Year: 2014

CorpBanca expands into Colombia’s banking sector

Posted on by Ashton Wenborn

Internationalisation is the name of the game in the banking industry today. Major banking players across the globe are taking pains to bring their products and services to underserved markets in the hope of securing a foothold in the region and tapping lucrative opportunities. However, with expansion into new and unfamiliar territories come a number of challenges, chiefly, those regarding competitiveness.

After establishing a high profile in Chile, CorpBanca has set its sights on neighbouring Colombia as it looks to diversify its operations and benefit from the country’s burgeoning economy. Having spent the past few years pursuing an aggressive M&A campaign, the bank has repositioned and restructured to expand upon its presence in South America and bring its products and services to an underserved Colombian market. We spoke to CorpBanca Colombia’s CEO Jaime Munita about Colombia’s banking climate and some of the challenges the bank has come up against throughout its internationalisation process.

How important is banking for Colombia’s economic development?
It’s extremely important. Colombia’s banking system is growing at approximately 16 percent on an annual basis, so it’s clearly a very important driver of the economy. One of the major goals for us is to grow organically – at least at the same rate as the financial system. Though we consider it to be challenging, we believe there are significant opportunities for growth given the relatively low levels of banking penetration in Colombia. There are a number of major economic reasons for banking in Colombia.

We must also take into account the size of the local market in Columbia, which has a population of over 47 million people compared with 17 to 18 million people in Chile (see Fig.1). This opens windows of opportunities to grow at strong rates. The country as a whole represents a very good opportunity to increase our balance sheet in a market that is growing very well economy-wise. It is one that is stable from a social and political point of view, and is proving increasingly attractive for investors seeking to make good on its potential.

What are the key challenges for banking in Colombia at present?
Well I think that the challenge is to have a more profitable banking industry through increasing efficiency, cross-selling and asset quality.

I think the other important key aspect to bear in mind is how risk might vary in certain regions of Colombia, which means you have to know the specifics of the market. That being said, this doesn’t necessarily take anything away from the country in terms of potential.

Can you take us through CorpBanca’s introduction to Colombia?
First of all, we arrived in Colombia in 2012 and assumed control of Banco Santander in May of that year. We then proceeded to rebrand the bank shortly after, changing the name from Banco Santander to CorpBanca Colombia. Over the following six months, we worked to adjust all the branches appropriately.

16%

Annual growth in Colombia’s banking sector

Later we saw an opportunity to buy Helm Bank, which was very complementary with CorpBanca Colombia. After the acquisition of Helm Bank in August 2013 we worked very hard on the integration process to design the strategy, the corporate structure and the operating and IT models that we wanted to implement as a new bank.

In January 2014 we started executing the strategy, and in June the legal merger was materialised. With the legal merger we completed an important stage in the integration process and we must now continue to work it into one platform. We hope to finalise the IT migration by the end of 2015.

In a nutshell, CorpBanca has spread its activities in many areas consolidating as the fifth largest financial group in Colombia, with a 6.5 percent share of the market. With our current capital base we can grow and expand in new segments or participate in project finance such as upcoming public infrastructure projects – a core area for CorpBanca in Chile.

How has CorpBanca influenced key developments in Colombia’s banking sector?
To draw any conclusions now would be premature, as we are relatively new to the Colombian market and thus far we have been focusing on the merger process of two close acquisitions. To mark a trend we aim to provide a wide and personalised financial offer combined with the highest standards of quality and services.

Tell us about the bank’s internationalisation plans and what they consist of
CorpBanca’s vision is to build a larger platform for growth and profitability, thereby increasing its future profit generation potential.

With these acquisitions, CorpBanca aims to support Chilean companies in their expansion through Latin America and to participate in the growing Colombian banking industry, one of the most attractive worldwide.

The Colombian high market’s potential is based on the strong outlook of its economy (rated at investment-grade by Standard & Poor’s, Moody’s and Fitch Ratings) and the lower penetration that its banking industry currently shows. The high professional level of executives and employees in the Colombian capital market, and CorpBanca’s expertise in successfully developing winning strategies in a deeper banking system, such as the Chilean system, are two of the key factors underpinning the expected success of this acquisition.

CorpBanca acquired two first-class banks in Colombia. The high quality of its executives, customers, loan portfolio and deposit base, as well as its well defined strategic plans are key elements that support the confidence to enter this market, continuing the development, without the need to implement changes. The merged bank has become a bigger player across all product lines, with a balanced mix of businesses focused on commercial and retail operations.

The next step in Colombia would be acquiring up to 100 percent of CorpBanca Colombia ownership, a process that is part of the announced Banco Itaú/CorpBanca merger. Nowadays in order to reach that participation in Colombia, CorpBanca would have to subscribe a significant capital increase to satisfy Chilean regulatory restrictions regarding foreign investment (up to 40 percent of bank economic equity).

How has the decision to expand changed CorpBanca’s philosophy and strategy?
The CorpBanca Group is better diversified for being in different countries. For 2014 we expect around 4.8 percent economic growth in Colombia, given that the different sectors and the financial industry are performing very well. This is a larger growth rate than Chile (which has an expected growth rate between 2 and 2.5 percent), so the given added value is part of CorpBanca’s growth strategy and diversification philosophy to maintain on the top.

What issues has CorpBanca encountered throughout the internationalisation process thus far?
Key challenges have been accounting reporting and applicable regulation for foreign investment, considering that CorpBanca was pioneer as Chilean bank in expanding abroad.

Source: World Bank, Official Population Clock
Source: World Bank, Official Population Clock

What are CorpBanca’s ambitions for the future?
CorpBanca’s ambition is to become a leading banking platform for future expansion in Latin America, specifically in Chile, Colombia, Peru, and Central America. The pending merger between Banco Itaú Chile and CorpBanca goes some way toward capturing this goal.

As a result of the partnership, the merged bank (Itaú-CorpBanca) will reap several benefits:

  • The combined franchise will have a greater scale and resources to compete more effectively;
  • It will have greater market share in Chile by gross loans with an approximate 12.3 percent market share (excluding gross loans from CorpBanca Colombia and Helm Bank);
  • It will have the opportunity to partner with a premier Latin American franchise;
  • The ability to leverage Itaú Unibanco’s strong global client relationships;
  • A combined entity with the potential to generate significant synergies in Chile;
  • A sustainable dividend flow supported by greater scale and earnings capability of the combined enterprise.

Moreover, the transaction enables the creation of additional synergies through optimisation of cost structures; savings derived from enhanced branch networks; relevant savings derived from scalable IT systems; the improvement in cost of funding; and the ability to further leverage Tier I Capital – in line with CorpBanca’s efficiency and profitability strategy.

The new Chilean Bank is expected to be the fourth largest private bank in Chile, with $46bn in assets, $35bn in loans, $27bn in deposits and a capital strengthened by the $652m capital increase that Itaú Unibanco will inject into Itaú Chile prior to the merger. With this greater scale, the institution will be able to exploit various cross-selling opportunities at an expected lower cost of funding.

CorpBanca is now at the expectation for the relevant regulatory authorisations as part of the steps to follow to cement the pending merger with Banco Itaú Chile.

BCI Bank enhances Mozambique’s economic prospects

Posted on by Ashton Wenborn

Mozambique is one of the fastest growing economies in Africa, helped in part by a burgeoning tourism sector, but mainly by the discovery of vast fields of natural gas off the country’s coast. A slew of clever reforms passed by the government with the aim of supporting the development of the financial sector are likely to boost consumer confidence, and international interest.

In this optimistic environment, BCI Bank has been flourishing as one of the foremost financial institutions in the country. One of the bank’s specific aims is to explore some of the more remote regions of the country that have little or no access to formal banking, and by doing so, helping to develop these regions and finance businesses there.

Paulo Sousa became CEO of BCI in 2013, and has been busy ensuring the bank’s recent successes grow into long-term development. He tells World Finance what have been some of the key challenges for BCI in Mozambique’s nascent banking industry, and how he has handled these difficulties as CEO.

The latest BCI figures reveal growth of 20 percent in 2013. What stands behind such significant growth?
Our final data for the whole year indicates that 2013 was a landmark year for us. The bank enjoyed a path of growth and also managed to consolidate the process of this growth. In addition, the base of our customers increase by 38 percent and so did the geographical dispersion of the commercial network. In terms of internal processes and of its strategic positioning, the bank has developed a series of initiatives that will enable it to solidify its structures in the near future and make BCI not only a bank with strong growth, but also a solid bank. Last year did not disappoint, but 2014 will also be a significant year of growth in which we will be committed to the continuous expansion of our commercial network throughout the country, especially in many of the districts where there is no banking service coverage.

38%

Growth in BCI customer base 2013

BCI announced that it plans to invest in the oil and gas sector in 2014. What form will this investment take?
Using our expertise in the area of investment banking and the expertise that our bank shareholders have in this field, we are going to set up a specific desk dedicated exclusively to the energy sector. It will be highly focused on supporting the entire development process of the oil and gas sector in Mozambique, which is likely to undergo exponential growth in the coming years. We are getting ready to become an important force in this field too.

With the discovery of oil and natural gas is there the possibility that other sectors, such as agriculture and tourism, will suffer?
We don’t see that risk. Because the size of the Mozambican population and the country’s potential in terms of agriculture and tourism are decisive in themselves and for these sectors to be of adequate size. Both sectors should develop to be aggregators and to create jobs. Natural resources will always be highly distinctive, niche sectors, with very specific activities, and a high level of know-how, but they will never be sectors that cover all of the population. Therefore, we will continue in our belief that traditional sectors – in which there is still much to do in terms of development, investment and introducing technology – can be more profitable and more capable of creating wealth for the people.

Bringing banking services to rural areas is essential for the growth. What has BCI done to ensure this is implemented successfully?
More than 25 percent of BCI branches are located in rural or peri-urban areas and this number will grow significantly this year. This is a sign of what has been our contribution to the process of bringing banking services to all of Mozambique. The last branch that opened in 2013 was in Mueda, where we were able to truly experience the impact of a new branch in a district where there were no previous traditional banking services. The impact this has had in the population’s day-to-day life has been immeasurable. But agriculture or tourism are proximity sectors where the existence of a bank could greatly stimulate the development of each activity. We are setting up specialised desks and specific lines of credit that respond to the real needs of these types of business, which will always be key sectors for us; they allow a clear distribution of local wealth and the creation of jobs. They are local activities, which help structure the country.

The dearth of financial institutions lending to Mozambican companies is a key issue.Why is there such a shortage of lenders?
We have to recognise the development stage of the country. As Mozambique is an emerging economy, access to credit is a commodity that at times has been considered scarce. But I think that it is part of this vision that we all have of this moment we are going through in a country that is growing rapidly, where there is a constant flow of investment and this creates greater pressure on bank lending. Even so, in many cases conditions are yet to be met for companies to have access to bank loans, because they are not duly structured and organised. I think that time and the development process will help allow some of these problems to be solved. However, I also wish to mention that BCI has been particularly focused on extending its lending base, whether to individuals or to companies, and also on launching some specific ranges in this area.

What investment plans does the bank’s strategy feature?
Above all else, we have a strong short-term growth plan, which is focused on boosting the expansion of the traditional bank branch network. This will allow us to open about 18 new branches this year. We will also continue to invest in the growth of our human resources. The bank has developed a strong growth strategy in the areas of investment banking, corporate finance, and capital markets, which are areas of specific know-how and which we are very focused on maximising at this stage of growth in the country. I would say therefore that we will grow in depth by expanding the organisational structure, but we are also keen to foster growth in an intrinsic manner by developing new areas of expertise that already exist within the organisation.

If growth remains robust, what role could Mozambique play in Africa and the world?
Mozambique now holds a prominent place on the world map as a developing country enjoying rapid growth. We can now compete with international benchmark in what are the best practices in the world in terms of economic growth; but it is a country that still has great room for development, so there are many opportunities. In terms of the African continent, Mozambique has the chance to become a trendsetter due to its potential for development and growth. But above all else Mozambique can set a benchmark in other fields: in the areas of good governance, of economic and social development, and of distribution of wealth. It also has potential in terms of natural resources and is making a name for it around the globe. The country’s potential is huge. The coming decades will be crucial for Mozambique being able to indeed reassert itself as an important figure in terms of the African continent, but above all as an important figure on a world level.

However, for robust and sustainable development to occur there are a series of factors that depend on the country and there are a series of factors that are external. Countries today, in the way they are interrelated on a world scale, cannot determine by themselves what the premises of their growth process will be. What happens in the world will determine what happens in the country.

My thoughts as to what Mozambique can do relate to governance arrangements, investing in key sectors of the economy, in economic and social development, in education, and in health. In practice, to enable the whole population to have access to the benefits of this new economic cycle and for this to be an inclusive process, which relies on all Mozambicans, because this will surely be the way of bringing success and consolidation to the entire growth process.

Sex and drugs and GDP: what does Vicky Pryce think of the EU’s new economic calculations?

Posted on by Ashton Wenborn

Under the European Union’s new ruling for calculating GDP, which comes into effect in September, prostitution, drugs and weapons trading will all be included. But what effect is this likely to have on economies? World Finance speaks to economist Vicky Pryce to hear her views.

World Finance: Well Vicky, surely this is just a smoke screen because these, let’s call them industries, have been around for a long time, so it can’t have any effect on economies surely, other than making them look healthier on paper?

Vicky Pryce: The over-all level of GDP will be going up, because now we are going to be counting a lot more things that we weren’t counting before. It’s actually not going to make any difference to growth rates, that’s the interesting thing. What the Office of National Statistics has said is that, although there are these recalculations that are taking place, they stopped in 2009, they do in fact signify that over a ten year period GDP was probably considerably higher than we had thought before; possibly by £60bn a year. But in fact it will make no real difference to anything much at all, but what it will make a difference to is, once we have a real idea of what those activities are, we will be able to monitor them. Of course we know that particularly on prostitution and illegal drugs, there is an issue of whether we control it, whether we deregulate them, and so on. So I think the impact that trade in these areas is going to have, as a result of government activity, it is going to be a very important one for them to trace.

It’s actually not going to make any difference to growth rates

World Finance: But do you think in the end this could maybe backfire then, and almost make legal activities legitimate?

Vicky Pryce: I think most of the money that was changing hands has been spent anyway, so that is the black economy that we always calculated, which some how or other never made it into income accounts, with the result of course that one wasn’t collecting any tax in those activities. It doesn’t legitimise it at all, if anything it puts a lot more control over them, because we have a measure of what it is, and any way of trying to refine it and change what actually happens in those areas, is going to be quite an important one I think for policy makers.

World Finance: Well critics have suggested that this new way of calculating GDP is way of sugar coating sovereign debt. So do you think it is politically motivated?

Vicky Pryce: There are some things that were going on anyway, that the Office of National Statistics has been trying to sort out, which are still in line with what the European statistical accounting regulations required, which was drawn up last in 1995. So they need to be cleaned up. Some of the changes that are happening have got very little to so with any changes in the way in which things are calculated across Europe, they have to do with us doing them slightly better than before, and having things we didn’t do before adding into it. There are a number of other changes, which have nothing to do with anything to do with Europe, which have to do with a better way of how looking at how we are spending various things; for example research and development. It is really important to have a real understanding of what companies spend, particularly when they do it in-house, and that isn’t normally taken account of. So we are much more R&D orientated and innovative economies than we actually thought, and I think that is pretty good again if you are setting the type of policies which is important for growth in the economy. And then there are the ones, because of the changes in European legislation, or at least European requirements on the accounting side. If you add them all together, they account for that increase. It’s not just the little bit in terms of what happens on illegal drugs, and what happens on prostitution. Nevertheless, those two together seem to account for abou £10bn a year, That’s quite significant and is something which we didn’t have a real handle on before, I think now we’re there.

World Finance: And what sort of effect will this have for stagnant economies such as Italy, for example?

Vicky Pryce: We have always known really what the Italian black economy was like, in terms of size. Usually, I think, the estimate had been about 25 percent – it may be more. Boosting the economy doesn’t really make a huge difference. Of course everyone will be looking at, what does it mean from a comparative view point. Now if you are assuming of course that the black market was larger in some countries, then obviously they can look slightly better. So we are going to be having to watch them, and see what it means. But in many ways it should shame them, we have always known that. I think Italy had always assumed that it’s GDP that what the National Statistics said there, and the markets have always assumed it. That’s why the economy takes over when there is really no growth in Italy. If you look at current measure of GDP what we do know of course is that there is an awful lot going on that is simply not collected by those statisticians.

Some of the changes that are happening have got very little to so with any changes in the way in which things are calculated across Europe

World Finance: Well France has of course said it’s not going to include things like drugs and prostitution. Now surely if GDP is a benchmark for economies, this will weaken France internationally speaking and surely there should be a universal system to measure GDP.

Vicky Pryce: There have always been differences and that’s the reality. But of course we have Eurostat, which is trying to look across and make assessments in terms of what the difference is perhaps of calculating GDP are, and adjusting things so we have a slightly better idea of what other countries are doing. That has always been the case, it has been a big debate as to whether GDP means anything at all. The GDP is not a fantastic measure, but it is the best we’ve got.

World Finance: Well from a layman’s perspective, it does seem to make GDP calculations almost farcical, because how can you calculate how much revenue is taken from prostitution or narcotics, surely it’s just guess work?

Vicky Pryce: Well we know that there is no revenue in terms of income tax. It will be interesting to see if one could perhaps get revenue out of that. There is a big issue now of how do we look at this entire sector, and how do we make some of it perhaps more legitimate, and some of it we reduce in terms of what it does. Because in reality it’s not productive, we lose that amount every year in terms of proper productive capacity, and the economy could be doing so much better if that money were being spent in a different way.

World Finance: Well the white elephant in the room here does seem to be weapons, because this is obviously a controversial industry, it is not illegal. So surely this was counted before?

Vicky Pryce: The real thing is how you count some of the amount that is actually being spent producing them, whether it is included in capital investment or whether it just seems to be an intermediate production of anything the armed forces do. And I think that is a change that has also taken place, in terms R&D. Are we basically talking about something that just contributes to the final thing out there or is it a thing in it’s own right. And I think there has been a change in that definition, which is really why we have some things that we weren’t counting separately before, being counted now.

World Finance: Is there are concern to include weapons because, for instance, if a warship or plane was wiped out during a conflict, could that wipe off millions or even billions of the countries GDP?

Vicky Pryce: I think there is a big issue about the commissioning generally, so we are not just talking about weapons, we are talking about what do you do about energy decommissioning, nuclear and so on. What they have done here is in fact suggest that at the end of an asset’s life, you have also got to count that in as well. So you have to take into account what that means for the GDP. I think that is actually a fairer way of looking at destruction that may happen at times, if you look at what happened after the Second World War, assets were destroyed to such a considerable extent that one had to really start from scratch, in order to get back to some normality. And I think definitely not having any real view of what happens to this asset, which is finally decommissioned, is quite an important of what we were missing before. And hopefully we will have something better in the future.

World Finance: Vicky, thank you.

Vicky Pryce: Thank you.

Banco Capital’s ambitious projects maximise customer satisfaction

Posted on by Ashton Wenborn

The Ecuadorian private banking system has been undergoing a variety of changes. Since 2013 local authorities have strived to overhaul the sector and make it more profitable, transparent and sustainable. The Ecuador National Assembly is in the process of reviewing proposals that would institute a new monetary and financial code for the sector, that will pose many more challenges for banks – but can potentially make the industry much more resilient.

“During 2013, Ecuadorian private banks faced major challenges that forced the institutions to readdress the dynamic of continuous improvement to optimise efficiency, profitability and overall financial options that would allow them to achieve customer loyalty and attract new markets,” explains Luis Javier López, Executive President of Banco Capital. “Thus, Banco Capital has found itself constantly searching for mechanisms to generate steady growth over time, minimise risks and create new lines of business that it can offer its customers as a part of its comprehensive banking services.”

The growth in the productive credit, added to the national exchange of the Ecuadorian Production Matrix makes private banking an important player in the economy. It is important to stress how much the sector has grown and how much it supports small and medium businesses in Ecuador today; a market that has long offered many challenges for conventional banking and funding enterprises.

Efficiency and profitability
“Here at Banco Capital there is a vision to grow and redirect credit to new customer segments, such as small and medium enterprises,” says López. “By offering new lines of financing for working capital, automation of transactions and other services we can enable these businesses to be more efficient in their processes and focus on their core business of production, leaving in expert hands the financial and transactional management.”

In response to all the challenges and opportunities being faced by the investment banking industry in Ecuador, Banco Capital has been assessing some of its core strategies. “The strategic vision of the bank is to foster continued growth with efficiency and profitability,” says López. “This will be achieved by improving its competitive position and with long-term focus, so that value for its shareholders, customers and employees is generated, while contributing to the socio-economic development of the country.”

However, in order for the bank to achieve this vision, it will be required to improve its processes, according to López. So, a pivotal pillar of the bank’s recent development has included the creation of new products that meet the current needs of customers. The bank has also been developing an ambitious digital platform, which it hopes will help make interactions with clients more efficient for both sides.

“The technological platform of Banco Capital, T24, has been provided by one of the leading companies in the banking software industry, Temenos, present in 125 countries worldwide, ensuring a high level of efficiency in our processes,” explains López. “The bank has made ​​significant investments to keep this platform updated as it strengthens the functional and technical structure, pushing us to the forefront in this field and ensuring that that the processing and security of our customers’ information is fast and secure.” This technology platform consolidates information systems, hence, its accessibility in terms of user profiles are reliable, accurate and complete. “There are strategic partnerships with other institutions to offer our customers other service channels, whose platforms are integrated within the security protocols of our system,” adds López.

Another one of the ambitious projects the bank has in the short term is to be able to issue its own credit card, with which it will offer its customers a more effective and flexible financing option. “The card will aggregate values ​​that differ from the financial market and expand the bank’s range of products,” says López. “They are designed for easy handling and do not saturate the clients’ options, but allow easy and profitable financial management.”

Strategic planning
Strategic alliances between Banco Capital and other reputable institutions have been of utmost important to facilitate the access of services to customers; a long-term a goal that will help provide better services to customers that don’t require access to a physical office to conduct transactions, but create more options to meet clients’ requirements. “Options like Servipagos network has enabled Banco Capital to maintain adequate coverage for their customers while providing personalised attention through their advisers for business operations and investment,” explains the López. “Furthermore, the Bank has an efficient and secure electronic banking that meets the security requirements for transactions safely and quickly.”

The implementation of services such as electronic statements and SMS confirmations of transactions for both physical and electronic channels, have enabled customers to benefit from technological tools to provide safety and speedy information. Banco Capital is one of the only banking institutions in Ecuador to offer this vast array of services across its markets.

“The banks strives to constantly update it’s technological systems and software to ensure continuity and speed of service, making significant investments in its technology platform and strengthen its core banking that results in quality customer service,” says López. “Similarly, transaction monitoring and protection of information and communications mean the bank can offer its customers security in transactions and diagnosis of internal and external vulnerabilities; a service provided by an internationally recognised company, sparing no effort to have a modern and efficient banking system.”

Personalised service
Over the years Banco Capital has invested a significant amount of time and money in developing its human capital. By training its employees and developing their skills, the bank can ensure that their contribution will help achieve objectives and allow market differentiation. “Day by day the institutional values ​​of loyalty are strengthened,” says López of his team. “Teamwork, honesty and transparency are vital to guarantee a strong structure where employees are constantly motivated and challenged. Developing the skills and abilities of each individual is not only great for the bank, but also personal development.”

During the past year, the bank maintained a risk rating of AA(-), assigned by the Socieded Calificadora de Riesgo, an entity authorised by the Superintendence of Banking and Insurance of Ecuador, which, “for a financial institution, is synonymous with good risk management and client security,” according to López.

“Emphasising proper management and standards of financial prudence – while facing new challenges that allow us to enter new niche markets and create new business lines – is vital to ensure the bank has sustained growth over time,” he says

“Comprehensive risk management of the institution is one of the fundamental pillars that allow Banco Capital to mitigate credit risk, liquidity, market and operational and reputational risks, with a proper balance between deposits and loans, trying always to decentralise the risk by diversifying our operations and stand,” says López.

It is, however, the personalised services offered by the bank that López believes has led to success over the years and will continue to do so in the future. “With more than 20 years of experience in the field of investment, Banco Capital has carved out an important segment of private banking with expert management consultants and personalised attention to investment clients. The bank has strengthened customer loyalty and is always looking to expand the business to have more satisfied customers without sacrificing quality of service.”

Banking sector integral to sustaining UAE’s economic future, says UNB

Posted on by Ashton Wenborn

Years of stunning growth from its vast resources of oil have led to the UAE to become the extravagant bridge between east and west. With dazzling cities like Dubai and Abu Dhabi, the UAE has built itself a number of destinations that are becoming destinations for entertainment, financial and business for the modern world. But while the huge quantities of oil are continuing to boost the economies of the region, it is important that the UAE invests into areas that will be sustainable once the oil has dried up.

The banking sector in the UAE has seen particular attention in recent years, with growth bouncing back considerably since the impact of the global financial crisis after 2008. As a result, a number of banking institutions have emerged to offer a range of financial services that are helping to fuel the region’s economic growth, while experiencing a healthy degree of competition. One such bank is Abu Dhabi-based Union National Bank (UNB), which has enjoyed consistent success over the past decade and is set to expand further in the coming years as well. World Finance spoke to the bank’s CEO Mohammad Nasr Abdeen about the UAE’s unique offering to banking clients, and why UNB has been so successful.

The UAE has seen rapid expansion in the non-oil sector over the past two years. How has the growth been experienced in the banking sector?
The UAE is a major international tourist and business centre, as well as one of the most modern, stable and safe countries in the world. Growth in the non-oil sector accelerated in 2013 and the strong momentum has carried through the first half of 2014 as well. According to reports by the IMF, while growth in oil production moderated, public projects in Abu Dhabi and buoyant growth in Dubai’s service sectors continued to underpin growth, which reached 5.2 percent in 2013. Economic growth is expected at 4.8 percent in 2014 and about 4.5 percent in coming years, supported by a number of megaprojects announced over the past 18 months and the successful bid for the World Expo 2020.

UNB is witnessing tremendous growth opportunities in various spheres of economic activities

The UAE is continuing to benefit from its safe-haven status in the region. Government spending in Abu Dhabi and Dubai will help to sustain non-oil growth throughout the period from 2014 to 2018, including the construction and manufacturing sectors. Services growth will also be buoyant, helped by trends in private consumption and strong dynamics in the trade, transport and tourism sectors. Further expansion of the country’s airlines will continue to boost these sectors. Tourism is expected to continue to grow as the UAE targets new markets and introduces new product offerings.

The outlook for the UAE’s banking sector remains positive, in line with the country’s economy and as growth prospects have been improved by the relatively smooth restructuring of much of Dubai’s debt. The main drag on growth in 2014 – the debt-funding cliff – is easing as restructuring has thus far occurred smoothly.

Bank lending in the UAE grew 7.3 percent year on year in 2013, according to data from the UAE Central Bank. The UAE’s aggregate bank deposits also rose 9.5 percent year on year in December 2013. The outlook for the UAE banks in 2014 remains favourable, supported by robust non-hydrocarbon growth, low interest rates and a further increase in real estate prices. The Institute of International Finance (IIF) has forecast 11 percent growth in loans and deposits each, with provisions remaining stable and NPLs declining further to 7.4 percent for 2014.

What are the opportunities emerging for banking institutions like UNB?
In the wake of the improving economic landscape in the UAE, UNB is witnessing tremendous growth opportunities in various spheres of economic activities. UNB enjoys strong credit ratings, stable profitability, sound liquidity and a robust capital adequacy position well above the mandated requirement. UNB has extensive branch coverage in the UAE and has a diversified revenue stream with presence in the areas of retail banking, corporate banking, Islamic banking, treasury, private banking and SME’s.

Given the competitive banking landscape in the UAE, the challenge is to grow business volumes while ensuring that pricing pressures do not adversely impact the bottom-line on an overall basis. However, the considerable branch network along with alternative delivery channels, on going investments in technology and infrastructure, innovative products offerings and focus on quality services has well positioned the bank to effectively compete in the market place.

As part of the bank’s vision, to be a key player in the region UNB Group expanded its branch network by adding 16 new branches across the region in the last year, thereby enhancing its footprint to 110 branches and offices spread across the five countries – the UAE, China, Egypt, Kuwait and Qatar – where it operates. Under the improved market scenario the bank’s focus is to enhance and diversify its asset base across all the important economic sectors.

The banking sector in the UAE is extremely competitive. What makes UNB stand out?
It is known for its prudent lending policy and does not focus on one specific economic sector as a key driver for growth, but rather ensures that there is an appropriate diversification of exposure to various economic sectors that make up the local economy. The relationship between risk and return is continually assessed for each sector and business line, keeping with the prevailing economic conditions.

All this is not possible in a service-oriented industry without paying close attention to the well-being of our staff, which in turn drives customer satisfaction through a combination of world class processes, procedures and superior delivery channels powered by cutting edge technology.

What are the benefits and limitations of being an Islamic banking institution?
The market for Islamic banking has grown rapidly over the past few years and this robust growth is expected to continue in coming years with rich potential in the region. The Islamic banking sector has a bright future in the UAE as it has been playing a major role in financing infrastructure projects, residential properties and corporate expansion. However, Islamic banking is fiercely competitive in the country with increasing numbers of Islamic financial services institutions in the market place. Therefore in order to grow asset base and remain competitive, it is imperative to remain focused on innovative product development, distribution and operational excellence within Islamic tenets.

UNB is predominantly a conventional bank with an Islamic window. Its total assets under Islamic banking business were $1.85bn in June this year, representing 7.4 percent of the total assets of the group. The bank offers a wide range of Islamic products and services through its Islamic Banking Group and also its subsidiary Al Wifaq Finance Company, catering to the needs of both corporate and retail banking clientele. The Islamic banking segment has remained profitable with tremendous growth opportunities.

What is in the pipeline for the UNB?
Its expansion policy helps to strengthen its footprints first in the UAE and be the best in class, while looking at other business opportunities in the Middle East and the world, at the right time and right place. The expansion is not only for the sake of expansion but also for the sake of successfully accomplishing its vision and mission.

In 2006 UNB acquired a majority stake in the share capital of Alexandria Commercial and Maritime Bank of Egypt that has since been renamed to Union National Bank – Egypt. With this acquisition, UNB has gained access to the Egyptian banking market through 32 branches. The bank is currently considering enhancing its capital base and its distribution network to tap the growing potential of Egypt – one of the most populous markets in the MENA region.

In 2009, the bank established a presence in the Qatar Financial Centre (QFC). UNB–QFC branch is primarily focused on granting credit facilities and deposit taking from middle market, and global corporates and deposit taking from corporates and UHNWIs. UNB is exploring opportunities to further extend its presence in Qatar. It has also opened a representative office in Shanghai China, being the first bank from the region to do so. The bank also has a branch in Kuwait, offering a full range of retail and corporate banking products and services. Reviewing other geographic locations for a presence or strategic alliances will add to shareholder value.

Why is CSR so important to UNB?
CSR is a key area of focus for UNB and is intrinsically embedded in the bank’s vision, mission and strategy. It is committed to providing a positive impact on its customers, employees and the communities where it operates with a dedicated budget allocated for CSR initiatives every year. This budget has been consistently increasing every year, although we believe that the true measure and impact of CSR is through engagement and involvement of all stakeholders rather than simply by spending more money. Towards this end, UNB has been regularly getting its employees involved and participating in key CSR initiatives like Earth Hour, Desert Clean Up, volunteering, and blood donation.

Over the years the bank has consistently supported CSR initiatives ensuring that it plays an important and active role as a responsible corporate citizen, with the core area of focus centred on education, ‘Emiratisation’, special needs, climate change and the environment. UNB launched its inaugural 2011 Sustainability Report and became the first bank in the region to achieve a Level A+ rating certified by the Global Reporting Initiative. The bank followed it up with an independent external validation of its 2012 Sustainability KPIs and is currently working on finalising the 2013 Report based on the new GR4 guidelines.

UNB remains firmly committed to its core philosophy and positioning as ‘the bank that cares’, and will continue investing in efforts and resources into activities that have a direct bearing on the community we operate in. The bank will continue to support humanitarian and social causes through an integrated approach as we see this as a mutual growth process for us and for the community at large.

Myanmar Airways International opens up the country for business

Posted on by Ashton Wenborn

As Myanmar continues to open up its economy, the country is experiencing a considerable rise in interest from around the world. Since the unexpected wave of economic and political reforms were unveiled in Myanmar in 2011, international investors have enthusiastically looked at the country as being ripe for a swathe of business opportunities. Similarly, global tourists have looked at Myanmar as a fascinating new holiday destination that was previously considered too remote for them to access.

However, up until recently, the country has not had an airline industry developed enough to cater for this sudden influx of international visitors. All that is beginning to change. Since 2011, the airline industry has enjoyed a rapid level of growth that is making it much easier for people to visit the country, and also for the local Burmese population to travel to the rest of the world.

A developed airline industry is a key cornerstone of a modern economy, and one that is vital for developing nations to take the next stage in their growth. Fortunately for Myanmar, the country already has an airline with a rich history, capable of helping to usher in a modern, internationally recognised airline industry.

Growth and investment
The aviation industry in Myanmar has gone from strength to strength in the short time since liberalisation took place in 2011. It has enjoyed some of the highest passenger growth rates in Asia over the last two years, while it also has a number of actively competing airlines trying to carve out a piece of this new market.

Since 2011, the airline industry has enjoyed a rapid level of growth that is making it much easier for people to visit the country, and also for the local Burmese population
to travel

Nonetheless, while the growth has been impressive, the industry faces a number of challenges if it is to realise its full potential. The government needs to invest in further domestic capacity, building more airports across the country, while also modernising the existing ones to meet international standards. Also, a lack of capacity has meant that although there are more than eight airlines, only 40 aircrafts operate.

Among the airlines currently operating within the country, there is one that has been operating for many decades now. Myanmar Airways International (MAI) has been operating in the country since 1946, when it was initially just a domestic service airline known as Union of Burmese Airways. Beginning international flights in 1950, the airline would later become MAI in 1993 when the country changed its name. Although it was run as a government backed firm, MAI began as a joint venture between Myanmar Airways and Singapore Airlines. Since then, the airline has developed its offering with the help of other internationally recognised partners, including Royal Brunei Airlines and Malaysia Airlines, while also making sure it meets international operating standards.

A leading standard
Things radically changed in 2010 when one of the country’s leading financial institutions, KBZ Group, acquired 80 percent of the business. A result of the change in ownership was the sector seeing drastic change of routes and bringing a new level of financial expertise to the industry. MAI now flies throughout the country, as well as many other international destinations, including Singapore, Kuala Lumpur, Bangkok, Guanghzhou, Siem Reap, Phnom Penh, and Mandalay. The airline has also been operating a charter flight service between Myanmar and locations in Korea and Japan since early 2013.

Such has been the success of MAI in recent years that it is the only airline in Myanmar to receive the International Air Transport Association’s (IATA) Safety Audit Programme Operator certificate, reflecting its commitment to meet the standards of other international operators.

Since the beginning of this year, KBZ has taken control of the remaining shares in the business, giving MAI the financial stability that will mean it can play a leading role in the further development of Myanmar’s aviation industry. Now the firm, under the leadership of the KBZ Group, is refocusing its efforts on growing into a leading proponent of sustainable aviation. This includes the recent introduction of the Green Movement Programme, which is aiming to raise awareness of environmental issues within the industry.

Now MAI has a fleet of seven Airbus A320s, which offer passengers a modern, safe and comfortable mode of transport both inside and outside what is becoming an incredibly fascinating destination.

Stamping out security threats: NASDAQ protects the financial services industry

Posted on by Ashton Wenborn

As businesses move more of their operations online, the importance of a strong and reliable security system has become an essential part of a company’s strategy. With highly valuable information being exchanged, businesses are investing more and more into ensuring that such data is properly secured. Nowhere is this more apparent than in the financial services industry, where vast quantities of money and classified information are exchanged constantly throughout the day.

World Finance spoke to Mark Graff, Chief Information Security Officer (CISO) at NASDAQ OMX, which is one of the world’s leading providers of trading and exchange technology, about the challenges facing businesses in the online world.

What is NASDAQ OMX’s approach to information security?
There are a couple of principles that we follow. The goal is to develop and execute a comprehensive, multi-layered plan. One of the things that we pride ourselves on is doing that based on an analysis of threats and we also work very hard to design and position security counter measures with a clear eye towards risks. Our goal is always to deploy multiple sets of counter measures, and to invest our security resources proportionately to the risks associated with the specific assets. There’s a certain baseline of best practice and of due diligence. Then the art comes in anticipating where an attack or compromise might be attempted and tuning that baseline to protect against them.

There are criminal organisations that would love to be able to influence what we do

What are the biggest cyber-threats facing your industry?
We break threats down in terms of confidentiality, integrity and availability. Those are the three things that we’re trying to preserve. The confidentiality of client data, the integrity of information – such as orders and trades – and then there is the availability of the system. We are very focused on protecting the confidentiality of the information that’s been entrusted to us. Therefore, what we look for is who might try to disrupt those things, such as the markets.

There are criminal organisations that would love to be able to influence what we do, there are nation states that might want to be able to influence markets. Those are the sorts of factors that get our attention when we plan our counter measures. When you talk about specific threats, there have been many attacks against the US financial industry. I’m also in contact with the security experts at stock exchanges around the world. We’re all seeing the so-called Distributed Denial of Service (DDoS) attacks, where somebody throws a vast amount of data at outward-facing websites, in an attempt to disrupt those services. 

The first thing I would say is that those outward facing websites are not connected to the market or trading systems. We do however, supply real time services to our customers for these outward facing websites. All around the world, the financial industry has been subjected to these floods of data, and so we’ve had a good record of withstanding them compared to our peers. We’re always working to understand the threats better, and to hone our defences.

What steps can companies take to protect themselves against such threats?
There are proven concrete measures, and some of them aren’t too complicated or expensive. I think good threat intelligence will really help you plan. The fundamentals today, with regards to anyone that has a website that provides real-time services, are that they want to work with internet service providers or other specialist firms to provide extra buffers that make it difficult for someone to successfully attack the availability of those servers.

If you’re talking about somebody trying to break into your network, which is different to a DDoS attack, then today the most popular element is for people to send ‘phishing’ emails. These try and convince somebody to click on a link that will take them to a website that will compromise their system. We have lots of layers of technical protection that make it extremely difficult to succeed in breaking into the network, but I really put a lot of faith in good training. This involves making people aware of particular threats.

We also rather enjoy sending fake phishing emails from inside our company to our own employees, trying to lure them into clicking on a link. If they do click on it, they’ll get a nice cheery message saying they really shouldn’t have done that, here’s how you can tell how that message was fake. Everyone slips up every now and then.

There’s a layer of technical protection that’s enterprise wide. There’s a baseline of practice of technical detection that can be done at very high speed, but there’s no substitute for an alert user population that are aware of some of the tricks people might try. All these years I’ve been doing this – going back decades – there’s nothing more useful than a person noticing that something looks suspicious. That’s still the pivot of a good security program.

What are the benefits of board portals and how are they typically used?
The crux of so much of what board members do is information sharing. They need to have a safe way to store and share with the right people any sensitive and private data. In the old days, it was very difficult as people would go back and forth through emails, which weren’t encrypted very well. I’ve lost count of the number of times I’ve been called on to cleanse a system that’s been contaminated with highly sensitive information that somebody emailed and didn’t encrypt properly first.

What risks do online solutions present?
Really everything is online today. We’ve done a lot of work in NASDAQ OMX with the cloud and we think we’re leading the way. People ask if their stuff is safe online, and I want to show them that the distinction between inside and outside the network has really dissolved in the last 10 or 15 years.

So the paradigm for so many years of there being an inside and outside of the network has gone. With the business-to-business connections and the very active customer portals in websites, it’s really more a matter of mediating that access and the ability of manipulating that information.

How can companies ensure that board portals, such as NASDAQ OMX Directors Desk, offer optimal security?
The only way to produce a secure portal is to start with security as the motivator. Once you begin the design with security in mind, you can then identify the features that need to be there. The most important is a holistic, integrated approach to security throughout the product. In terms of the way that the information is managed and stored [we ask], have you got real time backups, if there is careful segregation of customer data, is there good testing of the security periodically. We test Directors Desk in multiple ways. Our staff to analyses the security as well as third parties, to try to break through it.

How has the threat landscape evolved over the years?
I’ve been defending enterprises for over 30 years, and when it started you would think about somebody stealing passwords. Then I saw the emergence of automated tools, the rise of computer viruses and worms. For many years the focus was a particular PC virus or worm that would be transmitted through email or floppy disk. For a long time it was a case of whether they could get their software into your enterprise and through the firewall.

Now, with data flowing so easily across these semi-permeable boundaries, I think we’re moving more and more towards automated threats. We get thousands and thousands of probes and attacks every day. The important thing is to build things that can respond, in the way the human immune system responds. The enterprise will always, in some way, be under attack. The question is how do you respond to those attacks.

Bilateral free trade agreement to boost South Korea and China’s economies

Posted on by Ashton Wenborn

South Korea and China are making strides towards a bilateral free trade agreement, each country keen to speed up the process in order to tap into the other’s markets. China’s economy has slowed down in recent years, particularly because its industrial development is taking a hard hit now that developed markets are recovering. Meanwhile, South Korea has weathered the financial crisis well, with shipping and tech industries leaping forward in growth forecasts and contributing billions of dollars to the country’s GDP.

In the past two decades, China and South Korea have expanded bilateral economic cooperation and furthered development in their respective markets. Cross-border trade increased by about 35 times from 1992 to 2012: from $6.37bn to $220.63bn. Currently, China is South Korea’s largest trading partner and South Korea is China’s third largest, prompting both to push harder for an established bilateral trade agreement. But obstacles remain before a broad deal can be made, as both parties are still looking to protect their markets from each other.

At the 11th round of trade talks held in China in May, the two countries exchanged a second list of items they seek to exclude from market liberalisation, in addition to an earlier agreement which had seen the two economies protect several of their industries. Of particular concern for South Korea were farm goods, including fishery products, while China is protecting its manufacturing and petrochemical industries. Nevertheless, the countries have already agreed to eliminate import tariffs on 90 percent of all products they trade.

[A] series of bilateral conflicts and entanglements have served to increase South Korean discontent with China and have slowed down negotiations

Easing competition
A bilateral trade agreement between the two countries would open up competing exporters of manufactured products to each other, allowing for the trade of key components for markets such as technology and automobiles. For China’s slowing growth, a more open Korean market could be a crucial recipient of goods that are otherwise being hit by the resurgence of the developed markets. Similarly, South Korea’s booming growth will not continue indefinitely, according to economic analysts. China and South Korea’s economies need each other.

“A trade deal between China and South Korea has economic significance firstly. Bilateral trade and investments has developed rapidly in recent years, and both sides want to push forward with this deal. But more importantly, a bilateral trade agreement will have a strategic aspect, in that it will affect East Asian regional dynamics on a security and economic level,” said Professor of International Politics Yongjin Zhang from the University of Bristol in an exclusive interview with World Finance.

A bilateral trade deal could significantly stabilise the Chinese and South Korean economies, which are both largely dependent on exports and have been shaken by the recent improvement in developed markets. China’s exports have fallen significantly according to HSBC’s purchasing manager’s index, which revealed a decrease in growth since the beginning of the year. Conversely, Korea’s PMI has improved slowly but surely since the end of 2013 as improving demand from developed markets is boosting exports and has offset the slowing output to China and other emerging countries.

However, domestic demand and faith in the economic recovery still has some way to go, according to analysts from HSBC and BNP Paribas. In recent investment notes, both firms said that domestic demand would not be strong in 2014 due to a slow recovery of the housing market, making a trade deal that would lower consumer prices and boost exports even more necessary for South Korea.

“Korea’s stronger manufacturing conditions show that its economy remains on track for a gradual recovery. One promising sign for the trade-dependent economy is stronger export orders from China, which is Korea’s largest export market,” said HSBC economist Ronald Man, with reference to the easing of Sino-Korean trade tariffs.

Key sectors
At the recent five-day negotiations, the two countries agreed to open up their online commerce sectors and a series of regulations on competition, according to Korea’s Ministry of Trade, Industry and Energy. With both parties stating that they wished to accelerate the process, the completion of the free trade agreement could be as early as the end of the year.

“It is our hope to reach final agreement by the year’s end. After the March summit, China started to show a more active attitude regarding negotiations in many aspects,” said Woo Tae-hee, Assistant Minister for Trade and chief FTA negotiator, at a press conference following the May negotiations.

Following the most recent trade talks and an improved outlook on exports, the Korean economy has picked up. Junho Ko, Chief Investment Officer at Shinhan BNP Paribas Asset Management, said the South Korean economy will grow 3.8 percent in 2014, as a result of export growth to China in particular.

“The automotive, shipbuilding and banking sectors are likely to outperform on the back of further export growth and consumption recovery,” he said. “South Korean carmakers are planning… to launch new volume-sales models and expand their global production capacity to maintain their top-line growth. Another promising export-related sector is shipbuilding. As the economic recovery continues and shipping finance normalises, new orders of domestic large-sized shipbuilding companies in 2014 are expected to be similar to those in 2013, which totalled $46bn, the second-highest level on record,” explained Ko.

Obstacles to overcome
However, despite talks progressing in recent months, a series of bilateral conflicts and entanglements have served to increase South Korean discontent with China and have slowed down negotiations, which have been underway since 2007. Among the political hurdles is a series of tariff disputes arising from the Chinese flooding of South Korean garlic markets in 2000; the Chinese bombing of Yeonpyeong Island in 2010; Chinese fishermen’s illegal fishing in Korean waters; border and land disputes; as well as China’s North Korean ties. Very few of these issues have economic significance, but they’re definitely taking their toll on the negotiations, which are being held back by domestic opposition to furthering connections between the two countries.

This is exemplified in reports by the East Asia Institute and Asia Research Institute which revealed that South Koreans feel apprehensive about China’s growing influence, despite acknowledging its importance for Korea’s future economic prosperity. Along with North Korean security threats, South Koreans rank China’s continued rise, and their country’s increasing dependency on the Chinese economy, as potential security threats in the mid- to long-term.

“There is a very strong lobby against China in South Korea, and because it’s a democracy, it has to take domestic interests into account,” says Zhang. “This is a deal that is still very much in progress. Whether they can negotiate their very high thresholds remains to be seen, as each country will try to protect [its] economy as much as possible. Manufacturing is still an extremely competitive sector for both countries, and it will be difficult for them to overcome any disagreements on tariffs in this area for instance.”

Pressing ahead
That said, Zhang maintains that South Korea and China will push forward with the FTA despite strategic differences and their somewhat complicated economic relationship. If anything, to help further larger trade deals that could foster much needed economic integration in East Asia.

Ongoing negotiations on a tri-lateral free trade deal between Japan, China and South Korea are currently moving at a glacial pace, with all parties warring over border disputes such as the Senkaku Islands and unresolved issues pertaining to atrocities committed during WW2.

“It would be unnatural if these countries don’t come together, given that they’re neighbours and are so economically dependent on each other,” says Zhang. “They are huge problems with this deal though, especially on a political level.”

And this is exactly where a bilateral agreement between China and South Korea could have an impact beyond their economies. According to Zhang, an intergovernmental trade agreement between the two would make it easier to overcome hurdles in the trilateral talks, as well as promote regional integration and economic development in East Asia which, up until now, has been largely market driven.

A trade deal would make it easier to negotiate bigger deals with Japan and in the future, the Trans-Pacific Partnership. Such deals would provide the East Asian region with economic stability and a greater resilience towards market shocks, ensuring economic development for years to come.

Banco Multiva flourishes as Mexico becomes an investment haven

Posted on by Ashton Wenborn

Over the past 12 months pundits have hailed Mexico as a haven for investment. In an atmosphere of strong consumer and investor activity, confidence is at an all time high, and returns are soaring. It is therefore no surprise to see that the Mexican banking industry has grown into a solid and competitive environment. Since taking office seven months ago, President Enrique Peña Nieto has been on a crusade to undertake the structural reforms the Mexican economy needs in order to continue flourishing. Though the new leader is tackling everything from telecoms to education, none of his reforms are as wide-ranging or have more significant immediate effects than the banking and lending regulation overhaul.

According to Ricardo Delfin, an audit partner at KPMG and lead author of The Role of Mexican Banks in Economic Growth, Mexico remains a largely untapped resource for banks. “While they benefit from and contribute to Mexico’s strong economy, Mexican banks could reap impressive growth by targeting the still under-served consumer and business markets,” he says. For the auditor, Peña Nieto’s sweeping reforms have led to increased FDI which is benefiting the economy and the consumers. “The banking sector has thrived in Mexico’s favourable macro economy, characterised by six years of stable inflation and interest rates and rising GDP. Mexico has also outshone most western nations in terms of fiscal balance and low public debt. Under these conditions, Mexican banks have achieved solid capital levels and reserves, in excess of regulatory requirements,” says Delfin.

One of the biggest growth markets is internet and mobile banking, which is allowing institutions like Multiva to reach a wider client-base

In many ways, these reforms have been long overdue; ever since the wave of privatisations that swept through the country in the 1990s, banks have gradually been developing their models by shifting from smaller enterprises to larger financial services conglomerates that offer a wide variety of top of the range solutions and services to their clients. These new institutions needed appropriate regulatory support. Over the years, a slew of reforms have helped to strengthen the industry in a number of ways, with the goal of developing a resilient industry.

“On the one hand, the Mexican banking capitalisation index is 15.6 percent – healthy and strong, and on the other, the default rate is among the lowest international level, at 2.6 percent,” explains Banco Multiva’s CEO Carlos Ignacio Soto Manzo. “Additionally, the new financial reforms aim to offer more credit at a lower cost, to promote credit through the Mexican Development Banks, and maintain a solid and prudent financial sector.” Through the Basel III banking agreement the government has sought to strengthen regulation, supervision, and risk management for the entire financial industry. “These measures intended to improve the financial industry’s ability to handle occasional instability from a variety of economic factors,” he added. “As well as to improve risk management and the corporate governance of banks.”

The role of SMEs
The new regulatory environment has helped Banco Multiva flourish, according to the CEO. “We took advantage of some of the new opportunity business lines like government banking, private banking, and agricultural banking,” explains Soto Manzo. “The consequence of these actions is that in just seven years we have become the 12th-largest bank in Mexico out of more than 40 domestic banks. There is a proliferation of new banks in Mexico; this is a constant challenge to continued growth and to maintaining a top 10 ranking.”

Though the sector is expanding fast, and there is a lot of competition, it is a golden opportunity for Banco Multiva. “Today, 80 percent of the market is concentrated in global banks. We see an opportunity to compete by creating a different business model which includes personalised customer service,” explains the CEO. “We have traditional banking lines. We have also developed strong technological channels; secure access to ATMs, electronic banking via PCs, laptops, and mobile devices, including the first soft token in the market.”

One of the biggest growth markets is internet and mobile banking, which is allowing institutions like Multiva to reach a wider client-base. “Users and clients have broader, better and faster access to transactions thanks to mobile banking. Multiva Bank is among the leaders in allowing users to conduct transactions without going to a local branch,” says Soto Manzo. The CEO cites the many conveniences of online banking, like time-saving and lower cost, as one of the chief reasons why clients are looking to Multiva for their banking needs. “Our online platform, Multivaccess, is a comprehensive, innovative solution that allows customers to accept credit card payments via their mobile phone. The service includes a card reading device, for both magnetic band and chip-based cards. It is also the first certified solution in Mexico to accept cards – perfect for new market niches that currently don’t have access to point-of-sale terminals or commercial bank accounts.”

This increased flexibility that Banco Multiva offers has been vital to bringing in SME business clients – a vital segment for banks in Mexico. According to National Statistics and Geographic Institute (INEGI), there are approximately four million businesses in Mexico, 99.8 percent of which are SMEs, which collectively generate 52 percent of GDP and 73 percent of jobs; 46 percent of jobs come from micro enterprises alone. “Micro, small and medium-sized enterprises constitute the column of our national economy, due to commercial agreements that Mexico has made in the last few years,” says Multiva’s CEO. “They have an enormous impact on national production and employment creation. They are an important engine for economic development and are highly mobile; allowing them to easily adjust production levels, as well as adapt their technical processes.”

Expanding credit payments
Banco Multiva has invested a lot of time and energy in developing its services for smaller business clients, in order to effectively tap into this market. The bank fosters their growth by offering credit for working capital or infrastructure in the industrial, commercial and service sectors. “We have special programmes like IT SMEs that support software and communication innovators by providing them with credit for working capital and equipment acquisition,” says Soto Manzo.“Similarly, we have credit for government suppliers. Furthermore, Multivaccessis principally aimed at businesses and sole proprietors that need a solution that adapts to their working conditions. Our placement strategy includes marketing to profitable enterprises such as independent stores and shops.”

Another growth market for Mexican banks is in the advancement of credit and debit card payments. Currently, 80 percent of all payments are made in cash, which amounts to $530bn annually, and only 570,000 businesses accept credit card payments, which amounts to approximately $963bn in billing per year. Of the four million registered businesses, only 11 percent of them accept credit card payments. “As a result, we support SMEs by offering them new services, such as payment solutions that facilitate their growth, and accessible credit,” says the CEO. “These are important for us to keep supporting this market niche.”

Through technological innovation and the exploration of underdeveloped market segments, Banco Multiva will doubtlessly fulfil their aspirations. “In the near future, we will be in the top 10 banks in Mexico,” says Soto Manzo. “We will achieve this though strengthening growth in products and channels. Other aims include: being open to mergers and/or acquisitions in order to increase our market share; to strengthen Multiva’s technological innovation; to increase profit levels and market share and margins; and finally to maintain a capitalisation index ratio over 15 percent.”

The future certainly looks bright for Banco Multiva as it continues to reap the rewards of clever strategy. In the wake of Peña Nieto’s reforms, and as Mexico continues to establish itself as a shining beacon of growth in the region, Banco Multiva will continue to propel itself forward by taking advantage of the many opportunities for development that will present themselves. Banks like this and their rapid yet solid growth are a sign of the shifting global tide in favour of solid emerging economies like Mexico. As long as intelligent investment continues to be made, there is nowhere for Multiva to go but up.

Murex’s risk management technology improves capital efficiency

Posted on by Ashton Wenborn

In the aftermath of the financial crisis, banks are revisiting their policies and systems infrastructure to adapt to new regulations, primarily focusing on optimising their cost of capital. Major changes are happening in the domains of market risk, credit risk, liquidity risk and collateral management. The changes are transforming the trading value chain, with a stronger need for integration in data and business processes. There are several examples of this.

The fundamental review of the trading book, a consultative document first published in 2012 by the Basel Committee, is a complete overhaul of market risk and regulatory capital. Its implementation dates are not yet specified, but banks have started designing solutions for the new standardised approach and are reviewing their internal models. It has profound implications for operations and technology, and it pushes further the need for integration between systems. For example, firms need to assess the model performance through a P&L attribution process that determines if risk models are properly capturing risk factors driving the trading desk P&L.

Many firms are setting up CVA desks for hedging counterparty risks that require technologies able to deliver near real time calculations of CVA and CVA sensitivities. A large group of banks is also including funding value adjustments in the pricing of uncollateralised trades. Other pricing adjustments (referred to as xVA) are finding their way into derivatives pricing and increasing its complexity.

It has become apparent that integration between multiple systems is complex, costly and increases operational risk

With the development of central clearing for OTC derivatives, dealers need to optimise their trading decisions by calculating Initial Margin and determining the best trading venues for their house or client trades. These calculations may include cross-margining of listed and cleared OTC derivatives.

In a move to promote further central clearing, the Basel Committee published in September 2013 a final set of recommendations for ‘Margin requirements for non-centrally cleared derivatives’ that will apply to all transactions that involve either financial firms or systemically important non-financial entities. This poses an immense challenge to reconciliation between players.

Collateral optimisation has taken a central stage and firms have revisited their collateral solutions in order to adapt to the new paradigm and build a global view of their assets.

These changes can hardly be looked at in silos. They have fundamentally altered the dynamics of trading derivatives from pre-deal analysis down to risk management and banks need to implement holistic solutions that optimise their trading activities while reducing their operational cost.

How Murex found a solution
With a massive investment in research and development, Murex has focused its energy on building its integrated risk management solution. We designed a risk engine that delivers high performance analytics for complex simulations and data aggregation (for xVA, PFE, initial margin and high throughput real-time VaR) using technologies such as in-memory aggregation and GPUs.

The fast processing of massive volumes of data is a key requirement as well. A CVA desk centralising hedge calculations for hundreds of thousands of trades needs to produce, aggregate and manipulate terabytes of data, including CVA sensitivities grids on thousands of counterparty agreements. Leveraging the latest innovations in data management is vital in order to deliver a solution.

Addressing costs and regulations
It has become apparent that integration between multiple systems is complex, costly and increases operational risk. To deal with this, banks have grown their IT departments considerably. With its integrated platform, Murex’s strategy is to deliver a complete range of trading, risk and processing functionality that clients can choose from. Some of our clients use the integrated solution (front, back and risk), while others use it for enterprise risk management such as counterparty credit risk and market risk. In both cases, clients benefit from obvious synergies and considerably lower their technology bills.

Reducing the total cost of ownership has been one of our main focuses over the last few years. Thanks to the packaging of best practices and our battle-tested implementation methodology, we have been able to deliver high-end functionality at reduced cost, time and operational risk. With our integration team and our implementation partners, we are also continuously helping our clients reduce their integration costs by packaging and delivering interfaces with their systems. Yet our MX.3 solution offers a high level of flexibility, facilitating the integration of new processes and business requirements as they emerge.

BDP’s contribution to Dominican tourism bolsters country’s prospects

Posted on by Ashton Wenborn

On January 2 2014, Banco Popular Dominicano (BPD) celebrated 50 years of service to its clients and its country. Since its foundation, the institution has initiated its trajectory by providing accessibility, diversification, and modernisation of its products and services, while also supporting entrepreneurs and creating thousands of direct jobs. With almost 7,000 employees full of confidence and merchantable skills, the institution has strived for greatness.

Since its beginnings, BPD has made a social compromise to improve the Dominican nation through smart and sustainable investments, as well as inclusive community programmes. In addition, the bank is financially involved in various programmes of corporate social responsibility (CSR) in areas such as education, health, art, culture and environmental care.

The bank has always been a pioneer in the industry. From the moment the institution opened its doors to the public, it has brought innovative services to the Dominican Republic. In 1964, it became the first private Dominican bank. It was also the first to offer chequing accounts with personal cheques. BPD reinforced its position as a bank with international calibre in 1980 when it became the first Dominican bank to run an international operation. For the first time in the country, a financial institution represented and distributed Visa and MasterCard credit cards. In 1987, BPD initiated Telebanco Popular, an innovative banking service via telephone, unique within the country at the time. The service proved to be extremely effective by allowing clients to consult their accounts from the comfort of their own homes.

$1.4bn

the financing granted to Dominican tourism by BPD in the last decade

App Popular

160,000

downloads

340,000

transactions in 2013

Mirroring the national economy
An important aim at BPD is to facilitate loans to its clients. In December of 1998, the bank launched Autoferia Popular: an automobile fair that offers car loans and car sales all in one location. The fair is now celebrated every year in its headquarters Torre Popular and has, over the past three years, disbursed more than DOP2.5bn ($62.5m) to families and businesses. It is considered the main auto fair in the Dominican Republic and a mirror of how the national economy is going. Continuing with this spirit of facilitating loans to families, BPD launched Feria Hipotecaria in 2005, which assists families with the mortgage loans to help them become homeowners.

The bank offers aid to the fastest growing industry in the country – tourism. In 2003, BPD distributed the first loan in euros in the Dominican Republic to meet the increasing demand of hotels in the country. In 2013, the institution was awarded the title Bank of Tourism, by the Association of Hotels and Restaurants of the Dominican Republic.

Dominican tourism and BPD have had a close relationship that continues to strengthen. In 2013, the bank granted $1.89bn in commercial credits to Dominican companies. The tourism sector was one of the principal beneficiaries of this financing – with the credits representing 61 percent of the total loans received by the national tourist industry last year. In less than a decade, the financing granted to tourism has amounted to more than $1.4bn

Game-changing innovation
For 50 years, BPD has focused its efforts to bring breakthrough services and investments to promote growth in the Dominican Republic. To do so, it has been at the vanguard of innovation, offering security, trust, and unparalleled service.

The bank has brought that innovation by heavily investing in technology. Since 1988 it has been the financial institution with the most technological resources and services. BPD launched the most extensive ATM network in the Dominican Republic in 1989, and integrated the ATM network with Visa and MasterCard services just one year later. Today, the bank’s network consists of over 800 ATMs – a third of all the ATMs in the country.

In 1995, BPD became the first Dominican bank to join the Society for Worldwide Interbank Financial Telecommunication (SWIFT). The integration with SWIFT allowed the bank to quickly process international transactions. It also allowed credit and debit cards issued by Visa, MasterCard, Cirrus, and Plus to do international transactions on 220,000 ATMs all over the world.

By the turn of the millennium, BPD had a state of the art server, and today, the bank’s technological platform is one the most advanced in Latin America. In 2001, its avant-garde development allowed BPD to venture into internet banking via its website, popularenlinea.com. With this foundation already in place, it was also the first Dominican bank to fully incorporate the use of social media to promote tips on savings, community programmes, and transparency. Soon enough mobile banking was launched, allowing clients to quickly access the bank on their smartphones through the mobile app, App Popular. It was the first of its kind in the country and facilitated mobile transactions, while increasing the customer’s security. The mobile app has been downloaded over 160,000 times, with over 340,000 transactions completed successfully in 2013.

In 2011 the bank took the next step in increasing its security by implementing a security token, known as Token Popular. Just two years later, keeping up with the trends of the international industry, the financial institution became the first bank in the Dominican Republic to offer the EMV chip in its debit and credit cards, offering even more security to its clients. The credit and debit cards issued by BPD account for more than 55 percent of the transactions in the market.

Along with the commercial banking services, the financial entity also has a recognised corporate banking team, which offers the right answer to businesses and institutional corporations’ needs in areas such as investment banking, cash management solutions, local supply chain finance or export and import services.

This year, BPD, following the implementation of strategies from previous terms, invested heavily on technological infrastructure to improve the financial inclusion of more Dominican people, launching Sub-agent Popular, a new service that allowed users to have a virtual account with their mobile phones. Clients are able to send and receive payments along with other services in an efficient and simple way. This platform, along with other initiatives, is being developed in order to accomplish the purpose of giving access to financial services to unbanked individuals.

Community values
For generations BPD has made a special commitment within the community, offering scholarships and promoting better education levels in the country. The institution places a huge effort on ecological sustainability in key reforestation projects such as Plan Sierra. This opens an ecological network of branches that runs on solar energy and helps to save over 80 percent of the utility bill. It also generates awareness about the use of the limited natural resources and the importance of a recycling and financial saving culture. In addition, the bank makes contributions to improve the health of new-borns and their mothers, as well as the elderly, and also supports on-going microcredit foundation focused on northern rural regions.

Besides this, the institution is well known for its support to art and culture programmes and its contribution to strengthen its Dominican values. That’s why BPD is synonymous with integrity, trust, and opportunity in the country. In accordance with this, the bank was chosen as the most admired company by the Dominican people, in a survey by Mercado magazine last January.

As a socially responsible company, BPD also works for small and medium businesses, trying to make an impulse of this important segment of companies that create such a huge value for employment and the entire economy, providing them with accurate financial services, on-going training and digital initiatives.

During May last year, after evaluating the results of the previous year, Feller-Rate improved BPD’s, S.A. rating to AA (dom) long term with a stable outlook and AA- to subordinated obligations. Furthermore, Fitch reaffirmed the rating for BPD at AA- and for both subordinated debt issues A+ (dom).

Last year, thanks to its preponderant role, the bank managed to post significant quantitative achievements. Among the most important were: a 6.27 percent increase in total assets, a 2.53 percent increase in the net loan portfolio, a 0.75 percent increase in overall market share, a 8.9 percent increase in private sector market share and a 16 percent increase in users of internet banking, amounting to more than 300,000 users.

These statistics highlight the vital role the bank has had in Dominica over the past year, but they are also symbolic of the positive impact it has had at the heart of the country for over 50 years. And as the economy continues to grow, so must its financial institutions such as BDP, as they will be important pillars in the country in the years to come.

Technological innovation becomes a key focus for ActivoBank

Posted on by Ashton Wenborn

In this world, nothing’s more permanent than change and never has this been more true for the finance industry. As the world and overall economy changes, so too do customer’s interactions with their banks, and, essentially, this is why banks are going further to accommodate the individual and changing needs of their clients. ActivoBank, a Portuguese bank designed to the very last detail to make peoples lives easier, is driven by a goal to simplify customer relations with the bank and offer them exactly what they want. To this end, ActivoBank customers find value for money and pay only for what they get – this includes no esoteric or complex commissions. This value proposition of maintaining a dynamic and modern banking offering is considered essential for the bank’s growth and development.

“Innovation remains our focus, while our customer acquisition strategy is more and more intense, even as we work to retain customers and further strengthen brand awareness,” says Luis Magro, Head of Marketing for ActivoBank. “We also focus more and more on easier access and interaction with customers. Our online strategy is crucial for customer acquisition and retention. Despite the physical presence through our 14 branches, our main goal is to keep a strong online presence, through our website (both transactional and investment offer) and through social media: Facebook, Twitter and YouTube. Here the key word is convenience.”

And this strategy of ensuring a multimedia-banking offering has proven popular with clients. From the first quarter of 2013 to the first quarter of 2014, ActivoBank had a record 211,935 transactions made via mobile banking, reflecting continued steady and significant growth during thee last year. In March 2014, the number of transactions reached 22,515 compared to the 13,932 in 2013 – a 61.6 percent increase. Not surprisingly, the number of customers using mobile devices and the number of logins made for ActivoBank’s banking offerings continues to grow, as mobile customers surged from less than 9,000 in 2013 to more than 13,000 by the end of the first quarter of 2014. During this period, customer growth was constant, averaging two to five percent every month, and with log-ins to ActivoBank’s mobile banking surging 57.1 percent since March 2013.

61.6%

increase in activobank mobile transactions 2013-2014

57.1%

increase in mobile logins since March 2013

“Our clients can manage all their accounts from anywhere (home, office, restaurant, while travelling, etc) and 98 percent of our products are available online,” says Magro. “That reflects our belief that the online banking strategy is crucial for attracting and retaining customers. ActivoBank bases its strategy on new technologies and innovation. And that’s why ActivoBank continues to invest heavily in developing new services and features to keep up with trends and to evaluate the best opportunities.”

Simple banking
Essentially, this is why ActivoBank maintains simplicity at the core of all its processes, products and services – the aim is for all offerings to be as simple as their customers’ daily lives. This is expressed in the way the customers access the bank, but also in the way the bank itself communicates to customers from the very first minute. Crucially, this is why it only takes 20 minutes to become a customer at ActivoBank, allowing clients to open an account and immediately receive their cards. This is unique to the banking sector in Portugal, where cards typically arrive via post at home, days, weeks or sometimes months after opening an account. In comparison, ActivoBank’s innovation allows for customers to receive their cards in the branch office – right then and there. What’s more, this simplicity and broad accessibility is apparent across all the bank’s services, which are available 24/7, as banking is possible through ActivoBank’s website, on the applications made for smartphones and iPad, or by means of a call centre – regardless of when the physical bank branches have closed.

“Wherever ActivoBank is, so is innovation,” says Magro. “It’s in the application for smartphones, iPhones and iPads, in the image of the branches, on the website and social networks. Even more than the customers going to the bank, the bank goes to meet the customers. Another particularly important channel for ActivoBank is mobile banking. This responds to the positioning of the bank and its target customers: the self-directed, young-at-heart, intensive users of new technologies, who are in favour of a banking relationship based on convenience and innovation. This is why tablets and smartphones are essential for accessing ActivoBank, using the application.”

Mobile innovations
A pioneer in Portuguese mobile banking, ActivoBank was the first bank in the country to develop apps for such platforms and, currently, the firm is working hard to strengthen its identity as an innovative, forward-looking bank that uses technological advances to increasingly simplify its customers’ lives.

Accordingly, the firm has renewed its mobile apps and currently also offers versions for Android and iOS with new tools and a new overall image. The app, launched in June, features a new layout and a more intuitive navigation tool, and new menu options, grouped by function areas with options for several types of consultations and the carrying out of banking operations. This navigation is based on collapsible groups.

“In ActivoBank we want our customers to be totally informed regarding their assets. Hence, we created the ‘My Bank’ area, where customers personalise their access to the bank and visualise what they want swiftly using different graphic options for their assets,” says Magro. “In this area, it is also possible to personalise current accounts, savings, securities and loans using the customer’s image gallery pictures.”

With self-directed customers as a main target, ActivoBank has developed the self-making of bank operations as much as possible, ensuring customers can subscribe and reinforce their savings with only one euro, now and in the future. This channel also features the bank’s commercial offerings, presenting, in a systematic and periodic manner, products and services that better fit each customer’s individual profile. In addition, the bank app has a geo-localisation function, which enables customers to search by current location for the nearest branch.

In addition, a new investments app is being developed, set to be launched soon for Android. In the meantime, the main alterations added to the existing iOS version include the addition of a virtual portfolio synchronised with the website, providing information on new stock exchange indexes and the possibility of trading shares in those stock markets.

Sustainable processes
Along the track of investing in technology and making banking simpler, ActivoBank is also making a conscious effort to reduce its use of paper and become a significantly sustainable bank.

“Complying with our mission of simplifying the lives of our customers, ActivoBank always defined itself as a paperless bank,” says Magro. “The opening of an account was, until very recently, the exception in a number of interactions that the customers established with ActivoBank, since the reading of the general conditions and their subsequent agreement by means of a signature implied the use of paper as the only way to initiate the customer-bank relation.”

However, recent optimisations of the account-opening process led to the launch of “Project Paperless” in January, which aims to drastically reduce the use of paper in the bank’s processes. In essence, the process has now switched from ‘real paper’ to digital documents that the customer signs on an iPad using a special pen that guarantees a secure and sustainable account-opening experience.

Currently, more than 80 percent of all current accounts are opened using this system, and it has allowed the bank to further simplify its back-office processes as well as its offerings to customers, who have generally reacted positively to the new digital experience. In this respect, keeping customers happy is key to ActivoBank, which maintains that its success depends on the way the bank openly establishes relationships with its clients, as well as the efforts it makes in order to construct a truly different bank that can accommodate different people. In simple terms, foreseeing the future and changing needs of customers, and meeting them in the simplest way possible.

Low-cost banks challenge Czech conservatism

Posted on by Ashton Wenborn

New low-cost banks entered the Czech market three years ago, breaking through the country’s legendary conservatism and motivating clients to change banks. One of these new banks is managed by Petr Řehák, Managing Director and Chairman of the Board of Directors of Equa Bank.

How can the Czech banking market best be described?
The Czech banking market is one of the most stable in the region of Central and Eastern Europe. This is mainly because of the legendary Czech conservatism, which is expressed as a very circumspect attitude to banks and risk (which was particularly positively manifested during the last crisis), and also the high degree of loyalty clients have towards their banks and their reluctance to move to another bank.

Only three to five years ago, the Czech banking market was controlled by just three banks, which jointly held a 70 percent share of the market. Although there were other banking subjects active along with these three major banks, their product offer did not deviate from the average offered by the dominant banking houses, nor were they forced to consider innovations and effectiveness. This situation on the Czech banking market was unique and difficult to explain in comparison to other countries in Central and Eastern Europe. If we compare the situation with neighbouring Poland for instance – most of the market there was originally divided between six major banking houses. But at the beginning of the decade, a whole number of other institutions – who based their strategy on offering simple, comprehensible and transparent services, and on communication with the client through direct channels, such as low-cost banking – originated in this country. The volume of deposits per person in Poland was significantly lower than in the Czech Republic, but, in spite of this, there were more players fighting for the Polish client.

Czech banking

45

banks

40,159

employees

4,363

atms

2,102

branches

CZK 4791.1bn

total assets

CZK 2411.7bn

total loans

CZK 3235.2bn

total deposits

Nothing happened for a long time and then three banks suddenly entered the market. How did these banks convince clients they did not have to fear change?
These banks entered the market at a time when the world was slowly beginning to recover from the global financial and economic crisis. In spite of the fact that this crisis had minimal impact on the Czech Republic, it did influence the behaviour of consumers to a specific degree. Czechs began to save more and borrow less. The newly arriving banks offered modern low-fee banking, attractive interest rates on savings products, as well as refinancing of consumer loans, for instance – as a result of which, clients were able to make significant savings on their existing loans. Furthermore, these banks offered a simple and transparent price policy conversely to the dominant banks. Clients were consequently able to accurately calculate what they would be paying for, which had not been the rule on the Czech market until that time. It was the Czech population’s desire to save on ordinary services, and its desire for clear and transparent prices that caused the breach in the conservative behaviour, and motivated clients to change banks and move to low-cost banks. To date, the five new banks have acquired 1.25m clients, during which time over two thirds of this number have moved to the new banks from the three largest banks.

Your bank entered the market in the middle of the worldwide crisis and not even the domestic economy was developing positively. What are your observations and expectations with regards to economic revival?
Reduced economic activity was manifested in the past by the falling demand for loans, by both retail and corporate clients. Since 2013, we have observed signs of economic revival, not only in macro-economic indicators but also in the structure and volume of demand for loans. Households are utilising low interest rates to a greater degree for reducing costs on mortgage loans. They reduce their burden of payments similarly by refinancing their consumer loans. As the family budget situation improves, interest in new loans increases. Corporate clients have also responded to the increased demand for housing and have launched many developer projects in the residential field, which has increased interest in the financing of these projects. More growth in loans can also be observed in the field of operation financing, where companies react to the increasing volume of orders.

How do you perceive the impact of the new stricter regulation of the Czech banking market? Do you expect changes to be made to bank strategies and impact on changes to their business models?
The Czech banking market is in a very good state and is very well prepared for the stricter regulation of requirements for capital facilities, liquidity and also in regards to the quality of loan portfolios in the balance sheets of local banks. This is also one of the reasons the Czech National Bank (the local regulator) has decided to apply the Basel III rules effective immediately, without utilising temporary provisions – that is, without their gradual implementation by 2019, as the remainder of Europe has done.

The new Basel III requirements, particularly in the field of capital and capital adequacy, undoubtedly increase pressure on the higher bank profitability. This, together with the requirements of caution linked to higher cost demands, is creating new challenges for banks. In this regard, the situation does not differ in any way from the rest of Europe. A new phase of achieving higher productivity by modifying the business model is approaching. As a new bank, we have the undoubted advantage that we are not as encumbered by the burden of old infrastructure and we can establish our business model primarily on the use of the latest information technologies.

The differences of the Czech banking sector include a high surplus Crown liquidity. Recent steps by the central bank (application of exchange rate intervention for monetary easing) have emphasised this situation even more. We have been in an environment of low to zero rates for several quarters. The basic rate by the national regulator is on the level of 0.05 percent, the three month interest rate is on the level of 0.35 percent, yields from five-year government bonds are on the level of 0.63 percent, variable five-year bonds are actually only 0.06 percent. This situation is linked to the limited offer of investment opportunities for placement of free short-term liquidity in risk-free instruments on the monetary market, which again places greater pressure on the ability to increase the value of short-term deposits with paid interest, and chiefly on the ability of individual banks to retain the growing volume of their loan portfolios. The ability to grow the loan side of the balance sheet becomes even more crucial because the revenue from fees can no longer be as strong a contributor to the bottom line as it was in previous years. And if we have hit the bottom in terms of the prices of loan products, then we are back to changes to the business model, for instance by offering completely new products, more easily comprehensible and simpler methods of operation, and innovative distribution instruments.

Has the behaviour of clients changed following the entry of low-cost banks?
The behaviour of clients has changed, not only because of the entry of low-cost banks, but also because the attitude to new forms of communication between the client and the bank is changing through the generations. Czech clients are much more demanding today thanks to increasing competition. They compare offers by banking houses more, not only from the aspect of interest and fees, but they also base their decisions on the range of services the bank can offer them in addition. Internet and mobile banking is gaining more and more popularity, which is why most banks have recently been forced to expand the sale of their products through these channels. But there is still a certain degree of conservatism rooted in most Czechs. In spite of increasing interest in modern communication channels, a significant percentage of the banking clientele continues to prefer a personal visit to their bank branch. However, low-cost banks usually operate with a very limited network of business premises, which limits their potential for addressing a wide spectrum of clients in relation to the Czech conservatism. This is why, if low-cost banks wish to continue the expansion in progress and continue to acquire more and more clients, mainly from the major banks, they will also have to invest in development of their branch network so that they have representation in all regional and district towns and cities in the Czech Republic. This is the only way to address a wider spectrum of potential clients and increase their share in the market.

Temenos on data’s ‘fundamental’ role in banking

Posted on by Ashton Wenborn

With regulatory changes and concerns abounding the banking sector, companies are facing imminent pressure to change with the times. One company that is helping others to adapt is Temenos, a banking software systems provider. World Finance speaks to Product Director of the firm’s Business Intelligence unit to find out more.

World Finance: Now Todd as I mentioned, banks are inundated with all of these pressures. How important is data to their overall priorities?

Todd Winship: Well firstly we see banks actually making data a priority, and some people are saying it is the new oil of this generation. But like oil, you need to mine and refine that data to get value. And data is fundamental to a lot of the solutions that our customers are asking us to build.

Two main solutions there, are risk management and customer analytics. So from a risk management stand point, banks across the world are required to be regulatory compliant, they have Basel II and Basel III compliance requirements. And to me that is fundamentally a data issue. So they need the right solutions to be able to extract, cleanse and standardise that data to feed their risk solutions.

[S]ome people are saying [data] is the new oil of this generation

Once that’s complete they can further leverage that data for internal analytics, to further manage risk and to increase bank profitability.

World Finance: So Todd, tell me about some of the challenges that banks face in leveraging their data into a value added entity.

Todd Winship: Well first of all, data without business intelligence and analytics is just data; it has limited value. So fundamentally banks have a problem at the platform level in terms of dealing with that data. And I’ll use some big data terms, in terms of framing those challenges.

The first one is volume. So the data is moving from terabytes to petabytes. Data in the world is doubling, and financial companies are responsible for about 25 percent of that growth. So they need the right solutions in terms of being able to store that volume of data in a cost effective manner.

The next platform problem or challenge is variety. Most banks have hundreds of different data sources across a number of different platforms. So they need to be able to extract, consolidate, transform and standardise that data, so that it has consistent definition and consistent – what we call – mastered data, across the enterprise.

The last one is velocity. From a velocity stand point, we are seeing data move from a batch perspective to real time. So that opens a whole new opportunity for new types of solutions and new capabilities using this real time data.

World Finance: So tell me about some of the other key trends that are taking place in the retail-banking sector.

Todd Winship: The first one is around mobile business intelligence, and the research is very compelling around the use of mobile business intelligence (BI). It’s actually telling us that decisions are made six times faster using mobile BI. And if you consider that it’s your c-level executives, your senior management and your board that’s typically using those solutions; that’s game changing, given the ability to make decisions six times faster.

Data in the world is doubling, and financial companies are responsible for about 25 percent of that growth

What’s also interesting is we see mobile BI driving adoption across the entire enterprise, up to 27 percent. It’s our view that everyone who works in a bank is both a knowledge worker and a decision maker; so giving them that analytical capability to make decisions faster and more accurately, is definitely game changing and should increase bank profitability significantly.

World Finance: Finally, can you tell me about some of the other factors that contribute to a bank’s success in the digital era?

Todd Winship: I think that you’ll see banks adopt BI analytics as a key capability across the entire enterprise. We see a trend in moving analytics right to the front line. I’m personally excited about what we call the ‘analytical bank’ where daily banking processes are enhanced with data and analytics.

An example of this is enhancing the customer experience through deeper understanding of customer behaviours and trends. At our community forum in May of 2014 we demonstrated how a customer’s segment, which is derived from our Insight BI solution, could change the entire experience.

For instance, a Gold customer, when logging into their bank, would be presented with a particular look and feel and set of banking features and functions specific for a Gold customer. If that customer was a platinum customer, they would be presented with an extended set of features and functions, as well as a totally different look and feel. And this also includes tailored product and pricing. So it is very very tailored from a customer perspective to exactly their needs. Banks need to harness this data to leverage that in all areas; including becoming more customer-centric.

World Finance: Todd, thank you so much.

Todd Winship: Thanks for having me.

From 1994 to 2020: the economic legacy of the World Cup

Posted on by Ashton Wenborn

The FIFA World Cup allows the host nation to showcase itself globally for a whole month. It attracts vast television revenues, legions of visitors and impressive ticket sales. However, as Brazilians have learnt, the event also puts the host nation under economic strain and a merciless spotlight.

1994

The US World Cup launched a new era of slick commercial management. Hosted in several cities and supported by big-brand sponsors such as Adidas and Coca-Cola, it delivered a total profit of $620m to LA alone during the final – $440m more than the Super Bowl made in the same year. Overall profits are estimated at $1.45bn against total costs of $5.6bn. Even better, the US leveraged long-term gains by establishing its successful Major League Soccer.

1998

The 16th FIFA World Cup was held in France for the first time, and featured 32 teams instead of the usual 24, with the final staged at the new Stade de France in Paris. The organisers promised an economic bonanza based on 500,000 extra tourists. In fact, fewer visitors came to France than in a normal year, suggesting that non-football fans stayed away. The tournament was actually won by France, making it the sixth country to win on home soil.

2002

In an economic experiment the tournament was staged in two countries – Japan and South Korea – and it worked. This was also the first World Cup to be held in Asia, and the last one in which the golden goal rule was implemented. An accommodating FIFA promised each country $110m for hosting the event and allowed them to keep all the revenue from ticket sales. With over three million live spectator tickets on offer, the host nations split $1.2bn.

2006

The World Cup in Germany would mark a turning point for FIFA. A huge commercial success, it pulled in 15 million more visitors than forecast and sponsoring companies sold about $3bn worth of products. Similar to the US, Germany pumped its €56.6m in profit into the German Football League to the long-term benefit of the game, but a year later FIFA took back ticketing rights. The final game attracted an estimated 715 million viewers worldwide.

2010

FIFA was the big winner from South Africa’s World Cup, taking home a massive $3.36bn in revenues. But the event was disappointing for the host nation, which invested $3.9bn on staging the event, including $1.3bn on stadiums and most of the rest on rail, airports and highways. It attracted half the number of expected tourists at an average cost, according to economists, of $13,000 each. Economic growth also slowed from 4.6 percent to 2.6 percent during the event.

2014

Brazil scored several own goals in the lead-up to the World Cup. Stadiums were finished at the last minute, allegations of corruption were rife, promised projects in light rail and other transport – key elements of the winning bid – were scrapped, and protests over the $14bn price tag only served to highlight glaring inequalities in living standards. On the bright side, England – a big contributor in terms of tickets, television rights and tourists – qualified.

2018

The budget for Russia’s World Cup has already been set at $2.1bn, but, in the light of the runaway costs of the Sochi Winter Olympics in 2014, few expect organisers to stick to that figure. Meanwhile, FIFA’s reserves have swollen to $1.43bn, boosted by US interest. In April, Fox Sports paid between $400 and $500m for English-language television rights. “The financial outlook is very positive,” FIFA Financial Director Markus Kuttner said in June.

2020

Liberal politician Boris Nemtsov claims Qatar has already started spending the $70-100bn earmarked for its gold-plated tournament in eight years time. But will the oil-rich Gulf state actually be allowed to stage the event following accusations of corruption? FIFA’s special investigator Michael Garcia is due to report his findings before the Brazilian tournament ends, but many commentators are sceptical about the depth of his research.