| Project Detail |
The knowledge and support TA will help identify risks to regional financial stability in the aftermath of the coronavirus disease (COVID-19) pandemic and amid financial sector changes--increased banking sector interlinkages, rising interest rates, structural shifts in global financial markets, and advances in payments and financial technologies, against the backdrop of ageing populations and climate change. The TA aims to help developing member countries (DMCs) policy makers identify policy priorities and shape the strategic agenda, and strengthen the countries banking sectors and financial resilience through research and knowledge sharing including via information hubs, and policy dialogues.
Project Name Asias Financial Safety Net, Resolution Mechanisms, and Financial Integration and Resilience
Project Number 57131-001
Country / Economy Regional
Project Status Active
Project Type / Modality of Assistance Technical Assistance
The knowledge and support TA will help identify risks to regional financial stability in the aftermath of the coronavirus disease (COVID-19) pandemic and amid financial sector changes--increased banking sector interlinkages, rising interest rates, structural shifts in global financial markets, and advances in payments and financial technologies, against the backdrop of ageing populations and climate change. The TA aims to help developing member countries (DMCs) policy makers identify policy priorities and shape the strategic agenda, and strengthen the countries banking sectors and financial resilience through research and knowledge sharing including via information hubs, and policy dialogues.
The proposed TA builds on the findings of past TA projects and intends to deepen their goals through enhanced knowledge sharing to identify, assess, and resolve risks and vulnerabilities. The TA specifically targets DMCs needs through tailored research and training seminars, including case studies and comparative analyses. Because of the high level of NPLs, which requires AMCs critical role in facilitating debt resolution and asset recovery, the TA will facilitate discussions on strengthening the AMCs capacity and harmonizing the NPL market regulations in Asia. Going beyond the previous TA projects, this TAs work on NPL market development not only encompasses public, but also private financial institutions to the extent possible. The TA will further develop policy recommendations to reduce or mitigate identified risks and raise awareness among policy makers to ultimately foster regional financial stability.
The TA is included in the management-approved annual work program for ERDI as a research activity on macroeconomics and financial stability in the region: the need for ADB to strengthen macroeconomic surveillance and diagnostics to become the regions knowledge leader.
Project Rationale and Linkage to Country/Regional Strategy
During 2000-2020, Asia saw a significant rise in its regional and global trade and financial integration, making the region susceptible to financial turmoil and spillovers of market volatility. Especially, while the COVID-19 pandemic-related temporary relief measures were lifted in 2021-2022 and policy rates rise, financial stress could materialize through increases in loan defaults weighing on banks capacity to conduct financial intermediation. In fact, NPLs held by banks in Asia and the Pacific were estimated at $794 billion at the end of 2021, up by about 14.7% from $692 billion in 2019, and this could worsen as economies continue to deal with adverse economic shocks and growing recession risks. In this situation, a healthy banking sector propelled by regional financial cooperation would be vital for a regionwide sustainable and inclusive economic recovery.
To address financial stability risks in the region, ADB has executed TA projects delivering various knowledge and capacity building outputs. TA to establish the international public asset management company (AMC) forum helped improve crisis responses in Asia through crisis resolution mechanisms and distressed assets management. It successfully established a common knowledge platform, the International Public Asset Management Company Forum (IPAF), allowing public AMCs in the region to share strategies, knowledge and experience, and supported capacity building. As of October 2023, the TA project Strengthening Asias Financial Safety Nets and Resolution Mechanisms improves the response coordination to varying scales of financial turmoil in regional and global markets by facilitating bad loan resolution and corporate restructuring. As a clear sign of enhanced cooperation in jointly responding to financial crisis, IPAF membership has grown from seven public AMCs across five Asian countries in 2013 to 16 institutions from eight countries in 2022, and its membership expanded to deposit insurance companies. Knowledge sharing workshops and capacity building training programs were extended to DMC government officials, and more events were held during the COVID-19 period.
Against the backdrop of new financial stability risks and vulnerabilities, it is paramount to strengthen the soundness of the financial system and to take measures to prevent and mitigate potential financial crises.
Impact
Regional financial stability in Asia improved |
