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1、精品论文The challenge of banking in Emerging M a rk et sJun Qin, Xuhua Chang, Shasha ZhaoCollege of Science, China University of Mining and TechnologyXuzhou, Jiangsu, PRC, 221116cumt_maths_cos_AbstractThis essay illustrate the detail of challenges for emerging markets including central bank supervision,
2、 bank lending and non-performing assets, risk management, banking structure changes, deposit insurance and credit guarantee, bank rating. Through all of these facts, the author explains how vulnerable banks are in emerging markets to crisis. Then some feasible treatment will be suggested based on th
3、e research of studies about the difficulties in the banking system of emerging markets.Keywords: Emerging Markets, Risk Management, challenge, crisis1Introduction Emerging markets are countries that are restructuring their economies along market-oriented lines and offer a wealth of opportunities in
4、trade, technology transfers, and foreign direct investment.(http:/www.uiowa.edu/ifdebook/faq/faq_docs/emerging_markets.shtml) Based on the failure of stated-led economic development and the need for capital investment, the emerging markets existed potentially. There are five biggest emerging markets
5、 including China, India, Indonesia, Brazil and Russia according to the World Bank. As we all know, they play a critical role in global economics and politics. At the same time, however, there will be a huge challenge.2Challenges of Fina ncial Lib eraliz ation for Emerging M a rke t sIn the emerging
6、markets, the solid institutions along with deep and sophisticated financial markets are important elements for maximizing the benefits of globalization and reduce the risk of financial crises. An appropriate institutional framework includes among others a well functioning legal system, a reliable pa
7、yment system, a proper framework for regulation and supervision, an appropriate deposit insurance scheme, and propitious conditions for implementing new developments in information and communication technology.1 In addition, building a resilient domestic financial system is another requirement to a
8、successful liberation. An efficient financial sector ensures both a better financial of and a better protection for the economy. (http:/www.banque-france.fr/gb/instit/telechar/discours/discours_14_05_2007.pdf) it also can ensures a better financing of the economy by broadening the investor base and
9、enhancing their ability to make use of diversified financial instruments.3Central bank supervision-Pr udential regulation, capital adequacy Central Bank plays a crucial role in the emerging market. It should be the guardian of the health of the “financial ecosystem” through reinforced surveillance a
10、nd a continuous improvement of the regulatory and legal framework. The central bank is also responsible for producing and disseminating distinct sets of monetary and financial statistics whose quality is of utmost importance for policy makers and investors.Liberaliazation and integration of financia
11、l markets have been associated with an increase in capital movements and with the financial crises. (Vives, 2006) The result is that domestic regulation may not be enough in countries that face a commitment problem, and those countries may need to have some more discipline from overseas. Asymmetric
12、information problems are bound to be more acute in emerging markets. Actually, emerging market economies fare poorly-5-on the indicators of rule of law, the protection of property rights, and accounting standards, pointing to the moral hazard and other adverse problems. Besides, typically, there wil
13、l always involve a fixed cost for the production of information, but the small size of emerging market can be an obstacle of this factor. The experience of the Asian crisis reiterated the need for a sound regulatory and supervisory framework, the role of supervision, in such a situation, is to promo
14、te financial market stability and minimize systemic risk. So, it requires that the supervisors adopt appropriate benchmarks, based on international best practices. These should be transparent. For example, in its role as the agency in charge of monetary policy, the central bank might desire to raise
15、 interest rates to control inflation, but that, on the flip side, might adversely affect the profitability and solvency of the banking sector. (Goodhart, 1995)1In an emerging market, most companies the only source of finance other than the earnings, is from the bank loan, so that banks and their mon
16、itoring capacity are at the centre of economic development. According to the creation of liquidity by banks, it makes banking system vulnerable to run. In other words, due to the potential fragility, it will dramatically lead to worse downturn, in particular during the crises of Mexico, and Asia. Fi
17、rms may be unable to obtain funding because of asymmetric information, as they do not have enough bonded income, then they need the bank to rescue them.Nevertheless, the capital adequacy should also be considered. Imposition of minimum capital adequacy requirements promotes more prudent management o
18、f commercial bank. A high capital adequacy requirement limits the ability to extend additional loans and thus contains inter-bank competition, which would increase the financial cushion of commercial banks to cope with a volatile economic environment. (Eichengreen, 1999) Capital requirements do seem
19、 to affect bank behaviour over and above the influence of the banks own internally generated capital targets2. More importantly, such adjustments by banks in their capital ratios are effected primarily by boosting their capital rather than through systematic substitution away from high-risk loans (N
20、achane et al., 2000). One of the difficulties of implementing capital adequacy requirement is that bank behaviour tends to be pro-cyclical, independently of the regulations in place and the need for such tightening usually becomes manifest when recession or adverse shocks impingeupon the system, rev
21、ealing the lacuna in existing systems(BIS, 2000). Foe instance, the pro-cyclicity of prudential regulation raises an crucial issue about adequacy of capital in India, the timing and extent of progress in tightening of such regulations would have to take intoaccount the cyclical factors in the econom
22、y. And adequate notice need to be provided to market participants to enable them to be fully prepared to meet the changing prescriptions. Last not least, intense consultation process in detailing the prudential regulations would be necessary so that it could be t an appropriate pace, in order to rea
23、ch the objective of meeting financial standards as soon as feasible(Reddy, 2001c)4Bank lending and non-performing assets The prescription of norms is not sufficient for good banking. In 2001, Bhide and Prasad conducted a stress test of a vulnerability to credit risk, they considered two scenarios (1
24、) where13 percent of loans become non-performing and provisioning is made at 10 percent, and (2) where 5 percent of the loans become non-performing and provisions are made at 35 percent3. In the first case, it represents an extreme situation of highest NPA growth in a particular year. But in second
25、case, capital is reduced to zero by the end of 11th year. This NPA problem needs to ensure that the banking system is resilient to adverse macroeconomic shocks.In some developing countries, studies on NPA suggest that the problems of NPAs have a sizeable overhang component, arising form infirmities
26、in the existing processes of debt recovery, inadequate legal provisions for foreclosure and bankruptcy and difficulties in the execution of the court decrees (Gavin and Hausman, 1996) Many of direct loans are subsistence loans, where default rates are high and recovery prospects not bright4. The ban
27、ks also suffer from the dilemma of a working capital lender. In a protected economy, the working capital lender finds himself in a situation of increasing commitments rapidly depreciating, outmoded equipment and outdated technology. Therefore, many banks become highly vulnerable to the market forces
28、 when the economy is opened up, with the possibility of change of these loans into non-performance. This kind of situation needs the financial institution to put in place a sophisticated system of credit assessment and an integrated risk management.5Risk Man agement Although a number of structural c
29、hanges have occurred, this might enhance macroeconomic resilience and stability. But a number of risks remain in emerging market. First of all, the largeglobal imbalances could reverse abruptly. A sudden correction can result in lower global growth, higher US interest rates and a steep dollar deprec
30、iation could be harmful to some emerging markets. (Ramon Moreno, 2006) Secondly, some emerging market economies like China still face domestic imbalance that could raise concerns and also be vulnerable to credit to the consumer sector as well.Financial instruments are priced to reflect the risks tha
31、t they contain, one of the risks of importance to investors in emerging markets is currency risk, which is about a change in the exchange rate will erode an investors home currency return (Glen, 1997). The challenge for emerging market economies is that exchange rate policy management has moved beyo
32、nd the confines of the traditional parameters that we are used to, which is about instruments, targets, transmission mechanism and inflation-output trade-off issues. Policymakers in current periods always be confronted with a more complex and discerning financial market environment; The integrity an
33、d efficiency of exchange rate policy framework derive not only from the credibility and soundness of decision making at the central bank but also from a range of other supporting policies and institutional factors within the economy. (Hoe Ee, 2001) economies have to deal with the increased volatilit
34、y in international financial and currency market. Moreover, there was a factor that has complicated one conduct of exchange rate policy is the emergence of an increasingly borderless, integrated global financial market. During a crisis, investor might shift their focus from evaluating the situation
35、in the country to evaluating the behaviour of other investors.Credit operations are the main risk for the banks in emerging markets. Firstly, a dramatic increase in credit to the household sector leading to the risk exposures. Credit risk in Korea nowadays have declined because of adjustments follow
36、ing the crises and the cleaning-up of non-performing loans, but some studies indicate that the rapid rates of growth in credit card lending could increase the risk exposures. (Merchant, 2005) Secondly, there are significant credit risks on the banking book associated with asset price fluctuation.(Mo
37、reno, 2006) One of big risks is that households will service their debts but will cut back on spending to do so.For the technology risk section, information technology is viewed as a reconciliation tool for the back office and a ledger mechanism for the front office. The banking is more and more lik
38、e a consumer-centric service provider. This kind of lack of leveraging of their investment in effect has inhibited their decision-support system, and that could be a huge threat from the foreign counterparts.On the operational factor, some issues also emerge, the board of directors of a bank is enjo
39、ined to consider and approve models for risk identification, measurement and management. And in addition, the non-availability and the lack of credibility of the data are also important to be concerned. The situation in this area will require the bank to equip itself to proactively deal with the cha
40、nges in the operating environment. (Bhide, Prasad, 2001) 5The gap between bank assets and liabilities along the whole maturity spectrum, which could make the liquidity risk for the banking system. For instance, an excess of assets over liabilities will create a funding gap. In Chile, based on the ch
41、allenge of liquidity risk, they introduced new forms of risk management to control, and the aim is to ensure proper payment of obligations. (Betancour, Gregorio, Jara, 2006) 6Basel II aimed at upgrading the level of risk management of domestic banks and thereby promote their sound management and com
42、petence.(Kim, Ryoo, 2006) but the potential capital burden on banks should be considered as well. In the new financial setting, a comprehensive management system should be created for the varying risks as above.6Banking Structure-ow nership Although there was the high level of statutory control over
43、 flow, but increased competition has reduced their dominance somewhat since financial liberalization was initiated. There are basically three major structural changes including privatization, consolidation, and increased role of foreign banks. In India banking system, the new private banks have grow
44、n to account for about4-5 percent of commercial bank assets by end-March 2000, the share of foreign banks has increased by about one percent point around three percent, correspondingly, the original statutory bank share has declined to about 80 percent.The impact of structural changes in banking ind
45、ustry on financial intermediation could not yet be discerned. (Mihaljek, 2006) Growth of bank credit to the private sector was weak in most counties and falling rapidly in those that had experienced a banking crisis in the late 1990s. Butsince late 2000, the policymakers began to worry about the sea
46、 change in the bank lending landscape, in particular the households sector.In the approach of consolidation, banking industries thought that larger banks were better able to diversify and manage risk, but some kinds of problems also existed, such as the bank ownership of investment funds will create
47、 a conflict in the advice banks give to their customers about such product.The foreign banks sharply increased in the merging markets especially in Asia. The most crucial issue is that they tended to be more oriented to the household sector where they could apply their credit scoring technology, and
48、 they pay less attention to small business than domestic banks had been. It sound this issue was politically difficult to defend and supervise. Another issue which should faced was the loss of market information during the process of delisting of large commercial banks from local stock exchange.(Turner, 2006) This could have a huge impact on bank efficienc