Lack of transparency can result in delay in tackling the problem and erode public confidence in the soundness of the banking system. Innovation and technological change 21. Asset quality is thus one main issue which Asian banks have to tackle. But one of the results of globalization is that even banks in relatively undeveloped banking systems are now having to cope with the challenge of product innovation and new technology. This can accelerate the transformation of such banking systems: modern computer systems can be installed and banks can make the jump straight from cash to smart cards. The downside is that banks may have less time to build up the skills properly to use the new technology and the new products which their counterparts in developed banking systems have taken many years to BIS Review 55/1997  -5-  acquire. Derivatives are a case in point. While the derivatives markets in the region other than Tokyo are still quite small, these products are certainly being sold to, and in some cases being traded by, local banks in the region; and a number of them have suffered losses as a result. 22. Looking further ahead, the opportunities provided by new technology will pose important strategic challenges for the banks. To what extent, for example, should they invest in new delivery mechanisms such as telephone or internet banking? These channels offer the potential to bring down dramatically the cost of transactions compared with the traditional branch network.
But turning back to banking in the region, even if this scenario is realized, and there must of course be much uncertainty on this, the amount that banks would be called upon to finance would remain very substantial in absolute terms. For the foreseeable future, therefore, the banks will still be playing a key role in mobilizing savings in the region and channeling this into investment. And this makes it even more important that banking systems in the region remain healthy. Of course, foreign banks will play an important financing role, in particular those based in Hong Kong which is the major centre in the region for the arranging of syndicated loans. But within most of the banking systems of the region it is the local banks which predominate in terms of share of assets. The position of Asian banks 10. So let us take a look at the current position of the Asian banks. It is in fact very difficult to generalize because the banking systems in the region are not homogeneous. But certainly if we look at what the World Bank has called the eight “high performing Asian countries”, the Asian banks have been at the heart of the Asian success story2. This is partly due to the emphasis laid by governments on trying to ensure the stability of banks, through prudential supervision and other means, to encourage confidence among savers.