Access to finance still a hindrance in Asean

MANILA, Philippines – A reliable and risk-free credit and financing to attract investors and do business remain as barriers to a smooth transition into the Asean Economic Community (AEC), the Integration Monitoring Report released by the Asean Secretariat and the World Bank said.

“Access to finance remains the top constraint for ASEAN companies to do business and attract investors,” the report said.

The Asean states must open up their insurance and banking services sectors to regional companies, it noted.

A study by Standard & Poor’s Rating Services likewise showed that a robust institutional and regulatory framework for financial markets is a key requirement to meet the region’s growth potential.

“The liberalization of financial services is therefore a necessary step toward the goal of creating a regionally integrated Asean Economic Community by 2015. This will help financial markets support growth in the region effectively,” it said.

The study showed that a small percentage had business risk profiles that are lower than an investment-grade or crossover category.

Twenty-six percent of companies have financial risk profiles at the weaker end of the speculative grade categories.

Corporate balance sheets show that the growth of Asean companies is increasingly debt-financed. The pace of aggregate financial indebtedness accelerated over the past three years, while revenue and gross earnings growth flattened out.

In 2009, cash inflows from operations could cover cash outflows from capital expenditure, dividends, and acquisitions.

By end-2013, cash outflows exceeded cash inflows by more than 30 percent. At the same time, return on capital decreased to about 14 percent in 2013 from 21 percent in 2011.

With a gross domestic product (GDP) of about $2.4 trillion, and a young, growing, and consumption-savvy population of 625 million, Asean is the fifth-largest global heavyweight when it comes to real GDP, and second only to China in terms of real GDP growth.

S&P estimates that regional GDP growth will increase to 5.8 percent in 2016, from an estimated 4.9 percent in 2014.