Year: 2017

Influential Wall Street players voice concerns after bitcoin futures are given the green light

Posted on by Max Tomlin

At the start of December, two of America’s biggest futures exchanges – CME Group and Cboe Global Markets – were given the regulatory go-ahead to list bitcoin futures by the Commodity Futures Trading Commission (CFTC). Cboe and CME are due to start trading the futures in the coming weeks, with Cboe set to kick-off their contracts on December 10 and CEME’s debut scheduled for December 18.

The decision, which represents a marked shift towards greater acceptance of bitcoin within the wider financial system, spurred a price hike in the currency, with the value of bitcoin rising more than 50 percent in the wake of the CFTC announcement.

The FIA has voiced concerns over the “self-certified” regime CME and Cboe are set to operate bitcoin futures under

However, in a substantial push back against the mainstream acceptance of the cryptocurrency, a lobby group of some the world’s biggest derivatives brokerages has drawn up a joint letter warning of the risks presented by bitcoin futures. The group in question, Futures Industry Association (FIA), comprises some of Wall Street’s most influential players, including Goldman Sachs, JPMorgan and Citigroup.

The letter, which is aimed at CFTC directly, voices concerns over the “self-certified” regime CME and Cboe are set to operate their contracts under: “[The regime does] not align with the potential risks that underlie their trading and should be reviewed.

“It is also our understanding that not all risk committees of the relevant exchanges were consulted before the certification to launch these products.”

The primary concern for the brokerages is that their role as a backstop to the market will leave them exposed to the effects of a sudden downturn in bitcoin, which is renowned for its volatility.

“A more thorough and considered process would have allowed for a robust public discussion among clearing member firms, exchanges and clearinghouses,” the FIA letter continued. “The recent volatility in these markets has underscored the importance of setting these levels and processes appropriately and conservatively.”

Details of the letter were first published in the Financial Times and later confirmed by Bloomberg. The FIA is expected to officially release the letter at some point today.

Sri Lankan banks embrace digital transformation

Posted on by Ashton Wenborn

Banking is experiencing a major transformation, with institutions adapting their structures to keep up to date with new demands and requirements from the public.

Sri Lanka is no exception: the country’s banking sector is now working hard not only to meet clients’ expectations, but also to be one step ahead in offering innovative products and services.

In 2016 alone, internet and mobile banking grew by 75 percent in Sri Lanka, indicating that people and businesses are adopting new tools and facilities at a fast pace.

Financial institutions have also been challenged to achieve sustainable and socially responsible goals in order to build stronger relationships with the environments in which they operate.

World Finance spoke to Hemasiri Fernando, Chairman of People’s Bank, and N Vasantha Kumar, CEO/GM, about the digitalisation process and the opportunities ahead.

What challenges does the Sri Lankan banking industry face at present?
The past few decades have seen customers become more discerning and, as a result, their expectations and demands are evolving fast. Customers expect higher returns on deposits, better facilities for advances and innovative portfolios of products and services that maximise the use of technology.

Financial institutions must always stay one step ahead to meet these changing demands, resulting in aggressive competition within the industry.

In rural areas, informal funding channels continue to hold sway due to their low cost. As a result, the banking industry must compete with the non-bank financial sector, which has been growing significantly in recent years.

Fintech companies, which are able to offer convenient borrowing options to daily wage earners who lack the security or necessary credentials to borrow from conventional banks, are also posing quite a challenge to the banking industry.

What opportunities currently exist?
With the world moving towards an increasingly digital environment, banks that don’t move with the times will be left behind. But simply making use of new technologies is not enough – keeping up with or, better still, ahead of trends is the key to maximising the opportunities technology presents.

We are looking after our stakeholders, catering for their needs with an updated portfolio that depicts world-class standards

People’s Bank places great value on digitalisation because it is through digital channels that we can reach out to customers who have been previously excluded from formal banking.

We are able to offer financial solutions to this demographic at a low cost, allowing us to expand not only our product and service portfolio, but also our reach. Improving the speed of service and delivery is also an essential prerequisite to building and maintaining a sustainable competitive advantage.

How has People’s Bank worked to tackle the challenges it faces?
People’s Bank is living up to its axiom of being the pulse of the people. The bank is in the process of launching a fully digitalised banking service that resulted in the launch of the Digital Centre.

Furthermore, our portfolio of services has expanded significantly to include self-banking units that house cash deposit machines, kiosks for money transfers, mobile cash transfer facilities that extend to customers and non-customers, and ATM machines for cash withdrawals. These units provide access to financial services 24/7, every day of the year.

Given the constantly transforming environment we operate in, our strategic plan for 2016-20 has been revised and our processes are being revisited to ensure that customers receive convenient and speedy service while we comply with banking regulations.

How is the bank changing to meet new expectations from customers?
Very simply: through digitalisation. We ask ourselves who our current and future customers are, what their aspirations are and what the best way to deliver solutions to them is. The answers converge in a singular digital platform.

Nowadays, technology has no boundaries, nor is it only for certain demographics. In line with current times, customers expect speed and efficiency.

Last year, internet and mobile adoption in banking services increased by 75 percent in Sri Lanka, showing that clients are increasingly relying on solutions at the tip of their fingers.

Now, People’s Bank is going further, working to close the gap between urban and rural customers with initiatives designed to meet their evolving expectations.

For example, new digital channels, such as self-banking units which process cash deposits and withdrawals, transfers, inquiries, bill payments and allow for advanced account opening processes, have been installed across the country.

The machines, which scan customers’ identity documents, take digital signatures and capture photographs of customers, are only the first stage of the bank’s digital banking journey.

After completing this journey, what new opportunities will have opened up?
Digitalisation represents the bank’s persistent effort to grow while shaping the industry’s environment. We are looking after our stakeholders, catering to their needs with an updated portfolio that depicts world-class standards.

By effectively implementing technologies that not only improve customer service, but are cost-effective and reliable, digitalisation opens up global opportunities to make us a truly international bank

The bank recently posted an all-time high gross income. What led to this achievement?
It’s all about creating value. People’s Bank is committed to sustainable growth and this is well evidenced by our solid leadership across the industry’s indicators, consistent shareholder returns and strong customer relationships.

Each of these factors have helped us build the largest customer base in the Sri Lankan industry, with a total of 18 million customers, and to achieve the highest employee retention.

Such achievements are integral to the success People’s Bank has showcased over the past year. One significant factor that must be mentioned is our team’s persistence in driving our vision.

The team has pushed boundaries and performance amid intense challenges, reaching impressive new highs. The bank is structured so that it will thrive as the industry develops, and it is this forward planning that led us to achieve LKR 1trn ($6.5bn) each in total assets, deposits and customer advances, something no other bank in Sri Lanka has managed in such a short time period.

These figures attest to our capabilities, which have been developed in line with a comprehensive corporate strategic plan. People’s Bank has also achieved other industry milestones: it has built Sri Lanka’s largest branch network, launched its first fully digital banking experience and extended the largest self-banking unit network in the country.

Our brand’s trajectory has been recognised with various awards, giving stakeholders further proof of our trustworthiness.

What are some of the bank’s environmental sustainability efforts, and what have you achieved so far?
In 2016, the bank introduced the People’s Green Pulse, a comprehensive environmental sustainability policy that measures, manages and mitigates environmental impact.

Together with the Carbon Consulting Company, and based on a strategy that has the buy-in of a top-down approach spread across every division of the
organisation, the bank has committed to reduce its greenhouse gas emissions through an extensive carbon management programme rolled out over three years.

Having conducted assessments aligned with global protocols and standards, the bank focused on energy, waste and increasing the efficiency of products, services and other resources. For example, the bank’s digitalisation process improves its waste management, given that it is paperless.

Additionally, People’s Bank launched its green banking concept, which offers concessionary lending to environmentally friendly business projects and promotes the digital banking drive.

It re-launched its young executive saver account, a paperless banking product, which has particularly appealed to Millennials who have a strong green consciousness. The bank is now working to achieve Carbon Conscious certification.

What social and economic sustainability efforts have the bank made, and what success has been seen in these areas?
We are committed to seven of the UN’s 17 sustainable development goals. As a respected corporate leader in the financial services industry, we recognise our responsibility to acknowledge the impact of our actions in the country and worldwide.

Thus, our strategy now takes into account a number of global goals, such as fighting poverty, ensuring financial inclusion and promoting decent work. We are also working to close the gender pay gap: we value diversity in the workplace, with 57 percent of our workforce made up of women.

Furthermore, the bank is committed to reducing inequality by empowering communities and granting accessible capital to entrepreneurs and sustainable projects.

People’s Bank continues to support the country’s infrastructure development, lending to numerous development projects such as power generation, water and road developments. By the end of 2016, the bank had a LKR 202bn ($1.3bn) loan portfolio in this category.

In addition to all of this, the bank continues to host community initiatives, such as developing school infrastructure in disadvantaged areas, supporting projects that appreciate cultural heritage and historic value, and providing assistance in the wake of natural disasters.

From a sustainable development perspective, our focus is on developing entrepreneurship and community-based lending. The bank is using microfinance as an empowering tool, issuing loans mainly for female entrepreneurs.

In partnership with several NGOs and state entities, the bank facilitates community-based lending programmes, which have issued 45,000 loans in key industries including tourism, services, housing and property, agriculture and finance.

What do the next 12 months look like for People’s Bank?
Our corporate strategic plan, combined with state-of-the-art technology and an excellent workforce, has formed the blueprint for success. Digitalisation will undoubtedly be the facilitator for us to become internationally competitive in product and service offerings. We now expect to end 2017 with our digitalisation platform fully operational.

Market conditions predict volatility, and the global scene looks uncertain. Key economies are seeing downturns or, at best, stagnation. For Sri Lankans, however, a prudent yet visionary national agenda will undoubtedly bring benefits.

We see renewed confidence in the country, with rising foreign direct investments and global conglomerates showing interest in doing business in Sri Lanka, while the government shows a strategic vision in introducing a stronger economic structure. All of this suggests a promising horizon, in line with our digitalisation process, to move onwards and upwards.

BBH: Manage risk to match your needs, not to avoid price volatility

Posted on by World Finance

Equity markets are hitting all-time highs, while the volatility index is at an all-time low. Although this sounds like positive news, for Scott Clemons from Brown Brothers Harriman, now is exactly the time that you should be assessing your investment risk. He explains why BBH rejects the institutional definition of risk, the private bank’s approach to portfolio selection, and why low volatility is making his active value approach harder.

World Finance: Scott, why should investors be remaining alert to their risk?

Scott Clemons: Well investors should always be alert! But particularly now, because we know, as is the case in life, so is the case in investment markets: it’s precisely when you think that nothing can go wrong, that mother nature or mister market pulls the rug out from under you.

World Finance: Volatility isn’t actually the definition of risk that you’re particularly interested in.

Scott Clemons: It is the institutional definition of risk, but it happens to be one with which we don’t agree. Because the definition of price volatility is simply not one that most private clients embrace.

Risk for an individual investor, or risk for a family investor, is simply that the assets they have don’t support the spending needs that they have, both now and into the future. It’s an exercise in balance, not necessarily an exercise in avoiding price volatility.

World Finance: And when you’re putting a portfolio together, you’re actually more interested in what the client needs than in chasing an index.

Scott Clemons: That’s right; it’s an exercise ultimately in balance sheet management. Individuals and families, like companies, have assets and liabilities. The difference is, for individuals, those liabilities may be more subjective. It may be the desire to retire in a certain place at a certain age, to be philanthropic, to leave money for future generations; whatever it may be. But then the exercise of asset allocation, investing, is simply a reflection of the liability allocation: what you need your assets to do in terms of supporting those liabilities, both now and into the future.

World Finance: Now any individual security that you choose is going to have a fundamental value, and it’s also going to have a current price. Talk me through how you assess those two things.

Scott Clemons: So first of all, they’re two very different things. Price is a wonderful notion: it has transparency, it has availability, you and I would agree on the price of any security on any given day of the week. That’s a beautiful thing. The downside is that price has volatility.

Value is the reverse of all of those things. You and I might not agree on the value of the security; it’s not readily accessible. But it has more durability.

So our approach at Brown Brothers Harriman is simply to identify the value of a security in any asset class, and exploit the volatility of the price to buy the asset at a discount to its intrinsic value.

World Finance: Low volatility in the market at the moment actually means there’s not many opportunities, then.

Scott Clemons: It’s become a lot more difficult. We haven’t had a five percent correction in US equity markets since June 2016, with the surprise Brexit vote. And even that wasn’t that big of a setback. That’s the fourth longest stretch on record without a five percent correction in the market. So yes: it makes an active value approach a little bit more difficult, which in turn makes the risk approach all the more important.

World Finance: So with current market sentiment, what should investors be doing?

Scott Clemons: Investors should first of all be making sure that the asset allocation they have reflects the liability allocation they have – step one. Step two, they should not be lowering their investment standards in pursuit of return without attention to risk. One of my favourite definitions of risk is simply that many, many more things can happen than will happen; and just because risky things haven’t happened in the past 18 months since that last correction, doesn’t mean the market’s not a risky place.

World Finance: Scott, thank you very much.

Scott Clemons: Thank you, Paul.

New Eurogroup President set to bring anti-austerity slant to Europe

Posted on by Ashton Wenborn

Portuguese Finance Minister Mário Centeno has been appointed as the third president of the Eurogroup, a highly influential group of Eurozone finance ministers. The role, which has previously been held by European Commission President Jean-Claude Juncker, will put Centeno in a position to exert influence over key economic decisions. He will follow Jeroen Dijsselbloem, who is coming to the end of his two-and-a-half-year term.

The Eurogroup is technically an informal gathering of finance ministers, but has played a central role in some milestone moments in the Eurozone’s history. The first ever meeting was held in 1998 at Château de Senningen in Luxembourg, but its influence grew in the midst of the European debt crisis, when it was instrumental in overseeing hundreds of billions of euros in emergency loans.

Centeno’s role as Portuguese Finance Minister, which he has held since 2015, has seen him guide the country’s recovery from a crisis-era bailout

It has been the subject of criticism due to a lack of transparency, with Juncker having described it as a place for “secret, dark debates” about monetary policy.

In the months ahead, Centeno will be involved in conducting politically sensitive debt-relief talks with Greece, which is due to finish its €86bn ($100.56bn) bailout programme in the summer of 2018. The role will also put him at the heart of discussions relating to a strategy for future Eurozone reform.

Centeno is notable for being the first Eurogroup head from a Southern European country, as well as for his anti-austerity slant. His role as Portuguese Finance Minister, which he has held since 2015, has seen him guide the country’s recovery from a crisis-era bailout.

While overseeing the stabilisation of the Portuguese economy, he repeatedly resisted pressure from European authorities to further austerity. Instead, he focused his reforms on investments, making Portugal a notable case for its rebuttal of the austerity dogma. As a result, Centeno’s appointment has been seen as a potential turning point in European economic thought.

The post was awarded via a secret ballot, in which each country’s vote holds the same weight.

Centeno has been quoted in the EUobserver saying there is a need to construct the conditions for financial stability in the future: “We have a very unique time window to further prepare our economy and societies better.” He added that there must be a “focus on convergence” and a resilient euro. He has previously come out in favour of a Macron-style European fiscal budget.

Union National Bank is a pillar of the United Arab Emirates economy

Posted on by Ashton Wenborn

The financial services sector is an important part of the UAE economy, one that helps much of the region’s growth. In 2016, according to the Ministry of Economy, this industry contributed 9.8 percent of GDP and 12.8 percent of non-oil sector domestic product.

The UAE’s banks are particularly influential in the sector’s overall performance, with commercial institutions playing a pivotal role. Indeed, loans from commercial banks are responsible for nearly 90 percent of total lending in the financial sector.

Last year was not easy for the financial industry as the UAE was hit by new and challenging market realities. These included low oil prices, China’s economic slowdown and regional conflicts – the latter of which has weighed heavily on local and international indices.

In recent times, such issues have plagued much of the world, but concerns in the UAE were all the more prevalent considering that its economic growth has been on a persistent downturn since 2015.

Fortunately, the sector has proved to be well equipped to deal with conditions of every kind. As a result, forecasts are now increasingly optimistic, and many expect the region to bounce back by 2018.

In a recent IMF note, the institution predicted that the growth of the UAE’s non-oil sector will rise to 3.3 percent in 2017 from 2.7 percent in the previous year, reflecting increased domestic public investment, as well as a pick-up in global trade.

Resilience in times of pressure
In spite of enormous margin pressures, increased impairment pressures and higher funding costs, banks in the UAE have remained immensely resilient. The UAE’s banking sector is expected to experience a slight pick-up in lending growth in 2017, given higher oil prices and an anticipated loan growth of seven percent, compared with six percent in 2016.

Union National Bank (UNB) is one of the most stable banks in the UAE, a fact that is reflected in its consistently strong ratings and performance.

UNB has managed to deliver solid results by maintaining strong liquidity and proactively managing its asset quality. Executives at the bank are aware that the road ahead is paved with both risks and opportunities, and they are responding to potential issues by considering sustainability as a vital part of their business strategy.

UNB’s operating profit as of June 30, 2017 was up by seven percent, while loans and advances went up by three percent, mainly due to an increase in operating income that included both net interest income and non-interest income.

The UAE Government is expected to pursue many of the biggest investments in infrastructure in the coming year, which have been major sources of profit for the banking sector up until now. However, the uptick of this policy could only be small given the impact of higher interest rates and a slowdown in government spending.

UNB recognises the importance of corporate social responsibility and has done its utmost to promote excellence through various initiatives

The government will also continue to encourage credit for SMEs, many of which were forced to fold in 2016 owing to the dearth of affordable financing solutions. That said, banks remain cautious in their lending to this segment.

UNB’s strategic growth plans will continue to play a key role at the heart of the region’s capital and financial markets by offering strategic and efficient access to growth opportunities, the best customer services and innovative products and solutions in the UAE and beyond.

UNB’s business activities are fully aligned with Abu Dhabi’s Economic Vision 2030 guidelines and its prioritisation of the Emirate’s socioeconomic progress. UNB’s vision, mission and strategy provide a clear roadmap to help it achieve its goals.

The bankruptcy law that came into effect in March 2017 will serve as an instrument of stability and risk mitigation, and provide for the creation of a pre-emptive settlement regime under which creditors will actively work with their customers in restructuring debts.

As the courts oversee the whole process, this would mean greater assurance of repayment for lenders, while businesses are saved from the immediate threat of bankruptcy, allowing them to maintain normal operations.

Al Etihad Credit Bureau (AECB) has started to issue credit scores to UAE citizens and residents. Consumers’ credit data has been submitted to the bureau by 59 entities, and 64 institutions have subscribed to the bureau’s services.

Customers are now more prudent in borrowing due to uncertainty in the economic outlook, and banks are cautious in lending as they have more information available from AECB.

The implementation of AECB in the UAE is expected to stabilise bank lending, especially with regards to personal lending. Adoption of the Basel III standards for net stable funding ratio and liquidity coverage ratios (to be implemented by January 2018 and January 2019 respectively) should progress smoothly, as most UAE national banks prepare themselves for the implementation of liquidity guidelines.

Raising the game
These changes require banks to be honest about their performance predictions for the future, and not base them on their figures for previous years. Getting banks to think realistically is good for the overall health of the sector. Where there are weak predictions, banks can try to bolster their potential growth through innovation.

One way in which many have done this is by digitalisation: improving the customer experience through operational efficiencies within branches and internal offices.

By focusing on this area, UNB hopes to achieve sustainable and realistic growth in the core lines of its business, such as retail, corporate, commercial and private banking, as well as Sharia-compliant Islamic financing.

The bank is particularly focused on maintaining sustainable returns on average equity and average assets, increased non-interest income, diversity revenue streams, as well as keeping a close eye on costs.

UNB adopts an integrated and multi-dimensional approach to developing its strategy by understanding the needs and expectations of its stakeholders. The bank is greatly committed to promoting customer care and engagement, which it sees as fundamental to building loyalty and trust, as well as innovating to make banking easier and more accessible.

UNB continually updates its website, expanding offerings through mobile and internet banking solutions, and introducing Apple Pay and Samsung Pay. In addition, it has upgraded some of its ATMs so that customers can update Emirates ID records through them.

Some of the key initiatives under implementation are CRM solutions, voice biometrics at UNB’s call centres, queue management systems in its branches, and a state-of-the-art platform for online banking for corporate customers.

UNB continues to be recognised locally and globally by leading industry bodies for its accomplishments in the areas of business excellence, customer service and product innovation.

UNB’s sustainability framework and implementation of sustainability management principles are based on caring about its stakeholders. UNB will continue to plan ahead to maintain financial solidity and grow shareholder value.

UNB recognises the importance of corporate social responsibility (CSR) and has done its utmost to promote excellence through various initiatives with key stakeholders and the community. The bank has identified several areas that require improvement, including the environment, community, disabilities and Emiratisation.

Last year, the bank took part in numerous CSR activities, becoming a platinum sponsor of Educate a Child and joining Earth Hour, which encourages businesses to turn off non-essential electric lights for one hour. This was done to promote awareness of climate change and the greater need for environmentalism.

A bold expansion
In addition to its CSR activities, UNB has been ambitious about its future, and has recently made the bold move to expand in Shanghai, becoming the first bank from the UAE to open a branch in mainland China.

Using a foreign-currency licence, UNB will provide corporate banking services there, as well as trade finance with Sino-Middle East counterparties that operate within the increasingly important UAE-China corridor.

UNB will also continue to promote bilateral investment opportunities that exist for Chinese companies in the UAE, especially in contracting and project finance.

This latest expansion fulfils the organisation’s decision in 2008 to open a representative office in China, making it one of the most forward-thinking in the region.

Executives at the bank believe that the institution’s success and growth depend on its ability to create value for stakeholders. UNB achieves this through its plethora of well-informed products and services, contribution to economic growth, social initiatives and careful consideration of the environment.

The bank continually endeavours to address the needs of its stakeholders, making it one of the finest institutions in the UAE and beyond.

Threat of EU blacklist looms large for tax havens

Posted on by Max Tomlin

The European Council’s Code of Conduct is due to release a finalised blacklist of tax havens on December 5. Countries that face being blacklisted have been contacted in advance and given an opportunity to avoid being named on the list by pledging to make reforms. The Financial Times revealed there are 25 tax havens on the draft list.

The blacklist is designed to nudge countries into compliance by issuing repeated warnings to those failing to adhere to standards. The commission wrote to 41 countries in October informing them they had been deemed to be tax havens.

The blacklist is designed to nudge countries into compliance by issuing repeated warnings to those failing to adhere to standards

Judgments are being made based on three broad criteria: first, a country’s tax rules must be ‘fair’, meaning they can’t facilitate offshore tax structures. Countries must also implement the anti-profit sharing measures (known as BEPS measures) drawn up by the OECD and meet specific transparency standards. Should countries fail to meet these criteria, they must pledge to improve transparency, tax fairness and adherence to data-sharing standards in the future.

A second list, dubbed the “grey list”, consists of jurisdictions that are currently acting as tax havens but have pledged to make regulatory changes. The grey list has not yet been made public, with ministers set to decide at a later date whether it will be revealed.

It is not yet clear what the penalty for failing to pass the test will be, with opinions varying on the severity of the necessary response. French Finance Minister Bruno Le Maire has gone further than most, calling for tax havens to be stripped of support from international institutions: “We are thinking, for instance, about the possibility of cutting financial support of the international institutions like the IMF (International Monetary Fund) or the World Bank on the states that would not provide the needed information on tax.”

Softer implications could include the introduction of measures that make tax havens less appealing to businesses, such as new financial disclosure requirements on multinationals operating in blacklisted jurisdictions. Others hope the threat of being blacklisted alone is enough to prompt change from non-compliant jurisdictions.

Bank of Cyprus not afraid to forgo profits in financial crime clean-up

Posted on by World Finance

In the first half of our interview with Marios Skandalis, he described Bank of Cyprus’ four year journey from a public bail-in requiring depositors to take a 50 percent haircut, to repaying its emergency liquidity assistance and listing on the London Stock Exchange. One of the key aspects of its compliance transformation along the way was aggressively tackling money laundering – in this second video he explains why the bank isn’t afraid to be open about the efforts it’s gone to, in order to meet stringent ethical standards. And he explains the compliance challenges his team is facing as the bank becomes a fully digitised financial institution.

World Finance: I’m with Marios Skandalis, Bank of Cyprus’ compliance director, and we’re discussing the bank’s compliance transformation since 2013. One of the key aspects of this was stepping up to aggressively tackle money laundering; tell me more.

Marios Skandalis: Yes indeed; our bank has aggressively engaged in a clean-up campaign under the most stringent ethical rules. During the past three years our bank has terminated 30 percent of its international clientele, more than 5,000 accounts were shut down, corresponding to more than €10m of annual net profitability.

We have also terminated 80 percent of our relationships with our professional intermediaries, from 1,600 we’re only left with 300 such relationships at the moment.

Although a hard path to follow, and harsh measures to apply, our bank has won Best Corporate Governance institution by World Finance for two consecutive years. Our bank has also won the 2016 award by Transparency International for adopting the best anti-corruption and transparency measures. It has also won the award of Bank of the Year for 2017 by Corporate Insider. And our bank is today the only financial institution in Cyprus that for two consecutive years were members of the Business Integrity Forum of Transparency International.

World Finance: It seems quite rare for a bank to be so honest and transparent about the efforts that it’s taking to tackle financial crime?

Marios Skandalis: This exactly, Paul. We’re not ashamed and we’re not afraid to say that we’ve shut down relationships. We’re not afraid to tell our investors that we’ve foregone tens of millions of profitability. Because we consider this foregone profitability to be an investment for the future: higher returns, and more robust returns.

World Finance: And what does the future hold for Bank of Cyprus?

Marios Skandalis: Our prime objective is our commitment to this new culture, to this new path that we’ve successfully applied over the last four years. But at the same time we would like to offer more to our customers, to our most important external stakeholders, by improving and enhancing our services to them.

Our bank has recently collaborated with IBM in a multi-million euro project, leading to a full digitisation of our bank over the next five years. This enhancement of our customer service and product excellence sets our bank as the undisputed leader in the south-eastern European region.

With this digitisation process, basically we’re trying not only to apply completely paperless relationships with our customers, but offer the ease to our customers to perform their banking affairs, either from their home or their mobile device or by visiting the branch, in the most appropriate way to them.

At the moment there are no other institutions that have taken such an aggressive strategic decision to fully digitise their operations. But we consider that unless institutions take this step forward, there is no future for those institutions in the short to medium-term.

World Finance: What does this kind of process present in terms of challenges for your compliance function?

Marios Skandalis: The challenges are quite high, because fully digitising a financial institution obviously creates new means of doing business and opening new gateways for customers to engage with our institution.

Therefore what we need to be is to be vigilant, to participate, review every possible new gateway that we open to our customers and new policies and services that we are offering to them; and make sure that the principles of compliance apply there as well.

Compliance is not a business-preventing mechanism to an institution. On the contrary, it is a business facilitator, to ensure our stakeholders receive a robust return and they don’t just receive any return which will take them into very risky paths of losing everything at the end of the day.

World Finance: Marios, thank you very much!

Marios Skandalis: Thank you too.

How Bank of Cyprus came back from its bail-in to listing in London

Posted on by World Finance

In January 2017, Bank of Cyprus Holdings was listed on the London Stock Exchange. It’s the latest milestone on its path back to strength, since the Cypriot financial crisis and a €10bn bailout in 2013. In those four years the bank has made stunning progress in restructuring its risk, improving capital adequacy, and establishing high corporate governance standards. Compliance director Marios Skandalis explains that journey, and how the bank’s compliance and corporate governance standards have kept the bank on track. Watch the second half of our interview with Marios, where he discusses the bank’s aggressive and transparent clean-up campaign to tackle financial crime, and Bank of Cyprus’ digital future.

World Finance: What was Bank of Cyprus’ position in 2013, and how far have you come?

Marios Skandalis: Well, following the events of 2013, when the economy went through a bailout with the Troika, the banking sector had to go through a major remediation. Bank of Cyprus had its depositors receiving a more than 50 percent haircut of their deposits. Bank of Cyprus also absorbed all assets and liabilities of the second-largest bank shutting down, including €11.4bn of emergency liquidity assistance. So you can understand it was a chaotic situation.

However, in 2014 we had a successful capital injection from private investors of €1bn. That same year we had a successful comprehensive assessment by the European Central Bank. But it was 2017 that has been the hallmark of this rebirth and remediation of Bank of Cyprus.

In February we had been successfully admitted to the London Stock Exchange, and a successful issuance of €250m tier two capital notes.

World Finance: How significant has your compliance function been in keeping the bank on a positive course?

Marios Skandalis: The compliance function was the function that has undergone the most heavy and major remediation in the bank. Given the direction by the board of directors that rather than just adhere to the regulatory framework in place in Cyprus, but applying, adopting, and adapting to best international practices and procedures; that meant simply for us a complete cultural transformation of our function.

In doing so, we took a holistic view, and we applied six strategic pillars in fully remediating the function: being reviewing the overall restructuring and organisational structure of the compliance function, enhancing our monitoring activities, enhancing our assurance activities, enhancing the awareness and training competency of the staff, and establishing new transparent channels of communication with our regulators and competent authorities.

World Finance: Tell me more about the corporate governance standards that the bank has embraced.

Marios Skandalis: Corporate governance is a core aspect of the new compliance function of the bank. Our listing to the London Stock Exchange is one example of that. Our bank today is the only institution in Cyprus that is concurrently governed by two codes: the Cyprus Stock Exchange code, and the UK code.

We operate the corporate governance function through our corporate governance group policy, our group diversity policy, our group nominations policy, and our group fitness and probity policy.

Our board undergoes an annual internal review of its composition and functioning, and also a triennial assessment by an external consultant.

This blend of procedures that we have applied – and of course, having the London Stock Exchange and the Cyprus Stock Exchange monitoring our corporate governance function – sets our bank as a benchmark among the best well-governed institutions in Europe.

World Finance: Being listed on the London Stock Exchange does give you a greater international profile; what are you hoping to achieve with this?

Marios Skandalis: Being listed and traded on one of the most mature and reputable stock exchanges in Europe not only enhances the liquidity of the trading of the shares, but at the same time it ensures that the fundamentals of our organisation reflects on the price of our shares.

It gives us the credibility towards our internal and primarily external stakeholders, like our investors primarily, and our customers.

Garanti Bank remains resilient amid volatile Turkish economy

Posted on by Ashton Wenborn

The second half of 2016 saw a sharp deterioration in risk perception towards emerging economies. At the same time, tumultuous political and geopolitical events led to the Turkish economy shifting away from other emerging economies.

And yet, despite these adverse developments, Turkey’s macroeconomic indicators were largely unscathed: economic growth contracted only slightly during the third quarter of 2016, before quickly bouncing back and exceeding economists’ expectations.

Remarkably, while political events were hitting headlines worldwide, Turkish GDP growth for the year came in at a respectable 2.9 percent. Against this setting, the Turkish banking sector was able to maintain its positive momentum and achieve impressive results.

Across the sector, there was an increase in net profits to TRY 37.53bn ($10.73bn) in 2016, up substantially from TRY 26.05bn ($7.45bn) the previous year, according to the Turkish Banking Regulation and Supervision Agency.

Garanti Bank’s resilience and strategy provides a prime example of how leading banks can remain stable even against a shaky external backdrop. Set apart from the competition with its technology, rich product range and efficient and dynamic process management, Garanti is able to provide its 13.2 million retail customers with a distinctive and quality service.

How did Garanti Bank’s retail performance remain resilient throughout 2016?
Despite the fluctuations in the economic environment and in exchange rates, Garanti was able to accurately assess the market and its customers’ needs in 2016.

The bank was not only able to manage its deposit costs effectively, but also managed to increase its market share in the aggregate measure of its time deposit products, including those in both domestic and foreign currency.

Notably, the bank was also instrumental in instilling savings habits in 356,000 of its customers. It was able to do so through the implementation of sound products such as its NET savings account product.

Also influential was the introduction of the Turkish Government’s incentivised marriage and housing accumulating accounts, which act to encourage citizens to save money.

Over the course of the year, Garanti increased its share in the consumer loans market (excluding consumer credit cards) to 14.6 percent, and thus held onto its position as Turkey’s biggest private bank lender to consumers.

In addition, it disbursed general purpose loans to approximately one million individuals over the course of the year, bringing the total volume to TRY 18bn ($5.15bn) and accounting for 11.52 percent of market share.

Furthermore, the bank was able to preserve its leadership among private banks for its mortgage provision, which accounted for 14.2 percent of total market share.

In April 2015, Garanti launched a new series of SMART funds which offer customers a brand new perspective on their investments. The funds hold investments in a number of commodity market products in both domestic and overseas markets.

By the end of 2016, Garanti had introduced SMART funds to nearly 26,000 retail customers, with the total volume of investment reaching more than TRY 570m ($163.01m).

Not only have the funds grown remarkably quickly over the past year and a half, but they have now become the largest variable fund available in the market.

What infrastructure does Garanti have in place?
Garanti has been operating in the retail banking sector for 29 years. The bank provides a wide range of financial services through an extensive distribution network of 959 domestic branches, with seven branches in Cyprus, one in Luxembourg and one in Malta.

It has three international offices in London, Düsseldorf and Shanghai. It also has a total of 4,825 cashpoints and an award-winning call centre, as well as internet, mobile and social banking platforms, all built on cutting-edge technological infrastructure.

How does Garanti differentiate itself from competitors in terms of market position?
Established in 1946, Garanti Bank is Turkey’s second-largest private bank, with consolidated assets of $88.8bn as of the end of 2016. Garanti is unwavering in its drive to maintain sustainable growth by creating value for all of its stakeholders.

At the core of our strategy is the principle of approaching customers in a transparent, clear and responsible manner, while continually improving the customer experience by offering products and services that are tailored to their needs.

Indeed, the bank owes its leading position in the Turkish banking sector to its competent and dynamic human resources, unique technological infrastructure, customer-centric service approach, innovative products and strict adherence to quality.

Garanti continues to differentiate itself and facilitate the lives of its customers with its dynamic business model and advanced technology, which is integrated with its innovative products and services.

Its custom solutions and wide product variety both played a key role in achieving its current position of holding $73.3bn in cash and non-cash loans. In addition, high asset quality continues to set Garanti apart from others in the sector. This is achieved through advanced risk management systems and established risk culture.

One of Garanti Bank’s core values is sustainability: a commitment to build a strong and successful business for the future, while minimising negative environmental and social impacts and upholding corporate governance.

Garanti’s sustainable approach is reflected in its community investment programmes, with commitments in a broad variety of arenas such as sports, arts, nature, education and the business world.

What can we expect from Garanti Bank in the coming years?
The year ahead will likely see continued volatility in both national and global markets. Despite challenging market conditions, Garanti aims to draw on its differentiated and dynamic business model to sign its name under many new success stories.

Garanti will take several key actions over the coming year. In line with the aims of Banco Bilbao Vizcaya Argentaria (BBVA), Garanti’s new majority shareholder, the bank will ensure that customer satisfaction remains a top priority.

BBVA’s tagline reads: “Creating Opportunities”; Garanti will bring new opportunities to its customers by offering them the best banking solutions, helping them make the best financial decisions and making a true difference in their lives.

In 2017, Garanti Bank’s asset growth is expected to remain loan-driven. Looking ahead, the bank will continue to actively shape its fund mix and optimise its funding costs.

While deposits will make up the larger part of its funding base, the focus for deposit growth will remain on sticky, low-cost mass deposits. Besides deposits, Garanti will continue to use alternative funding resources.

Amid ongoing regulatory compliance requirements in the industry, Garanti will focus on improving efficiency in its business processes, resource utilisation and customer relations in order to reach its sustainable profitability target.

Within these strategies, savings accounts, consumer loans and investment products will remain focal points. Furthermore, Garanti will aim to increase the adoption of payment and loyalty products which are vital to attracting customers’ cash flows to the bank.

In keeping with the constantly growing digital trend in the banking industry, Garanti will continue to offer easily accessible new products and services for customers and keep increasing the share of digital channels in sales.

Garanti is also renovating its service model at branches to provide a more digital and user-friendly experience. By using digital technologies, Garanti will aim to offer better, easier and faster services.

As branches continue to play a significant role in how customers bank, Garanti will continue to invest in its working relationship with customers.

Zenith Bank is leading digital banking in Ghana

Posted on by Ashton Wenborn

The digitalisation of financial services is afoot in Ghana, and Zenith Bank, winner of World Finance’s Best Banking Group award three years in a row (2015 to 2017), is in the vanguard of the trend. The demand for greater convenience and scale, together with lower costs, is currently spurring digitalisation at an exponential rate.

Furthermore, regulators and industry players are now recognising that new, dynamic channels are required to bring formal financial services to the doorsteps of those who have previously been excluded.

Thus, banks, non-bank financial institutions, mobile network operators and third-parties are leveraging mobile phones, the internet and point-of-sale devices to offer more convenient basic financial services to customers. Ultimately, this facilitates financial inclusion for the entire Ghanaian population.

A new way to bank
Perhaps the most popular and transformative instrument of digitalisation in Ghana’s financial sector has been the mobile phone. Mobile banking in Ghana is currently on the rise.

This relates specifically to basic banking services, such as balance checking and fund transfers, which customers can now easily access through their mobile phones.

When mobile phones first arrived on the market and were far less sophisticated than they are now, Zenith Bank released a product called Z-Mobile. This was before other banks had even taken notice of the looming trend.

This platform gave customers access to their bank accounts using the basic handsets that were in vogue at the time. Since the proliferation of smartphones and tablets, the bank has relaunched Z-Mobile as a mobile banking app, making Zenith Bank one of the first in the Ghanaian banking industry to launch a mobile banking app.

Z-Mobile, which is simple to use and extremely secure, enables customers to access their accounts and conveniently carry out banking transactions from any part of the world via their smartphones and tablets.

The app allows customers to check accounts, view transaction history, top up investments (within Zenith and other investment houses like Databank), set up beneficiaries, make instant intrabank and interbank transfers, and pay bills – all on the go.

Mobile Money is a nationwide platform owned by the country’s mobile operators, which uses mobile phones to supplement the financial system’s infrastructure.

In doing so, it provides remote financial services that are less costly, both for users and in terms of physical infrastructure. It is estimated that around 20 percent of adult Ghanaians now have a Mobile Money account, compared with practically zero a few years ago.

These Mobile Money accounts are used to receive or send money, as well as to pay for goods, services and bills. According to the central bank’s data, Mobile Money transaction volumes have virtually doubled each year for the past five years, with the value reaching $9.3bn between January and July 2016.

While some Ghanaian banks bemoan the competition from Mobile Money, Zenith Bank is tapping into the opportunities and possibilities it presents to grow its own business.

This is being done, for instance, through the bank’s Mobile Money Bank2Wallet service. The service enables customers to link their Mobile Money wallets (either MTN or Airtel) to their bank accounts in order to transfer money between their accounts and wallets, and to make payments remotely at any time of the day.

Today, less than a year after the service was launched, well over 12,000 subscribers have signed up, with monthly transaction values reaching beyond GHS 150m ($34m).

Innovative uptrends
Electronic banking was once considered ‘rich-world banking’ in Ghana. Those were the days of poor internet services and limited accessibility. It was a time when the middle class was barely visible.

This narrative has now changed – gradually at first, but dramatically in the last couple of years. This can largely be attributed to Ghana’s fast-growing middle class, which is led by an energetic, entrepreneurial cohort of Millennials who have grown up with mobile technology. It has therefore become clear that transacting financial services over the internet is a credible and cost-effective alternative to face-to-face banking.

Digital channels afford the unbanked an opportunity to leapfrog barriers that have historically excluded them from the financial system

In e-banking, as in other areas, Zenith Bank’s innovations have heralded new milestones, not only for the bank, but for the whole industry. For instance, Zenith GlobalPAY, a secure, web-based collection gateway, which enables merchants to accept online card payments in real time from customers worldwide.

With a one-time integration process, merchants on GlobalPAY can receive payments from a variety of locally and internationally issued cards. This product has proved popular, with transactional volumes hitting GHS 35m ($8m) last year.

As of June, transaction volumes had exceeded those of 2016, and are estimated to reach $70m by the close of 2017. With increasing demand from merchants to sign on to the GlobalPAY platform, future projections could see volumes tripling year-on-year.

Zenith Bank’s continued investments and upgrades have produced a robust digital banking infrastructure for the bank, which is complemented by the best debit, pre-paid and credit cards on the market.

This year, in addition to its suite of Visa cards, the bank has also rolled out MasterCard debit, pre-paid and credit cards, expanding the options for customers to access their funds from more than 33 million locations worldwide.

Card issuance currently stands at over 300,000 and is expected to grow further, with more card products at the final stage of approval. When these new card products are approved, issuance could reach over half a million each year.

The prospects for further growth in e-banking are excellent, with Zenith Bank’s regulator, the Bank of Ghana, encouraging the industry to maintain innovation as it attempts to reform the payments system. These reforms aim to make it more secure and diversified.

The economy’s return to rapid economic growth in 2017 will also restore consumer spending and bolster demand for banking across a broad range of services.

Financial inclusion
Besides enabling the banked to conduct financial services with greater ease, digitalisation is also promoting financial inclusion. Digital channels afford the unbanked an opportunity to leapfrog barriers to brick-and-mortar banking, such as cost and infrastructure, that have historically excluded them from the financial system.

Of the 20 percent of Ghanaian adults who have Mobile Money accounts, half do not actually have a bank account. This proves that Mobile Money does not just enable cheaper and more convenient financial services for those who already have access, but is also spreading its reach to those who were previously excluded.

Having operated as a major financial services provider in the country for more than a decade, Zenith Bank has an approach to financial inclusion that is built on a deep understanding of the reasons for financial exclusion.

Essentially, the causes of low financial inclusion can be explained by both demand and supply constraints: demand constraints limit demand for financial services to those who tend to be excluded, while supply constraints restrict supply from financial institutions to the underserved population.

On the supply side, the high cost of building and maintaining physical bank branches has been a major hurdle in extending financial services to remote communities.

While Zenith Bank has been undertaking strategic physical branch expansions across the country, its frontline role in digitalisation is positively enhancing financial inclusion in Ghana.

On the demand side, Zenith Bank recognises that the kinds of financial products and services offered by providers, as well as their design, availability and how they are marketed, are important determinants of uptake by both bankable and unbanked individuals.

The bank has therefore been prioritising product and service innovation to suit the needs of varied market segments, including those frequently underserved.

Recently, the bank stepped up its engagement with small and medium enterprises (SMEs), which are more likely than other firms to be unbanked, by training special staff whose main responsibility is to cater to SMEs’ specific banking needs.

Zenith Bank believes the momentum that digital finance has gained in Ghana will remain strong for years to come, driven by government and regulatory initiatives, innovation by service providers, increasing financial literacy, and an improving economy.

The bank stands ready to take advantage of both the opportunities and challenges this evolution will present by continually investing in its people and infrastructure, innovating new products and services, exploring strategic partnerships, and putting the customer at the heart of everything it does.

Zenith Bank was recently named the bank that best promotes cashless transactions in Ghana at the 16th Ghana Banking Awards for the third time in a row. This recognition underscores Zenith Bank’s leadership in digital finance in the Ghanaian banking industry.

CB Bank leads Myanmar’s drive for digitalisation

Posted on by Ashton Wenborn

After years of isolation, Myanmar opened up to the global economy in 2010, and its banking sector sprung to life. Consequently, foreign direct investments started to flow, particularly towards the telecommunications sector.

Myanmar’s mobile phone penetration, once at one of the lowest levels in the world, has grown to 90 percent in recent years, with smartphone ownership rising to 80 percent.

This trend has boosted digital evolution, transforming the financial service environment in Myanmar, both online and offline. In recent years, more ATMs have been installed, more credit cards have been issued and new, modern bank branches have been built.

Since its foundation in 1992, CB Bank has been at the forefront of the financial market’s digitalisation. In 2011, the bank introduced the country’s first ATM service.

In the following year, it once again acted as a pioneer, implementing the first core banking system in Myanmar, which has since allowed the bank to introduce new products in the market. What’s more, this has paved the way for further innovation.

Adapting the industry
In 2013, CB Bank launched the first mobile banking app and internet banking platform in the country. As Thein Zaw Tun, Managing Director of CB Bank, put it: “We have changed the customer’s perception of the banking industry in Myanmar. Despite the fact that CB Bank is one of the oldest private banks in the country, it is constantly changing to keep up to date with the challenges and opportunities that new technology brings. For example, our innovation in digital banking has allowed us to engage in partnerships with global tech firms, such as Grab and Uber.”

The adoption of modern tools like digital transactions is expected to take longer as customers are still cautious about the security of the digital environment

CB Bank provides its customers with mobile banking services, both for individuals and businesses. Through the mobile banking app, the former can access 60 different services, including basic banking functions and mobile phone top-ups. They can also make money transfers inside the country with just a valid national identification card and a mobile phone number.

Internet banking allows CB Bank’s corporate clients to access financial services remotely, meaning their needs are met without the need to travel to branch offices.

They largely relate to everyday operations, allowing companies to make payments to vendors and counterparts, administer payroll for employees, send trade documents and employ foreign exchange services, among other facilities.

“All of these functions are accessible online to save clients time by keeping them away from the usual traffic congestions in Yangon, Myanmar’s capital city,” said Thein Zaw Tun. “Our digital business banking platform helps our clients to focus on their business, instead of spending their time on manual banking transactions.”

CB Bank has also worked with large corporations to integrate their enterprise resource planning systems with the bank’s core banking system. This has enabled corporate clients to automate their financial transactions and payment process flows with the bank.

Despite all of the steps made towards digitalisation, Myanmar is still a cash-based society. “This is why we have implemented automatic banking machines such as ATMs, cash deposit and withdrawals machines, and cheque deposit machines, along with foreign exchange terminals, to buy and sell foreign currency notes,” added Thein Zaw Tun. CB Bank’s automatic cash services are available 24/7.

The outcome of this widely expanded technology infrastructure is that, today, 40 percent of the bank’s total transactions are digital. That said, the journey towards the country’s complete transformation is taking time for several good reasons, according to Thein Zaw Tun.

The first is the size of the territory: “Myanmar is the second-largest country in Southeast Asia; there are 330 towns and cities and more than 70,000 villages.”

The second reason is, as mentioned previously, the traditionally high use of cash. But there’s another cause: the banking sector in Myanmar has a difficult history, which has undermined the confidence in the system.

Rebuilding trust in the banking industry is not possible overnight. For that reason, the adoption of modern tools like digital transactions is expected to take longer as customers are still cautious about the security of the digital environment.

“In the transition, therefore, we need to find the balance between the digital presence, mainly in payments, and the physical presence, based on cash points for digital financial services,” said Thein Zaw Tun.

Given the size of the country, digital banking represents a huge opportunity for financial inclusion. With 55 million consumers, banks are limited in their reach to people and businesses across the territory.

Time and strong investments would be needed to expand in the traditional way. Digital tools, however, can be a catalyst for development. Anyone who has a mobile phone can now send and receive money.

Another banking channel aimed at accelerating the pace is the mobile agent banking network, a service introduced to CB Bank’s mobile platform in 2014 to bring financial services to rural areas not covered by bank branches.

“Our agent banking network covers rural areas and carries out basic banking transactions in places where there are no bank branches,” said Thein Zaw Tun.

Moreover, the bank recently partnered with Myanmar’s post offices to introduce mobile banking agents throughout the country, a move that is expected to further support the country’s efforts to boost financial inclusion.

In addition, the bank has opened accounts with Grab and Uber, providing mobile banking services and issuing ATM cards to thousands of taxi drivers in Yangon.

The concept of inclusion is also valid for small and medium enterprises (SMEs), with many of them now using mobile banking facilities. Furthermore, the bank is the largest acquirer and issuer of card payments through POS terminals in Myanmar – merchants being their main users, in addition to SMEs.

“The SMEs have a working relationship with our large corporate clients, with whom we have direct system integration, so that financial processes can be automated and executed on a real-time basis. In this way, we have built a digital banking ecosystem,” Thein Zaw Tun said.

All of these initiatives show how CB Bank is contributing to the development of the digital economy, a process that starts by listening to customers and delivering solutions to them, especially in relation to digital payments.

New targets
Before the country was integrated into the global economy, the bank was functioning as a retail bank without a team dedicated to supporting large corporations.

At the time, no one had ever heard of digital banking in Myanmar. But after 2010, a growing number of foreign corporations entered the country, while local companies crossed the border to expand their reach.

“This has shaped our services, particularly as we continue to learn from our partner banks in other countries in terms of how they serve their corporate clients. This is how we started a technology-based cash management service for our multinational clients,” explained Thein Zaw Tun. For the bank, which now offers cash management services to foreign bank branches in Myanmar, the journey has been as challenging as it has been rewarding.

Throughout this revolution, Millennials have been the catalyst for change. This generation, which grew up in a connected environment with mobile phones and social media serving as their main communication tools, largely refrains from visiting bank branches and prefers digital banking for transactions.

“Today’s youth, the so-called Generation Y, demands basic financial products like credit cards and loans to support their lifestyle. Banks are therefore being challenged to design products and services to meet their needs: simple to understand and user-friendly,” said Thein Zaw Tun.

He continued: “They want to live their lives online, and this is how our strategic focus on digital payments is helping us to reach this group. Partnerships with tech firms like Grab and Uber place us in the right direction to target young customers.”

That said, Millennials are but one group of potential clients in the market. Today, banks in Myanmar are growing from a very low base, as less than 10 percent of the population has access to formal banking services.

This sets particular game rules in the local market, where banks are no longer just competing with other banks; they are also competing with tech firms such as telecoms providers, as well as fintech start-ups.

Amid this increasingly digitalised environment, banks face further changes and challenges as they continue to add value for their customers. Meeting new requirements means moving to an agile and omnichannel model, in which services are in easy reach of any client, in the real or the cyber world. CB Bank is fast approaching this new world, conscious that customers need banking, not just banks.

New Bank of Mexico governor faces tough inflationary challenge

Posted on by Max Tomlin

On November 28, the Bank of Mexico unveiled Alejandro Díaz de León as its new governor, replacing the outgoing Agustín Carstens. Díaz de León, who has been deputy governor at the central bank for less than a year, will begin his term on December 1.

Díaz de León’s industry knowledge will no doubt prove vital as he attempts to tackle a number of issues facing the Mexican economy

The appointment of Díaz de León had been widely expected, given his many years of experience within the Mexican financial sector. In fact, he began his career with a 16-year spell at the central bank before moving into government, where he worked as the head of the public credit unit in the Ministry of Finance.

Díaz de León’s industry knowledge will no doubt prove vital as he attempts to tackle a number of issues facing the Mexican economy. Inflation currently stands at 6.6 percent, more than double the bank’s three percent target, while the economy contracted during the third quarter of the year.

Many analysts believe that Díaz de León may be forced to raise interest rates again to rein in inflation, but the new governor explained that any decision on monetary policy would have to be supported by data in order to prevent unexpected impacts.

“In the last months we have been quite clear to highlight that we have been facing the shocks that I have alluded to and we are still not free from potential additional shocks,” Díaz de León told Reuters. “We cannot assume that the disinflationary path will necessarily go as expected.”

Díaz de León has been keen to stress that the role of the central bank should not extend beyond meeting its inflationary target. Given that this is already proving a difficult task, perhaps it is understandable that he is reticent to add to the bank’s list of responsibilities.

The new governor is also well aware that many of the factors creating inflationary pressure in the country are beyond the bank’s control. Seasonal increases in fuel prices, the threat of a breakdown in the ongoing NAFTA talks and a recent earthquake in Mexico City have made the central bank’s unenviable task all the more challenging.

Private banking disrupts Italy’s wealth management market

Posted on by Ashton Wenborn

The wealth management industry is currently undergoing the most major disruption since the financial crisis, due to the convergence of several major factors.

Technological development is bringing greater digitalisation and automation to financial services in the form of new fintech solutions, such as virtual advisers.

Meanwhile, private banks have begun to offer improved specialisation in wealth management, along with new ways of organising and selling their services. Finally, in the background, government regulations are focusing on customer protection, and demographics are also shifting.

Although ageing populations continue to spur the development of retirement planning and wealth transfer services, Millennials are now changing the landscape, not least because they raise the number of wealth-owners in the younger generation as a whole.

Among this cohort, entrepreneurship significantly overrides inheritance as the major source of wealth, while Millennials also underpin a new emphasis on social impact investing.

Moreover, Millennials tend to demand greater personalisation in customer service, which is partly thanks to the pervasiveness of innovative technologies. In fact, technological change is spurring demand for simple products, customised solutions and the delivery of services through new digital channels.

Unfortunately, amid all of this, loyalty rates are dropping as customers become increasingly self-directed, turning to service providers that can offer the most dynamic solutions. In such unstable times, wealth managers must overcome the difficulties of adapting while managing the pressures of day-to-day operations.

Plotting a course
In response to technological progress, digitalisation brings opportunities for differentiation. Customers are increasingly seeking fully digitalised, omnichannel services in order have an active role in the management of their money.

As such, it is important for the industry to invest in end-to-end digital processes by significantly improving their back-end technology. This, in turn, will provide customers with full-featured client platforms, such as remote advisory and transactional services that are aligned with the platforms used by relationship managers themselves.

More broadly, technology can help wealth managers adapt to the evolving regulatory climate. For example, wealth managers can be more confident that they are both compliant and competitive if they develop new operating models that progressively digitalise processes in line with emerging standards for transparency, customer support and business law.

BNP Paribas hopes to be a leading light in transforming the wealth management industry by 2020, by taking a strategic, innovative approach to all markets

Furthermore, technology can be useful in responding to demographic change, as investment in omnichannel and digital services is quickly becoming a must-have.

That said, wealth managers should also employ more conventional resources, such as brand cultivation and relationship management, to boost customer trust and fulfil the new demand for interactive, personalised and focused service solutions.

The Italian landscape
Italy’s wealth management market offers good examples of how the industry as a whole is starting to change. Like elsewhere, customers are increasingly seeking fully digitalised, omnichannel services.

As such, Italian wealth managers generally structure customer interactions around the ‘ATAWAD’ model (AnyTime, AnyWhere, AnyDevice). International players and cross-industry newcomers, such as fintech developers, drive this competitive landscape.

Change is also spurred by rising costs, unsteady profits and new customer behaviours that are often the result of greater selectivity and a willingness to only pay for things that represent real value.

Meanwhile, existing business models in Italy are coming under further scrutiny as EU regulations continue to evolve. A prominent example is the forthcoming update to the Markets in Financial Instruments Directive, known as MiFID II, which will legislate for greater investor protection and stronger supervisory powers.

In Italy, where wealth is generally distributed across the central and northern regions, the total wealth of households that have financial assets in excess of €500,000 ($587,860) is over €1trn ($1.18trn).

In recent years, this figure has been steadily increasing. Of such households, about 75 percent are run by private facilities that have developed a dedicated business model.

Meanwhile, the remaining 25 percent represent a potential market that still goes unmanaged by private banking. The latter portion, which is known as the aggressive market, comprises €250bn ($293.85bn) of unmanaged wealth, as well as potential customers from large commercial banks without sophisticated services.

Meanwhile, more than 650,000 households comprise medium to high-level entrepreneurs, with a high rate of wealth that is currently being invested in illiquid assets, such as unlisted companies and real estate.

The most important feature of the Italian market is the substantial number of business owners, who mainly control small and medium-sized enterprises (SMEs). Entrepreneurs express a variety of attitudes when choosing wealth managers.

On the one hand, they prefer institutions that have a local presence. On the other, they recognise that solidity, expertise and greater confidentiality can make major international players more desirable.

Most notably, many family-based enterprises consider family offices to be the best at managing the needs of a large client group with extensive financial, real estate and business assets.

In such cases, wealth management must be dedicated and highly personalised, yet this can be difficult for some private banks given the limitations of their existing operating models.

The BNP Paribas paradigm
In light of these various disruptions, BNP Paribas hopes to be a leading light in transforming the wealth management industry by 2020, by taking a strategic, innovative approach to all markets – paying particular attention to Italy.

The firm’s private banking arm has already launched a programme called ‘private banking service models and related customer journeys’, which uses ATAWAD logic to develop new service models for key clients, including private wealth management and relationship managers.

The goal of such models is to make value propositions more attractive by packaging them within a distinctive and consistent customer experience. To maximise the effectiveness of such a plan, the firm will need to make concrete, appealing promises and to present current and future initiatives to clients in an articulate manner.

Underpinning these goals will be digitalisation and personalisation, most notably through the provision of 24-hour services and continued investment in relationship management.

BNP Paribas’ private banking wing intends to increase market share by innovating its service model for private network clients. This will be achieved in three main ways: first, investment in remote digital interactions that will connect multiple instruments to achieve high added value.

Second, the firm will extend its financial and non-financial offerings. New forms of wealth planning, real estate advisory, succession planning and art advisory services will be introduced, all of which are tailored to meet the expectations of younger generations. Finally, BNP Paribas hopes to build innovative key enablers that can connect tools and sustain a multitude of customer journeys.

Examples of such enablers include Youmanist, a new customer journey service that is designed to boost onboarding based on an end-to-end process that spans from customer attraction to customer acquisition.

Youmanist works via mobile apps and conventional websites, and contains lifestyle and work-balance solutions, simulation tools for wealth planning, premium services, and access to peer-to-peer communities.

Similarly, another enabler called Privilege Connect is being established as the private banking wing’s tailor-made service centre, offering extended, 24/7 support via a dedicated phoneline, digital and direct access points, and customer service agents. This will supplement daily banking, which is bookable through the service centre’s ‘pick up–home delivery’ scheme.

King customer
Beyond developing its private network clients, the firm also hopes to cultivate service models in its wealth management segment more generally by creating a dedicated family office and by fully exploiting synergies with the entrepreneur segment.

As with all new services, it is important to emphasise that different models add value in different ways. For example, some customers want strong, personalised interactions with relationship managers that are sustained by innovative methods of advising, such as 24-hour access to services.

The firm’s digital enhance model would cater to such needs adequately, yet it would be ill-suited to the demands of customers that prefer a more dynamic, remote relationship. For the latter, BNP Paribas’ I-Private model, which relies more on digital processes, would come into its own.

To remain relevant in the turbulent world of wealth management, it is crucial to have a centralised, enriched, segmented understanding of customer needs. As such, BNL-BNP Paribas private banking has identified six different customer categories by analysing its clients against various customer personas and archetypes.

From there, it was possible to define customer engagement processes and to offer customised services that follow customer journeys with the support of several high-innovation tools.

In satisfying the customer demands that have emerged in recent years, it is necessary to focus on providing both a highly personalised customer service and on catering for digitalised, international interactions. Ultimately, such developments should expand the firm’s pool of managed assets while nurturing strong, positive relationships within a growing customer base.

Empresta Capital knows that green banking is both profitable and responsible

Posted on by Ashton Wenborn

With most of the developing world suffering from a high degree of social uncertainty and environmental damage, it has never been more important to have real investment opportunities that provide a combination of a good financial return and a positive environmental and social impact. But is it possible to balance such different goals in a single project or investment without being rhetorical, or even theoretical?

It is sometimes suggested that microfinance is a solution to this problem. By focusing on specific niches and providing a different product design and customer approach, it is possible for microfinance players not only to see positive financial returns by appealing to the underserved masses, but also to have a very positive social and environmental impact.

This mutual benefit is being realised worldwide, as can be seen in the growth of microfinance investment vehicles in recent years (see Fig 1).

Brazilian model
Despite having a well-organised and strong financial system, the major players in the Brazilian market have never truly focused on microfinance as a profitable niche. This is, in part, explained by the amounts of money poured into the market by the last three governments, which almost nationalised credit for the masses without any real concerns about risk control or collection procedures.

Furthermore, the amount of customisation available for certain financial offerings, the need to speak a different customer language, and the intrinsic costs involved in reaching certain niches can perhaps explain why there has never been a lot of traction from the major banking players.

Fortunately, given the almost continental size of Brazil – with more than 207 million inhabitants – there are plenty of opportunities for those who really want to focus on the microfinance world.

What’s more, the timing has never been better, given the complete withdrawal of the government from the local microfinance market after a turbulent political and economic period that culminated in an impeached president, a poorly supported new government, and a fragile market. In fact, there is so much opportunity for investment in this area that it’s important to balance one’s efforts and focus in order not to lose control and incur unnecessary risk.

Since 2004, Empresta Capital has been one of the pioneers of microfinance in Brazil. It is a financial institution authorised and regulated by the Brazilian Central Bank to provide microfinance throughout the country.

In 2012, it was named the most innovative microfinance provider in the country by Citibank and, in 2013, it was given the Brazilian Microfinance Association’s highest award.

In 2009, Empresta became the first financial institution to build a specific open microfinance investment vehicle in Brazil. This, in turn, helped the company to stand out from its competitors as well as dissociate itself from the image of a purely social and philanthropic player.

Since then, the fund has consistently paid a higher yield to investors without a single month on a negative or close-to-risk-free rate. In 2014, after a long period of experimentation, Empresta also became the first financial institution in Brazil to offer a fully online, paperless variant of a traditional credit offering, making use of a fintech app.

Microfinance brings complicated regulations, governance and financial solutions to a straight-talking, ‘no frills’ customer base. This creates the need for a sensible and controlled process, intended to maximise customer understanding and balance this with adequate risk control.

By focusing on specific niches, it is easier not only to adapt one’s offerings, language and business DNA to a customer base, but also to understand the risks involved in providing financial solutions, such as credit, to that customer base.

Given the fact that most microfinance initiatives are aimed at an underserved customer base, a positive social response can be expected. Most microfinance customers are located in underprivileged areas, and credit facilities and financial products offer an important boost to local productivity.

As an example, many people in Brazil are employed in residential and commercial condominiums in low-wage jobs. In order to supplement their income, many of these workers have a second job outside their normal working hours.

In cities along the coast, for example, they might sell beverages and refreshments to tourists during weekends and public holidays. The products they sell are themselves bought from small providers in the local community. By extending credit to those providers, it is possible to generate direct and indirect jobs in the community.

Given the considerable cost reduction that a well-implemented energy efficient project can provide, Empresta enjoys a very low default rate from this customer base

Within its niche strategy, Empresta Capital focuses on a very specific customer base: micro and small entrepreneurs serving a long supply chain of local, residential and condominium buildings in different areas of the country.

Given the economic challenges faced by the country, especially since 2014, local condominium operators have tried to scale down costs in order to reduce fees for tenants. New and upcoming environmental technology and energy-efficient projects have played a key role in this respect.

In general, micro and small entrepreneurs are the common service and product providers of those projects, given the small scale of the average condominium.

Empresta Capital has been actively financing these micro and small entrepreneurs to help them develop solutions such as sun panels, green spaces on rooftops, LED lighting, and water efficiency solutions (e.g. rainwater stocking and recycling).

This is what we call ‘green microfinance’. By extending credit to micro and small providers, it is possible to generate a very positive environmental impact on a local cluster, such as a condominium building.

What’s more, given the considerable cost reduction that a well-implemented energy efficient project can provide, Empresta enjoys a very low default rate from this customer base.

Tech revolution
Technology has played a key role in enabling Empresta to reach new frontiers. For traditional banks, there are many costs involved in servicing a small loan, most of which are due to the higher concentration ratio that they tend to operate.

Empresta, on the other hand, has an average loan size of around $1,200, which allows for a much higher number of loans without the associated risk that traditional banks take on.

Internal processes and formalisation also play a key role in enabling access to a larger customer base before incurring unnecessary risk. By implementing new technology, especially mobile apps, not only can Empresta empower customers with a simpler proposition, it can also improve its operational and risk efficiency. All Empresta’s operations are paperless, easily tracked, and contained in a simple and easy-to-use customer interface.

As discussed previously, a well-constructed and implemented microfinance project can be a valuable tool to reduce negative social and environmental impacts, and increase investor profitability; in short – it pays to be green. However, without going too deeply into macroeconomic factors, microfinance operators do face a number of challenges.

One of the main difficulties is how to measure a project’s impact on a community or on the environment. One of the main efforts being made to tackle this issue is the Social Performance Task Force – a joint effort from social investors and microfinance operators to standardise the way impact is measured in specific projects.

It forces operators to monitor and provide feedback on social and environmental factors, both at the strategic stage and in terms of the actual process, as well as providing information on corporate governance and internal policies.

It also encourages microfinance institutions to build specific micro-metrics teams or departments, directly linked to board members and corporate governance policies, so that the data can be put to use in driving the company’s ongoing strategy.

Another issue is local regulations, which are normally politically charged, with big players wielding significant lobbying power, and economic instability exacerbating caution.

When it comes to a broader microfinance project, a long-term approach needs to be considered and constant feedback is necessary to adjust policies in order to provide a business environment that fosters social and environmental impact in a sustainable and profitable way.

Of course, these hurdles are significant, but the benefits of microfinance are important enough that they must be surmounted. The innovative use of technology to plan, monitor and improve the success of projects can allow a dedicated provider to overcome almost any challenge.