Financial Market Structure in Asia

1. Financial Market Structure in Asia 10 May, 2001 By Dr. Sayuri Shirai

2. Summary Observations I. The banking sector remains dominant. II. Corporate bond issues are increasing, but markets are largely underdeveloped. III. The banking sector plays a crucial role in the corporate bond market (issuers, investors, guarantors, underwriters…) IV. The underdeveloped corporate bond markets are associated with underdeveloped government bond markets.

3. Observation IDominance of the Banking Sector A. Outstanding Bank Loans as a Share of GDP • 1990-99 average • 1990-99 time series B. Outstanding Bank Loans as a Share of Total External Finance (Outstanding Bank Loans + Equity Market Capitalization + Outstanding Corporate Bonds) • 1990-99 average • 1990-99 time series

4. I.A.Share of Outstanding Bank Loans in GDP (1990-1999 average) Source: DRI Asia Database; IFS April 2001.

7. I.B.Share of Outstanding Bank Loans in Total External Finance (1990-99 average) Source: DRI Asia Database; IFS April 2001.

10. Observation IIUnderdeveloped Corporate Bond Markets A. Limited Issue Size a. Corporate Bond Issues as a Share of GDP • 1990-99 average • 1990-99 time series b. Corporate Bond Issues as a Share of External Finance • 1990-99 average • 1990-99 time series c. Sources of Financing by Non-Financial Firms for New Investment (flow data)

11. B. Relatively Short Maturities C. Illiquid Secondary Markets • Buy and hold strategy a. Concentrated investor base b. Deposits dominating households’ financial assets c. Low turnover ratio D. Most of the bonds were guaranteed or privately placed

12. II.A.aShare of Outstanding Corporate Bonds in GDP (1990-99 average) Source: DRI Asia Database; IFS April 2001, Flow of Funds Accounts of the U.S.

15. II.A.b.Share of Outstanding Corporate Bonds in Total External Finance (1990-99 average) Source: DRI Asia Database; IFS April 2001, Flow of Funds Accounts of the U.S.

18. II.A.c. Sources of Financing New Investment by Non-Financing Firms Korea

19. Malaysia

20. Thailand

21. Indonesia

22. India

23. Philippines

24. II.B.Average Maturity of Corporate Bonds Source: APF Country Studies

25. II.C.aConcentrated Investor Base Korea % of total corporate bonds

26. Malaysia

27. Thailand % of total corporate bonds

28. Indonesia % of total corporate bonds

29. II.C.b. Households’ Saving Pattern Share of Deposits in Total Financial Assets Source: APF Country Reports

30. II.C.c. Turnover Ratio of Corporate Bonds Source: APF Country Reports

31. II.D. Guaranteed Bonds % of total corporate bonds * 80% of the bonds are sold through private placement (non-rated) before the crisis

32. Observation IIIDominance of the Banking Sector in Corporate Bond Market *The shaded area refers to the case where the banking sector plays a crucial role.

33. Observation IVUnderdeveloped Government Bond Markets A. Issue Size • 1990-99 average • 1990-99 time series B. Relatively Short or Influenced Maturity C. Illiquid secondary markets a. Concentrated investor base b. Low turnover ratio

34. IV.A. Share of Outstanding Government Bonds in GDP

35. IV.B. Average Maturity of Government Bonds

36. IV.C.a. Concentrated Investor Base Korea

37. Malaysia

38. Thailand

39. Indonesia

40. IV.C.c. Turnover Ratio of Government Bonds