Asia's economies stand to benefit from ongoing and ever-maturing approaches to financial innovation as the region's finance markets develop and become more closely integrated.

Addressing a a luncheon seminar at the 41st annual general meeting of the Asian Development Bank in Madrid, Spain, Surinder Kathpalia, managing director and region head of Standard & Poor's, ASEAN region, said, "Recent uncertainty in global credit markets has given financial innovation a bad name, but in Asia, where financial innovation is in its early stages, it is imperative for the region's financial markets to continue to develop new approaches to facilitate the flow of capital, and importantly, to maintain Asia's fast economic growth rates.

But for innovation to be effective, transparency and sound risk management practices must be applied, Kathpalia stressed.
 
Financial market innovations that are already well established in developed markets can help boost economic growth in Asia. Examples include project finance for infrastructure; derivatives markets for hedging and corporate finance; ratings and indices for Islamic finance; and small to medium-sized enterprise (SME) credit assessment.
 
Ping Chew, managing director of corporate and government ratings in Asia said, "Financial innovation brings about new and hidden risks, and requires a "trial and error" period. To ensure we reap the benefits of financial innovation while limiting the associated costs, a robust risk management framework must be developed. In many markets in Asia, basic tenets of financial markets are absent, which includes adequate information disclosure and transparency. The role of credit rating agencies is to provide an independent, objective assessment on credit risk."
 
Chew also explained Standard & Poor's commitment to transparency, including the implementation of a comprehensive set of actions designed to strengthen ratings operations. Examples include appointing an ombudsman and introducing independent reviews by an external firm of compliance and governance practices. "We are committed to transparency, including the implementation of a comprehensive set of actions designed to improve the information available to investors about ratings and complex securities. Examples include steps to improve disclosure about the collateral backing securitized bonds and publication of the assumptions underlying Standard & Poor's ratings of these securities."