Вы находитесь на странице: 1из 2

Financial Institution and Markets 2nd Assignment

Date: 5th April, 2016

1997 ASIAN CRISIS


During the early 1990s, East Asian countries like Thailand, Indonesia, Singapore, Hong
Kong, South Korea, Malaysia were having the massive economic growth. The main reasons
behind the high growth were exports oriented economies, cheap and well-educated labors, high
investments of foreign companies, low inflation, high saving rates, stable exchange rates and
open economies. However, during the period of 1997-98, these countries experienced downfall
of its currency markets and stock markets. The Asian crisis can be said as the series of
devaluation of the currency followed by other events like decline of stock market that spread
through different countries.
The crisis started in July 1997 with Thailand and had the contagion effect to different
other countries. There was no any capital control in Thailand. The government of the country
borrowed too much from the international market. The currency markets first failed in Thailand
when Thai government was forced to float its currency because of the lack of foreign currency to
support Thai Baht. Thai baht depreciated the most followed by Malaysian ringgit, the Indonesian
rupiah, and the Philippine peso along with slight depreciations of the Singaporean dollar, the
Taiwan dollar, and the Korean won. Many of these countrys currency was formally or
informally pegged with the US dollar. Thus, the main cause of the crisis was the weakness in the
financial system of the country. Large capital inflows were supported by pegged exchange rates
because foreign investors need not have to worry about the exchange rates. There was the
shortage of the foreign exchange causing the value of domestic currency to fall intensely.
Roles of Assets Management Companies (AMCs) During The Crisis: During the Asian crisis,
when it became clear that the primary cause was weakness in the financial systems, the
governments of Indonesia, Korea, and Malaysia immediately established centralized AMCs to

Financial Institution and Markets 2nd Assignment

Date: 5th April, 2016

provide better management structures for problem assets. The depreciation of Malaysian ringgit
had an adverse effect on the banking sector of the country. Many companies including the large
corporations that have borrowed from the banks were unable to repay their loans. As a result,
banks were unable to provide sufficient funds to finance business activities. Thus, Asset
Management Company was formed in order to manage the impaired assets including nonperforming loans (NPLs) of the financial institutions. The main objective of the Asset
management companies was to remove the NPLs from the balance sheets of the financial
institutions and to maximize their recovery value. Good assets of the distressed financial
institutions were separated from their bad assets and Asset management companies used to act as
the vehicle to manage those bad assets. This would free the banks from the burden of debts that
had prevented them from providing loans to their customers.
This separation of the non-performing assets of the banks would help them to focus on
rebuilding the banks and on new lending while AMCs could concentrate on the recovery of those
bad assets. This helped the bank to improve the quality of their asset portfolio, led to the growth
of domestic credit and improve their profitability. Korean Asset management corporation, Thai
financial sector restructuring, Indonesian bank restructuring agency, Malaysian Danaharta, etc
were some of the asset management companies established during the crisis. Since, the root
cause of the crisis was the weaknesses in the financial systems, AMCs helped in the disposal,
collection and restructuring of the nonperforming assets of the banks that helped the banks to
focus on their core business activities and helped to restore soundness of overall financial
system.
Name: Niraj Taujale
MBA V (W/E)