24 March 2017

Achieving Financial Integration in the ASEAN Region

New paper discusses challenges to ASEAN regions financial integration efforts and recommends steps to address these

As the fastest growing and most dynamic region in the world, the Association of South East Asian Nations (ASEAN) is projected to grow at an annual average rate of 5.2% between 2016 and 2020. But the ASEAN region’s financial integration journey is at a crucial inflection point today, needing resolution of a few core problems hindering financial integration of the ten ASEAN member states.

This discussion paper analyses these core problems inhibiting the process and pace of ASEAN regional financial integration and shows that these challenges are not being adequately addressed today by plans, public policy and coordination of private sector activity. Sharon Toh, Head of ASEAN Region, SWIFT says, “It is heartening to see the ASEAN region progressing at pace towards becoming an engine of global growth and development, and there is a strong need for ASEAN member states to act now and address the impediments identified in this paper early. SWIFT is well-embedded into the fabric of the ASEAN region, and committed to supporting the ASEAN Economic Community (AEC) and ASEAN member states in achieving goals for regional financial integration”.

It is heartening to see the ASEAN region progressing at pace towards becoming an engine of global growth and development, and there is a strong need for ASEAN member states to act now and address the impediments identified in this paper early.

Sharon Toh, Head of ASEAN Region, SWIFT

One of the key findings in this paper is that the ASEAN region is increasingly dependent on external markets. In 2016, payments related to intra-ASEAN commercial flows continue to be intermediated via extra-ASEAN markets, with 85% of these payments denominated in US Dollars, majority of which were settled in the United States. There is a widening gap noted between ASEAN-5 and LCMVB markets, with a significant annual reduction of 26% in the commercial flows between these two economic groups in 2016. The research finds that the volume of ASEAN commercial flows with extra-ASEAN markets (like China, Japan and Hong Kong) is growing at the expense of intra-ASEAN commercial flows, indicating a need to review measures enhancing intra-ASEAN trade and realising the regions full potential as a unified single market. Slow financial infrastructure modernisation, an underserved corporate sector and low digital competency are also posing a challenge to financial integration in the ASEAN region. Singapore retains its pivotal position as a regional hub for ASEAN commercial flows, with 88% of the flows either originating, or having the beneficiary in this market. 

Rahul Bhargava, Director, Payments Markets Initiatives of APAC from SWIFT said, “The AEC 2025 vision of a regional payments infrastructure for ASEAN requires strong regional governance and public-private partnership. This paper highlights the significant differences existing today in the maturity of payment market infrastructure across ASEAN markets, and in the adoption of global standards like ISO 20022. Domestic payment infrastructure modernisation efforts must align closely with AEC 2025 goals as well as global trends like ISO 20022 adoption and the move towards real time payments. A highly coordinated public and private sector leadership response is ultimately required to achieve goals for financial integration established by the AEC.”

Domestic payment infrastructure modernisation efforts must align closely with AEC 2025 goals as well as global trends like ISO 20022 adoption and the move towards real time payments. A highly coordinated public and private sector leadership response is ultimately required to achieve goals for financial integration established by the AEC.

Rahul Bhargava, Director, Payments Markets Initiatives of APAC from SWIFT

Discussion paper – Achieving Financial Integration in the ASEAN Region

Download (1.28 MB)
Last update: 
9 March 2017

The ASEAN markets are at an important juncture in their ASEAN integration journey, and it is imperative for the markets to establish the framework and support structure to identify and resolve such problems at the earliest.

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