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The OECD, the World Bank (WB) and the Asian Development Bank (ADB) organised a meeting on Insolvency Systems and Risk Management in Asia, which took place on 3-5 November 2004 in New Delhi, India. It was co-hosted by the Ministry of Finance Banking Division, the Ministry of Company Affairs of India and INSOL India.
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We all know that the purpose of credit risk management is to ensure that financial institutions extend and monitor credits to borrowers who are, within predefined risk parameters, prepared to and predictably likely to be able to pay them back. In this sense, the intent of a bank’s risk management processes–and here we refer both to the management of credit and operational risk–is to avoid having an unacceptable number of credits that go into insolvency, workout, restructuring, etc. and then to minimise the actual losses.
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This paper contains a review of trends and developments in the insolvency systems of the following selected economies: Hong Kong, China; Chinese Taipei; Indonesia; Philippines; Thailand; Vietnam and Singapore. This paper also contains a review of trends and developments in risk management systems in the selected economies with a special focus on credit information systems and credit risk transfer instruments.
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This report has two parts: the first provides an update on recent developments in Chinese Taipei RTC and the speedy resolution of the NPL problem; the second part of this report describes the Procomp fraud case and the government’s answer to it in the form of partial amendments to the Securities Transaction Law and the Commercial Accounting Law. Some controversies surrounding these amendments will also be discussed briefly.
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Following the financial crisis of 1997-98, Indonesia learned many lessons dealing with insolvency resolution in the financial industry and in other commercial companies. How to treat failing companies without creating distortions in the financial system became the art of crisis management in Indonesia.
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Singapore has an extensive and generally effective arsenal of insolvency regimes to deal with corporate and personal insolvencies. There has been commendable development in its insolvency jurisprudence in recent years, resulting in the main from the large number of corporate insolvencies brought about by the fallout of the Asian economic crisis of the late 1990s.
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In the aftermath of the 1997 crisis Thailand has undergone changes in insolvency law, risk management (especially with respect to changes in the Bank of Thailand monetary regime), conduct of monetary policy, internal reorganisation, and risk management of financial institutions. Commercial and central bank regulators gradually learned from the crisis and responded by changing financial practices, consolidating business and introducing a new institutional infrastructure that is already in place and will be enforced in the coming years.
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Vietnam’s development continued to show a positive trend in 2003 and in the first ten months of 2004. Its GDP growth remains the second highest in South-East Asia after China. Commercial bank credits have also grown in recent years. However, problems with non-performing loans (NPLs) and distressed assets (NPAs)--largely related to state-owned enterprises (SOEs)--remain unresolved.
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The frequent swings and the series of financial crises of the previous decade indicate the inevitable trend of a financially liberalised and globalised economic system. Expert analysis and institutional introspection in the aftermath of these crises have produced valuable efforts, initiatives and results to minimise the risks of failure of financial systems in critical times.
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Nepal, the birth place of Lord Buddha, the home for exotic biodiversity, the tallest mountain in the World – Everest, a landlocked agro-based economy with a low industrial base, the most preferred tourist destination in Southeast Asia, is an underdeveloped country plagued by a Maoist insurgency that is causing the economy to stagnate.
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The linkage between risk management and insolvency systems is often imperfectly understood at the regulatory/main stakeholder level. In some cases, a decline in NPL levels owing to high economic growth rates and improvements in the regulatory environment cause enough complacency that efforts to create a modern insolvency regime are put on the back burner.
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Banks face risks in a variety of situations. The most serious risk is that of the customer-borrower going out of business. A more frequent risk for bankers is default by borrowers. That risk ranges from what is compendiously described as the Third World Debt Crisis, home mortgage and credit card default.