Southeast Asia s Dynamic Economies Presented by: Manuel Galatas General Manager, BBVA Asia Madrid, 26 April 211
Outline 1 Overview of ASEAN economies 2 Southeast Asian Economies the ASEAN-5 Political landscape and key features Macroeconomic outlook Banking sector 3 Economic ties with the region 2
Overview of ASEAN economies The Association of Southeast Asian Nations (ASEAN) consists of 1 member countries. The five largest Indonesia, Thailand, Malaysia, Philippines and Singapore are collectively known as the ASEAN-5 ASEAN promotes regional cooperation along three pillars : security, socio-cultural aspects, and economic integration The ASEAN Economic Community (AEC) will be founded by 215 3
Overview of ASEAN economies ASEAN has a population of around 6 million (8.8% of world population) If ASEAN were a single country, it would rank as the world s 5th largest economy, and the 4th largest in Asia in terms of GDP (PPP basis). The region has long been one of the world s fasting growing, and has strong economic fundamentals. Four of the ASEAN-5 are BBVA EAGLEs (Indonesia) or are in the EAGLEs nest. ASEAN countries are among the world s most populous Source: IMF WEO (April 211) and BBVA Research Million people World ranking (18 countries in total) Singapore has the highest per capita income Source: IMF WEO (April 211) and BBVA Research Current international dollar (Thousand) World ranking (18 countries in total) ID 4 SG 3 PH 12 MY 57 TH 2 TH 86 MY 43 ID 12 SG 112 PH 123 5 1 15 2 25 21 population 1 2 3 4 5 6 21 GDP (PPP) per capital 4
GDP and inflation projections ASEAN-5: Moderating growth trends in 211, but still robust and in line with potential growth Inflation is on the rise, and is the main policy challenge for 211 GDP baseline growth forecast by country 211-215 Country 21 211F 212F 213F 214F 215F INDONESIA 6.1 6.4 6.7 6.8 7. 7. MALAYSIA 7.2 5.1 5.4 5.1 5. 5. PHILIPPINES 7.3 4.5 5.2 5.1 5. 5. SINGAPORE 14.5 5. 4.8 4.7 4.7 4.7 THAILAND 7.8 3.8 4.8 5. 5. 5. Country CPI baseline forecast by country 211-15 Period average, yoy% 21 211F 212F 213F 214F 215F INDONESIA 5.1 6.6 5.9 5.4 5. 4.5 MALAYSIA 1.7 3. 2.7 2.5 2.5 2.5 PHILIPPINES 3.8 4.9 4. 4. 4. 4. SINGAPORE 2.8 4.1 2.8 2.3 2.2 2.2 THAILAND 3.3 3.6 3. 2.7 2.5 2.2 Forecast revised as of April 6, 211 5
Outline 1 Overview of ASEAN economies 2 Southeast Asian Economies the ASEAN-5 Political landscape and key features Macroeconomic outlook Banking sector 3 Economic ties with the region 6
Indonesia: political landscape and key features World s 4th most populous country, of around 23 million, and largest Muslim democracy Largest in Southeast Asia by population, geography, and economic size A young, but strong democracy: first direct Presidential election held in 24, giving rise to the administration of Susilo Bambang Yudhoyono (SBY), and second 5-year term in 29. Popularity of the government due to its efforts in combating corruption and terrorism and improving the well-being of lower income segments of the population An active member of the G2 home to the ASEAN Secretariat. Open to foreign investment Commodity-based economy, with large domestic market Efforts underway to address weaknesses, especially infrastructure and judicial system Major exports Oil and gas metals Palm oil coal Leading export markets
Indonesia: macroeconomic outlook Strong economic growth Rising inflation pressures Capital inflows Declining external vulnerabilities Growth of 6½-7% expected over next decade. Large domestic market shields the economy from external shocks (such as 28). Rising food prices are pushing up inflation. Central bank is raising interest rates within its inflation targeting regime FDI inflows and portfolio investment are on the rise Sovereign rating has been raised to just one notch below investment grade Balance payments surplus, with rising foreign reserves Strong growth driven by domestic demand Inflation rising on high food prices Source: BBVA Research % 1 8 6 6.3 6. 4.6 6.1 6.4 6.7 % yoy 1 9 8 7 6 Headline CPI Core CPI 4 5 2 4 3-2 27 28 29 21 211F 212F Private Consumption Government Consumption GFCF Inventory Change Net exports GDP 2 1 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 8
Indonesia: strong fundamentals Debt-to-GDP ratio: 27%. The fiscal deficit in 21:.6% of GDP High foreign reserves US$96 billion Transition to democracy Sound national fundamentals Stable political environment Business-friendly economic reforms One notch below investment grade by Moody s, S&P and Fitch Investment grade expected Rating upgrades Rich natural resources Indonesia Favorable demographics Healthy banking sector Loan-to-Deposit ratio : 78.5% NPLs : 3.1% CAR : 17.% Oil Gas Metals World s fourth most populous country; largest in Southeast Asia by population, economic size, and land mass. 9
Indonesia: banking sector The banking sector is in strong condition with high capitalization rates, low non-performing loans, high profitability, and strong projected economic growth 122 commercial banks in total Credit growth is trending upwards (around 22% yoy growth in Feb, 211) Sector is open to foreign investment High net interest margins, due largely to high and sticky lending rates. Margins are expected to decline over time as the economy s risk premium declines Favorable CAR and NPLs ratios Source: BI and BBVA Research Low, but rising, credit-to-gdp ratio Source: BI and BBVA Research % 2. 19.5 19. 18.5 18. 17.5 17. 16.5 16. 15.5 15. 14.5 CAR Gross NPL (rhs) % 4.5 4. 3.5 3. 2.5 2. 1.5 1..5. % of GDP 29 27 25 23 21 19 17 15 Commercial Bank Credit as % of GDP Dec-9 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-11 21 22 23 24 25 26 27 28 29 21 1
Malaysia: political landscape and key features Malaysia at a glance A parliamentary government with strong powers vested in the Prime Minister Population of 27 million and ranks as the 29 th country in the world in terms of GDP and the 57 th in GDP per capita (PPP basis) Uncertain political landscape Since November 27, the political scene has been shaken by opposition parties who are dissatisfied by the decade-long dominance of the ruling party. The governing Barisan Nasional coalition, representing the ruling party which has been in power since 1957, may call an early election in 212. Political stability may continue to be undermined in the coming years due to strife between the two main political alliances. Overtime, Malaysia is expected to move to a more open and democratic system. 11
Malaysia: macroeconomic outlook Economic growth FX rate and capital inflow Fiscal pressures Monetary Policy Strong medium-term growth expected at 5% Commodity-based production, with large oil and gas exports A strong manufacturing base (electronics) as well The ringgit strengthened in 21 owing to a surge in capital inflows Real GDP to grow 5.1% in 211after the strong rebound and the fall in previous years y/y % 12 1 8 6 4 2-2 -4 Forecast 27 28 29 21 211F 212F Private Consumption Government Consumption Investment Net Exports GDP Reducing public debt and the fiscal deficit has been a priority Interest rates are rising to contain inflation Inflation pressures have been pushed up by rising food and oil prices Source: BBVA Research and IMF y/y % 14 12 1 8 6 4 2-2 -4-6 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Headline Non Food Food Jul-1 Oct-1 Jan-11 12
Malaysia: banking sector The banking system, comprising commercial banks, investment banks, and Islamic banks, is the primary of funds and the main source of financing which supports economic activities in Malaysia. There are 1 commercial banks, 15 Investment banks and 21 Islamic banking institutions (both local & foreign) Banking sector remains strong and well capitalized NPLs are low and falling Credit-to-GDP is rising gradually 1% 9% 8% 7% 6% 1.4 1.2 1.8 Credit/GDP 5%.6 4% 3% Jun-6 Oct-6 Feb-7 Jun-7 Oct-7 Feb-8 Jun-8 Oct-8 Feb-9 Jun-9 Oct-9 Feb-1 Jun-1 Oct-1.4.2 NPL Ratio 2 21 22 23 24 25 26 27 28 29 21 13
Philippines: political landscape and key features Philippines at a glance World's 12th most populous country, with a population of 94 million in 21 Services and electronic manufacturing dominate. Large remittances from overseas workers. Constitutional republic with a presidential system of government (similar structure to the US). Reducing large fiscal deficits has been the major policy challenge in recent years. Monetary policy is conducted under an inflation targeting regime. Political environment currently stable Resounding victory of Benigno Aquino in May 21 presidential elections. (The next presidential election is due in 216.) The Aquino administration pledges to boost medium term growth to 7-8% by improving domestic business environment and reducing poverty The government also aims to narrow the fiscal deficit (to 2% of GDP by 213), by improving tax collection and reducing corruption. Rising sovereign ratings Rating upgrades on resilient growth, strengthened external position, and recent efforts on fiscal consolidation and debt reduction. Philippines Sovereign Credit Rating on Long-term Foreign Currency Current rating Outlook Recent rating actions S&P BB Stable Rating upgrade from BB- in November 21 Moody's Ba3 Positive Outlook changed to positive from stable in January 211 Fitch BB Stable - 14
Philippines: macroeconomic outlook Improving economic fundamentals Rising inflation pressures FX rate and capital inflow Fiscal and monetary policies Medium term growth Rising inflation is the expected at least 4½% on biggest near-term strengthened fundamentals, challenge after a sharp rebound of 7.3% last year. Massive portfolio inflows have resulted in currency appreciation Fiscal consolidation is the medium-term priority, while near-term policy focus has shifted to price stability Inflation pressures are rising on higher food and oil prices Source: BBVA Research and IMF YoY% 2 18 16 14 12 1 8 6 4 2 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan-1 May-1 Headline CPI Core CPI Food Sep-1 Jan-11 The government aims to reduce the fiscal deficit % of GDP % of GDP 28 29 21E 211F 212F 53. 54 55 56 57 58 59 6 61 62 -.9-3.9 Fiscal balance (RHS) -3.7-3.4-3. Fiscal consolidation Nonfinancial public debt (LHS) -.5-1. -1.5-2. -2.5-3. -3.5-4. -4.5 15
Philippines: banking sector A vibrant banking system, with 773 banking institutions and 7,912 branches. The financial sector is in good shape, with a high capital buffer and low non-performing loan ratios. Outstanding credit of only 3% of GDP and rising. Earnings are improving with strong economy, and corporate balance sheets are also relatively sound. NPL & CAR ratios are at healthy levels % % 14 18.4 19 12 1 8 6 4 12.7 17.7 8.5 17.6 5.7 15.7 4.4 15.5 3.5 15.3 3. 16.* 2.9 18 17 16 15 14 Credit growth is picking up with rising domestic demand YoY% 3 25 2 15 1 5 2 24 25 26 27 28 29 21 * As of March 21 NPL Ratio (LHS) Capital adequacy ratio (RHS) 13 12-5 Jan-8 Apr-8 Jul-8 Oct-8 Total loans Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 16
Singapore: political landscape and key features A city-state, Singapore ranks high in GDP per capita and business environment The government s People's Action Party (PAP), in power since 1959, continues to be the dominant political force and is expected to win another substantial parliamentary majority in elections scheduled in May 211. Export-dependent economy, and international financial hub Tourism inflows are increasing, especially after the highprofile opening of two new luxury casinos. Leading export markets Major Exports Chemicals products Electronic parts Mineral fuels Singapore New Zealand Hong Kong Australia Thailand Japan Korea Maylasia Taiwan Mexico Spain China Vietnam Indonesia India Philippines Ease of Doing Business, 21 ( Total 183 economies) Note: Rankings are the average of the economy s rankings on 1 topics: starting a business, protecting investors, dealing w ith construction permits, paying taxes, employing w orkers, trading across borders, registering property, enforcing contracts, getting credit, and closing a business. Source: World Bank, Doing Business Report (21), BBVA ERD Ranking 1 2 3 9 12 15 19 23 46 51 62 89 93 122 133 144 Manufactured products 17
Singapore: macroeconomic outlook High growth rate Rising inflation pressures Diversified growth engine Faster currency appreciation The economy expanded Risk of overheating is 14.5% in 21 from 28 mounting in the near term downturn and is expected with rising inflation and to grow at average 4.7% in property prices medium term. Strong growth driven by investment and exports % yoy 2 15 1 5-5 -1 8.8 1.5 -.8 14.5 5. 4.8 Led by manufacturing sectors (electronic, chemicals, pharmaceutical) as well as service sectors (esp. tourism and financial) Monetary policy based on the exchange rate Appreciating currency helps dampen inflation Inflation driven by transport and housing prices Source: BBVA Research 2 15 1 % 5 Headline Inflation Transport Housing -15 27 28 29 21 211 212-5 Private Consumption GFCF Net exports Government Consumption Inventory Change GDP -1 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 18
Singapore: banking sector Well-regulated banking sector with sound supervision Six locally-incorporated full banks, owned by three banking groups. Sound fundamentals with low NPLs and very high CARs. Strong liquidity and capital positions have been comparative strengths of Singaporean banks Local banks balance sheets and capital positions are strong Source: MAS and Local banks financial statements Credit growth has recovered from the 28 downturn Source: MAS and Local banks financial statements 2 16 14 15 12 1 1 8 6 5 4 credit as % of GDP (rhs) Credit grow th (lhs) 2-2 -5-4 Jan-6 May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 19
Thailand: political landscape and key features Thailand at a glance A constitutional monarchy, under the highly respected, but aging, King Bhumibol Adulyadej. The King has stayed out of politics in recent years, allowing the Parliamentary form of government to manage policies. A population of nearly 64 million in 21, ranking as the 24 th country in the world in terms of GDP and the 86 th in per capita (PPP). Political tensions Since the political reform of the absolute monarchy in 1932, Thailand has experienced numerous military coups and different constitutions and charters. Throughout this time, the form of government has ranged from military dictatorship to electoral democracy, but all governments have acknowledged a hereditary monarch as the Head of State. Most recently, in 26, a military junta overthrew the government of Prime Minister Thaksin. A period of political instability followed the approval of the new constitution which finally led to a set of new violent protests by the Red Shirt opposition movement in mid 21. The prime minister, Abhisit Vejjajiva, has announced plans to hold a general election in early July. Tensions between opposing political forces may persist, and the eventual demise of the King could be destabilizing. 2
Thailand: macroeconomic outlook Economic growth Rising inflation pressures FX rate and capital inflow Fiscal and monetary policies Average growth of 4.5% in the last 1 years, expected to rise to 5% in the next decade Economy dependant on exports, including autos and auto parts Monetary policy based on inflation targeting Currently, Thailand s target range is a broad.5 3.% We expect real GDP to ease to 3.8% in 211, following the rebound of 7.8% in 21 y/y % 1 8 6 The baht has been appreciating owing to the increase of capital inflows Strong record of macro policy management after financial crisis Inflation pressures have been pushed up by rising food and oil prices Source: BBVA Research and IMF y/y % 16 14 12 1 4 2 8 6 4 2-2 -4 Forecast -2-4 -6-6 -8 27 28 29 21 211F 212F Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-11 Mar-11 Private Consumption Government Consumption Investment Net exports GDP headline food core 21
Thailand: banking sector Banking sector is healthy and set to expand lending Thailand s financial system can be classified into four major constituents: commercial banks, capital markets, government-owned specialized financial institutions (SFIs), non-bank financial intermediaries The structure of the Thai financial sector has changed significantly since 1997-98 financial crisis: before the crisis, the financial sector was heavily dominated by finance and securities companies. Credit-to-GDP has declined since the Asian Financial crisis due to deleveraging 17 Local Thai Commercial and Retail Banks and 15 Foreign Banks with a Full Branch in Bangkok Total Assets/GDP ratio is growing in the last years Credit/GDP ratio shows the banking sector is becoming less prominent 6% 55% 5% 45% 4% Total Assets/GDP.86.84.82.8.78.76.74.72.7.68.66.64 Credit/GDP 35% 23 24 25 26 27 28 29 21 2 21 22 23 24 25 26 27 28 29 21 22
Outline 1 Overview of ASEAN economies 2 Southeast Asian Economies the ASEAN 5 Political landscape and key features Macroeconomic outlook Banking sector 3 Economic ties with the region 23
Rising ASEAN trade with the rest of Asia Over the past decade, ASEAN-5 trade has increased by 14%. Trade shares with the rest of Asia, and China and India in particular, have risen sharply. ASEAN-5 exports to China and India have grown rapidly Source: IMF and BBVA Research USD Bn 5 4 ASEAN-5 imports from China and India have also seen a sharp increase Source: IMF and BBVA Research USD bn 5 4 3 2 21 3 2 21 2 2 1 1 China Inida Japan Other Asia (incl. Australia) RoW China Inida Japan Other Asia (incl. Australia) RoW Note: ASEAN 5 s intra-regional trade is netted out. Note: ASEAN 5 s intra-regional trade is netted out. 24
Trade with Asian countries China has become the single largest trading partner of ASEAN-5 economies. China accounts for a large share of ASEAN-5 exports (21) Source: IMF and BBVA Research Imports from China are also a large share of the total (21) Source: IMF and BBVA Research USD Bn 12 USD Bn 12 1 China India Japan Other Asia (incl.australia) 1 China India Japan Other Asia (incl.australia) 8 8 6 6 4 4 2 2 Indonesia Malaysia Philippines Singapore Thailand Indonesia Malaysia Philippines Singapore Thailand Note: ASEAN 5 s intra-regional trade is netted out. Note: ASEAN 5 s intra-regional trade is netted out. 25
ASEAN FDI by source Total FDI inflows to ASEAN are substantial, reaching $164 billion in 27-29. However, FDI inflows from China and India account for a relatively small share (5.1%) of the total, or $8.4 billion. ASEAN FDI inflows by origin (27-29) Source: ASEAN Foreign Direct Investment Statistics Database and BBVA Research Rest of the world, US$5.2 bn Europen Union, US$34.6 bn ASEAN, US$24.6 bn Japan, US$18.8 bn Canada, US$1.5 bn India, US$3.1 bn Australia, US$3.1 bn China, US$5.3 bn Korea, US$5.7 bn USA, US$16.6 bn 26
ASEAN-5 FDI from China China s outward FDI has been growing, although the share of such flows to the ASEAN- 5 accounts for less than 3% of the total. The cumulative stock of FDI to the ASEAN-5 amounts to $6.7 billion (29) China outward FDI by destination (Cumulative through 29) China s FDI to ASEAN countries (Cumulative through 29) Europe 3.5% Africa 3.8% Rest of Asia 5.8% ASEAN-5 2.7% Oceania 2.6% Latin America 12.4% North America 2.1% Hong Kong 66.9% USD Bn 6 $4.9 bn 5 4 3 2 1 $.8 bn $.5 bn $.4 bn $.1 bn Singapore Indonesia Malaysia Thailand Philippines 27
ASEAN-5 FDI from China In 29, the ASEAN-5 accounted for just over 3% of China s total outward FDI (amounting to $56.5 billion) China s FDI to ASEAN countries amounted to $1.8 billion in 29, led by Singapore. China outward FDI by destination (29) ASEAN-5 3.2% Oceania 4.4% Rest of Asia 5.3% North America 2.7% Africa 2.5% % 2.5 2. 1.5 China s FDI to ASEAN countries (29) $1.41 bn USD Bn 1.5 1.2.9 Europe 5.9% Hong Kong 63.% 1..5 $.23 bn.6.3 Latin America 13.%. $.5 bn $.5 bn $.4 bn Singapore Indonesia Malaysia Thailand Philippines FDI from China (RHS) As % of total local FDI (LHS). 28