Year: 2014

In the last five years, Chile has posted in excess of five percent growth on average and showcased some of the most impressive economic fundamentals on the continent. Underpinned by social and political stability and consistent sub 4.5 percent inflation, the country has taken on a new significance for investors and multinationals looking for emerging economic opportunities.

The country’s healthy economic growth, longstanding political stability and hospitable business climate saw the World Economic Forum anoint Chile as the top ranking Latin American country in its Global Competitiveness Index 2013-14 (see Fig. 1). What’s more, the organisation gave it the lowest risk rating of all the leading countries in the region, with a low spread of 1.29 percent, as of May this year.

Against this backdrop of security and continued prosperity, Chile’s financial system has come on leaps and bounds, with loans having grown by over 11 percent in only the last four years. What’s more, its high levels of capitalisation, and in-decline default indicators have cemented the banking sector’s stature as a regional leader with formidable international influence.

The country’s on-going transformation has given rise to several impressive names, not least Banco de Crédito e Inversiones (Bci), which has set a precedent for those in Chile’s burgeoning banking industry for decades. It was over 80 years ago now that a small band of entrepreneurs joined together in Chile with the ambition to create a company capable of supplying formal and sustainable financing. Fast-forward to today and Bci is one of the region’s foremost financial names, lauded for its company culture and renowned the world over for its impressive track record.

An active role
Founded in 1937, Bci has played an active role in the development of Chile’s financial system, exhibiting evidence of its soundness and solvency throughout. The bank successfully overcame the crisis well before its peers, the same crisis that ultimately led to the crash of the Chilean banking sector in 1982, and demonstrated its high level of solvency through the course of the last major global financial crisis.

Today, Bci is the number three private bank in Chile, in terms of the loans and net income it has so far attained, its sustainable organic growth, and its strategy focused on bolstering the most profitable areas by means of a broader geographical spectrum. The firm’s size and success has also seen Bci post a return on average equity of over 20 percent, representing one of the highest rates of its kind in the national banking community.

Chile’s emergence as a major economic player in Latin America has come alongside the introduction of a fair few impressive corporate performers. And while there are various challenges to contend with – namely an overdependence on commodity prices, tax reform and trade union conflicts – the country’s leading performers are negotiating these hurdles with ease and creating the conditions to thrive.

By focusing on factors apart from financial gains and taking into account the issues affecting those in the community, Chile’s foremost financial players have cemented strong foundations for lesser names in the industry and influenced key developments in the national economy.

On the way to becoming one of Chile’s key banking names, Bci has taken special care to create and manage a sound organisational culture that puts people front and centre in all it does. The ‘happy employee = happy customer = happy shareholder’ equation is, therefore, a key aspect of its daily activities and perhaps the most important lesson that companies in the region should strive to replicate.

The bank operates in four fundamental departments: retail banking, commercial banking, SME banking, and corporate and investment banking (CIB). Each of these departments comprise different customer segments and cater to entirely separate requirements.

Whereas the bank’s retail division caters for the country’s general banking public, Bci’s commercial banking arm deals with companies whose sales range between $4m and $80m per annum. The bank’s SME offerings, however, were only recently created in 2013 and include microenterprise, entrepreneur and small business segments. The bank’s services in each of these sectors illustrate the extent by which Chile’s banking proficiency has advanced, as well as the rate by which demand for financial services among SMEs in the region has grown.

What’s more, Bci’s CIB services are targeted at large corporations, institutions, high net worth clients, and capital market players, whose requirements pertain to more complex financial matters. Bci provides these services through asset management and stock brokerage subsidiaries, which are in both cases the third best in the country’s banking sector. It has also an outstanding position in the sales and trading area, where it has managed to position itself in first place in the foreign exchange market. Again, the bank’s corporate and investment divisions prove that the capacity of Chile’s banking sector matches even those in more developed markets, and serves to underline the complexity of the country’s financial requirements at present.

Internationalisation and innovation
Based on Bci’s commercial structure, the bank has defined its strategic focus in such a way so as to ensure the best customer experience possible, and to attain a unique value proposal for the segments in which it operates. Always seeking innovation and new opportunities, Bci has embarked upon an ambitious internationalisation strategy and diversified its external financing sources in terms of investor profile.

Bci signalled the beginning of its expansion into international markets 15 years ago, by opening its first branch in Miami. The aim here was to launch an internationalisation process to explore both new markets and growth opportunities, and to expand upon the services available to its customers operating overseas. Fast-forward to today and Bci has signed an agreement to buy the fourth largest bank in Florida, City National Bank, marking the largest investment made by a Chilean company in the US, and one that makes Bci the first bank in Latin America to base major operations in that market.

The bank also has representative offices in Brazil, Colombia, Peru, Mexico, a service desk in Spain and, for some months now, has been seeking authorisation to open a representative office in Shanghai, which again highlights Bci’s commitment to extending its international coverage.

Not purely based on boosting its commercial presence, in 2013 the bank continued to actively diversify its external financing sources, geographical origin, and the kind of instruments used. And in February this year, the bank proceeded to issue its second 144A bond, an instrument that can only be purchased by qualified investors. The amount issued was $500m, with a 10-year maturity at an annual interest rate of four percent. Bci also issued three bonds in the Swiss market, the first worth $225m with three-year maturity, the second $135m with two-year maturity, and the most recent issue in June 2014 worth $167m with a five-year maturity.

Moreover, in 2013 Bci continued with the commercial papers programme in the US, maintaining the high rating it received in 2012 from Standard & Poor’s (A1) and Moody’s (P1). Such a programme enables Bci to issue short-term securities in the US market of up to $1bn, and the bank had issued $497m by year’s end. In brief, the continuation of the bank’s strategy to increase and diversify its foreign financing has allowed it to secure new funding from abroad in recent years, thereby reducing the financial cost of borrowing and endorsing Bci’s growing international renown as well as the status of Chile’s financial services sector.

Corporate citizenship
Nevertheless, Bci’s growth is not only evident in its good economic and financial performance, but equally in areas of transparency, CSR and innovation. A commitment to matters quite aside from financial performance is today expected of companies in Chile, given its high standing on the global economic stage, and Bci has quickly proceeded to set the precedent to which others should aspire.

Transparency is a core value for Bci, given the role it plays in forming long-term relations with stakeholders, who represent the root of the bank’s successes. To manage this, Bci has developed a specific strategy focused on three aspects: maintaining its leadership in transparency, enhancing long-lasting customer and employee relations, and protecting consumers and workers.

This strategy has two main initiatives: financial education and supplier relations. Concerning financial education, Bci created an interactive and innovative platform, where people can gain access to diverse content expressed clearly, simply and transparently.

Maintaining sound supplier relations has always been part of the corporate mission of the bank as it strives to forge mutually beneficial relations, loyalty, high quality standards, compliance and transparency, always offering them fair and friendly treatment with sustainable long-term dialogue.

With Bci at the helm, Chile’s standing in the global financial services sector looks only to continue on up, as the emerging economy sets its sights on new market opportunities and reaffirms its status as a fertile landscape for growth and prosperity.

Kenya boasts one of the fastest-growing banking sectors across Africa, but this has not always been the case. Beginning most notably half a century ago, the industry’s rise has been shaped by a willingness to inspire change, in particular among the country’s cooperative movement that has succeeded in transforming the national economy.

With large parts of the country’s population still struggling to make ends meet, poverty still ranks high up on the list of concerns of Kenya’s 43 million-plus inhabitants. The country’s cooperative movement, nonetheless, has emerged as a decisive instrument in alleviating poverty and a proven means of boosting the livelihoods of those worst affected.

Established a short while after Kenya secured independence in 1963, the Co-operative Bank of Kenya (Co-op Bank) was founded by Kenyan cooperative societies and unions well versed in the difficulties of accessing credit on home soil. Whereas banks were then all too eager to accept deposits, they were unwilling to advance those same customers credit, without the guarantee of securities, financial statements, credit histories, or various other formal requirements. However, the formation of the Co-op Bank would go on to enable previously underserved areas of the Kenyan economy and pave the way for sustainable prosperity.

Far more than a member of Kenya’s banking community, Co-op Bank stands as a major constituent of the national economy and a major force for positive change. Francis Ngambi, the bank’s Press Secretary and PA to the Group CEO, tells World Finance about the country’s development and the ways in which the firm, together with the wider cooperative movement in Kenya, has sparked economic growth.

Ambitious beginnings
“Cooperatives were fast emerging as key mobilisers of resources that enabled farmers, mostly in coffee, cotton, dairy and pyrethrum, to jointly market their produce. They needed crucial support by way of affordable credit,” says Ngambi, referencing the challenges facing Kenya at the time of Co-op Bank’s establishment. “This difficulty in accessing affordable financial services drove cooperatives to seek an alternative path, culminating in the establishment of their own bank to serve their own interests.”

Registered as a cooperative society on June 19 1965, the Co-op Bank did not officially open its doors until January 1968. It then managed to close out its first full year in profit, marking the first of many successes over the years to come. The bank has since become a full-service universal bank, offering a range of services spanning retail banking, corporate and trade finance, foreign exchange, mobile and internet services, stock brokerage, fund management, asset finance, mortgage, bancassurance, and custodial and registrar services – all in addition to banking cooperatives.

From its beginnings as a humble cooperative, the Co-op Bank today represents the number one point of contact for Kenya’s 10 million-member strong cooperative movement, who control a majority 65 percent stake in the bank. With an asset base of close to KES250bn (see Fig. 1) and 4.3 million account holders, the Co-op Bank in many ways represents the changing face of Kenya and stands today as one of the largest and fastest growing banks in east Africa.

A model for inclusive growth
“If there is one unique feature that distinguishes Co-op Bank from peers, it is the activist nature of its business strategy,” says Ngambi. “The Bank regularly intervenes in selected sectors of the economy with a view to achieving transformation in challenged sectors, notably in agriculture, for the benefit of the majority who depend on it for a livelihood.”

In contrast to the dealings of its more conventional banking counterparts, which largely keep their clients at an arms length, Co-op Bank chooses instead to intervene directly in the lives of its customers by way of making targeted investments; a method that has so far achieved largely positive results. This strategy means that the bank is better equipped to tackle the issues worst afflicting those living in the country, whether they be social, economic or even political, and make a measurable difference to the economy as a whole.

In 2003 Co-op Bank established a wholly owned consultancy company, Co-op Consultancy Services, in order to provide capacity building support to Kenyan cooperatives and at a heavily subsidised rate. As a result of the bank’s efforts in this particular field, cooperatives the country over have for the last 10 years been allowed swift access to world-class consultancy services in the fields of training and capacity building, HR sourcing, ICT systems, audits and procurement, strategic planning, restructuring and turnaround strategies, among others. Fast-forward to the present day and the Co-op Consultancy runs hundreds of consulting mandates every year, which, in itself, goes some way to explain why Kenyan cooperatives rank as the largest and most successful of their kind on the continent.

Another of Co-op Bank’s notable interventions came in the form of support for the coffee-marketing agent Kenya Co-operative Coffee Exporters (KCCE), which was founded in order to protect the interests of small-holder coffee farmers. Prior to the arrival of the KCCE, coffee was largely considered to be something of an unworthy venture, particularly for small-scale farmers. However, with the creation of KCCE, both coffee dealers and exporters alike are today paying far higher prices for coffee, in turn improving the livelihoods of those in the business.

The bank is also a sizeable shareholder in Co-operative Insurance Company (CIC) by way of an enhanced equity investment of 26.5 percent, making the Co-op Bank a key strategic shareholder in the firm. “On its part, CIC has rolled out innovative insurance to cover agricultural risks, including micro insurance for small-holders,” says Ngambi. “This has enabled Co-op Bank to extend credit to a wider pool of farmers who would otherwise have difficulty getting loans.”

In addition to the bank’s stake in CIC, Co-op Bank has invested a substantial sum in the stockbroking company Kingdom Securities, in order to deliver greater safety and reliability for investors, notably those in the cooperative movement. Clearly not content with financial success alone, the bank’s vision is to build a strong countrywide presence and a play a central role in the wider cooperative movement in Kenya.

Commitments and endeavours
“To enhance the deepening of financial access for the majority, the bank continues to invest in a service network to cover all counties in Kenya,” says Ngambi. “[The network is] complemented by mobile and internet banking, not to mention the over 7,000 bank agents spread countrywide.”

In keeping with this same commitment, the bank has so far supported the establishment of over 550 front-office outlets of savings and credit cooperatives, enabling the country’s over two million cooperative members access to financial services without their having to formally open a bank account. The growing number of ATMs and branches are also testament to this (see Fig. 2).

“Co-op Bank’s robust service channels have achieved a deep reach, enabling the bank to boost customer accounts from 695,000 in 2008 to 4.3 million today,” says Ngambi. “At the current growth of 40,000 new customer accounts per month, Co-op Bank is realising financial deepening, not just for the bank but also for the nation.”

Not exclusive to Kenya, the bank’s methods are just as easily applicable to similarly underserved communities throughout Africa and much of the developing world as a whole. The bank’s plans are to soon extend its coverage beyond Kenyan borders and bring its successful cooperative model to additional markets in Africa.

In September 2013 the Co-op Bank opened its first branch in Juba, the South Sudan capital, and hopes to do the same again in neighbouring nations in the months and years ahead. The bank’s South Sudanese subsidiary is a joint venture between the Co-op Bank and the South Sudan Co-operative movement on a 51 percent to 49 percent shareholding basis. Much like the bank’s efforts in Kenya, this joint venture facilitates far deeper engagement with the market and a more sustainable positioning of the business.

As a natural extension of the bank’s business, Co-op Bank also boasts a robust corporate social responsibility programme. The Co-operative Bank Foundation is the bank’s flagship vehicle for social change and today focuses principally on matters of education by supporting a scholarship scheme for bright children facing difficulties in paying for school fees. The programme is currently financing some 1,400 students in both schools and universities, and is set to grow by an additional 2,800 students over the next four years.

Opting to reward the whole rather than the few, the Co-op Bank has thrived ahead of its many regional competitors. Recognising its responsibility to those in the cooperative community, the bank looks on track to post increasingly impressive results in the years to come and make a measurable contribution to the social and economic development of Kenya as a whole.

Myanmar today sits comfortably alongside some of South East Asia’s biggest names, in among a region best characterised by explosive growth and an abundance of emerging economic opportunities (see Fig. 1). While most would consider the country to be one of the region’s lesser prospects, there exists a fair few reasons to feel positive about Myanmar’s future.

For one the country’s banking sector has withstood extended periods of political unrest, and Myanmar’s policymakers have recently taken pains to promote growth and boost the sector’s attractiveness to international parties. When its central bank announced earlier this year that it would allow foreign banks to set up shop in Myanmar for the first time in two decades, global industry names quickly assessed what opportunities were there for the taking, whereas local banks proceeded to speculate about how the decision might come to bear on their standing. The interest generated and progress made thus far, however, shows that the country is serious about advancing its banking sector, and capitalising on emerging economic opportunities.

Already established players have seen the banking sector come on leaps and bounds in recent years, and helped turn a largely undeveloped market into a formidable economic force. Ayeyarwady Bank (AYA Bank), for example, is one institution that has weathered the challenges of years passed and cemented its place as a major regional player and an industry benchmark.

Serving the wider public
Established little over four years ago, AYA Bank is authorised to operate as an investment and development bank for domestic market participants. Among the institution’s key responsibilities are comprehensive borrowing and lending facilities, as well as a number of key international banking services, including international remittance, payment and trade. What’s most important, however, is that the bank has at no point let up in its ambition to bring international quality financial services to Myanmar’s long underserved banking public.

“Due to some financial liberalisation and two new telecoms players in Myanmar, we are seeing the banking industry expand at a far greater rate than ever before,” said one spokesperson for AYA Bank. “Add to this the fact that the Central Bank of Myanmar will also allow some qualified foreign banks to operate limited banking business soon in Myanmar, and the sector’s prospects look promising.”

The country’s banking sector has expanded at an impressive rate, although the speed at which the sector is growing has brought with it a number of complications. “There are some challenges when a bank is expanding rapidly in Myanmar, in terms of human resources, attracting qualified personnel and also the telecommunication and legal infrastructure.”

Another of the challenges facing those in the banking industry is the fact that certain regions of the country are far less developed than others, and much of the population today is without access to banking services. Therefore, Myanmar’s leading industry names have made every effort to expand their reach to often-neglected areas of the local community. “I think we have strategised in a way that we made our presence known in such regions with our physical existence,” says the spokesperson at AYA Bank, which, since its inception in August 2010, has opened up no less than 74 branches in order to cater to every corner of the country.

However, expanding upon their physical presence is only one part of the solution, and AYA Bank has moved to also develop its online presence in order to tap a number of precious opportunities in Myanmar’s emerging online and mobile banking sector. “Although internet penetration is fairly limited, we have seen a hike in the use of mobile phones and 3G services, especially in areas such as Yangon, Mandalay, among others. We have also seen shifts in customer preferences, and this did not deter us from introducing the first internet banking service in the entire banking and financial sector in Myanmar on June 17, 2014.”

Although internet penetration is still fairly limited in the country, AYA Bank has sought the services of expert third parties in negotiating the challenges that come with tapping a population with limited access to the internet. “It is a revolutionary financial service and one that will hopefully change the perceptions of the local people with regards to banking services. AYA Bank is also the first and only bank that has centralised its core banking solutions to enhance electronic banking services in Myanmar. Even though internet penetration is limited across the country, with poor speed and bandwidth, AYA Bank has managed to work with system/solution providers with the relevant knowledge and experience to run solutions in this present condition.”

Standing in the way
The bank’s centralised electronic solution allows customers to essentially take out and transfer money wherever they may be, which represents a major step forward for a country that not long ago left the majority of the population with no option but to do without financial services altogether.

While the development marks a major step forward for both AYA Bank and the country’s banking sector as a whole, it also shines a light on the country’s deficiencies, and the extent to which internet banking is hindered by weak or inadequate infrastructure. However, this is far from the only obstacle standing in the way of the digital banking sector’s development.

One of the major challenges for internet banking is to ensure that customers are made to feel at ease with new technology and the possibilities it brings ahead of traditional channels. The short history of online and mobile banking is littered with instances of failure, owing predominantly to the poor reception of consumers, yet AYA Bank maintains that this is certainly not the case in Myanmar. “I think customers are very receptive – they now have more choices and more confidence when they see a strong physical presence in the region,” said one spokesperson for the bank. “We believe that we need to move from a cash-based banking to cashless banking that saves time and cuts costs for customers who need no longer make the trip to a bank. Therefore the consumer and market response to AYA Bank’s continued development of electronic and online banking is quite positive.”

Irrespective of its high standing in the domestic banking space, AYA Bank remains a relative newcomer to the market, although it has managed to make good on what few advantages come with being a new entrant, predominately by focusing on innovation and technology. “I think being a newcomer has its pros and cons, in that we get to learn from earlier entrants,” says the bank’s spokesperson. “Additionally, with advancements in technology, we are able to better analyse shifts in customer preference before developing innovative new products and services. Moreover, being a relative newcomer, it was easier for us to migrate to a core banking system compared with those with more years experience and a much bigger customer base.”

Innovation and technology, however, are far from the only departments in which AYA Bank excels, and it has also taken major steps to instil a sense of customer-focus across the entirety of its operations. “Differentiation and customer-centricity is the core strategy of AYA Bank in staying ahead of our competitors. Expansion of the branch network is still one of the strategies in a country of this size and with this population. On the other hand, channel expansion through the development of electronic banking is also one of the key ways of differentiating traditional banking systems, such as ATM, internet and mobile banking. However, customer service is one area on which our bank management is always focused in gaining a competitive advantage.”

The country’s predominantly cash-based economy will take some time to peter out, although it’s only a matter of time before pioneering names in the banking sector lead the slow transition into a cashless economy. Spearheaded in part by the government’s decision to welcome foreign players into the market, local names will be looking to bolster their IT capabilities and reputations in order to adequately compete with international names in the banking space.

“We plan to expand our branch network, as well as introduce new processes to improve efficiency at our branches,” says the spokesperson. “Our plans also include more innovative product and service offerings in order to stay ahead in the competitive market, especially with the expected entry of foreign banks to the country.” Once completed, the banking sector’s reorganisation and modernisation should see the national economy rise to rank alongside some of its more successful neighbours, and finally make good on the IMF’s prediction that the country could well become “the next economic frontier.”