With one of the highest savings rate in the world, at approximately 30% of GDP which currently amounts to USD750 billion, a well-integrated regional financial system would provide a more comprehensive eco-system for an efficient and competitive intermediation and investment. An important component of ASEAN growth is the critical role of SMEs in all economies. The AEC recognise this and calls for SMEs to play a greater role in contributing to the overall economic growth and development of ASEAN as a region. Access to financing, however, remains a key challenge for many businesses. Despite various national level efforts, more needs to be done for SMEs to obtain access to financing, including the funding required to grow their business beyond national borders. The credit gap for SMEs in East Asia is estimated to be more than USD250 billion.2 The difficulties in access to financing are compounded by underdeveloped financial systems, the need to manage multiple banking relationships across different markets, and a lack of coordinated financial advisory support to help businesses navigate the regulatory and business environment in different jurisdictions. A larger presence of regional financial institutions can significantly reduce these challenges. 1  Speech by David Lipton, First Deputy Managing Director, IMF on 19 March 2015 entitled “ASEAN – The Challenges of Convergence and Integration”. 2  Sources: International Finance Corporation and McKinsey & Company, “Two trillion and counting – Assessing the credit gap for micro, small, and medium-size enterprises in the developing world”, October 2010.

In implementing the minimum regulatory standards, the objective is not to achieve a single set of uniform rules, but rather to focus on implementing rules in the respective ASEAN member countries that are consistent with an agreed set of sound principles of regulation and supervision. This will entail efforts at the national level to align existing regulatory and supervisory regimes with international standards such as the Basel and Insurance Core Principles. In addition, the implementation of well-designed financial safety nets such as deposit insurance systems will further support the successful management and transition during the financial integration process. Surveillance mechanisms also need to be enhanced to be able to take into account the implications of cross-border transactions and the diversity of the market structures across the region which will affect the way risks are measured and managed. Traditional risk metrics may not be able to fully capture more layered risk complexions. As financial systems develop at an uneven pace across the region, and as regional exposures become more significant, more granular and broader risk metrics will need to be developed to capture differences in market structures and different business profiles in local markets which reflect prevailing economic and financial conditions. As an example, loan-to-deposit ratios vary considerably across the region, partly reflecting differences in the depth and sophistication of financial systems and to some the extent whether savers and borrowers have alternative avenues for investment and financing.