By SHARIDAN M. ALI

SINGAPORE, Dec 27 — Banks which had, just a few months ago, been bailed out with public funds are now paying their staff millions in bonuses. This has outraged many, but not Dr Sanjeev Khagram.

As far as the American academic is concerned, people are missing the wood for the trees. The big worry is not so much how fat bonuses can get, but how lax lending practices could harm the world.

If banks do not follow socially responsible lending practices, it could result in even more crises and also broader problems down the road.

“This is an imperative,” says Dr Khagram, 41, the Wyss Visiting Scholar at Harvard University and international associate at the Centre on Asia and Globalisation, a Singapore think-tank. He was in town earlier this month to conduct a seminar organised by the centre as part of its long-running project to develop new insights on global governance.

Speaking to The Sunday Times separately, he wastes no time stressing that banks “still rule the world”.

“When you look at the global 500 (ranking of companies), 60 banks more or less are in there and have been so for a number of years...Despite the financial crisis, there hasn’t been much shift in the number of large banks that are part of the global 500.”

He concedes that the massive government bailouts played a part in the rebounds of the likes of Goldman Sachs and AIG. But the bailouts themselves showed just how much clout the banks wield.

The statistics he cites are sobering.

A good estimate of how much governments have spent in responding to the global financial crisis through bailouts, fiscal stimulus and otherwise is US$10 trillion (RM34 trillion) over the last two years or so, he says.

“The best climate experts estimate that it would take US$5 trillion for a global deal on climate change,” he adds.

In other words, the wrangling over carbon emission cuts and the transfer of green technology witnessed at the Copenhagen climate summit recently could have been easily resolved if the countries were willing to spend just half of what they mustered in a heartbeat to fight the financial meltdown.

Unfortunately, many deem the health of banks far more important than the health of the planet.

Financial institutions oil the wheels of the economy. “Where banks and financial institutions don’t invest, there can be a dramatically negative impact on broader social environmental goals. And where they do invest, there can be a potentially positive impact.”

But as the popular saying goes: With great power comes great responsibility.

“Like all businesses, banks have a social licence to operate. And that social licence means they have to contribute in some way to society.”

In the past, banks were deemed to have done their part for society and the economy when they generated profits. But that is no longer sufficient, he says.

The lead author of the United Nations Secretary-General’s report on the global downturn’s impact on the world’s poor knows just how much is at stake here. With millions of people kept below the poverty line by the crisis, banks these days should be assessed by how much their lending activities lead to desirable outcomes for society and the environment, he says.

Instead of relying on typical philanthropic activities to do good, banks should integrate them into their business.

One simple way is for banks to make potential borrowers systematically review the social and environmental risks of their projects before agreeing to underwrite them. Banks could also extend cheaper loans to companies that agree to rigorous environmental controls.

Once companies realise that there are financial benefits to be gleaned from reducing pollution or treating their workers well, for example, they will naturally fall in line, Dr Khagram reasons.

This approach is good for the banks’ bottom lines too.

“Suppose you have a large hydro- electric project that is dependent on a certain hydrological model of the river, a model mapping the water flow. Banks are brought in and they provide funding for this public-private partnership project.

“Now, given climate change, we know changes in hydrology are happening all the time, and they’re going to be much more severe. If the banks don’t pay attention to, in a systematic way, whether or not the project has been built with real consideration about what the future hydrological model is going to be, they’re going to be in a high-risk situation.”

If the flow of a river changes, the project would not be able to generate the amount of electricity predicted. This would jeopardise the future earnings of the funding bank.

There is already some precedent to the practice Dr Khagram is suggesting.

In 2003, a number of banks launched the Equator Principles, a set of voluntary guidelines for the finance sector to ensure that the major projects it funds are developed in a socially and environmentally responsible way. These have been adopted by more than 60 financial institutions, including Barclays, Citigroup and the HSBC Group.

The guidelines, which were updated in 2006, require companies borrowing from participating banks to look into issues like community health and the impact of the project on indigenous peoples.

Dr Khagram suggests that governments could nudge banks into socially responsible lending by extending cheaper credit to such banks when needed.

Meanwhile, civil society can play its part too, by helping to police the bad hats and highlighting the good lenders.

In this way, a virtuous circle is created. Rather than just patching up the loopholes that created the recent financial meltdown, the world could chart new and socially responsible ways to make money.

He is optimistic about its prospects, given how inventive the banking sector can be.

“What led to the current global financial crisis is that the financial sector is incredibly creative, (devising) instruments like collateralised debt obligations and all these exotic ways of making money.

“We want to support that financial sector innovation in every way. Imagine 10 per cent of that creativity being used to create new financial sector instruments for broader social and environmental goals.”

There is no doubt that banks “can continue to make lots and lots of money, and their executives can make lots of money”, he says.

The champagne can still flow, if bankers put their minds to the right causes. And banks, which rule the world, can still save the world. — The Sunday Times

TOKYO, Dec 25 — Shares in Tokyo slipped today as investors took profits in trade thinned by the Christmas break in many other markets, while Shanghai fell and the dollar hung near its highs of the month after goods and jobless claims data.

The Shanghai Composite Index had eased 0.2 per cent by 0640 GMT, weighed down by caution over new share supply after Anhui Xinhua Media Co said it would launch an initial public offering next week, but stocks in Taiwan edged up.

Japan's Nikkei average slipped 0.4 per cent a day after hitting a three-month closing peak, as high-tech exporters such as Canon Inc that have led recent rallies ran out of steam.

But the benchmark, which closed at 10,494.71, still ended 3.5 per cent up on the week and has risen 18.5 per cent so far this year.

"Investors are taking profits as Japanese stocks have rebounded sharply in a short period of time and amid investor caution, with stock markets closed overnight around the world," said Kenichi Hirano, operating officer at Tachibana Securities.

Shares in Kirin Holdings rose 1.6 per cent after a newspaper reported the previous day that the beer maker and rival Suntory Holdings are close to agreeing to a merger ratio.

Copier and digital camera maker Canon fell 1.7 per cent to ¥3,950 after surging yesterday following approval from EU regulators for its takeover of Dutch firm Oce.

Tokyo Electron Ltd, the world's No 2 semiconductor equipment maker, slipped 1.7 per cent to ¥5,880 while auto maker Toyota Motor Corp shed 1 percent to ¥3,850.

Venezuela's President Hugo Chavez this week threatened to expel Toyota unless it produces an all-terrain model of a 4x4 vehicle used for public transport in poor and rural areas. Japan's broader Topix retreated 0.5 per cent to 909.39.

Shares in Taiwan rose 0.11 per cent to an 18-month closing high, led by Dram chip maker Nanya Technology and other memory chip makers on hopes of a demand pickup and after the central bank kept interest rates at a record low of 1.25 per cent on yesterday.

Analysts said a fall in US jobless claims had also supported gains in some tech stocks.

New orders for long-lasting US manufactured goods excluding transport items surged in November and new applications for jobless aid hit the lowest level in 15 months last week, pointing to a firmly entrenched economic recovery.

The data helped US stocks to close at 2009 highs yesterday. The Dow Jones industrial average gained 0.51 per cent, the Standard & Poor's 500 Index 0.53 per cent, and the Nasdaq Composite Index 0.71 per cent.

The dollar was steady at ¥91.41 having hit a two-month high of ¥91.88 this week as year-end closing of short positions gave it a boost.

The rally has run out of steam but the dollar is still on course for its best monthly performance against the yen since February after hitting a 14-year low of ¥84.82 last month.

The euro steadied at US$1.4380, after falling as far as US$1.4218 this week, its lowest since early September, and is heading for its worst monthly performance against the greenback since January.

"After corporations' and hedge funds' dollar repatriation has run its course, the dollar could weaken again next week," said Jun Kato, a senior chief analyst at Shinkin Central Bank Research Institute in Tokyo.

The US Treasury Department auctions a total of US$118 billion worth of two-, five- and seven-year notes next week and yield moves could give some direction to the dollar.

"If there is no major turbulence in longer-dated US Treasury yields next week, the dollar could fall to the lower end of ¥90. But if yields spike, the dollar could rise to ¥92," Kato said.

Japanese government bond futures ended down 0.15 point at 139.74 after touching their lowest levels for the week ahead of expected approval by Japan's cabinet of a draft budget for the fiscal year from next April 1.

Sources said this week that bond market issuance for fiscal 2010 was likely to be a record ¥145 trillion yen, posing a test for a market already forced to digest ever increasing supply. — Reuters

KUALA LUMPUR: Share prices on Bursa Malaysia ended slightly easier after fluctuating in a narrow range throughout the morning trade.