Year: 2016

How PPP is transforming Turkey

Posted on by World Finance

With Turkey now the 18th largest economy in the world, it’s fast becoming a significant market for investors. Thomas Maier and Şule Topçu Kılıç discuss how the Turkish government is fostering this environment by promoting PPP as the model to deliver much-needed infrastructure. They also talk about EBRD’s successes in developing the country’s transport, and its recent programme to provide quality healthcare services that will also be bankable.

World Finance: Investment in infrastructure is fundamental to the development of any country. And this is a sector that’s burgeoning in Turkey, off the back of its buoyant economy. With me to discuss are Thomas Maier and Şule Topçu Kılıç from EBRD.

So Thomas, if I might start with you. Turkey today: how well developed is it in terms of infrastructure, and where are the challenges?

Thomas Maier: Turkey is a significant market for us, and for many investors. Because let’s remember: it’s the 18th largest economy in the world; the GDP per capita is now above $20,000. It has a lot of connections, both regionally and globally. And at the same time it has a lot of infrastructure needs.

For example, in the next 15 years, the government plans to triple the length of its high-speed rail network, double the motorway network, and increase the capacity of its container ports by about 20-25 percent.

So there are lots of opportunities there. And in addition, what encourages us very much is that the Turkish government promotes the PPP model as the key delivery tool to actually bring infrastructure to the people, and to those who require the service.

World Finance: OK, so talk me through your investment strategy in Turkey’s infrastructure, and your implementation in the PPP model in Turkey.

Thomas Maier: When we look at EBRD as a whole, about 20 percent of the business we do there is in transportation and utilities. About $1.5bn, supporting another $8bn or so of investments coming from our private partners and banks.

So it’s a very big segment of our business. And in the past we have concentrated initially on transportation infrastructure, for example: we did the first PPP in the Bosphorus tunnel, a tunnel that connects the east and west side of Istanbul.

We have also supported Mersin, which is the joint venture between Akfen, a very well renowned Turkish company; and PSA, the port authorities of Singapore. And we have recently done a number of transactions in what I would call social infrastructure: hospital facilities management.

We have, together with our partners in the Turkish government, created a programme that will eventually be around $18-20bn, and will supply 15,000 quality hospital beds that are urgently needed in the economy.

World Finance: And how have you measured this success?

Thomas Maier: I would measure the success in two ways. The first one is: does this programme attract international sponsors? Companies that are willing to put money and resources down. And the emphatic answer is yes, because we now have European, American, and global health investors that are coming to Turkey, and are running this programme.

The second one is that we have attracted institutional investors into this programme. And there are quite a number of institutional investors from Europe that are now actively looking and investing in the Turkish health sector. And that’s a great achievement, because it shows that bankable projects in emerging markets are attractive for European institutional investors.

World Finance: And Şule, talk me through your role in the PPP model in Turkey. How have you made it bankable?

Şule Topçu Kılıç: It was a long journey. It started back in 2008, and the Turkish minister of health took the UK PFI model as the basis for the development of the Turkish model.

But because of the differences between the legal framework in Turkey versus the UK, of course, it was not so easy to implement all the model structure of UK PFI to Turkey. And then we, as EBRD, played a very critical role in conveying the important bankability issues to the Minister of Health.

Thanks to the Minister of Health, they were very committed, very patient, listening to us on all the bankability issues such as forex mitigation, which is very important for Turkey because of the Turkish lira; termination and compensation mechanisms; and direct implementation and arbitration.

And certain measures were not really defined in the Turkish legislation, and the Minister of Health made some PPP law changes, in order to make it implemented. And we as EBRD played a very critical role in supporting the Minister of Health to make those bankability issues sorted out.

World Finance: What have been the challenges, and how have you overcome them?

Şule Topçu Kılıç: In a PPP programme which is newly developed in a country like Turkey, bankability issues and solving those bankability issues is one part of the challenges, which was sorted out successfully with the commitment we received from the Minister of Health.

The second challenge, which was very important, was the acceptance of the PPP programme by the public. And political acceptance as well was very important.

So with the technical support we have provided to the Minister of Health, value for money methodology is being developed at the moment, which we will show what the project, if it is done with the PPP model, will be providing in cost and benefit versus if it is done by the public.

Of course another challenge is, the Minister of Health needs to have the full infrastructure to monitor during the construction and operation period. And that’s another technical support we are currently providing.

World Finance: Şule, Thomas: thank you.

Thomas Maier, Şule Topçu Kılıç: Thank you.

Why the online gaming sector provides a great opportunity for investment

Posted on by Helen

Over the past 10 years, the net worth of the online gambling sector has grown to over $35bn. Smartphones have further revolutionised the sector during this time, with usage growing to account for over half of all revenue from operators in the past five years alone. Yet despite this, other than among industry experts and insiders, little is publicly known or understood about the sector; something that is largely because of the complex regulatory environment that influences and shapes the industry.

To shed more light on the workings of this innovative sector, World Finance spoke to Melissa Blau, Founder and Director of iGaming Capital, a firm that provides consulting and development services for companies seeking to enter the online gaming industry. Blau explained how such regulations, if correctly orchestrated, are not a burden, but a benefit to the industry. She also outlined how her firm hopes to help the industry overcome an anti-gaming stigma that often keeps outside investors away.

How has the online gambling sector evolved in recent years?
Over the past few years, the evolution of the industry has been predominantly influenced by the increasing role of regulation, which has been a welcome change. While regulation has its drawbacks (increased complexity and taxes), the benefits far outweigh the negatives.

Firstly, regulation provides clarity regarding the operating environment (tax rate, product vertical), which is important for investors. It also allows the iGaming sector as whole to achieve greater public awareness through the ability to use mainstream media to advertise.

Over the past five years, wagering on mobile devices grew from insignificant amounts to now representing 50 to 70 percent of an operator’s revenue. The ability to use a smartphone to wager on a football event while at the game has increased fan engagement, as well as player loyalty. The technological innovation has also changed the overall game offering: it used to be that players could only really wager on the outright score of a game, but with better technology, predictive models and algorithms, the ability to wager on the next kick or score now represents more than half of all wagers.

As with any industry that matures, operating an iGaming company has become more complex and competitive. Only 10 years ago, few people had any substantial operating experience. It was easier to launch as a new operator with a relatively high degree of success, but as the industry grows, that is starting to change.

The iGaming sector is an industry at an inflection point, and there is great opportunity to target disruptive technologies and services

What are the biggest opportunities and challenges for online gambling?
There are continually new technological developments (for example, mobile geolocation), game formats (in-play sports wagering, daily fantasy sports) and commercial models (virtual currency or social casino) that present massive opportunities. The biggest challenge for innovation has mainly been a lack of capital invested in the sector, coupled with operating in a highly regulated environment. Start-ups in any industry require capital, but starting a company in an industry as highly regulated as iGaming can become a bit more capital-intensive, as the operators and/or technology must be licensed and certified.

The intensity and cost of the regulations vary greatly by jurisdiction. So many early stage companies tend to operate in jurisdictions that are more reasonable to prove out their concept, before moving on to more challenging environments, such as the US.

Why doesn’t the online gambling sector receive much outside investment?
From an early to mid-stage company funding perspective, I have come across lots of interesting and innovative ideas, largely from industry insiders who have vast experience in the sector and see a real opportunity in the market. Yet funding for these companies is exceptionally tough: many venture funds are precluded by their investment charters, which specifically name gaming as a no-go industry. A few shy away from investing in the sector, as they cannot overcome the ethical issues associated with iGaming. That is understandable, as this industry is not for everyone.

I think the biggest opportunity is to attract those investors who have a genuine interest, yet don’t know where to seek the premium deal flow. Understanding the iGaming sector requires speaking to the stakeholders in the sector, such as the regulators, operators, suppliers and industry-focused legal/financial advisors.

What has ended up happening is that when it comes to funding, many of the early stage companies have been funded by high net worth individuals from within the industry. While that has been great for them, with such little competition over valuations, it is poised to change.

How do you plan to break the stigma surrounding the sector?
Over the past couple of months, I have been working to help solve this problem by leveraging my years of experience in venture capital at Constellation Ventures, as well as my 13 years in iGaming generally, to create a dedicated iGaming fund to invest in the proprietary deal flow I have cultivated over my years in the sector.

My goal is to develop GamingTech as an asset class similar to HealthTech and FinTech, to assist in attracting capital that would not otherwise be invested in this fast-growing sector. In doing so, I strive to break misnomers about the sector and make investing in the sector more transparent.

When I co-founded Constellation Ventures in 1997 with Cliff Friedman, in conjunction with Bear Stearns, it was important to investors that we both had industry experience in the MediaTech sector. Friedman was a well-known analyst for Bear Stearns and also a senior executive at NBC. I had worked at Viacom Interactive and helped to launch Simon & Schuster’s interactive business. With Sony as our largest investor, we created what was at the time one of the leading vertical-specific venture capital funds that was specifically targeting technology and content in music and media in general. It was clear that our industry experience made us better investors. Recreating that with my experience in iGaming has been a long-time goal, and I am working on now setting that plan into action.

How do online gambling regulations vary from country to country?
Each country or state takes great pride in administering their own variant of gaming regulations, as each locality has their own way in which they want to see potential issues addressed. Some countries offer a very open regulatory environment, such as the UK and Denmark, which allow foreign companies with no prior presence of operating gaming to obtain an iGaming licence. The UK and Denmark also allow for what we call ‘open liquidity’, wherein their poker players are allowed to play on the same network as players from almost any other country.

Other countries, such as Belgium and the US, only allow licence holders of land-based operations to offer iGaming. Other countries offer it solely to their government monopolies or lotteries, while the majority of jurisdictions have yet to develop any regulations, and remain grey markets. While regulated markets still remain somewhat in their infancy, the lessons and mistakes continually unfold. Another big difference is the tax rate and product offering – the level tax rate can largely determine the success of iGaming in any country. As a rule, any tax of more than 20 percent will generally be unsuccessful. It seems that when a jurisdiction sets the tax rate higher, two things tend to occur: first, the top operators shy away from entering the market. Second, illegal operators tend to do better.

France is a perfect example of where the regulations could be improved. Not only is the tax rate high, but the country has also yet to regulate casino-style games, offering only legalised poker and sports wagering for remote gaming. While France was one of the first jurisdictions to create iGaming regulations, there have been an increasing number of jurisdictions from which to learn, creating a more robust and profitable environment for both operators and investors.

What are your ambitions for the sector moving forward?
As I have mentioned, my ambition is to attract additional capital into the sector by capitalising on the changing global gaming market, tapping into the proprietary access of experienced key stakeholders who are the thought leaders in the sector. As part of it, I would like to create GamingTech as an asset allocation for strategic and financial investors, similar to HealthTech, SportTech and FinTech. Potential investors include a broad range of capital, such as strategic corporate capital, family offices, investment advisors, private banks, institutional consultants and institutional investors.

The end goal is to create a leadership position in the GamingTech sector by acting as a resource for potential investors and assuaging preconceived fears of the sector, as well as break the ‘insider only’ investor market. The sector is an industry at an inflection point, and there is great opportunity to target disruptive technologies and services.

Melissa Blau is a winner in World Finance’s Entrepreneurs of the Year Awards, 2015

Spain’s infrastructure woes are more serious than they appear

Posted on by Helen

Poor planning has plagued Spanish infrastructure in recent years. The sector has suffered from a lack of prioritisation for the most socially beneficial projects, considerable overspending of public resources on construction, and little long-term vision from the government.

Political fragmentation in the wake of the recent elections has only added further uncertainty to Spain’s infrastructure sector – something that threatens to constrain the outlook for new projects in the coming decades. To better meet its future infrastructure needs, Spain would do well to form a concrete strategy for infrastructure investment in the long term.

To this end, the country can build on some encouraging developments: Spain’s economy made a promising recovery last year, as investor appetite for project finance grew, while the establishment of the new National Evaluation Office (NEO) – set up to analyse the feasibility of large-scale infrastructure projects – will help the country to improve its infrastructure planning.

A poor track record
These are certainly welcome developments for a country where local and national governments have often not prioritised the most viable projects, a decision that has resulted in negative economic and social consequences. What’s more, significant public resources have been invested in unfinished or unused projects during this process.

In the years preceding the financial crisis, all provincial capitals in Spain – of which there are around 50 – argued that they were entitled to an international airport. Such enthusiasm led to the expensive construction or upgrade of numerous barely used and remote airports. 200 kilometres south of Madrid, for instance, the airport of Ciudad Real was opened in December 2008 following an estimated investment of €474m. By 2012, the airport had closed and filed for bankruptcy. The airport will have to be auctioned this year, following a failed auction process in 2015.

This unfortunate pattern was repeated across Spain: Castellón’s airport in the east of the country opened in 2011, but only saw its first flight in March 2015. Similar airports, such as Huesca (in Aragon), Lleida (in Catalonia) and Cordoba (in Andalusia), only attracted a trickle of flights after the recession hit in 2008.

The Spanish rail sector also suffered from poor attention to project profitability: with the majority of public investments in Spanish infrastructure going towards expanding its high-speed railways in recent years, Spain has the world’s third largest high-speed rail network after China and Japan. However, oversupply and inadequate demand has affected some lines. In fact, the high-speed line through the Pyrenees, from Perpignan in the south of France to Figueras in northeast Spain, filed for bankruptcy proceedings in July 2015. The project’s sponsors are now claiming compensation from both the French and Spanish Governments due to early termination.

Nor have Spanish highways fared much better: notably, eight concessionaires for toll roads (the ‘radiales’) radiating outwards from the Spanish capital are currently undergoing bankruptcy proceedings. Negotiations between the government and these lenders have lasted three years to date, and have no end in sight.

Political fragmentation
Such a poor track record stems, in large part, from a lack of long-term planning for infrastructure development on a governmental level. Not only is responsibility for infrastructure investment fragmented among various divisions of local and national government, but infrastructure investment is also influenced by the course of elections – and with different parties come conflicting infrastructure polices.

While the plan for investment in transportation is the sole responsibility of the Ministry of Public Works, it only remains in force for as long as the government responsible for the action is in power – and governments can last as little as four years. As a consequence, Spanish infrastructure investment is rarely guided by a long-term vision or strategy beyond the mandate of its elected government.

It is for this reason that this year’s political fragmentation threatens yet more uncertainty for Spain’s infrastructure sector. In December’s general election, no single party gained even one-third of the popular vote, and an absence of government has meant a lack of clear infrastructure policy – and plans for investment – in the future.

Breaking the political deadlock requires the formation of either a coalition or a minority government. However, either option will have significant ramifications for the infrastructure sector: on the one hand, in a coalition, national infrastructure priorities would require consensus among the political parties – a difficult task, given their differences in policy. While the centre-right Partido Popular (PP) party favours continued development of national high-speed, conventional and freight railways, the left-wing Podemos party has voiced its support for the cessation of all large infrastructure projects that have not yet been approved.

On the other hand, should a minority government form, the party in charge would have a limited ability to introduce any infrastructure reforms, due to its lack of a legislative majority in parliament.

Long-term doubts
This political fragmentation and the consequent hiatus in policymaking have increased uncertainty over Spain’s plan to meet its infrastructure requirements over coming decades. Above all, there is a worrying lack of a clear pipeline of future projects.

The Infrastructure, Transportation and Housing Plan (PITVI) – the current strategy guiding Spain’s investment in much of its national infrastructure – is set to expire in eight years. Without political direction to guide planning, significant investment in greenfield projects – that is, new developments – could suffer further down the line.

Meanwhile, the market for public-private partnerships (PPPs) may struggle to develop in this environment, given the time that is required for the tendering process: a local authority needs to plan its infrastructure projects, award contracts to companies and deal with the legal side of issuing tenders. All of these actions take time – something that may be eaten up by political stagnation over the next year.

Furthermore, the project to develop Aragon’s Alcañiz Hospital in Spain’s northeast was also cancelled in the wake of fresh elections. Like the City of Justice, this was despite the fact that the preliminary preferred bidder for the concession was already in place.

What’s more, the lack of political cohesion on infrastructure policy could also have an impact on the future upkeep of brownfield projects (infrastructure already built and functioning). Although political uncertainty is unlikely to hurt existing infrastructure in the short term, doubts remain for the long term. For instance, although some infrastructure sectors, such as roads, are currently in good shape and should not require improvements any time soon, this may not be the case 10 years from now in the absence of any maintenance.

A cohesive strategy
Spain urgently needs to adopt a concrete infrastructure strategy that can provide strong guidance for public investments by different administrations and across the political spectrum over the next 30 years. Encouragingly, the foundations for such a strategy have already been laid.

First, 2015 saw the country’s infrastructure finance market signal a crucial recovery. Spurred on by an improvement in the economy, as GDP growth picked up to 3.2 percent from a mere 1.4 percent the previous year, investor appetite for project finance grew, and the secondary market picked up steam after several years of relative inactivity.

In fact, while Spain has traditionally financed projects through the bank loan market, recently there has been a growing interest for the refinancing of existing transactions through the debt capital markets. The increasing involvement of pension funds in projects was particularly notable.

Second, the recently approved NEO was set up to analyse the financial feasibility of new public works or public services concessions prior to the tendering process. The NEO will offer vital advice and scrutiny to large-scale projects (investments of more than €1m) and is open to regional and local governments, which could benefit local and regional authorities less familiar with the process of offering concessions. If correctly implemented and staffed with skilled technicians – allowing projects to be analysed with respect to profitability and cost-effectiveness – the NEO could improve the prospects of Spain’s infrastructure sector and solidify its future.

Certainly, there is room for improvement. But having learned the lessons of the past, and with a strategy for the long term, Spanish infrastructure could weather the current storm of political uncertainty.

Bank of England warns of Brexit losses

Posted on by Helen

On March 8, Mark Carney, the Governor of the Bank of England, warned that a vote for the UK to leave the EU could cost the economy £2.04trn ($2.9trn). Carney stated that Brexit, as it has become commonly known, could impel a number of banks to move away from London, thereby jeopardising the city’s status as one of the financial capitals of the world.

Carney also suggested that a number of large institutions could already be planning a contingency move of their European headquarters elsewhere.

When speaking in front of the Treasury Select Committee, Carney guaranteed that his comments were in no way a statement on the Bank of England’s position regarding the EU referendum. Nonetheless, his comments could suggest that he is indeed advocating for Britain to stay in the EU.

Carney explained that the full impact of Brexit would depend on whether the EU chooses to grant full mutual recognition to the UK. If this is the case, then financial companies working in the UK could continue operating throughout the EU under similar terms to the ‘passporting’ arrangements that are in place at present. However, Carney also warned that mutual recognition provisions tend to take some time to come into effect.

The Governor’s comments about the domestic risks and financial instability facing the UK if it left the EU clearly angered the Eurosceptics of the committee, who went on to accuse him of promulgating ‘standard’ pro-EU sentiment. During the fiery exchange, Carney insisted that David Cameron had not influenced his opinion, and that he “will not let that stand”.

It has been clear since the announcement of the referendum that the biggest players in the British political and economic scene are divided when it comes to their opinions on whether the UK should exit the EU or not. As such, a prediction on the outcome of the vote at this stage is more uncertain than ever.

Zenith Bank’s growth strategy is set to benefit Nigeria

Posted on by Helen

Founded in 1990, Zenith Bank is now the largest tier 1 bank in Nigeria. Following its public listing on the London Stock Exchange in 2004, it has since grown to have a shareholder base of roughly one million. The bank has spread both across Nigeria and the world. With its headquarters in Lagos, it has over 300 branches and offices across the rest of the country, along with subsidiaries and representatives across the world.

Speaking to World Finance, Peter Amangbo, CEO, Zenith Bank, discussed the company’s plans for growth in more depth. Overall, it is looking to pursue organic growth. In the short to medium term, the bank hopes to pursue growth internally. “Our strategy from inception”, Amangbo noted, “has been based on internal growth.”

In the longer term, Zenith Bank aims to promote growth through a strategy plan that focuses on trying to “improve – through creation and enhancement of new markets, products and services – and consolidate, through superior customer services, local and international awareness of our brand.”

Technological advancements
With this overall strategy in mind, the bank has a number of plans. It hopes to enhance customer service experiences through the implementation of high quality information and communication technology platforms. These, Amangbo said, will “create convenient banking channels and products for our customers.” The use of new technology platforms by the bank has so far proved successful.

Zenith Bank’s mobile banking application was used
7.1 million times in 2015

Its mobile banking application was used 7.1 million times in 2015. At the same time, its Corporate I-bank, which has the unique feature of enabling customers to view their information in other banks, experienced a volume of 9.5 million. Other Zenith Bank platforms have also proven popular, such as the eazymoney app, which allows non-customers with smartphones to carry out a variety of transactions.

Such apps allow non-customers to engage with the bank, potentially laying the ground for new customers within Nigeria. However, these new online banking technologies – in line with its strategy of internal growth – will also allow Zenith Bank to deepen its relationship it already has with existing customers. As Amangbo told World Finance: “These platforms provide a means by which our customers can be engaged digitally, increasing the depth of the relationships with these individual customers.” And the results are showing: the most recent available survey on customer satisfaction conducted by KPMG ranked Zenith as the most customer focused bank, an award it also won in the preceding year.

Another area of internal growth that Zenith Bank is working on is to create cohesion among the bank’s various components. “Our policies, practices and processes”, Amangbo pointed out, “are designed to ensure a handshake among the bank’s components and build a culture of collaboration that is tailored towards achieving the bank’s stated objectives.” Cohesion within the bank is nurtured by giving clear directives of the business’ vision, mission and goals, with each department aware of how they will specifically contribute to this.

Widespread customer focus
The bank’s business focus is communicated to each of its core business groups (BFGs) with the target customers they are primarily meant to serve clearly identified. In allocating responsibilities, the executive management ensures that all customers receive and experience the same quality of service across all of its BFGs.

Going forward, Zenith Bank hopes to expand both domestically and internationally – and it is in a good position to do so. Within Nigeria, it is among the safest and most risk minimising banks, in terms of capital ratios. Its capital adequacy ration is 21.92 percent, which is well above the regulatory requirement of 16 percent for systemically important banks. In terms of international expansion, Amangbo said it plans to grow its “operations overseas in the world’s major financial centres”, which it hopes will enable it to “provide multinational customers with cross-border financial solutions which will meet their international requirements.”

To this end, its European subsidiary Zenith UK, based in London, is well positioned. It already assists the bank’s various West African subsidiaries in the form of trade finance services. With a combination of a progressive use of technology, focused internal growth, a strategy of nurturing institutional cohesion and a growing international presence, Zenith Bank is just starting out on its successful path.

Sustainability is the newest business opportunity for the banking sector

Posted on by Helen

Europe’s recovery has fallen far short of the expectations set out by optimistic analysts and over-ambitious politicians in years past, although this isn’t to say the business climate has suffered as a result – far from it in fact. Many companies in Europe today recognise that sustainability is as important as profitability in determining their success in the long-term, and the growing popularity of CSR programmes is testament to this development.

World Finance spoke to Gianpietro Giuffrida, Head of Private Banking at BNL-BNP Paribas, about how the bank has evolved in this changed European landscape, and how the bank’s commitment to philanthropy and CSR sets it apart from the rest.

As the economic recovery in Europe continues to disappoint, how is it that BNL-BNP Paribas can offset these challenges?
BNL is part of the BNP Paribas Group, ‘the bank for a changing world’. Change does not frighten us and, indeed, is seized on as an opportunity to innovate and improve our delivery model.

BNL-BNP Paribas’ private banking arm aims to build a partnership with our customers, being at their side and taking care of their investment needs. We have expanded and diversified our offer, not only through banking products and services but also by widening the range of solutions to answer our customers’ needs and expectations, always using a diversified approach to investment and taking into account risk profiles.

A concrete example is our wealth planning service, where we have taken into account tax and legal issues and supported our clients even in managing inheritance. Other opportunities are also available with art advisory, wine, properties and alternative investment solutions.

All this has been made possible, at least in part, because of the ability of BNP Paribas to leverage the expertise of more than 6,000 professionals in wealth management, despite the fact that many operate in entirely different sectors and markets.

Which services are offered to clients to protect their wealth in post-crisis years?
Generally speaking, the approach to financial investments advisory has evolved by focusing more than ever on the clients’ and products’ risk profiles. On the client side, any financial advice we provide is based on the client’s risk profile, their investment horizon, their risk tolerance, their knowledge and experience of financial markets, and the purpose of their investments.

On the product side, the financial risk of investment products is categorised and quantified through synthetic risk indicators. These are calculated and maintained over time for all securities traded by BNL.

Once you have identified the risks for both clients and products, you can then perfectly match your investment proposal to each client’s needs. In order to facilitate this process, BNL-BNP Paribas Private Banking has developed an IT tool that enables bankers to identify the measures they need to take in order to align clients’ portfolios to their risk profile.

If we can’t prevent new financial crises in the future, we can at least optimise our clients’ wealth protection in those circumstances.

Can you explain the importance of philanthropy in the world of business?
Corporations can lead the process of transition from traditional philanthropy to a public philanthropic attitude. The direct involvement of corporations may improve the global perception of poverty, environment, education and many other important causes.

Ultra high-net-worth individuals (UHNWI) are today playing a key role in the development of this modern, forward-thinking approach, and philanthropy can be one of the most important tools to hand. With this in mind, the modern concept of philanthropy is about conditioning different ways of doing business, and it is thanks to this evolution that today it is very common to hear about ‘impact investing’ in financial instruments. In other words, investment activities that aim to create not only an economic return for investors, but also achieve a positive and relevant social impact.

Combining business and philanthropy means that the time horizon of medium-term and long-term investments will coexist with primary needs

Combining business and philanthropy means that the time horizon of medium-term and long-term investments will coexist with primary needs such as these. Launching your own philanthropic initiative and guaranteeing its sustainability is a lifelong project in itself.

That is why it is essential to have support and guidance along the way, whether it be establishing impact measurement methodology, creating structures to guarantee the viability of your initiative, or finding those who could take over from you.

Giving meaning to your wealth requires a global approach and a wider consideration of wealth planning issues. That is why it is important to seek the advice of philanthropy experts as well as wealth planning advisors. When well thought out, a philanthropic project will meet the needs of those you wish to help. If well analysed, your financial commitment will be optimised; this is our goal at BNL-BNP Paribas Private Banking and we support our customers in their philanthropic journey with our dedicated teams.

What corporate social responsibility programmes does BNL-BNP Paribas have in place?
Corporate social responsibility (CSR) is the adaptation of sustainable development to the corporate world. It is the best way for companies to integrate environmental, social and corporate governance (ESG) criteria into their strategy and general policy.

As part of the BNP Paribas Group’s global philanthropy mission, BNL supports non-profit activities in the areas of culture, solidarity, education and the environment. In Italy, the group invests in a large number of initiatives in support of the community, ranging from BNL’s financial education courses to raising awareness of the choices available (Educare Project) and its initiatives targeted at young people, and the Arval Ecopolis project for a sustainable city.

Moreover, BNL is also involved in promoting socially beneficial solidarity projects all over the world through the BNL Foundation. For over 20 years, BNL has been actively working with the Telethon Foundation in support of scientific research. The aim is to integrate the bank further into the social fabric, and to bring it closer to the needs of the community, not only in the field of business. We can say that today, a form of socially responsible investing is not a utopia but something extremely concrete.

BNL-BNP Paribas Private Banking wants to go further in offering its customers sustainable and responsible investments (SRIs), focusing on the way in which investors integrate sustainable development and CSR into their investment choices. Poverty, inequality, exclusion, pollution, global warming and the rarefication of natural resources are all major challenges for the economy, and ones for which each investor has the power to take action. Investing is a responsibility and a means of meeting these huge challenges in the long-term.

SRIs represent a concrete way to support a responsible economy, while taking advantage of the investment opportunities offered by sustainable development. Our customers have a wide range of SRI funds available to them, as well as impact investments in selected instances.

Our in-house fund provider, BNP Paribas Investment Partners, was one of the first fund managers to promote SRI-compliant funds, having done so since 1997, and one of the first to promote the UN Global Compact. Our group is proud to certify that 100 percent of BNP Paribas’ investment partners’ portfolios respect ESG criteria – a guarantee for all our customers.

How is Private Banking BNL-BNP Paribas different from other European banks?
The assistance we offer to our clients is not limited to the simple management of wealth, but extends to the excellence of BNP Paribas Wealth Management and its 600 specialists spread over 30 countries. Our financial offers are the result of an attentive knowledge of our clients’ needs and expectations, which allows us to tailor the proper solution for them.

To reach this goal we can take advantage of synergies with other companies within our group, such as BNP Paribas Investment Partners (funds), CIB (certificates and M&A), Cardif (insurance) and Servizio Italia (fiduciary services) for dedicated products but also for totally tailored creations.

We also provide non-financial high-level services such as rural properties advice, which gives guidance on investing in wine throughout Europe, or art advisory services to help build your private collection, manage it, and even work with the most important museums in loaning your masterpieces.

For 2016 and beyond, what does Private Banking BNL-BNP Paribas have planned?
More than 500 professionals are dedicated to assisting clients in more than 40 private banking centres, with two dedicated offices for UHNWI in Rome and Milan. Our assets under management total €32bn, with an annual increasing ration of 13 percent, double the average ratio of the market. We have a 5.8 percent market share and we are fifth place in the Italian private banking sector, and reasonably confident that by the end of 2017 we will be third.

We will continue to grow our network of private bankers, thanks to our recruiting activity. In addition to these figures, we want to continue to improve in terms of quality by innovating and diversifying our offer to create better tailor-made solutions for our customers.

Rolls-Royce is driving the progress of the business aviation market

Posted on by Helen

The rapid growth in market share of Long-Term Service Agreements (LTSA) has caused a paradigm shift in the business aircraft aftermarket. As such, aircraft owners no longer need to take on the risk of managing maintenance on a time and materials basis. Instead, Original Equipment Manufacturers (OEMs), namely, designers and manufacturers of aircraft and engines, now proactively offer and share the benefits of LTSAs with aircraft owners. LTSAs therefore enable the aircraft owner to experience an outstanding level of service at a fixed price, which is far less expensive than the traditional time and material business model that had the aircraft owner assume all maintenance risk and volatility of cash flow.

This transition coincides with the growing popularity of the business aircraft market: “Business jets allow busy people to get more out of their day – meet more people, accomplish more business, and resolve the balance between life at work and at home”, said Stephen M Friedrich, Vice President of Marketing and Sales for Civil Small & Medium Engines at Rolls-Royce. “That is achieved by getting more out of their aircraft, such as flights tailored to individual schedules, with the flexibility to change timings as circumstances or locations change”.

Large cabin customers, for aircraft including Legacy650, Cl605, Falcon 2000, 900, 7X, Globals, G450/G550/G650, are increasingly demanding as they require the best performing aircraft in terms of range, speed and comfort. “They also demand exceedingly high levels of reliability and service in order to meet schedule requirements. To maximise the availability of a business jet, and retain its residual value and sales liquidity, an aircraft needs service support – and that is where Rolls-Royce can be trusted to deliver excellence”, Friedrich told World Finance. Large Cabin customers are always searching for faster, larger, more luxurious ways to travel and with the ability to travel even further than before with less down time. To this end, Rolls-Royce is working closely with airframe partners to address these desires and provide market-leading products and levels of service that can accommodate them.

Power by the hour
Rolls-Royce has maintained its position as the market leader in business aviation engines through its trademarked CorporateCare – the industry’s most comprehensive and cost effective engine maintenance programme. As well as offering flexibility, being available for both new and in-service BR725, BR710, Tay and AE 3007 engines, it also provides operators with significant financial benefits, including predictable maintenance costs, reduced capital investment and, perhaps most importantly, increased aircraft residual value.

“We are continually evolving and enhancing CorporateCare”, explained Friedrich. “Recent additions to the coverage include labour for line replaceable units and borescope inspections required under the air-framer maintenance manual.” Not only do these enhancements entail a more comprehensive service for the customer, they also provide Rolls-Royce with a greater volume of service engine data, which in turn further supports what the industry refers to as ‘Engine Health Monitoring’ and enhances the company’s ability to forecast costs.

“We have a dedicated operational service desk that is open 24/7, which has drastically improved our responsiveness and operational availability. We already see the benefit of this service as we have significantly improved averted missed trips to over 97 percent, while our average AOG response resolution time is now under 24 hours”, Friedrich added. Along this vein, Rolls-Royce is also making a strong push to develop its network of Parts Distribution Centres in order to exceed customer expectations and improve the time needed to ship.

“We continue to evaluate our needs, and expand where necessary. In terms of parts centres, we are opening new stores in the Middle East, Asia, and South America, and we are also establishing a globally distributed provision of On Wing Care specialists and loaner assets.” The company hopes that the service will enable customers to benefit from having specialists located at closer hand, together with all the tooling and materials needed to return an AOG to service in the shortest time possible. “We are also expanding our global authorised service centre network – at present, we have over 50, and we continue to grow this figure by attracting new partners.”

Being the only programme for Rolls-Royce powered aircraft that fully transfers the risk of engine maintenance from the owner to the OEM – which also entails immediate tax benefits – CorporateCare continues to experience impressive growth. Almost 1,900 aircraft around the world are now covered by CorporateCare and more than 70 percent of new delivery Rolls-Royce powered aircraft are enrolled in the programme. “Rolls-Royce is committed to delivering global support and ensuring that business jet travellers continue to benefit from the comfort, speed, privacy, flexibility and reliability that a time machine brings”, Friedrich commented.

This popularity is also explained by the fact that Rolls-Royce was responsible for creating the concept of services on a fixed-cost-per-flying-hour basis in the first place. As such, the heritage of CorporateCare stretches back to 1962, when Rolls-Royce transformed business aviation with the launch of its trademark service Power-by-the-Hour (PbtH), in order to support the Viper engine powering the de Havilland/Hawker Siddeley 125 business jet. “PbtH pioneered an approach to engine management that aligned the interests of the engine OEM fully with those of the aircraft operator. The engine manufacturer therefore became rewarded only for engines that performed”, Friedrich explained to World Finance.

Additionally, what made PbtH so unique was that it offered a complete engine and accessory replacement service on a fixed-cost-per-flying-hour basis, which enabled the operator to forecast costs with great accuracy, thereby enabling the mitigation of maintenance cost risk and avoiding the necessity of investing in stockpiles of engines and accessories.

By 2002, that service was renamed and became CorporateCare; today it covers the Rolls-Royce BR725, BR710, Tay and AE 3007 engines. In addition to addressing unscheduled events and managing costs, CorporateCare delivers an advantage at the time of asset sale. “Aircraft buyers increasingly recognise the benefits of risk transfer and asset liquidity that CorporateCare brings in a market where pre-owned aircraft sales are very busy. Brokers have confirmed to us time and time again that CorporateCare-enrolled aircraft actually sell quicker, and with greater residual value, than those outside the programme.”

Technological evolvement
With over 50 years of experience in serving the market, Rolls-Royce knows its customers well. What’s more, being number one in the market to power wide body commercial airliners enables the company to utilise leading edge propulsion technology in its business jet products. “We have a deep understanding of business jet customers, and so we recognise the importance of providing high performing engines that are supported through an industry-leading support network”, said Friedrich. With this in mind, Rolls-Royce recently implemented an overhaul of its technical publications in order to provide clear, comprehensive and up-to-date guidance for its customers. And taking that one step further, the entry of the BR725 engine into the service came with the introduction of 3D technical publications. This technology is now being rolled out to other engines also, including the highly popular BR710.

In 2012 Rolls-Royce introduced its automatic Engine Health Monitoring data downloads for the G650 aircraft, and has recently extended this well-received service to the G450 and G550. As such, there is an ongoing focus for the company to reduce the need for manual downloads, while also improving its overall data acquisition from in-service aircraft. “Having real time data available further enhances our ability to monitor the performance and behaviours of our engines, which will improve our ability to react proactively and quickly to any issue that may arise.” This applies also to CorporateCare, where the network of Authorised Service Centres that are approved by Rolls-Royce continues to grow in order to ensure that customers are never far from the right people that have the right tooling and parts, wherever they fly.

Naturally, there is a mobile app to add further convenience to the service – MyAeroengine Support provides essential maintenance information to aircraft owners and operators on the go. From an iPad, iPhone or Android device, customers can immediately email or call any Rolls-Royce support location from within the application, or save contact information to the device’s address book. The app also offers detailed directions to any support office using the device’s GPS and map functionality.

With technology and customer care at the forefront of the business model at Rolls-Royce, this historic company continues to set new precedents and trends, thereby consistently taking the market into unchartered, but much-welcomed, territory.

CommInsure admits to failing heart attack victims

Posted on by Helen

Four Corners and Fairfax have accused CommInsure – the insurance arm of the Commonwealth Bank and one of Australia’s biggest life insurance providers – of pressuring doctors to alter their opinions, while cherry-picking evidence in order to deny insurance claims.

Following a joint Four Corners-Fairfax investigation, allegations point to widespread unethical behaviour within CommInsure. A whistleblower who worked for CommInsure between 2013 and 2015 said there was a culture within the organisation of putting profits before people.

Specific allegations centre on the definition of a heart attack as employed by CommInsure, wherein claims were refused if a victim’s blood did not contain enough of the protein Troponin. Speaking to the Australian Broadcasting Corporation, Professor Andrew MacIsaac, President of the Cardiology Society of Australia and New Zealand, said that simply looking at a victim’s level of Troponin in isolation was not sufficient to diagnose the severity of a heart attack.

Chief Executive of the Commonwealth Bank, Ian Narev, said in a statement that his organisation had failed its responsibility to deal with some claims: “I am saddened and disappointed by the handling of these cases. I will personally write to the customers concerned to apologise and offer to meet with them face to face.” The statement also read that CommInsure now plans to update its definition of a heart attack as soon as possible.

Shadow Financial Services Minister, Jim Chalmers, said that the government must consider a royal commission when examining the claims.

This is not the first time the Commonwealth Bank has been the centre of controversy: in 2014, the bank faced allegations of fraud, forgery and a management cover-up in its financial planning unit after clients’ money was put into high-risk investments without their permission. Narev apologised at the time and the bank launched a programme to compensate people who were affected.

Why family offices are growing in popularity

Posted on by Helen

As the term ‘family office’ is unregulated, its definition can vary and, as a result, it’s over-brandished these days. The family office was created to look after the wealth of an extremely high net worth family – but more than mere guardians of capital, those trusted with the duty would also assist in various personal matters. They would act as mediators between squabbling siblings and governors of trusts, while keeping all aspects of family life organised – from education to domicile and travel.

“Fundamentally, we actually provide one place for everything a wealthy individual requires”, said Martin Graham, Chairman of Oracle Capital Group. “That can be anything from help with immigration, help with finding a property to live in, help getting children into school, help setting up charitable foundations, specialist insurance or help with people’s companies, like project finance. And then, critically, we do a lot of wealth structuring: preserving wealth within and between generations by using things like family trusts and foundations. And on top of that, we also do asset management, so that’s partly mainstream asset management, which is, as most of our clients are self-made people, having made all of their money in one country or one sector, they need to diversify globally”.

A proliferation
Some say the roots of the family office can be found in the 18th century, where they emerged from Europe’s private banking system; others argue they first took shape during the Crusades to preserve the fortunes of merchants and traders. Either way, though the origins were clearly European, the concept was developed in the US by the House of Morgan in 1838, and the Rockefellers soon after.

“A lot of the European offices started providing concierge services, day-to-day management of families’ affairs, and then they evolved into doing more investment activity”, said Graham. “In the US, it’s probably more sophisticated and there are a lot of old families with old money. The other big difference is that the US offices are primarily about US money, whereas the ones you get in Europe, and London in particular, are genuinely international.”

We’ve had a dislocation between market value and fundamental value – and that isn’t sustainable

Out of the original concept of the family office, two variants have emerged: the single-family office and the multi-family office. While the former fits in neatly with the paradigm of a traditional family office, the latter, as the name suggests, branches out to include numerous families. Multi-family offices are quickly growing in number and popularity. So much so that a number of single-family offices have transformed into multi-family versions – even the Rockefeller family office now has over 250 clients.

According to a source interviewed by The Wall Street Journal, the number of family offices in the US has increased by 33 percent to over 4,000 in the last five years. A big cause for this rapid increase in demand was the 2008 financial crisis, which led more people to seek astute investment advice and asset management. Adding to this upsurge in interest is the growing number of first-generation affluent individuals.

“We saw a growing demand for advice and expertise arising from direct investments”, said Michael Maslinski, Partner and Group Head of Strategy and Know How at Stonehage Fleming, the largest family office in Europe, the Middle East and Africa. “This was compounded by increasingly complex regulations, a more litigious society and the risks of an unstable global economy, all of which impacts the day-to-day management through escalating administrative costs and by increasing the need for specialist advice.

“From an advisor perspective, we witnessed an increasing recognition that financial capital cannot be managed in isolation and that the wider legacy of families is crucial to long-term wealth preservation. This has a major impact and family offices need to develop a broader skill base to address these wider needs.”

In recent years, there has indeed been an increasingly high level of global uncertainty in both the political and economic spheres. Contributors to this tentative atmosphere in the worldwide system range from the proliferation of terrorist organisations to sanctions against Russia. Then there are nose-diving oil prices, the collapse of the Swiss franc, and the ongoing overhaul of the international regulatory framework. All of these factors continue to have deep repercussions for the global financial system.

“We’re trying to guide our clients through that”, said Graham, “and the way we do that is to have a very long-term structured approach, so making sure you’re managing wealth in a way which is around asset protection for most of it, and also generating income.”

This assistance is particularly important when it comes to preserving wealth between generations. “For most families, the biggest risks they face are in the management of succession and intergenerational transfer”, said Maslinski. “The practicalities of handover frequently impact both on the decision-making process and on the decisions themselves, particularly where specialist assets are involved.”

4,000

family offices in the US

33%

increase in the last five years

With disappointing economic growth in the global system – particularly in Europe and developing states – governments have implemented policies in the hope of providing an impetus.

“In the last year, we had a big problem – which, in my view, we’re now seeing the fallout from – which is that a lot of governments have been throwing liquidity into economies to spur economic growth”, said Graham. “So instead of actually helping the real economy, a lot of that has gone into markets, and you’ve had some bubbles in all sorts of places and now we are beginning to see some of those bubbles burst. We’ve had a dislocation between market value and fundamental value – and that isn’t sustainable.”

Survival of the fittest
Given the growing popularity of family offices, a number of changes can be expected in the sector. “We will see a move towards greater professionalisation of the family office”, said Maslinski. “Family offices today must prepare to give advice on an ever-broader range of issues and, as such, need to ensure that they have the appropriate resources to meet this new demand. The objectives and role of the family office will need to be much more precisely defined than in the past, clearly specifying the division of responsibilities between the family, the family office and external professionals. From an operational standpoint, reporting and transparency will be an important theme in 2016 and families will need to ensure that they comply with the new common reporting standard as the new requirements will start to kick in.”

There are certainly challenges ahead for the industry. “I’m convinced that a lot of people won’t be in this business in the long term because they don’t follow a client-led approach”, said Graham. “The key to success is having very deep, sophisticated relationships and understanding of clients, and being able to provide increasingly sophisticated services in a way that is totally tailored to client needs.”

As such, enterprises that are in fact family offices – as opposed to general asset managers – must stay true to the core of what it means to be a family office. What makes this type of organisation unique is exactly what customers seek when employing its services. Such individuals need more than just a wealth manager, and they need more than just a concierge service: they need everything all in one place, a holistic approach and the efficient management of all their affairs.

As the climate of global uncertainty persists in the coming year – together with more newly wealthy families from emerging economies and beyond – the demand for family offices will indeed continue to grow. Whether all the players currently in the game can maintain their current courses is another matter entirely.

Digitalisation is set to simplify the banking process

Posted on by Helen

No business is exempt from the wave of digitalisation currently sweeping the global economy, and while the trend was mostly contained to the youth segment in years past, its influence has now extended much further afield. In banking, where new platforms have given rise to a new breed of customer, digital is the new frontier – although this isn’t to say that the human element has been removed from the experience.

“The result of this evolution is a new kind of customer – a multichannel one”, Paolo Di Grazia, Deputy General Manager and Head of Direct Bank at FinecoBank, told World Finance.

In answer to the latest market developments, the Italy-based bank and member of the UniCredit Group has developed solutions that directly respond to the increasing use of digital platforms and mobile apps for banking and brokerage services. More than that, Fineco extends the support of the bank’s financial advisors to customers when it comes to managing their investments. “We’re the only player in Italy and also in Europe combining a fully integrated offer of banking, investing and brokerage services through a truly direct, multi-channel approach”, said Di Grazia.

The emergence of digital banking has given rise to countless innovations in banking

Driven by innovation
Speaking about the bank’s contributions to financial services in this new era of digital banking, Di Grazia said that this commitment to technological innovation can be traced right back to Fineco’s roots. “With regards to this”, he explained, “we have a very clear approach: innovation is useful only when and if it matches our customers’ needs. It’s nonsense to introduce sophisticated services when there is no demand for them.”

With this, Di Grazia puts to bed concerns among some in the financial services sector that banks are introducing digital services without a thought for how they ally with wider strategic or operational objectives. “Every day we think about how to improve our platform, how to release new products and services and aim for excellence”, he said. “But our main goal is still to make our customers’ everyday life easier and easier. That’s why the key message of our advertising campaign says ‘Fineco: the bank that simplifies banking’.”

The emergence of digital banking has given rise to countless innovations in banking, though the danger is that new products and services complicate, as opposed to simplify, the process for consumers. Too often, banks devise a plan to digitise their services, though fail to recognise the opportunity to streamline existing systems. Fineco represents a prime example of how banks can do just that, and to good effect. Di Grazia said: “The first challenge is to transform a single current account into a true one-stop solution, creating an offer able to cover all the financial needs of customers, ranging from pure banking services to financial planning and brokerage activity.”

Speaking on where he thinks Fineco and the industry at large are headed, he said: “For the future, the path of our industry is clear: it will increasingly be based on the mobile channel and paperless services. We see a huge potential in this evolution, as it will make the banking services even more user friendly. We have been a forerunner in Italy in these areas, being aware that the first thing to do in order to simplify our customers’ life is to simplify our internal processes and organisation.”FinecoBank

Proof in numbers
Irrespective of the ways in which technology has transformed the banking landscape, successful banking is essentially a question of customer experience. Since the beginning, Fineco’s philosophy has always been to stay customer-orientated; a goal Di Grazia called “more than rhetoric”. As a bank that prides itself on its attention to detail, Fineco’s level of customer satisfaction is an important driver – and indicator – of its growth and success (see Fig. 1).

According to TNS Infratest 2015, a survey of the bank’s customers, 99 percent of Fineco’s customers are satisfied with the bank’s services. “Their enthusiasm makes them the perfect advocate of our bank”, said Di Grazia. “In fact, according to a recent report compiled by the Boston Consulting Group, Fineco is the most recommended bank in the world through word of mouth: a point of great pride for us.”

Undoubtedly, the transition to digital has put a great deal of strain on banks in what remains a difficult climate. However, the example of Fineco is proof that technology has a positive effect on customer satisfaction.

Change is afoot in Pakistan’s banking sector

Posted on by Helen

Now that Pakistan stands at the cusp of socio-political and economic change, it is the ideal opportunity for the banking sector to redress the lack of outreach towards sections of the population that were hitherto excluded from the formal financial sector, or did not have the knowledge to utilise banking services.

Indeed, it is a very real appreciation of impediments at the grassroots level that has driven Habib Bank Limited (HBL) to expand its product line to especially cater to the low-income population of the country, which would have otherwise remained disenfranchised from the national economy.

Hence, HBL has made a conscious effort to ensure delivery of financial services to this segment by streamlining products, policies and procedures to enable financial inclusion. As such, most of the initiatives HBL has undertaken have been ground breaking in both scope and outcome, and their key focus has been easing the transition from conventional methods of money handling towards more reliable, convenient and trustworthy avenues.

Getting banks up to speed
Another shift that has been witnessed by the industry is the exit and scale down of various foreign banks operating in Pakistan. This provides an opportunity for local banks to reach out to global corporates that seek a certain standard of service and technology.

HBL has been very successful at capitalising on this market opportunity with a majority of large local and multinational corporations now utilising HBL banking services. HBL has also strategically acquired the retail operations of Citibank, and recently the entire operations of Barclays Bank in Pakistan.

As far as performance is concerned, the banking sector is one of Pakistan’s best performing industries, with its assets rising to approximately $129bn between Q2 and Q4 of 2015. Its profitability remains high and the industry’s key performance indicators for nine months of 2015 displayed a robust picture.

The capital adequacy ratio, a measure of solvency, stands at 18.2 percent, which is well above the benchmark of 10 percent set by Central Bank of Pakistan and international standard of eight percent. All in all, the sector is going from strength-to-strength, with this trend likely to continue into 2016 and beyond.

Islamic financing
Pakistan was among the first three countries to attempt to implement Islamic financing at a national level, and its origins date back to the 1970s. Today, Pakistan has six dedicated Islamic banks and almost all the commercial banks have Islamic divisions that provide sharia-based solutions to their customers. The emergence of Islamic finance in Pakistan has led to greater financial inclusion for a large segment of the population awaiting sharia-based products.

The emergence of Islamic finance in Pakistan has led to greater financial inclusion for a large segment of the population awaiting sharia-based products

Sharia compliant financial products and services are more acceptable to this segment of the population and as these products are becoming popular and more common, there has been remarkable migration of accounts from the conventional banking system to the Islamic mode of financing along with the opening of new accounts.

Islamic finance’s emphasis on asset-backed financing and its risk-sharing feature also means that it could provide support for SMEs, as well as investment in public infrastructure. Very recently Pakistan has launched an Islamic Index at the Karachi Stock Exchange (Pakistan’s largest stock exchange), so as to enable trading of shares according to sharia.

The Central Bank has also laid out a separate prudential regulatory and supervisory framework and a Sharia Advisory Board, which approves broad policy, regulatory framework, and new Islamic finance products. HBL has also actively pursued the development and availability of Islamic sharia compliant products through its Islamic window operation, and in a short span has become the second-largest Islamic banking provider in the country.

Tech injection
Globally, the financial services industry is undergoing massive change in response to the challenges posed by the regulatory environment and the exponential evolution of technology. Regulators across the world are becoming more sophisticated and intrusive, while simultaneously becoming less tolerant of gaps, forcing banks to invest heavily in compliance resources and systems. This is causing a drag on returns and taking significant management time as they comply with stress tests, respond to regulatory investigations or manage increasingly punitive fines.

Amid this pressure, non-bank financial institutions – especially start-up technology firms that are not subject to the same financial pressures or regulatory supervision – are offering competing services to bank clients. This has created opportunities for new challengers, who are nimble, more efficient and have niche specialisations to disrupt traditional business models and penetrate new markets with highly targeted products
and services.

This is creating pressure for the unbundling of the traditional universal financial services model, and disaggregating customer relationships, in direct contrast to banks’ objective to capture an ever-increasing share of the average wallet. Traditional banks run the risk of being left with the ownership only of manufacturing products.

Emerging innovations based on leveraging advanced algorithms and computing power are automating activities that were once highly manual, allowing cheaper, faster, and more scalable products and services. They are giving customers more visibility into products and more control over choices. Social media companies with a huge user base are moving into the financial sector, bringing new sources of capital and investment.

Customers are now interacting with financial institutions online, using social media to connect, communicate or complain. They do not have traditional customer loyalties and banks will be forced to rethink their interaction with this growing target segment.

HBL has been spending heavily on upgrading internal systems as well as providing customers with new ways to interact with the bank, and we expect to be able to continue to provide reliable, low cost, and innovative solutions to customers throughout the banking spectrum.

An economic corridor
The China-Pakistan Economic Corridor (CPEC) is of huge significance to both countries not only in terms of its impact on the Sino-Pak polity but also through the multitude of economic benefits that it seeks to provide for both countries. The CPEC entails construction of textile garment parks, ventures in the energy sector, development of coal mining projects, construction of dams, installation of nuclear reactors, and creating a network of roads, railway lines and oil and gas pipelines.

Earlier in the year Pakistan signed agreements with China to secure investment for the CPEC, which would be to the tune of $46bn. There are around 51 agreements, out of which work on eight projects has commenced and the foundation stones of five have been laid. One obvious benefit of the CPEC is a reduction in unemployment, once the Gwadar Port is functional and once trade commences business activities in Pakistan will get a much needed boost.

It has also been reported that once the corridor is functional it would generate significant transit fees (estimated at approximately $70bn per annum) on Chinese cargo transported through CPEC on the Kashgar-Khunjrab-Gwadar route.

HBL was the first to realise the importance of the role that China has to play in the development of Pakistan, and has been working to get necessary approvals for opening a branch in China, which is expected before the end of 2016. HBL’s investment banking team is the recognised project finance and advisory team for CPEC transactions, and this is evident in the number of CPEC transactions that are at an advanced stage of development and execution by the team. We feel that CPEC will be a major driver for growth in the five to 10 year horizon, both in terms of GDP as well as banking sector growth.

Taking a further look ahead
With a dynamic strategy that is continuously addressing the changing customer needs, over time HBL has improved its branch infrastructure, broadened its product offering and focused on customer experience. Training and improving the bank’s service are key elements of its culture. The bank’s vision of “enabling people to advance with confidence and success” is embedded in every communication platform and is central to building the bank’s brand across its global network.

HBL has recently launched a female finance initiative called HBL NISA, in collaboration with the International Finance Corporation (IFC). The objective of the programme is to increase female financial inclusion, to help advance and elevate women in Pakistan’s society. The company leads the way in rural financing and is focused on continually expanding its asset base.

Over the last two years, HBL has achieved year-on-year growth of 20 percent in rural banking, with a well-managed credit quality. Its long-term objective is to create banking awareness and promote savings culture among the rural communities, and to provide banking solutions to the rural customers as per their needs and financial aspirations, and to establish a mutually beneficial banking relationship with rural customers.

The Corporate and Investment Banking Group continues to be one of our core focus areas, emerging as a crucial tool enabling HBL to forge a pioneering path in the local banking industry of Pakistan. The company has established and maintained a leadership presence in the local equity and advisory, debt, syndications and project finance markets.

Innovative, ground breaking, and unique financial solutions for multiple business segments are the key reason why HBL remains the bank of choice for major local and multinational companies doing business in Pakistan.

Nigeria breaks up NNPC

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Nigeria’s struggling oil giant will be unbundled into independent “profit-making” companies – each with their own Managing Director – in the weeks ahead, according to the Minister of State for Petroleum Resources and NNPC Group Managing Director Emmanuel Ibe Kachikwu.

Having resisted the pressure to sell, the government has opted instead to implement a reform package and split the group 30 ways to tackle corruption and stem the company’s losses.

“Titles like group executive directors are going to disappear and in their place you are going to have chief executive officers and they are going to take responsibilities for their titles, said Kachikwu in a statement. “At the end of the day, the CEO of an upstream company must deliver an upstream result.”

Oil Minister Kachikwu stressed that his government has started work on resolving the governance issues striking at the heart of Nigeria’s oil and gas sector. The focus will fall first, he said, on simple governance issues that can be easily righted before he and other reformers set about instrumenting a complete overhaul of the company – the first in over 20 years.

Formerly of Exxon Mobil, Kachikwu was appointed head of the NNPC last year and has vowed to tackle corruption and return the company to winning ways. The oil price collapse means the situation is more challenging than it otherwise would be, although the government is optimistic that the price will rise to around $50 per barrel.

According to Kachikwu, by June or July the oil company will be in a position where it can turn a profit for the first time in 15 years. However, the return to profitability is only the start, and an enthusiastic Kachikwu told reporters that the changes could mean Nigeria’s oil and gas sector will finally be able to compete on a global scale.

In order to do so, he said, all stakeholders in the upstream, midstream and downstream sectors need to be on the same page on cost control, contracting circle, technology and environmental issues.

Jordan’s banking industry is leading the way in Islamic finance

Posted on by Helen

People around the world are becoming more receptive to the idea that Islamic banking, more so than traditional banking, is a safe and ethical option. With approximately 400 banks spread across 60 countries, Islamic banking is fast filtering into the mainstream, and commentators are confident that the sector will continue to flourish in the months and years ahead.

Proof of Islamic banking’s recent success lies in the fact that the total number of assets under management, as of 2014, numbered around $2trn, having grown 10 to 20 percent in each of the past five years, and the figure is forecast to reach an impressive $3.25trn by 2020. Clearly, the demand for Islamic banking is on the rise, and observers needn’t look much farther than Jordan for proof of its ability to improve economic and social wellbeing.

Speaking at the Administrative Governance of Islamic Financial Institutions, Sheikh Saleh Kamel, Chairman of the Council of Islamic Banks and Financial Institutions, said: “Islamic finance has become a major pillar of economic systems, and continues to achieve success and geographic expansion. Taking the economic message of Islam based on the principles of justice and fairness to the new industrial wheels for development and progress.”

Origins of prosperity
In 1978, three years on from when Islamic banking was first established in Dubai, Jordan Islamic Bank (JIB) started the country’s first Islamic bank in Amman, and laid the foundations for what is today a major economic driver. Speaking at the same conference, Musa Shihadeh, CEO and GM of JIB, said the bank not only put Islamic banking on the map, but has also contributed to the consolidation of the sector in Jordan and the surrounding region.

In the years since, the bank has consolidated and deepened the values of the Islamic sharia by means of dealing with all people according to the teachings and principles of Islamic law. Committed to serving all parts of society equally and the latest innovations in banking, JIB numbers among the country’s most trusted companies, and an important part of the economic landscape.

“We are very committed to applying the latest innovative products and services in the banking and technology [sectors].” In keeping with its status as a pioneer in Islamic banking, JIB commits to new products and services as customers demand them, keeping to the latest innovative advances in banking.

Important decision makers across the globe have publically backed Islamic banking, owing to its ability to post positive results in times of a crisis. On average, Islamic banks have racked up growth rates of between 15 and 20 percent as a result of prudent policy decisions, and, at the last G20 Economic Summit, policymakers recommended the use of Islamic financing instruments as a mean of improving performance.

Important decision makers across the globe have publically backed Islamic banking, owing to its ability to post positive results in times of a crisis

The sector, according to Islamic law, offers services with a commitment to ethical purposes and refuses to deal in any transactions involving interest. Islamic banks refrain from financing any service that causes harm to people, society and the environment, which means they will not deal in derivatives, speculation or gambling. The growth of the sector therefore, is closely in keeping with the growth of real economy and benefits the many as opposed to the few in society.

Going back to JIB, the bank has a sharia supervisory board consisting of three expert scholars, and their job is to review any transaction in order to make sure no interest is involved, and that the bank’s products and services comply with Islamic law. Likewise, it’s the priority of JIB management to keep adequate liquidity in order to meet the requests of customers in serving both the public and private sector.

With a 60 percent share of the local Islamic banking market and strong assets (see Fig. 1), JIB operates in excess of 90 branches and 160 ATMs, in addition to its I-Banking system, and presides over an experienced staff of 2,000. Of all the banks in Jordan, JIB has the best ROE and one of the best NPL percentages.

Proud of its recognition in local and global circles as a pioneer of Islamic banking, JIB has received a long list of awards for its contributions to the industry, not to mention distinguished ratings from international rating agencies. S&P gave JIB a BB-/Stable/B rating, whereas Fitch awarded the bank a BB- for its long-term obligation in foreign currencies and a B for its short-term obligations in foreign currencies with a negative outlook.

Socially responsible programmes
Going beyond financial performance, JIB’s contributions to society and the environment number among the most impressive in the region, and earned the bank a reputation as a responsible corporate citizen. The banks’ articles of association states that it is committed to providing banking and social services to all people in compliance with sharia principles. In the spirit of doing just that, it has established not one but two social responsibility committees.

The job of the first committee – which is comprised of board members – is to implement policy plans, while the second – comprised of management – will implement a strategic sustainability plan. In recognition of the bank’s commitments, the International Organisation for Standardisation (ISO) sent a letter in appreciation of the pilot organisation’s participating in the ISO project on uptake and use of ISO 26000 guidance on social responsibility within the MENA region.

The letter also thanked JIB for its active participation in achieving positive results for sustainable, environmental, social and economic development. Essentially, the bank’s social responsibility commitments are of an international standard and set a precedent for Islamic banking in the region and beyond.

The bank’s emphasis on community development can be seen at work in a number of social projects. In choosing to finance small projects focusing on the twin issues of poverty and unemployment, the bank’s emphasis on local development goes beyond its customer base and extends to the wider community. JIB has committed to community development since it was established, and will continue to do so by supporting and financing SMEs, craftsmen and professional sectors. JIB graph

JIB has offered free-interest loans (known as Qarad Hassan) since its first began, and remains the only bank in Jordan to do so. In short, the social service helps Jordanian citizens by financing education, medical treatment and marriage. The loans are then repaid to the bank without any interest whatsoever, as the service is a product of the bank’s desire to help those in need.

The Social Responsibility committee has also been hard at work when it comes to implementing a strategic sustainability five-year plan from 2014 to 2018. In it, JIB has pledged to boost its reliance on renewables by 50 percent over the next five years and reduce water consumption by 20 percent before the end of 2018.

More generally though, the bank has made ambitious promises to protect the local environment, and will continue to finance projects led by the ministry of environment and ministry of agriculture. Inside the bank, JIB has arranged an annual awareness session for senior management and subsidiary companies with a view to improving company culture.

Outside, the bank’s plans consist of sending between 3,000 and 10,000 SMS messages to customers about key sustainability issues, and representatives from JIB management will speak about sustainability during at least one relevant conference or seminar per year.

In a climate where consumers the world over are pushing for greater commitment to sustainability, JIB is a shining example of what can be achieved by not just Islamic banking, but by financial services in general. Banks remain an important part of the community, with many of them uniquely positioned to influence people’s lives for the better or worse, and with the right strategy in place, the sector can have an important hand in bettering people’s lives.

JIB’s plans for the future are to diversify and develop its banking services in the broadest possible sense. This means expanding both its portfolio and market share, expanding its branch network, and boosting relations with investors and clients.

Within this remit, JIB will also seek to expand and continue to finance SMEs to support the local economy, and help solve the enduring issues of unemployment and poverty in Jordan. The bank also has plans to issue an Islamic bond (or sukuk), which, while popular all over the world, is yet to grace Jordan’s Islamic banking sector.

Should JIB make good on its ambitions, both generally but also with regard to its five-year sustainability plan, Islamic banking will build on its reputation as a key contributor to social and economic development.

Exploring the boom in the luxury goods market

Posted on by Helen

The Silk Road is the name given to the long, meandering network of desert trade routes that once connected the West to China, India and the Mediterranean. Those willing to make the journey could amass great fortune, bringing valuable goods and materials home with them to be sold for a handsome sum.

This stretch of road later played a hugely important role in the development of civilisations across the European and Asian continents, where trade has always facilitated improved social, political and economic relationships between nations. The Silk Road, therefore, not only allowed for the transport of goods from country to country, but for different religious and philosophical ideas to permeate the collective consciousness. So significant is the contribution of the Silk Road to ancient and modern global development that UNESCO named the Chang’an-Tianshan corridor a World Heritage Site in June 2014.

Working with the family jewels
Alisa Moussaieff, CEO and Creative Director of Moussaieff Jewellers, explained how the Silk Road contributed to her family’s unique history.

“In the 1850s, my husband’s grandfather (Moussaieff Senior) was a pearl merchant with a fearless passion for gems, and he would search for the most ravishing pearls from the Persian Gulf”, Moussaieff told World Finance. “He handed his business over to his son, Remo, who established himself as a stone dealer in Paris during the Belle Epoque period in the 1920s, where he dealt with all the fine jewellery houses, such as Cartier and others. His son – my husband – and myself then opened the first Moussaieff showroom in 1963 in the Hilton Hotel in Park Lane. That boutique is still open today. Since then we opened a beautiful flagship showroom at 172 New Bond Street in 2007, and we also have stores in Geneva, Hong Kong and seasonally in Courchevel.”

When asked about how she guarantees the finest diamonds for her jewellery, Moussaieff said, “When purchasing diamonds, I always follow my instinct. I started collecting coloured diamonds in the 1960s, long before they were considered beautiful: in the 1970s, the Gemmological Institute of America (GIA) was teaching its students that colour in a diamond is a flaw. Then only in the 1980s they were appreciated for their exquisite beauty and rarity.”

There will always be a demand for diamonds, and there will always be a need for portable wealth

Since then, Moussaieff has accumulated one of the most outstanding collections of coloured diamonds available. Her knack for spotting truly beautiful specimens has put her in a unique position within the company.

“I find myself in a truly unique position, free to combine unconventional colours, textures and shapes according to my particular aesthetic sensitivities and perceptions – accountable to no-one. I take pleasure in creating designs which at first glance may seem whimsical, but which in the end always achieve a positive response. I am not afraid to use new materials and manufacturing techniques, and I love to give people an item of jewellery they’ll cherish for a lifetime.”

Rock-solid sales
Moussaieff continued: “As for coloured diamonds, the major auction houses have recently posted record prices. Because of the huge amount of information readily available on the topic, more and more people now are more knowledgeable about the subject of coloured diamonds. Not only that, but the luxury market is booming at the moment and more people than ever before can afford rare, high-quality pieces. This has led to a surge in the coloured diamond market, with the industry attracting strong levels of investor intrigue.”

Within the Moussaieff collection there are also some of the most unique and rare coloured gemstones, from a lustrous and limpid blue 180ct star sapphire to a necklace containing a multitude of 20ct and 30ct perfectly matched Colombian emeralds. The company showcases many other gemstones, such as vibrant neon-coloured Paraiba tourmalines, natural pearls and naturally colour-changing purple sapphires.

When asked about the coloured gemstone market, Moussaieff explained how this market is quite different from that of diamonds: “They do not compete with each other. Fine coloured gemstones are for the collector who has got everything else. If you consider synthetics, the media loves to talk about lab-grown diamonds. Nowadays, clear stones of larger crystals are produced and marketed as ‘conflict free’ or ‘socially and environmentally conscious’ diamonds. This may well have an impact at the commercial level but not on gem quality – after all, there have been synthetic emeralds and cultured pearls on the market for a long time, but the price of natural pearls has skyrocketed in the meantime, and so too has the price of emeralds.”

As she finally turned to the white diamond market, Moussaieff talked about how the prices have dropped because of the current dip in demand from Russia and China. “However, there will always be a demand for diamonds. There will always be romance, eternity and purity symbolised in a natural diamond. And there will always be a need for portable wealth.”

Japan sells negative yield bonds

Posted on by Helen

Following its central bank’s venture into negative interest rates, Japan has sold its first long-term bonds with a negative yield.

After a $19.4bn auction, the 10-year benchmark bond was sold with a -0.024 percent average yield. This means that holders of this bond will be paying the Japanese Government for the privilege of lending it money.

As a result of Japan’s expansive monetary policy, which has led to interest rates falling below zero, Japan’s 10-year bond yield started to decline, dipping into negative territory. However, the recent sale marks the first time that such a bond has been sold at auction with a negative yield.

Yields on Japanese bonds had been steadily in decline, leading to a weaker demand for them. However, the most recent auction saw bids at 3.2 times more than the amount of the securities offered, marking the first rise in demand since December 2015.

Behind this seemingly counter-intuitive demand for negative yielding bonds is speculators taking short positions. These traders are, the Financial Times noted, covering “short positions’ built-in expectation of the yield dropping into negative territory”.

Koichi Sugisaki, a fixed-income strategist at Morgan Stanley MUFG Securities, told the Financial Times that “going into the auction, most dealers believed that it wouldn’t make sense to investors to buy” at negative rates. As a result, “they took out short positions, and today’s auction would have seen them buying to short-cover”.

However, some major investors, such as pension fund managers, have largely stayed away from the auction, no longer seeing Japanese bonds as stable investment vehicles.