , fee based business.

2. Expect greater regulatory scrutiny, especially in matters related to leverage/risk.

3. Calls for stronger capital buffers and balance sheet management.

4. Calls for greater transparency and disclosure. Focus on how are products sold to the public, especially the retail sector.

5. Greater coordination and harmonization of laws and regulations among regulatory agencies.

At the break, former Prime Minister Cesar Virata commented how ironic that excessive liquidity and low interest rate, which initiated the current crises seem to be the very solution that is being implemented to solve the very problem it caused. Former Secretary of Finance Nitz Amatong says, yes its true but the difference is that now, lessons have been learned and already under stricter controls.

So what’s the outlook? Some bankers were just happy that while the first two economist speakers were more on the gloomy somber tone, the rest that followed were a bit more positive such as former secretary Lito Camacho, He says while the global financial crises we are going through is certainly of far greater proportion and extent, he quoted from his 2001 speech which he finds still fitting and not off the mark ”This conference is being held at a time when Asian economies are now showing signs of recovery. A palpable sense of optimism is returning to investors and consumers alike in the region” Yes, it was from a speech he delivered in 2001, 6 years ago to the same association coming out of the 9/11 attack, Iraq war, and the Sars epidemic.

We certainly don’t know what the future will bring but it is certainly good to be equipped with these words of caution from the experts. And certainly it is reassuring to know that in spite of all of these uncertainties, whether US consumption will go back up, will China be able to export to its capacity or use production facilities for its own consumption or crash(?), etc etc, we can be assured of knowing who holds the future, our future. And the One Up Above is certainly in control!

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Ms. Tarriela is Chairman of Phil. National Bank (PNB). Former Undersecretary of Finance and Vice President of Citibank N.A.