Comment on “Are Banking Systems in East Asia Stronger?”

Are Banking Systems in East Asia Stronger?*

“…Kim et al . (2006) echoed this feeling in the case of South Korea; but there are counterexamples as Nasution (2007) in his comment on this paper points out. A second risk is of excessive centralization.…”

“…Reversing this nationalization has taken time but has nevertheless progressed. In several cases, however, there is still a residual state ownership that can be used to undermine the effective running of a bank (see Nasution, 2007). Sussangkarn and Vichyanond (2007) explained how a rapid expansion in lending by public financial institutions to small‐scale borrowers followed by debt forgiveness could undermine market discipline.…”

“…But shortcomings remain. Nasution (2007) explained that the government still appoints the management of certain listed but state‐controlled banks in Indonesia. Guinigundo (2006) noted that only universal and commercial banks in the Philippines are required to have their stocks offered in public, and only 10% of their minimum capital must be listed.…”

Editors' Overview

“…Nasution (2007) provides some important caveats to the interpretation of Turner's results. He argues that the analysis of bank performance needs to examine more carefully the sources of bank profits, and also the structure of bank portfolios.…”