Industry sources estimate that trading volume of major and emerging currencies in Asia has dropped by around 30-40 per cent from its 1997 peak. Daily foreign exchange turnover of Asian currencies, for example, has shrunk to some $13 billion to $18 billion from $22.1 billion in April 1997, as surveyed by the

Bank of International Settlements.

Only the fittest will survive. Some foreign banks with weak customer bases in the region recently threw in their towels and pulled out from the market, while others restructured their operations and moved to where customers are.

"The industry has been going through a really rough patch because of sharp falls in volatility and trading volumes. It's hard to make money in that kind of market," said Mr Karl Broecker, head of treasury at Landesbank Baden-Wurttemberg in Singapore.

"Lack of profitability makes it financially unfeasible to have so many entities taking risks from various centres in the region. That's why lots of banks are centralising or cutting back to survive," he said.

During the 1997 peak, some forex traders said they had racked up bonuses as high as 12 months of their monthly salaries, but that has become a fading memory.

Once bustling interbank trading desks, which took speculative positions and provided liquidity to the market, are struggling, and many have been turned into customer service desks. These problems have forced a number of banks to revamp their forex trading operations or risk dying a slow death.

ABN AMRO Bank is among the recent examples. The bank last week decided to relocate its regional G7 currencies trading to Sydney from Singapore to take advantage of time zone there, and to move G7 fixed income trading to Tokyo. However, it maintained Singapore as a hub for emerging Asian currencies trade, its spokeswoman said.

Earlier this year, UBS Warburg moved its interest rate desk to Tokyo where it has a strong customer base while some smaller banks such as Den Danske Bank of Denmark closed down its forward operation in Singapore. Swedish SEB Merchant Banking recently consolidated its forex trading operations in Asia by relocating them to Singapore. "We closed down our trading desks in Hong Kong and Tokyo and brought them to Singapore because of cost consideration. It's cheaper and efficient to operate from here," said Mr Chia Woon-Khien, chief analyst at SEB Merchant Banking.

For regional currencies, capital controls and low risk premiums caused by reduced volatility and low interest rates make it unattractive to speculate, hence the decline in volume.

"I have known some big operations here which have to carry out a deal worth $300-$500 million from Europe because there is not enough liquidity here to allow them to get their desired rates," said a dealer at a European bank in Hong Kong.

Trading activities of major currencies have also been hurt by the introduction of the euro in January 1999 which replaced the National currencies of the 11 European Monetary Union members. Risk appetites have gone down substantially after the crisis.

Some foreign banks with exposure to Asia's ailing corporate sector are being burdened with non-performing loans, making their proprietary trading desks less willing or able to undertake risky speculative positions.

Banks have also tended to increase their clout in currency markets by getting corporate clients to invest with them.

But these days, the corporate sector too is more risk averse due to shrinking capital bases and rising debts which were bloated by sliding local currencies during the crisis.

"Forex trading is a capital intensive and high risk investment. And what's the point of committing funds in forex when you can make much more money in stocks," the dealer said.