Sunday, March 18, 2007

An Banking Epiphany? Is Banking a Pan-Asian Weak Link?

Well, it came to me as I looked at the linked article, below. No, I'm certain it is old knowledge among those who follow international banking news.

India's banks: nationalized, inefficient, molded by the government into agents of social change, holding back development, per this article.

Japan's banks, so notoriously "close" to their corporate customers (do you remember "Japan, Inc."), with low-or-no economic growth, so who knows how many bad loans there really are....

China's banks, same story, requiring multiple rounds of additional capitalization; again, who really knows how bad their loan portfolio really is....

The recurrent theme is not one of strength: it is of problems, problems, and more problems. Problems in Japan's banks, in China's banks, and in India's banking industry. They certainly can manufacture. And they can build. They believe in work. Can they run their banks? Will they allow non-performers to fail? They are not exactly awesome engines of economic growth. Whatever our problems, and we have plenty, that is not one of the biggies. I guess it comes with being a "developed" country with relatively less central planning. It is perhaps one of the starkest economic contrasts between East and West, and may have a great impact on how well the 21st century will play out for Asia. Will the promise of the East's most important countries be fulfilled? If it is fulfilled, how wild will the volatility be along the way?

That is why this is significant to investors. We are, as a group, putting more of our money into foreign developed and emerging markets than we have in the past. We are looking for diversification of returns, and for ways to hitch our wagons to high-growth economies. A bumpy ride is OK, even expected, but we watch intently for clues to how bumpy it will get.



An antiquated banking system holds back development in India - International Herald Tribune

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