It was my honour to conduct 4 sessions at the Risk Asean ALM workshop 2018 in Bangkok, Thailand in May 2018, excellently hosted by Risk.net. There were senior practitioners from local and foreign banks and corporates as well as from the Indonesia financial sector.
One of the areas that came up in the interactive discussions was concern on a potential shortage of local currency liquidity. This at a time when local currency interest rates have been "low for long" and softening further and banks are achieving some success on getting NPL's off their books.
So what are the drivers of concern - not just in Thailand but around Asean:
1) The dominant local banks are getting an even greater share of the available base of low cost, stable retail deposits leaving the rest scrambling for higher priced, more flighty deposits. Post global financial crisis and regulations the "winner takes all" trend has strengthened.
2) Basel III liquidity rules are extremely favourable for retail deposits and very punitive for some types of short term wholesale deposits - in some cases widening relative stability assessments far more than internal risk models. This has led to a crowded market pursuit of deposits that receive favourable regulatory treatment.
3) There has been a massive move from fixed term deposits into non maturity current and savings accounts with the very low rate environment and statistical analysis gives the facade of price insensitivity to these balances. When rates rise the reversal of this flow and the spike in price sensitivity could be truly historic
4) In some markets the regulations negate the liquidity value of longer tenor retail time deposits by enshrining the right of a customer to uplift a deposit and overriding the liquidity interests of the bank in being able to decide on the permissibility of uplift. A rational customer would break a long term deposit if rates rise and place it at higher rates.
5) Challenger bank, shadow bank and FinTech e-wallet providers are capturing an increasing share of customer deposits and this is likely to accelerate further when rising rates destabilise the bank deposit base. Banks will try to hold the line on slow paced deposit price rises but competition will force their hand.
6) Many ALM practitioners today have no personal career experience of the last global rate up-cycle in 2004. Some have only experienced low, benign rates. The learning when it comes may be brutal.
We discussed many responses to these and other drivers of anxiety on local currency liquidity - to get more information contact me on nick.wood@fintorque.sg