In the third quarter of 2020, the Asian economy has remarkably stabilized and rebounded, with many indicators of production, consumption, employment and inflation showing significant improvement. However, with the arrival of autumn and winter, the impact of the risk of a second pandemic cannot be underestimated. The market trend was divergent, as a whole, Asian monetary market, exchange rate market and bond market strengthened, equity market rally began to weaken, but there was a regional divergence. As weak follow-up of previous large-scale stimulus measures, the new round of policies was more cautious. Both the governments and the industries have begun to focus on the transformation, innovation and other long-term development strategies, in order to realize the new development trend under the new situation and new environment.
I. Economy has rebounded significantly
II. Employment situation improves
III. The risk of deflation has weakened
I.Monetary market: revealing a diverged trend
II. Exchange rate market: currencies strengthened collectively
III. Stock market: reflecting a steady recovery
IV. Bond market: showing a further expansion trend
I. Asian banking industry: searching for new growth points
II. The Asian securities industry: ushering in an opportunity for reshuffle
III. Asian Insurance Industry: developing in depth
I. Monetary policy: becoming more flexible and accurate
II. Exchange rate policy: maintaining monetary stability
III. Fiscal policy: turning to more pragmatic
IV. Regulatory Policy: focusing on long-term development
V. Regional Cooperation: supporting Inclusive Growth
Writing Group：AFCA Think Tank DepartmentZhu Yuanqian, Liu Liyang，Guoshu【Quarterly Overview】In the third quarter of 2020, the Asian economy has remarkably stabilized and rebounded, with many indicators of production, consumption, employment and inflation showing significant improvement. However, with the arrival of autumn and winter, the impact of the risk of a second pandemic cannot be underestimated. The market trend was divergent, as a whole, Asian monetary market, exchange rate market and bond market strengthened, equity market rally began to weaken, but there was a regional divergence. As weak follow-up of previous large-scale stimulus measures, the new round of policies was more cautious. Both the governments and the industries have begun to focus on the transformation, innovation and other long-term development strategies, in order to realize the new development trend under the new situation and new environment.【Macro Economy】
In the third quarter, most Asian economies came out of the troughs and began to show signs of recovery. A number of indicators on both the production and expenditure sides have improved significantly, the employment market has ushered in signs of recovery, and deflationary pressures have begun to ease. However, there was still a risk that the outbreak will rebound again, and the prospects of recovery are still facing numerous challenges. The prospects of future economic recovery also depend on the situation of pandemic prevention and control as well as the rationality of monetary and fiscal policies.
I. Economy has rebounded significantly
From the perspective of the PMI, both the global and Asian PMI have returned to above the entrepreneurs confidence threshold, but the rebound rate of Asian PMI is slightly slower than that of the global PMI. Three global PMI indexes have returned to above threshold in July, while the three indicators in Asia did not rise above threshold until September. In September, the Asian manufacturing, service, and composite PMI indexes were 51.70%, 50.80% and 51.50%, while the three global indicators are 52.40%, 52.00% and 52.50% respectively. It can be seen that the manufacturing industry performed slightly better than the service industry this quarter. Among the representative Asian economies, China has a good recovery prospect. Throughout the third quarter, three PMI indicators remained high level in about 54, but three PMI in Japan were all below the threshold, and the manufacturing PMI has been 17 consecutive months under from the threshold, the service PMI has remained below the threshold for eight consecutive months, reflecting the lack of momentum for Japan’s economic recovery. In addition, the Indian service industry PMI, South Korea and the ASEAN manufacturing PMI are still below the threshold, it may be because of the aggravation or rebound of the pandemic in India, South Korea and some ASEAN countries.
Source: CEIC, sorted out by the author
Figure 1.1 PMI of global and major Asian economies
In term of the year-on-year GDP growth rate, some Asian economies have begun to callback. The GDP of representative Asian economies fell 5.70% year-on-year, which was significantly smaller than the previous quarter (11.38%). From the change value of GDP year-on-year growth rate, except for Kyrgyzstan’s GDP year-on-year growth rate decreased by 0.72% compared with the previous quarter, the GDP growth rate of other representative Asian economies has all achieved a rebound from the previous quarter. In term of the absolute value of year-on-year growth in GDP, China, Taiwan(China), Vietnam, and Uzbekistan continued the growth trend of the previous quarter, with GDP increasing by 4.9%, 3.81%, 2.62%, and 0.40% year-on-year, respectively. In the first three quarters, the Chinese economy as a whole registered positive growth, with a combined growth rate of 0.7%. In addition, Turkey and South Korea reversed the negative growth trend of the previous quarter, with GDP increasing by 6.7% and 1.9% year-on-year respectively. However, in addition to the above-mentioned six economies, the economic trends of representative Asian economies are still in downward.
Source: CEIC, sorted out by the author
Figure 1.2 Year-on-year GDP growth rate of global and Asian representative economies
At the present stage, the GDP growth of major economies in the Asian region is not only affected by the pandemic, but also mainly affected by the simultaneous recovery of the secondary and tertiary industries in the production side, as well as demand in the consumption side.
From the perspective of production, the secondary industry has shown a clear rebound, and the tertiary industry, which is most severely affected by the pandemic, has also shown a recovery trend. From the perspective of the secondary industry, the overall growth of China’s secondary industry was 0.9%, of which industrial production increased by 6.9%, achieving the largest increase since 2020. India's secondary industry has also seen a significant rebound in many aspects. The manufacturing industry achieved a growth of 0.6% (-39.3% in the second quarter), and the mining and construction industries contracted by 9.1% and 8.6% respectively, which was significantly smaller than the previous quarter's contraction (-23.3% and -50.3%). Except the expansion of the mining industry's contraction (-4.28% in the third quarter and -2.72% in the second quarter), the manufacturing and construction industries fell by 4.31% and 4.52% respectively in this quarter, and the decline was significantly smaller than the previous quarter (-6.19% and -5.39% respectively in second quarter). The contraction of construction activity in Singapore has decreased significantly (-46.6%, compared with -60% in the second quarter), and the manufacturing industry has achieved a 10% growth (-0.8% in the second quarter) due to the increase in the output of electronic products and biomedicine. From the perspective of the tertiary industry, China's tertiary industry grew by 0.4%, and the tertiary industry fell by 1.6% in the second quarter. Indonesia's accommodation, food and beverage industries, which were previously most severely affected by the pandemic, fell 11.86% this quarter, which was a half of the contraction in the second quarter (-22.02%). As the pace of decline in Singapore’s revenue in transportation, wholesale and retail trade, and food services has slowed, and the decline in the service industry has also decreased (-8.4% in the third quarter and 13.4% in the second quarter).
From the perspective of expenditure, public expenditure has maintained an expanding trend, personal and household consumption and corporate investment data have improved significantly, and external demand has recovered faster than domestic demand. In terms of public expenditure, public expenditure in Japan, Malaysia, and Thailand accelerated, with growth of 2.8%, 6.9% and 3.4% respectively in the third quarter, 2.5, 1.9 and 2.1 percentage points higher than the previous quarter. Indonesia's government expenditures achieved a growth of 9.76% this quarter, compared with a decline of 6.9% in the previous quarter. From the perspective of private consumption, private consumption indicators in many places have improved significantly. China's September retail sales achieved the highest growth this year, an increase of 3.3% year-on-year. Private consumption in Japan rebounded strongly, increasing by 5.1% and contracting by 8.3% in the previous quarter. Although private consumption in Malaysia, Thailand, Indonesia, and Hong Kong,China are still declining, they have improved significantly. In this quarter fell 2.1%, 0.6%, 4.04%, and 8.2%, respectively, improved 16.4, 6.2, 1.48, and 6 percentage points comparing with the second quarter. In terms of corporate investment, South Korea’s fixed investment grew by 3.2%, 1.3 percentage points higher than the previous quarter. The fixed investment contraction in Malaysia, Indonesia, Thailand also shrank sharply. In the third quarter, investment from the above three countries fell by 7.3%, 11.6% and 2.4%, respectively, 17.3, 2.13 and 5.6 percentage points lower than that in the previous quarter. Investment in India and Hong Kong, China fell by 6.48% and 11.1%, respectively, the range of decrease was 39.8 and 10.3 percentage points lower than the previous quarter. However, Japan's investment indicators have been deteriorated. The total amount of machinery and equipment orders fell by 19.4% year-on-year in July, an increase of 2.3 percentage points from the second quarter's year-on-year decline. From the perspective of import and export trade, driven by external demand, the recovery of exports is better than that of imports. China’s exports increase by 8.3%, exceeded expectations, which was 8.2 percentage points higher than the previous quarter. Japan, Malaysia and Vietnam’s export growth turned from negative to positive, with growth of 7%, 0.1% and 9.8% respectively in this quarter. The degree of decline of exports in India, Singapore, South Korea and the Philippines decreased, with a decrease of 1.5%, 1.6%, 3.2% and 14.7% respectively in this quarter, which was 18.3, 5.8, 16.9 and 21.1 percentage points lower than the previous quarter. Import data has also improved, but the import data of some countries has deteriorated. The decline in imports from India, South Korea and the Philippines has shrunk, but the overall decline is not as good as exports, the third quarter fell by 17.2%, 4.6% and 21.7%, respectively, and the decline was narrowed by 23.2, 3.9 and 16.2 percentage points compared with the previous quarter. However, Japanese imports fell by 8.8%, after rising by 1.4% in the previous second quarter.
II. Employment situation improves
The employment situation in Asia remained stable this quarter, and unemployment rates in some economies have begun to decline. The employment indicators in the United States improved significantly this quarter. The unemployment rate in Europe continued to rise due to the second rebound of the pandemic. The average unemployment rate in representative Asian economies rose slightly by 0.2 percentage points from the previous quarter to 4.31%. In this quarter, Mongolia, Azerbaijan and Hong Kong, China had relatively high unemployment rates, which were 7.30%, 6.94% and 6.70% respectively, indicating that the labor demand of enterprises in some parts of Asia is still insufficient. The unemployment rate in Oman and Mongolia increased by 0.8% and 0.7% quarter-on-quarter respectively. Among them, Oman was mainly due to the higher unemployment rate of women and people aged 15-29. The female unemployment rate in September was as high as 10.3%, 1.9 percentage points higher than that in June. The unemployment rates for people aged 15-24 and 25-29 were as high as 9.30% and 6.30% respectively, 3.30 and 1.60 percentage points higher than in June. Mongolia is mainly due to the deterioration of the male job market. The male unemployment rate is 7.80%, which is 1.40% higher than the previous quarter. Unemployment rates in South Korea, Singapore, Vietnam, and Taiwan, China have declined this quarter, declined by 0.4, 0.4, 0.2 and 0.2 percentage points quarter-on-quarter, reflecting the steady economic and social development and the implementation of various employment policies. However, the overall unemployment rate in Asia is still at a relatively high level, and the pandemic has reconstructed the economy, causing many companies permanently closed. The recovery of the job market will be a long and arduous process.
Source: CEIC, sorted out by the author
Figure 1.3 Global and Asian representative economies’s unemployment rate in Q3
III. The risk of deflation has weakened
In the third quarter, Asian CPI showed a slow upward trend, and only a few economies remained in a deflationary situation. In the United States, CPI showed a slow upward trend in this quarter, with year-on-year growth of 1.37% in September, higher than the level of 0.65% at the end of last quarter. However, due to the second pandemic and the looming deflation risk in the European Union, CPI fell by 0.31% year-on-year in September. CPI in Asia (except Lebanon) rose by 3.38% year-on-year, which was slightly higher than the previous quarter (3.28%). Affected by the overall improvement of the global pandemic, the increase in external demand and the rebound in oil prices, in September, 28 of the 40 representative economies CPI rise, and 16 economies CPI year-on-year growth rate higher than the level in June. Lebanon and Iran are still facing severe inflation. In September, CPI increased by 131.05% and 34.45% year-on-year, respectively, and the CPI growth rate was significantly higher than the previous quarter (89.74 and 22.47 percentage point). Among the 11 economies with a decline in CPI, most of the economies' CPI decline was significantly smaller than the previous quarter, only Hong Kong(China), Macau(China), Japan, and Oman CPI declined more than the previous quarter, reflecting continued weakness in consumption in these countries.
Table 1.1 CPI year-on-year growth rate in european, American and Asian economies (%)
Source: CEIC, sorted out by the author
In the third quarter of 2020, although the COVID-19 pandemic is still an important factor affecting the trend of Asian financial markets, its impact has gradually weakened. Some Asian countries have begun to withdraw from large-scale stimulus policies from the perspective of policy sustainability. Different economies and different markets have obvious divergent trends. The money market has overall loose liquidity, the exchange rate market has strengthened as a whole, the stock market has weakened, and the bond market has continued to expand. Compared with the overall trend, the money market interest rates in China and Japan have risen, foreign exchange markets weakened in Indonesia and Thailand, and the stock markets in South Asia such as Bangladesh, Pakistan and Sri Lanka have increased significantly.
I.Monetary market: revealing a diverged trend
In the third quarter of 2020, large-scale stimulus policies were still maintained in most parts of Asia, liquidity was generally loose, the broad money supply and narrow money supply continue to grow. At the same time, monetary policy in some regions has shown an exit trend, and the interest rate trend of the money market has diverged.
The broad money supply of representative Asian economies1 grew by an average of 10%, and the growth rate was 4.19 percentage points higher than the same period last year. Among the representative economies in Asia, Indonesia saw the fastest growth of broad money at 12.40%, which is 5.31 percentage points higher than the same period last year, and 4.19 percentage points higher than the previous quarter. India, Singapore and China ranked second, third and fourth, with growth rates of 12.18%, 10.88%, 10.85% and 10.01% respectively, which were 0.17, 0.03 and 0.27 percentage points lower than the last quarter. To a certain extent, this reflects the slight convergence of liquidity supply in most representative Asian economies.
The narrow measure of money supply in representative Asian economies grew by 17.67% on average, which was 11.89 percentage points higher than the same period last year, reflecting the continued stimulus policies of Asian countries. Singapore and South Korea are still the countries with the fastest growth rate of narrow money among the Asian representative economies, as high as 28.38% and 27.34% respectively, which is mainly due to large-scale economic stimulus measures and extremely low interest rates. It is worth noting that the year-on-year growth rate of China's narrow money is the lowest among Asian representative economies, at 8.11%, and its narrow money supply declined 0.33 percentage points quarter-on-quarter in the third quarter, reflecting the trend of its monetary policy returning to normal.
Table 2.1 Money supply of Asian representative economies in the third quarter of 2020
Unit: LCY (trillions)
Source: CEIC, sorted out by the author
Note: From the perspective of data comparability, M3 data is used for broad money supply in India and Japan, while M2 data is used for other economies.
The interest rate trend of the money market diverges. Money market interest rates in most Asian economies are still on a downward trend. Among them, the Mumbai Interbank Offered Rate in India (three months) fell the most, down 0.73 percentage points from the end of the last quarter. This may be related to the continued deterioration of the pandemic in India. In addition, the Indonesian Interbank Offered Rate (three months), the Kuala Lumpur Interbank Offered Rate (three months) of Malaysia, and the Singapore Interbank Offered Rate also fell to a large extent, reaching 4.30%, 1.97% and 0.41% at the end of the third quarter, down 0.35, 0.31 and 0.15 percentage points from the end of the last quarter respectively.
The Korean Interbank Offered Rate (three months) and Thailand Bangkok Interbank Offered Rate (three months) were 0.68 and 0.63 respectively at the end of the third quarter, which were the same as the previous quarter and at a low level. China and Japan’s money market interest rates have risen. At the end of the third quarter, Shanghai Interbank Offered Rate (three months) and Tokyo Interbank Offered Rate (three months) were 2.69% and 0.08% respectively, up 0.57 and 0.01 percentage points from the end of the previous quarter. The rise of the interbank lending rate of the two countries in this quarter may be affected by the lower-than-expected of monetary easing policy implemented by central bank.
Source: CEIC, sorted out by the author
Figure 2.1 Trends of interest rates in major money markets of Asian representative economies
II. Exchange rate market: currencies strengthened collectively
Affected by the further expansion of the depreciation trend of the US dollar this quarter, the currencies of representative Asian economies have collectively strengthened. The U.S. dollar index fell from 97.12 in June to 93.34 in September. At the same time, the currencies of most representative Asian economies rose by about 2%.
Among the representative economies in Asia, CNY experienced the highest increase this quarter. China’s CNY/USD rose 3.83%, rising to 6.81 from 7.08 at the end of the previous quarter. On the one hand, it stems from China’s monetary policy is relatively cautious while the global environment of low and negative interest rate, which led to the long-term impact that international capital has been increasing holdings of CNY assets. On the other hand, the focus of the domestic inter-bank market has begun to shift from the impact of pandemic and foreign trade to the prospect of economic recovery. Domestic institutional investors』 willingness to accumulate US dollars has weakened, making the CNY stop falling and rebound.
However, Indonesian Rupee and Thai baht have depreciated, with the IDR/USD have fallen the most severely, from 14195.96 at the end of the previous quarter to 14847.96. This is mainly affected by the intensified pandemic in Indonesia, with 282,724 confirmed cases as of September 30, and between 2,500 and 5,000 new cases on a single day in September. Due to uncertainties at home and abroad, such as the US election, domestic political factors and the trend of the pandemic, THB/USD fell to 31.37 from 31.14 at the end of last quarter. It is worth mentioning that the two currencies have also been the most volatile so far this year. Previously, the two currencies suffered severe depreciation in the first quarter and achieved substantial appreciation in the second quarter. Currency movements are a double-edged sword that affects the economy. The depreciation in this quarter is conducive to the export trade of export-oriented countries, but it will also increase their debt risks.
Table 2.2 Monthly average exchange rates of major Asian economies currencies against the USD
Source: CEIC, sorted out by the author
Source: CEIC, sorted out by the author
Figure 2.2 Month-to-month change of the monthly average of Asian currencies against the US dollar
III. Stock market: reflecting a steady recovery
Judging from the stock indexes, scale, trade volum, price-earnings ratio and foreign capital flows of representative Asian economies, the upward trend of the stock market in this quarter was significantly weaker than in the previous quarter. The phenomenon of "the pandemic is not over, but the stock market is rising" has weakened. Investors were paying more attention to the fundamentals, and the speculative sentiment is leveling off. Asian economies, led by China, are expected to achieve substantial economic recovery, which would be undervalued for future long-term investment.
The stock indexes of representative Asian economies have diverged, but the overall trend was still rising. In the third quarter, the stock indexes of representative Asian economies increased by 5.4% quarter-on-quarter on average from the previous quarter, but were weaker than the previous quarter growth rate of 13.14% quarter-on-quarter, the stock index of most of the economies continued the upward trend of last quarter. Bangladesh reversed the downward trend of the previous quarter. The stock index in this quarter rose by 24.42% quarter-on-quarter, the highest increase and the best performance among the world’s major indexes. This rebound was mainly due to its low market valuation, economic recovery under effective pandemic prevention and control, increase foreign exchange inflows, recovery of export revenue and Bangladesh Securities and Exchange Commission have adopted punitive and reformative measures to ensure market discipline. In addition, the stock indexes quarter-on-quarter in Pakistan, Sri Lanka, South Korea and China also achieved double-digit growth, up 17.87%, 16.22%, 10.41% and 10.17% respectively. But at the same time, the stock indexes in Thailand, Cambodia, Singapore, Hong Kong(China), Laos, and Indonesia fell by 7.62%, 4.82%, 4.76%, 3.96%, 1.52% and 0.72% respectively. This may be due to the adjustment of market sentiment caused by doubts about the sustainability of the stimulus policy.
Source: CEIC, sorted out by the author
Figure 2.3 Quarter-on-quarter comparison of the stock indexes of Asian representative economies
The overall size of Asian stock markets continued to expand, but some countries experienced negative growth. The overall market value of the stock markets of representative Asian economies rose by 8.26%, and the Bangladesh stock market saw the largest increase, up 35.05% quarter-on-quarter in third quarter. Stock market size gains in Pakistan, South Korea, India, and Vietnam stock markets also increased by more than 10%, 16.52%, 14.53%, 14.52% and 11.84%, respectively. However, the stock markets in Thailand, Indonesia and Singapore experienced negative growth, increasing by -7.44%, -4.64% and -0.42% respectively.
Source: CEIC, sorted out by the author
Figure 2.4 Quarter-on-quarter comparison of the stock market scale in Asian representative economies
The trade volume in Asian stock market as a whole showed a downward trend this quarter. The average trade volume of representative Asian economies fell 3.66% quarter-on-quarter. Thailand, Singapore and the Philippines experienced the most severe declines, with quarter-on-quarter declines of 42.80%, 35.06% and 30.33% respectively. The trade volume in China, Taiwan(China), Hong Kong(China), South Korea, and Malaysia at the end of this quarter rose compared to the last quarter, but gradually showed a larger downward trend in August and September. China stock market trade volume fell 15.75% month on month in August, and fell 6.12% month on month in September. Taiwan(China) fell 8.62% month-on-month in August, and fell 9.50% month on month in September. Hong Kong(China) fell 21.88% month-on-month in August, and fell 4.96% month-on-month in September. South Korea and Malaysia began to decline in September, fell 7.2% and 25.89% respectively. Only Sri Lankan stock market transaction volume has basically continued the upward trend except for a slight decline in July, but the increase has declined. The transaction volume at the end of the quarter increased by 72.69% from the last quarter (up by 356.05% in the last quarter).
Source: CEIC, sorted out by the author
Figure 2.5 Month-on-month comparison of trade volume/market size in Asian representative economies
The price-earnings ratio in most representative Asian economies remain on the rise trend. At the end of the third quarter, the average price-earnings ratio of the stock markets in representative Asian economies was 20.03, compared with 18.26 at the end of the last quarter. The price-earnings ratio of India and South Korea have achieved greater growth in this quarter. The price-earnings ratio of India's stock market rose from 22.55 at the end of the last quarter to 27.85, and South Korea rose to 27.79 from 24.18 at the end of the last quarter. The price-earnings ratio of the Malaysian and Singapore stock markets declined this quarter. The Malaysian stock market fell sharply, from 21.26 at the end of the last quarter to 19.86. The Singapore stock market's price-earnings ratio declined slightly, from 11.55 at the end of the last quarter to 11.29.
Source: CEIC, sorted out by the author
Figure 2.6 P/E ratios of stocks in representative Asian economies
Foreign investment in the Asian stock market as a whole has shifted from inflow to outflow. After buying stocks in representative Asian economies for three consecutive months, affected by the rebound of the pandemic in some countries, foreign investors began to sell Asian stocks in September. Foreign trading outflows on the Japanese stock market were USD 12.2 billion, South Korea, India and Indonesia respectively facing capital outflows worth USD 1 billion, Thailand and the Philippines are facing foreign capital outflows of USD 732 million and USD 306 million, respectively. Taiwan(China) has foreign capital outflows worth USD 250 million, and China North bound also has a net outflow of USD 3.584 billion throughout the third quarter. The Vietnam stock market benefited from the effective management and control of the pandemic, economic recovery faster. In September, Vietnam received the capital inflow of USD 135 million.
IV. Bond market: showing a further expansion trend
The weakening of the stock market corresponded to the further expansion of the bond market this quarter. The bond market scale has grown significantly. Except for some economies, the yield of treasury bonds has continued to decline, and the trend of foreign capital outflows is improving. In the future, it is necessary to promote the coordination and opening between the stock market and the bond market, smooth the flow of funds between financial accounts, and promote a further development of the financial market.
The scale of bond markets in representative Asian economies continued to rise this quarter and showed a further expansion trend. At the end of the third quarter, the outstanding debt in the local currency bond market of representative Asian economies was USD 30.14 trillion, an increase of 6.58% from the end of the last quarter, and the increase was 3.15 percentage points higher than the last quarter. Among them, the bond market scale of Vietnam, Philippines and China increased rapidly. Vietnam quarterly growth was 12.29%, and Philippines quarterly growth was 11.79%, China quarterly growth was 9.61%. Vietnam mainly benefited from the rise in corporate bonds. In the third quarter, Vietnam corporate bonds rose by 31.84% quarter-on-quarter, while national debt rose by only 9.18%. Philippines and China mainly benefited from the rise in national debt, with Philippine national debt rising 12.29% and Chinese national debt rising 10.9%.
Source: CEIC, sorted out by the author
Figure 2.7 Bond market scale of Asian representative economies
The yields of treasury bond in representative Asian economies have diverged, but were still showing a downward trend. The 10-year treasury bond yields of representative Asian economies fell by an average of 0.02 percentage point. This was mainly due to the continued downward trend in the treasury bond yields of Vietnam, Indonesia, Malaysia, Hong Kong(China), and Singapore, among which Vietnam, Indonesia and Malaysia have fallen sharply, down 0.29, 0.285 and 0.277 percentage points from the end of the previous quarter. On the other hand, treasury bond yields in China and Japan have showed risen trend, among which the yield of China's 10-year treasury bond yields rose by 0.26 percentage points compared with the previous quarter. This is mainly due to the continuous recovery of China economy and the negative bond market. The average yield of Japanese 10-year treasury bond was 0.030%, which increased comparing the average of 0.002% in the second quarter. This was mainly due to the increase in the supply of 10-year treasury bond by the Japanese Ministry of Finance in the third quarter.
The scale of foreign capital outflows in the bond market further declined, and some economies realized foreign capital inflows. Philippines, Thailand, and Vietnam were still showing a trend of outflows of foreign capital, but the scale of outflows has declined compared with the last quarter. The proportion of treasury bond denominated in local currency held by foreign capitals of these three countries in the market has fallen by 2%, 0.87% and 0.13%, respectively, a decrease of 1.63, 0.43 and 0.09 percentage points from the previous quarter. In the bond markets of China and Malaysia, foreign capital continued to maintain the inflow trend, and the proportion of foreign holdings in LCY government bonds increased by 0.27 and 0.82 percentage points respectively from the previous quarter. The continued increase in the proportion of foreign capital in China’s bond market shows that China’s treasury bond were officially included in the JPMorgan Chase Global Emerging Markets Government Bond Index on February 28, and included in the Bloomberg Barclays Global Aggregate Indices in April, paving the way for continued net foreign purchases. Malaysia has benefited from the successful development of its domestic bond market. The scale of the Malaysian bond market accounts for about 98% of GDP, second only to Japan and South Korea, ranking third. The World Bank report released in September highlighted its bond market as a success story. However, the scale of outflow of foreign capital in Indonesia has increased compared with the previous quarter. Foreign investment accounted for 26.96%, a decrease of 3.21% from the previous quarter, and the rate of decline increased by 0.67 percentage points from the same period last year.
Source: CEIC, sorted out by the author
Figure 2.8 The proportion of Foreign Holdings in LCY Government Bonds of Asian representative economies
【Financial Industry】
In the third quarter, Asian financial industry has recovered to some extent, but there are still uncertainties affected by the pandemic. In the long run, this pandemic crisis may become a touchstone for the reform of Asian financial industry and the development of digital infrastructure, which will promote the active transformation of Asian financial industry, strengthen strategic layout, follow up information technology investment, and improve risk management culture to adapt to the development of the new environment.
I. Asian banking industry: searching for new growth points
In the third quarter, as the regional economy recovered from the blockade, the assets and liabilities of the Asian banking industry achieved substantial growth, but due to the substantial increase in reserves, profitability still declined. The digitalization trend under the pandemic and the reality of low interest rates for a period of time in the future will drive banks to find new development models. At the same time, the fragile economic conditions of some economies may continue until next year, and credit risks cannot be relaxed.
(I) Business scale
Affected by the recovery of the economic prospects, the scale of assets and liabilities in Asia continued to rise this quarter, but due to the impact of the pandemic, the direction of loan investment has diverged. Banks in some economies choose to support troubled industries, while others have put their efforts into more resilient and growing industries. It is worth noting that the pandemic has increased environmental awareness, and green finance has ushered in a good opportunity for development.
1. Overview of banking assets in Asian economies
From the perspective of asset scale, as of the end of the third quarter, the total asset scale of the major Asian economies represented by China, Japan, Hong Kong(China) and Singapore was USD 62.45 trillion, with a year-on-year growth rate of 10.23%. Among them, the asset scale of China's banking industry reached USD 46.28 trillion, ranking first in Asia, achieved a double-digit high growth year-on-year in the quarter, reaching 10.72%. Japan's banks ranked second with USD 11.69 trillion, an increase of 9.01% year-on-year. The total assets of Hong Kong(China) and Singapore's banking industry ranked third and fourth, with USD 3.37 trillion and USD 1.11 trillion, respectively, the asset size increased by 6.86% and 13.77% year-on-year.
Source: Central Banks and Regulators, sorted out by the author
Figure 3.1 Asian representative economies』 banking assets scale at the end of the third quarter of 2020
From the perspective of loan investment, both corporate business and private business have diverged due to the impact of the pandemic.
In terms of corporate business, loans to industries that were previously hit hard by the pandemic in some economies have recovered. In September, Japanese transportation loans rose 11.49% year-on-year, catering loans rose 35.91% year-on-year, and hotel loans rose 18.74% year-on-year. Thailand transportation and storage loans increased by 15.73% year-on-year, and construction industry loans increased by 9.10% year-on-year in September. Singapore's business services, construction, transportation, storage and communications loans all increased in September, up 17.62%, 6.26% and 1.50% year-on-year respectively. On the other hand, there are still economies in which the banking industry is worried about the insufficient repayment capacity of business services and other industries under the pandemic, with less willingness to extend loans to such industries. Indonesia's business service loans have been declining since June, and were fell 9.84% year-on-year in September. In addition, the pandemic has also increased environmental awareness. At the end of the third quarter of 2020, China's domestic and foreign currency green loan balance reached CNY 11.55 trillion, up 17.26% year-on-year, and Indonesia's loans for water supply, sewage treatment, waste treatment and remediation increased by 14.50% year-on-year.
In terms of private business, different types of loans in different economies have diverged. The balance of consumer loans for households in China amounted to CNY 48.16 trillion, an increase of 13.6% year-on-year, and the growth rate was 0.1 percentage point higher than the end of the previous quarter. Thailand's personal consumption loans increased by 5.21% year-on-year, of which housing and overseas travel loans increased by 6.7% and 27.62% year-on-year respectively, but education loans declined severely, down 20.05% year-on-year. Although Indonesia's overall household consumer loans have increased by 2.57% year-on-year, housing loans, vehicle loans and other loans have increased by 0.78%, 1.05% and 4.74% respectively, but apartment loans have fallen by 5.21% year-on-year. Singapore’s total consumer loans fell by 2.4% year-on-year, with equity financing and credit cards falling the most, down 13.60% and 13.50% year-on-year respectively.
2. Overview of Banking Liabilities in Asian Economies
From the perspective of debt scale, the total debt scale of Asian economies represented by China, Japan, Hong Kong(China) and Singapore reached USD 58.63 trillion, an increase of 10.30% year-on-year. China has the largest total debt, reaching USD 42.45 trillion at the end of the third quarter, up 10.86% year-on-year. The second and third places are Japan and Hong Kong(China), with total liabilities of USD 11.69 trillion and USD 3.37 trillion, an increase of 9.01% and 6.86% year-on-year. Singapore ranked fourth with a total debt of USD 1.11 trillion, which is the fastest-growing Asian economy year-on-year, with a year-on-year growth of 13.77% in total debt, of which interbank loans increased by 14.24% to USD 0.36 trillion. Deposits from non-banking customers increased by 10.87% year-on-year to USD 0.55 trillion.
(II) Profitability
Affected by the decline in interest income and the sharp increase in reserves, the profitability of banks in representative Asian economies continues to decline, but some indicators have shown signs of marginal improvement. Although banks in many Asian economies have increased provisions for risks that may arise in their operations, which will affect their performance in the short term, but it will provide strong support for the protracted battle against the pandemic in the long run.
Most Asian economies experienced negative year-on-year growth in net profit in the third quarter, but there are signs of marginal improvement on the quarter-on-quarter growth rate. In the third quarter, UAE and Indonesia saw the biggest year-on-year declines, falling 50.16% and 31.37% respectively. This is mainly due to the narrowing of the net interest margin and conservative reserve measures. First Bank of Abu Dhabi (FAB), the largest lending institution in the UAE, saw a 19% drop in net profit, of which net interest income fell by as much as double digits. In the third quarter, impairment charges were AED 504 million, an increase of 7% over the same period last year. The net profit of Bank Negara Indonesia (BNI), Indonesia’s main government bank, fell 64%, and its provision increased significantly, with a coverage ratio of 206.9%. This was mainly affected by the growth of risky loans (LAR, which has a broader definition of non-performing loans and takes into account five categories of loans, including good loans resulting from credit restructuring). In addition, BNI net interest income for the first nine months also fell 0.8% year-on-year, but the quarter-on-quarter net profit of almost all representative Asian economies increased from the previous quarter, only South Korea’s net profit fell slightly from the previous quarter, down 2.78% quarter-on-quarter to KRW 3.5 trillion, mainly due to non-operating income decline of KRW 0.6 trillion, and administrative expenses rose by KRW 0.1 trillion quarterly.
Source: CEIC, Central Banks and Regulators, sorted out by the author
Figure 3.2 Year-on-year and quarter-on-quarter net profit growth rate of Asian banking industry in the third quarter
The return on equity is still showing a downward trend due to the increase in risk costs and the decline in profits. The ROE of Maldives fell more severely year-on-year, reaching 10.81% at the end of the third quarter, down 10.41 percentage points from the same period last year, mainly due to the sharp deterioration in the Maldives's economic prospects in recent months. In addition, the ROE of representative Asian economies has all experienced a year-on-year decline. The ROE of China’s banking industry was 10.05%, a decrease of 0.3 percentage points from the end of the previous quarter, and the average ROA was 0.80%, down 0.03 percentage points from the end of the previous quarter. In the third quarter, the ROE of the Korea banking industry was 6.27%, a decrease of 0.83 percentage points from the same period last year, mainly because the decline of commercial banks was greater than increase of professional banks. The ROE of commercial banks was 7.47%, with a year-on-year decline of 2.18 percentage points, the ROE of professional banks was 4.43, an increase of 1.32 percentage points year-on-year. The ROE of the Indonesianbanking industry was 11.32%, a decrease of 3.35 percentage points from the same period last year.
(III) Development potential
Low interest rate policy will erode the traditional banks net interest income for a long time in the future. Under the increasingly fierce competitive environment, the digital transformation of the banking industry has become a general trend. In the future, banks need to track and analyze the digital trend and explore digital transformation path suitable for themselves and help all entities and themselves to tide over the difficulties.
In terms of the absolute number of interest margins, Indonesia's net interest margin is relatively high among the representative Asian economies. Due to the high net interest margin, Indonesia banks are still attractive to foreign investors despite the decline in profitability. The net interest margin of major Indonesian banks is between 2.94% and 5.81%, of which the net interest margin of commercial banks is 4.41%, the national bank net interest margin was 4.5%, the regional development bank net interest margin was 5.81%, and the foreign bank net interest margin was 2.94%. The Philippines and China have the second and third highest net interest margins, with Philippines banks at 3.9% and China banks at 2.09% in the third quarter, of which private banks have the highest net interest margin at 3.66%. Banks in Singapore, South Korea and Hong Kong(China) have relatively low net interest margins. Major banks in Singapore have net interest margins of around 1.5%, among which the net interest margins of DBS Bank and UOB Bank were both 1.53%, OCBC Bank was 1.54%, the net interest margins of Korean banks were 1.4%, and the net interest margin of local and foreign retail banks in Hong Kong(China) was 1.24%.
From the perspective of changes in interest margins, the net interest margins of representative Asian economies have shown a narrowing trend. Due to the fierce competition since the digital age, the Asian banking industry’s net interest margin has been in a downward trend in the past few years. The pandemic has further catalyzed the digitalization process, narrowing interest rate spreads. Indonesian commercial banks, national banks, regional development banks and foreign banks falling 0.49, 0.78, 0.12 and 1.26 percentage points year-on-year, respectively. The net interest margin of China’s banking industry fell by 0.1 percentage point year-on-year, of which large commercial banks, joint-stock commercial banks and foreign banks fell by 0.08, 0.04, and 0.2 percentage points respectively, but private banks increased by 0.09 percentage points, mainly due to their main catering to small and micro customers, and the bargaining power is relatively strong. Singapore's major banks, DBS, OCBC, and UOB, fell 0.09, 0.23, and 0.24 percentage points year-on-year respectively. The net interest margin of the Korean banking industry fell by 0.14 percentage points year-on-year.
In terms of non-interest income, non-interest income rose in most representative Asian economies. Among them, Kazakhstan, the United Arab Emirates and South Korea increased significantly. The proportion of non-interest income from the banking industry in Kazakhstan increased by 5.98 percentage points year-on-year to 37.04%. The proportion of non-interest income from the banking industry in the UAE increased by 3.01 percentage points to 35.73%. Korean banks' non-interest income rose 1.19 percentage points from a year earlier, an increase of KRW 0.2 trillion to 1.8 trillion, of which service fees/commissions, securities income and foreign exchange/derivatives income increased slightly from the previous year, but trust service income decreased KRW 0.1 trillion. On the other hand, Sri Lanka and Kyrgyzstan’s share of net interest income declined, down 1.89 and 2.5 percentage points year-on-year to 45.23% and 71.27% respectively.
It is worth mentioning that the pandemic has accelerated the trend of digital transformation of banks. On August 22, People’s Bank of China issued the "FinTech Development Plan (2019-2021)". In this context, Chinese commercial banks continued to deepen their digital operation capabilities. In September, the number of active users in China's banking mobile service application was 35,000, a quarter-on-quarter increase of 6.1%. Mobile banking transaction volume rose to CNY 108.27 trillion, reaching the highest quarter-on-quarter growth rate in the previous three quarters of 23.9%. Among them, major banks continued to optimize the functions of deposit, loan, transfer, investment and financial management, and the increase of active users was more obvious. The net profit of Kakao Bank, Korea's pure Internet bank, reached KRW 40.6 billion in the third quarter, with a 7-fold increase over the same period last year. Thailand's online banking business and transaction volume nearly doubled from the previous year. In line with this trend, the number of bank branches in the country has decreased by 3.8%, from 6,508 in December 2019 to 6,260 in September 2020. Indonesia's largest bank, Bank Negara Indonesia (BNI), has seen a significant increase in its digital banking transaction volume, with fee income increased by 24.7% year-on-year to INR 3.11 trillion in the first nine months of this year. In addition, BTPN Bank, a recognized digital changer in Indonesia, the total number of mobile banking users in the third quarter increased by 37% year-on-year to 2.8 million, and third-party funds on the platform increased by 136% year-on-year to IDR 12.2 trillion.
(VI) Risk assessment
The credit risk of representative Asian economies diverged during this quarter, but the long-term accumulation of anti-risk capital has increased Asian economies』 ability of dealing with the pressure on the challenges of imbalanced economic recovery in the future. In the long run, the fundamentals of Asia will not weaken, and the Asian banking industry is still in a favorable position to support the real economy with ample and healthy capital.
The credit risk of the banking industry in representative Asian economies diverges. The non-performing loan ratio of the banking industry in some economies has increased. Among them, UAE and Kyrgyzstan have increased significantly, rising by 1.30 and 1.18 percentage points year-on-year, reaching 18.03% and 25.25%. As the fragile economic conditions that may last until next year, local commercial banks may need to focus more on debt restructuring and asset quality rather than business growth. Indonesia’s non-performing loan ratio increased by 0.30 percentage points year-on-year to 2.85%, but Indonesian Financial Services Authority (OJK) relaxed loan evaluation regulations during the pandemic. Banks prevent these loans from turning into non-performing loans by restructuring the debt of borrowers classified as having normal repayment capacity, and Indonesian non-performing loan ratio declined from the previous quarter, with a quarter-on-quarter decline of 0.05%. On the other hand, the non-performing loan ratios of some economies have declined, and the non-performing loan ratios of Maldives and Kazakhstan fell by 0.58 and 0.99 percentage points year-on-year, respectively.
Source: CEIC, sorted out by the author
Figure 3.3 Non-performing loan ratio of Asian banking industry in the third quarter
The capital adequacy ratio remains at a stable high level. The capital adequacy ratio of representative Asian economies is much higher than the 10.5%, the requirement of Basel III. The capital adequacy ratio of Maldives was as high as 48.19%. In addition, the capital adequacy ratios of Kazakhstan, Kyrgyzstan and Indonesia all exceeded 20%, reaching 25.25%, 24.90% and 23.41% respectively. The capital adequacy ratios of most representative Asian economies remained the same as the previous quarter, and the change did not exceed 0.5 percentage points from the previous quarter. Only Kazakhstan fell by 1.17 percentage points quarter-on-quarter, and Indonesia increased by 0.91 percentage points quarter-on-quarter.
Source: CEIC, sorted out by the author
Figure 3.4 Capital adequacy ratio of Asian banking industry in the third quarter
II. The Asian securities industry: ushering in an opportunity for reshuffle
Changes in the fundamentals of Asia this quarter are also reflected in the performance of securities companies, and favorable factors such as stock market trading growth, capital market reforms, and local investment banking business development have enabled most Asian securities companies to achieve "double growth" in scale and profitability, but on the other hand, the top companies with good development momentum are still in the downward range.
(I) Overall expansion of business scale
As of September 30, 2020, there were a total of 135 securities companies in China, and 4 new securities companies were added compared with the same period last year, with total assets of USD 1.26 trillion, a year-on-year increase of 22.08%. Among them, the total assets of the five top securities companies of CITIC Securities, Haitong Securities, Guotai Junan Securities, GF Securities and Huatai Securities reached USD 52.505 billion, a year-on-year increase of 28.56% and a quarter-on-quarter increase of 9.02%. Among them, CITIC Securities achieved the fastest growth among the five top securities companies, a year-on-year increase of 43.15%, reaching USD 153.324 billion (CNY 1.04 trillion), and is the only securities firm in China with total assets of more than CNY one trillion, it is firmly in the position of 「leading securities industry」 in China. The assets of Japan two top securities firms mixed during the quarter, in which, Nomura Securities, Japan’s largest securities firm, with assets of USD 404.247 billion saw a year-on-year decrease of 6.55%, but a quarter-on-quarter increase of 2.74%, mainly due to the improvement of economic fundamentals in this quarter, making medium and long-term investment situation better. The asset structure of Nomura Securities is dominated by long-term investment (accounting for 78.70%), although its long-term investment has fallen by 10.04% year-on-year, it has increased by 2.80% quarter-on-quarter. On the contrary, Daiwa Securities, the second largest securities company with a majority of short-term investment (accounting for 67.65%), had assets of USD 2422.92 trillion at the end of the third quarter, a year-on-year increase of 12.16%, but a quarter-on-quarter decrease of 0.29%. At the end of the third quarter, the total assets of 56 securities companies in South Korea were USD 507.452 billion, an increase of USD 3.4 billion from the second quarter. This was mainly due to the bond and credit expansion of securities firms, which increased by USD 3.654 billion and USD 3.144 billion, respectively. Among the four top securities firms in South Korea, the assets of Mirae Daewoo Co., Ltd., which is the largest in assets, declined slightly by 1.60%. Samsung Securities, Korea Investment Holding Company and NH Investment Securities Co., Ltd. all realized an increase in asset size, of which Samsung Securities achieved a year-on-year growth of 41.66%, up to $50.967 billion.
(II) Differences in profitability
In terms of the profitability of the securities industry in representative Asian economies, China's securities companies performed the most brilliantly, mainly benefiting from capital market reforms and a series of favorable policies for capital market development after the pandemic. 135 securities companies achieved net profits of USD19.483 billion in the first three quarters, an increase of 42.51% year-on-year, with 126 securities companies have achieved profitability. At present, the net profit of first three quarters has exceeded that of 2016 (net profit of USD 19.483 billion), becoming the second bumper year in the history of the securities industry (the annual net profit of securities firms in 2015 was the highest, reaching USD 35.942 billion), of which investment banking and brokerage businesses performed outstandingly. The investment banking business benefited from the implementation of STAR Market and GEM registration system, IPO process has accelerated, net income of investment banking business in the first three quarters was USD 7.081 billion, with a year-on-year increase of 51.72%. The brokerage business benefited from the rebound in market conditions, and the market transaction volume increased significantly. In the first three quarters, the brokerage business’s net income reached CNY 13.217 billion, an increase of 43.94% year-on-year, of which CITIC Securities achieved a net profit of USD 548 million, ranked the first in the industry, but under the positive circumstances of the entire industry, the total net profit ratio has dropped by 8.38%. This may be because CITIC Securities strictly accrued credit impairment under the conditions of compliance with accounting standards in order to maintain stable performance growth. South Korea 56 securities companies reported a net profit of USD 1.842 billion in the third quarter, an increase of USD 298 million from the previous quarter, growth of 19.3%, the total commission income of securities companies was USD 3.211 billion, an increase of 16.7% quarter-on-quarter, including brokerage commissions was USD 1.803 billion, an increase of 22.0% from the second quarter, and the investment banking commission in the third quarter was USD 857 million, an increase of 14.9% quarter-on-quarter. Proprietary trading income soared to USD 913 million, an increase of 184.5% quarter-on-quarter. Among them, related derivatives income turned from negative to positive, stock income losses decreased, but bond income declined. Income from other assets fell 41.1% to USD 3.144 billion. In addition, sales and management expenses also increased to USD 2.238 billion, an increase of 5.6%. However, the performance of the Japan securities industry in this quarter was not satisfactory. The net profits of Nomura Securities and Daiwa Securities, which are the first and second largest Asian securities firms in terms of asset size in Asian, declined in the third quarter. Among them, Nomura Securities' performance declined more severely, with a year-on-year decline of 51.19% and a quarter-on-quarter decline of 13.10%, and only achieved net profit of USD 641 million in this quarter. Daiwa Securities fell 11.92% year-on-year and 13.10% quarter-on-quarter, and the net profit was USD 144 million in this quarter.
III. Asian Insurance Industry: developing in depth
Under the special background of the gradual changes in the current social environment and working methods, the performance of insurance companies has also diverged. As a social stabilizer, the asset scale of the insurance industry has achieved overall growth, the trends in premium income and profitability have been different. The insurance industry is also actively seeking transformation and continues to promote the in-depth development of the insurance industry.
(I) The overall asset scale continued to grow
The total assets of the insurance industry in Asia's major economies represented by China, Japan, South Korea, and Singapore were USD 8.71 trillion, a year-on-year increase of 6.34%. As of the end of the third quarter of 2020, the total assets of China’s insurance industry institutions were USD 3.30 trillion, an increase of 12% year-on-year and an increase of 9.1% from the beginning of this year. Among them, the total assets of life insurance companies grew the fastest, to USD $2.80 trillion, up 17.47% year on year. The total assets of insurance companies were USD 0.35 trillion, a year-on-year increase of 1.69%, the total assets of reinsurance companies were USD 72.673 billion, a year-on-year increase of 14.72%, and the total assets of insurance asset management companies were USD 9.721 billion, up 13.75% year on year. The total assets of Japan insurance institutions were USD 4.11 trillion, with a year-on-year growth of 1.76%, among which, the total assets of life insurance companies were USD 3.81 trillion, with a year-on-year increase of 1.97%, the securities assets that accounted for the highest proportion (76.91%) increased by 2.40% year-on-year. The total assets of non-life insurance companies were USD $0.29 trillion, down 0.96% year on year. The total assets of South Korea insurance institutions reached USD 1.07 trillion, an increase of USD 57.189 billion over the same period last year, up 5.6%, of which the total assets of life insurance companies were USD 0.79 trillion, up 5.51% year on year, and the total assets of non-life insurance companies were USD 0.28 trillion, an increase of 5.69% year-on-year. The total assets of the insurance industry in Singapore reached USD 238.644 billion, a year-on-year growth of 13.49%, of which life insurance fund assets reached USD 19,966 million, a year-on-year increase of 14.34%, and general insurance fund assets reached USD 8.104 billion, with a year-on-year decrease of 0.97%.
Source: CEIC, Central Banks and Regulators, sorted out by the author
Figure 3.5 The insurance industry asset scale of Asian representative economies in the third quarter
(II)The trend of premium income still diverged
Affected by the dual effects of stronger insurance awareness and lower consumer propensity under the pandemic, the development of the Asian insurance market has also shown different trends.
Insurance awareness of residents in some Asian regions has increased, and insurance premium income has achieved overall growth, only some insurance types have declined due to the pandemic. In the first three quarters of 2020, the premium income of insurance companies in China reached USD 0.54 trillion, a year-on-year increase of 7.2%. Among them, life insurance premium income was USD 0.41 trillion, a year-on-year increase of 7.37%, property insurance premium income in the first three quarters totaled USD 0.14 trillion, a year-on-year increase of 6.5%, and health insurance premium income of USD 0.10 trillion continued to maintain double-digit high growth, up 17.42% year on year. The premium income of South Korea insurance companies in the first three quarters totaled USD 126.292 billion, up 5.0% year on year. Among them, USD 67.559 billion came from life insurance companies, with the increased risk awareness under the pandemic, the premiums of savings-type and protection-type policies of life insurance companies increased by USD 1.938 billion and USD 1.088 billion respectively. In contrast, variable life insurance with investment functions decreased KRW 558 million. The premium income of non-life insurance companies was USD 58.733 billion, an increase of USD 3.276 billion over the same period last year, an increase of 5.9%. Long-term insurance also increased by USD 1.744 billion from a year ago, and auto insurance expanded by KRW 13.23 trillion. In addition, general insurance also increased by USD 627 million. However, pensions and other insurance have decreased by USD 417 million.
However, due to the economic contraction in some areas, people are more cautious in spending, and premium income has declined. The total income of insurance companies in Japan in the first three quarters was USD 0.18 trillion, a year-on-year decline of 10%, mainly due to the decline in life insurance business, which is a leader in the industry. Japan’s life insurance premium income was USD 0.13 trillion, a year-on-year decrease of 12.80%. Non-life Insurance premium income was USD 0.05 trillion, a year-on-year decrease of 0.93%. From the beginning of this year to the third quarter, the total premium income of Thailand insurance companies was USD 19.189 billion, down 1.63% year-on-year. Among them, life insurance premium income was USD 13.311 billion, a year-on-year decrease of 3.88%, and non-life insurance premium income was THB 5.877 billion, an increase of 3.87% year-on-year.
(III)The profit level has increased and decreased
Although the insurance industry's liability for compensation has increased under the pandemic, many insurance industries in Asia have begun to focus on the development of core underwriting businesses and new investment projects, and the profitability has achieved substantial growth. The insurance market in some regions is still sluggish, but it is also actively carrying out strategic transformation, looking for new profit growth points.
The profitability of China's insurance industry continues to increase. From the perspective of operating income, China's major insurance companies have achieved growth. In the third quarter, China Life Insurance, a leading life insurance company in China, achieved operating income of USD 101.552 billion, a year-on-year increase of 10.8%. Operating income of Ping An and PICC, which operate property and life insurance and other comprehensive businesses, increased by 2.7% and 6.9% respectively year-on-year to $134.665 billion and $66.529 billion, mainly due to the increased awareness of social insurance. China's insurance industry added 35.7 billion new policies in the first three quarters, up 7.7 percent year on year. From the perspective of changes in net profit, the third quarter net profit of the above three insurance companies has declined to varying degrees year-on-year, but compared with the first half of the year, the decline in net profit has narrowed or remained the same, mainly due to the increase in the compensating liability of insurance companies. In the first three quarters, the insurance industry’s indemnity and payment expenditure reached USD 146.681 billion, a year-on-year increase of 6.1%. The preliminary net profit of South Korea insurance companies for the year to September 2020 was USD 4.619 billion, an increase of USD 265 million from the same period last year, up 6.1%. Among them, the net profit growth rate of life insurance companies was 3.1%, mainly due to the good sales performance of savings-type insurance products that made up for the related losses caused by low interest rates. The net profit of non-life insurance companies was USD 2.008 billion, an increase of 10.2%, mainly due to the decrease in the number of auto accidents and hospitalization cases under the pandemic, as well as the decline in the compensation rate of auto insurance and long-term insurance. Thailand’s first listed insurance company, TSI Insurance, achieved a total revenue of USD 14 million in the first nine months of this year, while the total revenue in the same period last year was only USD 0.07 million, a year-on-year increase of 115.17%. Mainly from its investment in the core insurance system, to promote the improvement of underwriting quality, human resource development and information technology development, and to establish professional relationships with business partners such as brokers, agents, surveyors, dealers and garages, while seeking new cooperation partners to develop insurance products. So that it can still achieve long-term growth under the pandemic. The company achieved USD 2.6809 million in investment and other income, which may be due to Thailand's Office of Insurance Commission (OIC) relaxed investment rules this year, opening up new investment opportunities by allowing insurers to invest in many new types of projects, such as nursing homes, long-term care businesses and insurance-technology companies.
However, not all insurance industry of Asian economies returned to growth. From the beginning of this year to the end of the third quarter, Japan Life Insurance benefited USD 18.246 billion, a year-on-year decrease of 2.47%. The volume of new business decreased significantly mainly affected by COVID - 19 outbreak. Japan's Insurance companies such as Asahi Life with a large number of marketing staff have begun to change their marketing strategies since August, trying to use online conference systems to introduce products and conduct online discussions with customers.
In this quarter, with further improvement in Asian economy as well as the tightening policy space, Asian policy makers paid more attention to the precision of the process and the effectiveness of the results, policies gradually moved towards the track of normalization, focusing on innovation and stable long-term development.
I. Monetary policy: becoming more flexible and accurate
Affected by the secondary outbreak, Asian countries adopted easing monetary policy in this quarter as a whole, but there has been a clear differentiation, part of central bank policies』 strength, breadth and speed are significantly weaker than the previous quarter, they shifted from cutting interest rate and reducing required reserve ratio as well as other high-strength wide-range policies to open market operations and special refinancing as well as other more flexible and more accurate policies.
(I) The differentiated trend of interest rate cuts
Some emerging market central banks with relatively high policy rates continued to cut interest rates. Policy interest rate cut ranges or frequencies of Tajikistan, Mongolia, Uzbekistan and Azerbaijan were larger or higher. The Central bank of Tajikistan cut its refinancing interest rates by 100 basis points to 10.75% on 3 August. The Central bank of Mongolia reduced its policy interest rate by 100 basis points to 8.0% on 14 September. Uzbekistan cut the policy interest rate by 100 basis points from 15% to 14% on 8 September. The Central Bank of Azerbaijan cut its refinancing rate by 25 basis points on 30 July and 18 September respectively, from 7.0% to 6.5%. Other economies have made smaller cuts in their policy in rates this quarter. China cut its rediscount rate by 25 basis points to 2% on 1 July, for the first time in nearly a decade. Malaysia's central bank cut its overnight policy rate by 25 basis points to 1.75% on 7 July. Indonesia's central bank cut its main policy rate by 25 basis points to 4% on 16 July. Nepal's central bank announced that it cut its policy rate from 3.5% to 3% on 17 July. Bangladesh's central bank cut its repo rate by 50 basis points to 4.75% on 29 July. The National Bank of Georgia cut its main refinancing rate by 25 basis points to 8 percent on 5 August. Armenia's central bank cut its policy rate by 25 basis points to 4.25% on 15 September.
But overall, there is not much policy space left for Asian central banks, with many economies maintaining their existing loose policies and a few raising interest rates. Most of central banks chose to keep their policy rates at the current level. In Japan, despite the change of prime minister in this quarter, the central bank did not make any major moves in monetary policy in July, August and September. It continued its usual loose policy attitude and kept the interest rate at -0.1%. South Korea Monetary Policy Board’s policy-setting meeting in July and August kept its benchmark interest rate at 0.5%. At the August 6 Monetary Policy Committee meeting, India kept the benchmark repo rate unchanged at 4.0%. Thailand's Monetary Policy Committee meetings held on August 5 and September 23 voted unanimously to keep the policy rate at 0.50%. Remarkably, Turkey's central bank began tightening its currency in an effort to stem the fall in the Turkish lira and inflation fears, raising interest rates by 200 basis points to 10.25% from 8.25%.
(II) Flexible management of market liquidity through open market operations
The People's Bank of China (PBOC) carried out RMB700 billion and RMB600 billion medium-term lending facility (MLF) operations on August 17 and September 15 respectively, and carried out RMB50 billion seven-day reverse repurchase operation on August 17, fully meeting the liquidity needs of financial institutions. On July 23, due to weak demand from South Korea's Banks and securities firms, the bank of South Korea decided to end its unlimited repurchase agreement operation for financial institutions before the end of July without extending the liquidity facility. But due to the secondary transmission COVID – 19 and the slow pace of recovery, on September 8, the bank of South Korea said it will directly buy bonds, worth about 5 trillion won to improve market liquidity and absorb the public debt expected to increase. The Reserve Bank of India (RBI) announced on August 31 that it would conduct term repo operations totalling Rs 1 lakh crore in mid-September to ease liquidity pressure and maintain congenial financial conditions to ensure a sustainable recovery in economic growth. On July 6, Indonesia's central bank said it expected to buy a total of 574.59 trillion rupiah ($39.73 billion) of low-yielding government bonds this year to fund the economic recovery. At the same day, the Bank of Israel launched a plan to buy up to 15 billion shekels of corporate bonds in the secondary market.
(III) Structural easing extended to key entities
To enhance the effect of monetary policy, central banks in most Asian economies are extending credit to the real economy through sector-specific lending support programs and other ways. Taiwan(China)'s central bank announced that it will raise the maximum loan quota to TWD 200 billion for each small and medium-sized enterprise from July 24, due to the difference in the size of small and medium-sized enterprises. Bangladesh's central bank cut the repurchase agreement (REPO) rate for its special fund to 4.75% from 5.0% on September 24. On September 17, Indonesia's central bank decided to extend its policy of requiring lower levels for banks that lend to small and medium-sized or export-oriented enterprises to the end of June 2021, allowing them to park a portion of their deposits at 50 basis points below the reserve requirement ratio. On July 6, the Bank of Israel announced a term funding scheme to provide three-year loans for banks to fund credit for small and microenterprises. In September, Kazakhstan cut the subsidized interest rate on loans to small and medium-sized businesses to 6%. On July 17, Nepal's central bank announced the limit on the loan-to-value ratio for personal residential home loan raised to 60%, the margin nature loans from 65% to 70%, the limit on banks』 total loans of the sum of core credit and deposits was raised to 85% from 80%. It also required extend at least 40% of their loans to micro, small and mid-size enterprises and borrowers in the agriculture, energy and tourism sectors by mid-July 2024.The State Bank of Vietnam has asked credit institutions to channel credit to five priority economic sectors and to accelerate consumer loans to meet the legitimate needs of individuals and households.
II. Exchange rate policy: maintaining monetary stability
Under the pandemic, the Asian foreign exchange market is still highly volatile, representative economies in Asia have taken measures to stabilize the foreign exchange market and maintain currency stability in this quarter. Hong Kong(China) monetary authority sold Hong Kong dollars into the market repeatedly to stabilize the exchange rate at no higher than HKD 7.75 to USD 1 as Hong Kong dollar has continuously strengthened and has repeatedly triggered strong exchange guarantees and announced that the temporary USD 10 billion liquidity arrangement was extended from the end of September 2020 to the end of March 2021 as a backup measure to deal with emergencies in the market. On July 30, the central banks of South Korea and Singapore said they would extend their existing currency-swap agreements for six months, each with a size of USD 60 billion, to ensure dollar liquidity. In July, Iran's central bank injected USD 1 billion into the foreign exchange market to stabilize the riyal as the country's economy collapsed and the value of its currency fell. On July 2, Sri Lanka's central bank restricted the country's residents to remit funds for overseas investment in an effort to preserve its foreign currency reserves position. With no interventions for several months, the State Bank of Kazakhstan intervened in the foreign exchange market again in late September, due to the lack of foreign exchange supply in the market and the shrinking liquidity.
III. Fiscal policy: turning to more pragmatic
With the gradual slowdown of the pandemic prevention and control measures, the economies of various countries recovered somewhat in the third quarter, and the recession range of many indicators has been reduced. As one of the most important stimulus measures during the pandemic period, fiscal policy will continue to exist in the short term to stabilize the economy. However, in the face of the ever-rising deficit ratio and shrinking policy space, a more systematic top-level design and more precise policy measures are needed to improve policy effectiveness.
(I) Fiscal budget: giving priority to economic recovery, development and reform
The South Korea government launched third supplementary budget (KRW 35.1 trillion, the largest supplementary in the history) and fourth supplementary budget (KRW 7.8 trillion) on July 3 and September 10, used to fill the revenue gap, financial support and employment subsidies, as well as the stimulus package to aid to small businesses and families affected by the social distance. The new fiscal year 2021 budget (KRW 555.8 trillion) was released on September 2, focusing on accelerating economic recovery and supporting the "Korea New Deal". The total expenditure of the budget was KRW 43.5 trillion more than the original budget for 2020, an increase of 8.5 percent over the original budget. On September 29, Indonesia people’s representative council passed a IDR 2,750 trillion budget for 2021, raising the budget deficit by 0.2% to 5.7%, but slightly lower than this year's 6.34% deficit. On August 6, the Azerbaijan Parliament passed a revised budget for 2020, in which the oil fund was increased by AzN 850 million to offset lower state budget revenues, while the state budget expenditure was increased by about AzN 600 million, reflecting lower oil prices ($35 per barrel) and growth assumptions (-5%). Mongolia approved a supplementary budget of 7.5% of GDP on August 28 to deal with the pandemic.
(II) Revenue: pay attention to system improvement and policy efficiency
Improve relevant rules and regulations. On July 29, China’s Ministry of Finance announced "China will accelerate the issuance of local government special bonds" to put forward the strict new special bonds using negative list, speed up the progress of using the new special bonds, strengthen special bond information disclosure and improve the notification and interview mechanism, supervision mechanism and other measures. The Law on Resource of the People's Republic of China was adopted on August 26, and will take effect on September 1, 2020, proposing tax exemptions for small-scale taxpayers and specific units. The South Korea government has revised the Restriction of Special Taxation Act twice this year to provide tax support. On the one hand, it implements preferential tax policies to promote investment, consumption and stock investment, research as well as other growth engines in the future; on the other hand, it pursues fair taxation and combats tax evasion to protect the rights of taxpayers. The law is expected to increase revenue by about KRW 67.6 billion over the next five years. Indonesia passed legislation in July to remove a deficit limit of 3% of GDP. The Philippines signed the "Bayanihan II" Act into law on September 11, which provides additional fiscal support for vulnerable families and to workers and businesses in hard-hit industries, such as agriculture, transportation and tourism.
Continue to cut taxes and fees. At the end of July, Bahrain exempted industrial enterprises operating in industrial zones and exporting more than 30% of their output from paying rent for three months, as well as exempted severely affected enterprises from paying the commercial recorded registration and renewal fees. Brunei announced in September that it would extend tax exemptions for the garment, tourism and airline industries until the end of this year. On August 5, Mongolia announced an extension of exemptions from corporate income tax, rent income tax, customs duty and value-added taxes on certain imported goods, as well as reduction in social security contribution. Qatar has announced that from September 16, food and medical goods will be exempted from tariffs for more than three months. The United Arab Emirates announced a new package worth AED 1.5 billion on July 11, including measures such as the elimination of certain fines imposed by the government and customs authorities and tax reimbursements to hotels and restaurants.
Issue bond and raise taxes to increase government revenue. On the one hand, the scale of borrowing has not been reduced. In the first three quarters of this year, China's local government bonds have been issued by a large margin, reaching RMB 5.678.9 billion, up 35.8% year on year. In the third quarter, Japan has increased the issuance of government bonds, in the case of 10-year bonds, the Ministry of Finance plans to issue JPY 2.6 trillion of bonds per month in July and August. As the pandemic in Indonesia is still not fully under control, Indonesia's central bank and the Ministry of Finance reached an agreement on July 6, announced a nearly USD 40 billion financing plan for its fiscal deficit, the central bank will directly buy bonds from the government, but this will lead to greater fiscal pressure, the budget deficit is expected to be about 6% this year. Philippines announced on September 11th that it would raise the limit on the fund government can borrow from the central bank to 30% of its average income over the past three years (20% previously). Thailand issued a series of four-year and seven-year bonds worth THB 50 billion in August. Kazakhstan announced on July 16 that it would regularly issue up to KZT 1 trillion (USD 2.43 billion) of short-term government bonds until the end of 2020 to sustain economic activity. On the other hand, tax collection has been increased. On July 1, Saudi Arabia introduced new fiscal measures, including an increase in value-added tax on most products and services from 5% to 15%, in an effort to maintain fiscal sustainability.
(III) Expenditure: focus on short-term emergency response and long-term planning
Economic stimulus supports the hard-hit entity. Singapore on August 17 announced a new round of SGD8 billion (USD 5.9 billion) support package to continue to support the recovery in the job market, on top of four rounds of initiatives totalling about SGD 118 billion already announced. Saudi Arabia announced the extension of private sector support measures, including continuing the payment of wage allowances through SANED on July 2. The Philippines passed an emergency relief measure on September 11, providing a total of 165.5 billion PHP ($3.4 billion) to deal with the pandemic, most of which will be used directly to support the agriculture and transportation sectors, health workers and support employment. On July 29, the Israel parliament approved a second stimulus package of 80 billion shekels, consisting mainly of unemployment benefits, subsidies for self-employed workers and small businesses, and a State Guarantee loan program for small and medium-sized enterprises. On September 23, Malaysia announced a fifth stimulus package of MYR10 billion (0.7% of GDP), including further expansion of the wage subsidy scheme and small grants for entrepreneurs.
Subsidies help low-income families. Thailand approved a stimulus package worth THB 69.5 billion (USD 2.2 billion) in early September, which includes cash handouts for vulnerable groups, salary subsidies for new graduates and tourism incentives. Kazakhstan imposed trade restrictions and price regulated for essential commodities and provided cash transfers to vulnerable households. Bahrain extended sponsoring water and electricity bills in some residences in September. Brunei in September extended a cash relief program for poor and vulnerable families. Georgia in August provided GEL 200 one-off assistance to all children below 18 before the start of the school year, benefitting 855000 families, provided tuition assistance to college students from disadvantaged families, which benefited 33000 people, extended electricity and gas subsidies from November 2020 to February 2021, currently more than 1 million families have benefitted from the subsidies. In September, the Israel parliament approved a one-off grant program amounting NIS 6.72 billion for adults and families with children (excluding for high-income earners). Malaysia's fifth stimulus package, announced on September 23rd, also includes cash transfers to low-income households. On August 5, Mongolia implemented measures to increase food stamp subsidies, social welfare and pensions. East Timor decided on 23 September to grant cash transfers to eligible families for basic food needs at $25 per household per month for two months.
Reform implementation for long-term strategy. More developed economies are shifting their focus to develop digital, green and sustainable economies, while emerging economies are accelerating the development of manufacturing to achieve exports substitution strategy. On July 14, South Korea introduced Korean New Deal, a package that aims to "transform the economy from a fast follower to a leader, from a carbon-dependent economy to a green economy, and a more inclusive one." The three main components of the plan include digital economy, green technology and social safety nets. The new policy plan to invest 67.7 trillion won by 2022 and 160 trillion won by 2025, and are expected to create 1.9 million jobs. In the third quarter of 2020, Vietnam continued to speed up public investment capital expenditures of 2020 plan to solve the problem of project difficult funding in place, especially focused on the important, large-scale and strong radiation linkage project, to continue to strengthen infrastructure construction, improve the economic capacity, on the other hand after the rest of the world market normal opened, Vietnam stimulated and encouraged investment in export processing and manufacturing. On July 17, Kazakhstan announced plans to help restart economic growth, including maintaining the investment conditions for strategic investors; transferring from the National Fund that accumulates the nation’s windfall oil revenues to target social issues and infrastructure development starting in 2021; developing public-private partnership projects (projects focused mainly on transport, infrastructure, energy, housing and communal services, education and healthcare sectors); revising the national Economy of Simple Things program to develop the domestic production of daily consumed goods and services; introducing "government for business" service; and the developing of digital technology. Kyrgyzstan began to develop the concept of Intellectual economy, as defined in the National Development Strategy for 2018-2040, that through economic policies the state will support investment activities in the direction of creating new export-oriented and innovative economic sectors to ensure rapid growth of added value and exports.
IV. Regulatory Policy: focusing on long-term development
In this quarter, while implementing measures to mitigate the impact of the pandemic, Asia has gradually focused on financial innovation and long-term financial infrastructure construction such as capital markets, institutional standards and payment systems.
(I)Mitigating the impact of the pandemic
Relieve pressure on financial institutions. On July 31, the People's Bank of China decided to extend the transition period of the new asset management regulations to the end of 2021, in consideration of financial institutions are facing great pressure in the normative transformation of asset management business under the impact of the Covid-19 pandemic on the economy and finance since this year. On September 4, China Hong Kong’s Insurance Authority extended the second phase of temporary facilitative measures to reduce face-to-face sales. On August 31, India temporarily relaxed the norms relating to debt default on rated instruments and lowered the average market capitalization of public shareholding and minimum listing period, postponing the last stage of the in-phase of implementation of the net stable funding ratio and the phased implementation of capital conservation buffers from September 29 to April 2021.On September 3, the Monetary Authority of Singapore (MAS) announced measures to enhance the banking system's access to Singapore dollar and US dollar funding and enhance the banking sector's resilience. Financial Services Authority of Indonesia (OJK) relaxed bank’s loan classification and loan restructuring procedures to encourage loan restructuring, and eased the obligation to fulfill the Liquidity Coverage Ratio and Net Stable Funding Ratio requirements and allowed the use of capital conservation buffer. On August 7, the central bank of Mongolia extended a temporary financial forbearance measure that was supposed to expire at the end of July, to the end of 2020. At the same time, however, the Central Bank of Afghanistan phased out emergency measures in response to the pandemic in July, ended the freeze on loan categories, and recommended in August that all prudential requirements to be enforced. Its emergency measures for the non-banking sector expired at the end of July.
Strengthen regulation of the financial sector. On July 29 and August 7 respectively, the Monetary Authority of Singapore urged Singapore locally based incorporated banks and Singapore-incorporated finance companies to cap their total dividends per share at 60% of the 2019 FY19 level, and to offer shareholders the option of receiving dividends in scrip (as shares) instead of cash. On July 21st Bangladesh restricted loans against overseas guarantees or collateral, stipulating that overseas guarantees need to be extended to local firms. Bhutan’s Government of and the Royal Monetary Authority will conduct an in-depth assessment of non-performing loans starting from July 2020 to facilitate the recovery and/or foreclosures of non-performing loans. South Korea's Financial service commission extended the temporary ban on short selling for six months from September 16, 2020 to March 15, 2021.
Continue to support the real economy. On July 3, the China Banking and Insurance Regulatory Commission (CBRC) issued Commercial Bank Micro-and-Small Enterprise Financial Supervisory Assessment Measures (Trial) to comprehensively raise commercial bank ability and level to provide MSE’s with financial services and improve the quality of financial services for small and micro enterprises. On August 5, China Hong Kong Monetary Authority (HKMA) said banks would extend the principal payment holiday of trade finance loans under the Pre-approved Principal Payment Holiday scheme for small and medium-sized enterprises for another 90 days, and on September 2, HKMA extended the scheme for small and medium-sized enterprises for another six months. On July 3，the head of Japan's Financial Services Agency said the immediate priority for Japan's private financial institutions was to provide "breathing space" for companies by supporting their financing. On July 7, the Insurance Regulatory and Development Authority of India announced a rescheduling of the term loans, allowing insurers to grant a three-month moratorium of instalments due between June 1, 2020 and August 31, 2020. On August 6, the Reserve Bank of India (RBI) announced the resolution framework of COVID-19 related stress, which allow for special consideration for borrowers facing financial stress due to the pandemic. On July 29, Bank Negara Malaysia announced that the banking sector would extend a targeted loan payment moratorium after the blanket moratorium expires and provide repayment flexibility for borrowers affected by the outbreak.
(II) Standardizing the development of the industry
Regulating institutional behavior. On July 11, the China Securities Regulatory Commission (CSRC) and China Banking and Insurance Regulatory Commission (CBIRC) jointly revised and promulgated the Administrative Measures on Custodian Business for Securities Investment Funds to standardize the custodian business. On September 13, the " Financial Holding Company Supervisory and Regulatory Trial Measures" has been officially launched to promote the development of financial holding companies. On September 18, the People's Bank of China (PBOC) formulated and issued the Implementation Measures of the People's Bank of China for Protecting Financial Consumers' Rights and Interests to protect the long-term and fundamental interests of financial consumers. On July 23, the Insurance Regulatory and Development Authority of India (IRDAI) clarified issues related to share transfers by insurance companies, such as the transfer of different shares and the extent of transfer. On August 10, India announced that from January 1, 2021, mutual fund trustees will be required to be dedicated officer with professional qualifications and a minimum of five years of experience in a finance-related field. On September 11, the RBI issued guidelines requiring banks to establish a compliance culture, establish independent compliance functions and strong compliance risk management procedures, and clarify the requirements for a chief compliance officer (COO).On September 10, the Monetary Authority of Singapore (MAS) issued guidelines to improve the accountability of senior managers in key functions of financial institutions and strengthen a culture of responsibility and ethics behaviour in financial institutions.
Maintain financial security. The People's Bank of China and the China Banking and Insurance Regulatory Commission issued the Notice on the Establishment of Countercyclical Capital Buffer Mechanism on September 30, clarifying the calculation methods, coverage scope and evaluation mechanism of countercyclical capital buffers, promoting the sound operation of banking financial institutions and enhancing the countercyclical adjustment ability of macro-prudential policies. On 18 September, the China Hong Kong Monetary Authority (HKMA) amended the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism in accordance with s 54(1A)(b) of the Payment Systems and Stored Value Facilities Ordinance. On August 6, China Taiwan Financial Supervisory Committee released the Financial Cyber Security Action Plan to enhance the cyber defense capabilities of financial institutions and provide consumers with secure, convenient, reliable and resilient financial services. Since the end of July, China Taiwan’s central bank has conducted a large-scale and intensive financial inspection on six large foreign banks and found that they were suspected of arbitrage or even foreign exchange speculation, requiring foreign banks to submit "improvement plans" within a specified period. South Korea Financial Services Commission (FSC) has announced that the Online Investment-linked Finance Act will take effect on August 27, 2020 to strengthen risk control in the P2P lending industry. On September 4, the Monetary Authority of Singapore (MAS) issued guidance setting out regulatory expectations for private banks to implement effective AML/CFT controls.
(III) Supporting financial innovation
Support innovation in financial technology. In July, the People's Bank of China evaluated and passed the rules regarding the application of blockchain in financial institutions to focus on application security, requiring financial institutions to establish and improve the risk prevention and control mechanism of the application of blockchain technology based on the reality. The China Hong Kong Monetary Authority released the fourth issue of Regtech Watch in the third quarter to explore the application of technology in conduct risk management. This series of studies aims to collect actual or potential use cases of Regtech in Hong Kong or elsewhere. On August 7, China Taiwan Financial Supervisory Committee issued the Regulations Governing Banks Conducting Financial Products and Services for High-asset Customers, which relaxed the regulations on eight financial products and services for high net worth customers and enabled banks to develop diversified financial products based on the needs of customers. On July 20, the Bank of Japan said it had formed a new team within its Payment and Settlement Systems Department to work on digital currency issues. On July 24, South Korea announced a plan to promote digital finance, with a focus on improving the regulation of the digital finance industry and ensuring strong protection for digital financial users. On August 6, the Reserve Bank of India (RBI) introduced Online Dispute Resolution (ODR) system to resolve customer disputes. Monetary Authority of Singapore has announced that it will spend S $250 million over the next three years under the enhanced Financial Sector Technology and Innovation Scheme (FSTI 2.0) to accelerate innovation in the financial sector, and jointly set up a research institute with the National Research Foundation and the National University of Singapore to support the demand for digital financial services in Asia. On August 30, Indonesia's central bank partnered with six government ministries/agencies to provide support and synergy to ensure that micro, small and medium enterprises (MSMEs) join the digital ecosystem.
Promote the development of the capital market. China has introduced a large number of notice and rules in the third quarter, promote the development and normalization of the bond market, one is the notice to improve the mechanisms on the proposal of corporate credit bond defaults to make the process more market-oriented and rule-based, build a bond default disposal mechanism of marketization, the rule of law, the second is the Rules for the Recognition of Standard Debt Assets to recognize standard debt assets and non-standard debt assets, the third is the Announcement undertaking interlinked and interconnected cooperation between the relevant infrastructure institutions of the interbank bond market and exchange bond market, to further acceleration in free flow of capital and other elements, the fourth is the Circular on Matters Concerning Foreign Institutional Investors』 Investments in China’s Bond Market (Consultation Paper), to promote external opening of the Chinese bond market open bond market and further facilitate investment transactions. In August, the Japan Financial Services Agency (JFSA) published its annual regulatory policy document, the Priorities for July 2020-June 2021, which outlined three priority areas for the coming year. These included making the Japanese financial and capital markets more sophisticated and attractive. The other two areas were fighting the pandemic and reforming the JFSA itself. On July 1, the Securities and Exchange Board of India (SEBI) published the Issue of Capital and Disclosure Requirements (Third Amendment) Regulations, 2020 to provide optional pricing for the preferential issue of frequently traded shares.
V. Regional Cooperation: supporting Inclusive Growth
Asian economies continued to strengthen cooperation across the region in this quarter to support inclusive growth in Asia. The Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB) have continuously invested funds to help Asian countries fight the pandemic and strengthen the development of digital and green economy in member states. Through meetings, joint statements and other ways, the G7, G20 and ASEAN +3 pledged to continue to strengthen cooperation to reduce the debt of low-income countries, protect people's lives, jobs and incomes, support global economic recovery, and strengthen the resilience of healthcare system and financial systems. China, Japan, Indonesia, Malaysia, Singapore, India, Sri Lanka and Serbia have promoted bilateral financial exchanges as well as economic and trade cooperation through bilateral currency swaps, cooperation memorandums of understanding, tax treaties and financial technology cooperation agreements.
[1]The Asian representative economies here are Korea, Malaysia, Japan, Saudi Arabia, Thailand, Singapore, India, Indonesia and China.[2]The Asian representative economies here are Korea, Malaysia, Japan, Saudi Arabia, Thailand, Singapore, India, Indonesia and China.[3]The Asian representative economies here are Pakistan, Korea, Cambodia, Malaysia, Bangladesh, Japan, Sri Lanka, Thailand, Singapore, India, Indonesia, Vietnam, China, Taiwan China and Hong Kong China.[4]The Asian representative economies here are Pakistan, Korea, Cambodia, Malaysia, Bangladesh, Japan, Sri Lanka, Thailand, Singapore, India, Indonesia, Vietnam, China, Taiwan China and Hong Kong China.[5]The exchange rate conversion in this chapter is based on the average monthly exchange rate of September 2020 in CEIC database.About AFTT:
AFCA was founded in May 2017. It is the first international financial social organization initiated by China. The think tank (AFTT) under AFCA is composed of more than 100 domestic and foreign experts from 49 countries and regions. Currently, there are 62 domestic experts and 101 foreign experts. With the philosophy of "market location, global perspective, problem orientation, in-depth observation, and smart solution", AFTT has developed AFCA working paper, Asian Financial Observation, Financial Development Report for the Guangdong-Hong Kong-Macao Greater Bay Area, and other bilingual products, conducted Quarterly Seminars, AFTT Annual Forums and other high-level financial activities, sending a strong Asian message constantly on the international stage.
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Asian Financial Observation Quarterly Report（2020 Q2）