Today, many of the ASEAN-5 countries have fairly deep and liquid local bond markets. Central banks, whose operation is contingent on a deep and liquid bond and foreign exchange markets, have been part of the development process for the government bond market. Over the years, our financial markets have become more efficient, more sophisticated and more balanced. ASEAN-5 have moved from a predominantly bank-based or credit market to a growing capital market, both equity and bond. We have also strived to better manage the impact from volatile capital flows as we seek to balance between foreign inflows and capital outflow. Here bond markets have been instrumental to help absorb the impact from the volatilities and sudden reversal of these flows. These developments have facilitated central banks in their conduct of monetary policy, manage market expectations, and guide the path of monetary policy. Today, the ABMI is taking this development further from a domestic orientation to a regional level. This is timely in view of the increasing need for Asians to find new sources for growth and new markets for their exports, and in recognition of the need for “Asian savings to finance Asian investment”. Initiatives such as the Credit Guarantee and Investment Facility (CGIF) is a case in point that aims to foster cross border fund mobilization using the tools of a regional credit guarantee vehicle.
First, the notable increase in risk premia, in a very sharp pendulum swing, has surely over-corrected the abnormally low levels reached in summer 2007, so these levels will foreseeably not be regained when conditions in the international financial markets return to normal. Second, the persistent difficulties in obtaining funding on the wholesale markets, which are also unlikely to regain the rate of expansion seen in the past, have led to notably heightened competition for new deposits, particularly time deposits, the cost of which is higher than that of other alternative sources of  BIS Review 52/2009  3  funding. Lastly, it should be recalled that in a setting of low interest rates, the cost of bank deposits has a floor, and this also contributes to the narrowing of margins. For these reasons, the net interest margin will foreseeably come under downward pressure in an environment in which it is not, and will not conceivably be, offset by increases in the volume of activity. Fees and commissions fell slightly in absolute terms. Firstly, analysis of the various components of fee and commission income shows that those directly related to more traditional banking activity have, in line with their lower rate of expansion, grown more moderately. Secondly, Spanish deposit institutions have been marketing non-bank financial products and securities services to their customers, which has generated significant fees and commissions. However, the data for December 2008 reflect a fall in fee and commission income from business of this type.