Bangkok--8 Sep--Standard & Poor's
Among the many far-reaching results of the financial crises in the 1980s and '90s was an accentuated focus on credit risk in emerging markets that led to sounder banking systems driving more stable and sustainable growth rates, says a report published today.
In the report, titled "The Pursuit Of Best Banking Practices In Emerging Markets," Standard & Poor's Ratings Services credit analyst Helena Hessel says the crises highlighted the need for local expertise, extensive surveillance capabilities, and fine distinctions in credit quality. An international framework for financial regulation evolved quickly in the past decade or so, with the norms developed for and by the G-10 nations being increasingly imposed on emerging market economies as well. "Some EMEs with severe banking crises survived and have continued developing well, such as Chile and the Baltic countries. Many others such as Argentina, Indonesia, and Russia still have a great deal of work left to do," Ms. Hessel says.
The article, and a companion piece by Ms. Hessel, "Banking In Emerging Markets: A New Academic Study Provides Valuable Data," are part of a special report on EMEs published on RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, and in the Sept. 13, 2006, issue of Standard & Poor's CreditWeek.
Other points made by Ms. Hessel in her analysis include:
-- As "less-developed" countries build local financial institutions and attract international investment, many have become more and more successful in integrating into global capital markets.
-- Building vibrant growth-enhancing markets effectively hinges on the interdependence between economic and financial development.
-- Financial intermediation--the typical process of banks taking deposits and making loans--significantly influences the pattern and speed of economic development and growth.
-- Countries with the soundest financial systems record the most stable and sustainable growth rate.
-- There is no clear-cut evidence that any single set of the best practices, including the Basel capital accords (which provided guidelines for making sure that banks have sufficient capital), is suitable for developing an effective banking system in every country.
In its special report on emerging market economies, Standard & Poor's concludes that the monikers "emerging market" and "developing country" may need to be updated or, in some cases, entirely eliminated given what appears to be sustainable economic growth in many of the world's poorer countries, particularly in their private sectors. The developing countries together now account for two-thirds of world economic growth. Overall, Asian countries are the leaders, but many non-Asian economies are also booming.
In advance of this year's annual meeting of the World Bank and International Monetary Fund in Singapore, Standard & Poor's asked 16 of its senior economists and credit and index analysts to examine the broad emerging market landscape, including the roles that government regulations on investment, public/private partnerships, structured finance, and project financing are playing to boost GDP development.
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