Year: 2019

IMF approves $498m disbursement to Ecuador

Posted on by Jack Pearson

On December 19, the board of the International Monetary Fund (IMF) confirmed it had completed its second and third reviews of Ecuador’s performance under its 2019 economic programme. The completion of these reviews has allowed the Ecuadorian authorities to draw the equivalent of SDR 361.3m ($498m) from the IMF. However, there are expectations for what the money can and should be be used for.

In exchange for financial assistance, the IMF has stipulated that new economic reforms in Ecuador will be focused on reducing the current fiscal deficit, and for enacting changes in labour legislation to encourage increased productivity and competitiveness. The IMF additionally wants to be certain that any policies implemented will aim to make Ecuador self-sustainable in the future, and enable the country to function without additional international intervention.

In exchange for financial assistance, the IMF has stipulated that new economic reforms in Ecuador will be focused on reducing the current fiscal deficit

The Ecuadorian authorities have previously adhered to similar demands by showing their commitment to fiscal prudence, which is seen as the key to economic sustainability. However, protecting the poor and improving the social safety net both remain central priorities in Ecuador’s government-led programme. There remain long-standing concerns that austerity policies imposed by the IMF have caused additional economic hardship.

In 2015, Ecuador’s economy fell into a recession that persisted throughout 2016. To make matters worse, 2016 also saw a catastrophic earthquake in the country, leading to further financial difficulty.

In 2017, Lenín Moreno was elected the country’s president. His first challenge was to reignite the private sector to improve the country’s cash flow. This initially worked; Ecuador’s economy returned to positive (albeit slow) growth. In 2018, however, Ecuador’s GDP growth declined again, dashing any hopes of a quick recovery.

The weak economic growth of the past few years is partly to blame for why Ecuador has accumulated such a considerable amount of debt. Ecuadorian authorities will no doubt be hoping that the IMF’s financial aid will bolster the Central American country’s floundering economy.

CMB: Future of industry is combining investment banking and private banking

Posted on by World Finance

In the last 20 years, Monaco has seen an inflow of very sophisticated clients – not just millionaires and billionaires, but active ones, seeking help not just with managing their money, but managing their businesses. This is why Francesco Grosoli, CEO of Compagnie Monégasque de Banque (CMB), believes the future for the bank – and the industry as a whole – is to combine private banking with investment banking. He explains how CMB’s participation in the pan-European Mediobanca Group facilitates these services, and his personal ambitions for the future of the bank.

World Finance: Francesco, how does CMB set itself apart in such a highly competitive market?

Francesco Grosoli: Before talking about CMB, I think it’s important we talk about the Monaco marketplace – and how Monaco in the last 20 years has evolved.

We had an inflow of very sophisticated clients. Active entrepreneurs; billionaires – more than 50; millionaires – more than 12,000. It’s a very competitive market. And clients – particularly entrepreneurs – are looking for help in not only managing their money, but also in their different businesses.

We might have clients wanting to buy businesses, or to sell businesses; and having behind us Mediobanca Group, which is a pan-European investment banking group, is a great add to the service that we can provide.

And of course, CMB is there to manage their wealth: not only to invest their money, but also to consult us for the strategy and the future of their families.

World Finance: Mediobanca recently announced its four year plan; how does CMB fit into this strategy?

Francesco Grosoli: It’s very ambitious. So Mediobanca has planned a four percent increase in revenue, to €3bn. A four percent increase in earning per share, from €0.9-1.1bn. And a shareholder distribution over the period of €2.5bn.

And on top of it, CMB has been even more aggressive. Our goal is to reach €15bn of assets under management – so more than 20 percent increase from where we are now.

World Finance: And how do you intend to achieve this?

Francesco Grosoli: We have hired already quite a big team, joining me at the same time. Investment specialists, private bankers, to manage the client assets. But also creating synergies with the group.

The future of the industry is to bring together investment banking and private banking. Creating a private investment banking service that is, and will be, second to none.

This needs highly skilled bankers, technology, the help of the investment bank behind us. But also a lot of passion, of dedication.

Products are more or less a commodity – you can buy them everywhere. But the way you sell them to your clients, the way you are helping them, deciding which solution is the best for them: that’s what it’s all about. And that’s what I want CMB to achieve.

We don’t want to be the biggest bank; we want to be the best bank, we want to be dominant in the principality and beyond.

World Finance: Now you personally joined CMB in May of 2019 – what attracted you to join the bank?

Francesco Grosoli: I’ve been working 20 years for large groups, and the appeal of joining a smaller organisation where I can definitely influence the future of the bank, and be more impactful to bringing to life an organisation that is today very well known and recognised locally. We have very strong Monégasque DNA, but with behind us a very entrepreneurial group with a pan-European footprint.

The fact that most of the decisions are taken locally, in conjunction with our group, makes us faster, more responsive. We are closer to clients, and we are capable of putting the whole organisation for one specific deal, and making it happen very quickly.

It is time today to bring something different, to differentiate ourselves from the usual private banking service that is provided by our competitors.

That’s what we can achieve, and that’s what we will bring them in the next four years.

World Finance: Francesco, thank you very much.

Francesco Grosoli: Thank you.

Economic growth in Rwanda has arguably come at the cost of democratic freedom

Posted on by Jack Pearson

A quarter of a century after the Tutsi genocide, Rwanda’s economy appears to be thriving, with annual GDP growth averaging 7.76 percent between 2000 and 2019, and growth expected to continue at a similar pace over the next few years. In light of the country’s chilling history, it is a curious state of affairs that Rwanda, a country once defined by death and conflict, has developed its economy to such an extent that it now aims to be an upper-middle-income country by 2035, and a high-income one by 2050.

Marie E Berry, Assistant Professor and Director at the University of Denver’s Josef Korbel School of International Studies, provided a possible explanation for these rapid developments: “In Rwanda, economic growth has been made possible by the strength of the state and the ruling party’s grip on power.”

Indeed, the business climate in Rwanda has continued to improve under the ruling Rwandan Patriotic Front. In 2009, the country ranked 143rd in the World Bank’s Doing Business report; by 2019, Rwanda sat 29th on the list, ahead of Spain, Russia and France.

However, Linda Calabrese, a research fellow at the Overseas Development Institute, told World Finance: “[Despite] Rwanda [being] one of the fastest-growing economies in Africa and the world – with low inflation – it has experienced limited economic transformation, with growth reliant on a small base.” In order to sustain economic growth, therefore, it is important for Rwanda to further diversify its economy.

Rwanda’s economy has benefitted from an increase in gender equality – a fact that is seen most prominently in its parliament, where 61 percent of members are women

Outside help
Since the end of the genocide, Rwanda has received extensive foreign aid, with nearly 50 percent of its 2019/20 budget coming from domestic and foreign borrowing. The country’s reliance on foreign aid has made the economy unstable: in 2012, for example, aid was withdrawn after the Rwandan Government was accused of sending troops to help rebel forces fight in the Democratic Republic of the Congo (DRC).

The US has continually aided Rwanda financially since 1964 – support the Rwandan Government received on the condition that it cracked down on corruption within the country. Rwanda has also developed regional trade links with the countries it shares borders with, which is especially important due to it being a landlocked country.

To improve its ability to trade effectively, Rwanda is currently reinforcing its relations with the DRC, as affirmed by academic Jonathan Beloff, who told World Finance that “political and security relations between the two nations have improved by leaps and bounds, with an eye towards economic integration”. Another strong financial supporter of Rwanda has been the World Bank, which has committed over $4bn to the country since the genocide ended.

A change in the weather
Despite the continual growth of the country’s economy in recent years, Rwanda’s reliance on its agricultural industry makes it difficult for the country to formulate an accurate figure for GDP growth each year, as unexpected droughts can undermine economic forecasts.

Similarly, climate change makes the weather much harder to predict, with low levels of water particularly difficult to cope with. Rwanda’s terrain also poses problems due to 90 percent of its domestic cropland being situated on slopes ranging from five to 55 percent in altitude. It is estimated that around 1.4 million tonnes of soil are lost per year as a result of erosion, a cause of great concern given that 80 percent of Rwandans depend on agriculture for their livelihood.

In a bid to become more sustainable and reduce the effects of climate change, the Rwandan Government has made an effort to decarbonise the energy sector. While more than 50 percent of Rwanda’s population is now able to access electricity in their home – compared to just 10 percent in 2009 – the cost of electricity remains high. The government will need to provide incentives, such as tax breaks, to convince the population and energy industry to switch to renewable sources, which can help decarbonise the country and produce cheaper electricity.

In good health
Rwanda’s economy has benefitted from an increase in gender equality, too – a fact that is seen most prominently in its parliament, where 61 percent of members are women. This is a significantly higher ratio than found in many western democracies: in the US, for example, women make up just 23.6 percent of members of Congress. As a result, laws have been passed that have directly benefitted women in Rwanda, such as compulsory paid maternity leave and the granting of women the right to own and inherit land.

The government also recognises the importance of education to ensure the economy continues to prosper. Stefan Trines, Research Editor at World Education News and Reviews, told World Finance that although Rwanda “has one of the highest primary enrolment ratios in sub-Saharan Africa, only four percent of Rwandans above the age of 25 have had any type of higher education”. To tackle this, the government is currently planning to expand access to basic education to 12 years, while also increasing equitable access to affordable higher education.

Despite economic developments and impressive advances in education, there is widespread concern that such improvements have allowed the authoritarian regime to consolidate its power

Further, Rwanda is adopting new technology, recently introducing drones that can deliver blood across the country. These drones are able to supply blood to 21 remotely located transfusion clinics in Rwanda, dropping off blood in minutes after a text or WhatsApp message is received from those in need. Rwanda’s health sector is showcasing plenty of improvement, recently launching a cervical cancer screening and vaccination campaign that aims to protect young girls and women.

A democratic deficit
Despite economic developments and impressive advances in education and technology, there is widespread concern that such improvements have allowed the current authoritarian regime to consolidate its power. Consequently, this has allowed the use of violence to continue against its citizens.

It is clear that Rwanda’s economy has significantly developed over the past 25 years, but the Rwandan model for economic development could not be easily used elsewhere, as it has arguably required political dominance and centralised control to achieve its success.

Academic Filip Reyntjens told World Finance that “Rwanda’s technocratic governance is better than in most of Africa, but its political governance is dangerously flawed”. This leads to democracy being compromised for the sake of development, something that could lead to future issues. Reyntjens added: “Authoritarian rule and the frustrations that go with it risk destroying the socioeconomic gains achieved after the 1994 genocide.”

The Review of African Political Economy’s Leo Zeilig has echoed these concerns, telling World Finance: “The Rwandan Government has used its record on poverty reduction and economic growth to legitimise its authoritarian rule.”

Although reducing poverty is incredibly important, to ignore democracy completely is likely unsustainable. If opposition parties grow in strength or the people of Rwanda rebel against the constraints on their democratic rights, then the Rwandan Government’s current regime may come crumbling down.

Trump agrees to ‘phase one’ of China trade deal

Posted on by Max Tomlin

The trade war between the US and China has been wide in scope, but on December 12, US President Donald Trump signed off ‘phase one’ of a deal with China, following extensive discussions with his advisors. Agreeing to the deal has enabled Trump to avert the introduction of new tariffs, which were due on December 15 and expected to affect around $160bn worth of Chinese consumer goods. Although the terms of the deal have now been approved by Trump, the legal text must still be finalised.

Phase one of the trade deal calls for China to buy $50bn worth of agricultural goods from the US in 2020; in exchange, the US will reduce tariffs on many Chinese imports, which currently range from 15 to 25 percent. The deal will also include Chinese commitments to averting intellectual property theft, as well as promises from both sides not to manipulate their respective currencies. The Chinese renminbi surged significantly as the trade war cooled in the summer of 2019, rising above seven yuan to the dollar for the first time in three months.

Away from the upcoming election, Trump’s agreements with China have been met with criticism from members of his own party

Looking to the future, Trump expects phase one of his deal to lead to further negotiations, with subsequent agreements likely to tackle more difficult issues, such as forced technology transfer, subsidies and reviewing the behaviour of Chinese state-owned firms.

More immediately, Trump must consider his position on the trade war ahead of the 2020 election campaign. The US president is currently faced with a dilemma over whether to bet on an escalation of hostilities and tariffs with China or to follow the advice of more market-orientated advisors, who have argued that a pause in the trade dispute would help the slowing US economy rebound.

Away from the upcoming election, Trump’s agreements with China have been met with criticism from members of his own party. Republican Senator Marco Rubio has urged the White House to consider the risks of the deal, while others have warned Trump that his administration must stay strong against the Chinese Government. Clearly, Trump still has turbulent times ahead and will struggle to reach a compromise that sees him achieve further agreements with China while remaining popular among Republicans.

Saudi Aramco surges past valuation target in second day of trading

Posted on by Jack Pearson

The oil giant Saudi Aramco, officially known as the Saudi Arabian Oil Company, has surpassed its valuation target of $2trn, as a result of its share price rising to SAR 38.15 ($10.30) on the morning of December 12 on the domestic Tadawul stock exchange.

The surge in valuation comes after a concerted effort by the kingdom to ensure trading got off to a successful start. It is hoped that funds raised by the initial public offering (IPO) can be used to diversify the country’s economy and further develop sectors outside of the oil and gas industry. The valuation also means Aramco has now overtaken Microsoft and Apple to become the most valuable listed company in the world.

The valuation means Aramco has now overtaken Microsoft and Apple to become the most valuable listed company in the world

Based on revenue, Saudi Aramco is one of the largest oil companies globally, and likely its most profitable too. Aramco is based in Dhahran in Saudi Arabia, and was founded in 1933, although the company’s name has since changed.

On November 3, Aramco first announced its plans to make between one to two precent of its market value available as an IPO on the Tadawul stock exchange on December 11. The IPO is synonymous with Saudi Arabia’s Crown Prince Mohammed bin Salem, who initially insisted on the company being valued at $2trn, despite a previous valuation last month only reaching $1.7trn.

Aramco’s 1.5 percent free float means that the shares owned by the public are worth $30bn, with Saudi Arabia encouraging local individuals to hold stock through cheap loans and a bonus share plan. Some international investors, however, have been deterred, declaring the stock to be too expensive given the governance and geopolitical concerns in Saudi Arabia.

Europe takes a “risk-based” approach to 5G restrictions following US lobbying against Huawei

Posted on by Jack Pearson

Following last week’s NATO summit, the US believes it has successfully lobbied against Huawei, with the EU declaring that it will now take a “comprehensive and risk-based” approach to 5G networks. However, EU officials have stated that their decision was made purely in the region’s own interests and not to appease outside powers.

Europe has recently found itself caught between China and the US regarding Huawei’s 5G services. The US has been pressuring Europe to step away from doing business with Huawei, which, despite being privately owned, has benefitted from strong state support.

China has very different attitudes towards data privacy than those in the West

The dispute has proven difficult for European leaders, many of whom will want to maintain good relations with China due to its importance as a trading partner. At the same time, the US has long been considered the continent’s most important security ally, leaving no easy answers for EU officials.

The Huawei 5G disagreement has been complicated further by the US-China trade war, with another round of US tariffs on Chinese goods due to arrive on December 15. The trade war, which some have argued is increasing the risk of a global recession, has now been going on for 20 months.

As well as facing allegations of instigating cyberattacks, China has very different attitudes towards data privacy than those in the West. This raises concerns that Huawei could be used by Chinese state security services to access data held by international businesses, especially if the company’s 5G technology was adopted outside the country.

Finland’s Nokia and Sweden’s Ericsson are the next two biggest 5G companies after Huawei. Funding the growth of these two firms could be one way for the US to encourage Europe to abandon using Huawei 5G, further ensure the security of international business data and thwart Chinese efforts to infiltrate Europe’s sizeable chunk of the world’s telecoms market.

Alpen Capital exploring opportunities in Myanmar, Indonesia and Africa

Posted on by World Finance

Alpen Capital is an investment banking advisory firm, offering solutions in the areas of debt, M&A and equity, to institutional and corporate clients. It’s been operating across the GCC and India since 2005 – with additional projects in Cambodia, Bangladesh, Sri Lanka and Pakistan. Founder and executive chairman Rohit Walia discusses the business’s recent transactions, the opportunities he’s looking to discover in Myanmar and Indonesia, and the firm’s associate company, Alpen Asset Advisors, which specialises in asset and wealth management.

World Finance: Rohit, let’s start in the GCC; what opportunities are there for investors?

Rohit Walia: There’s a lot of opportunities – the GCC’s going through a major change in the way business is done. I mean, if you look at the UAE, the ownership patterns we used to have, what you were allowed to do, have completely changed.

Saudi Arabia had major reforms. A lot of infrastructure is coming up with their 2030 vision. Similarly, most of the GCC countries have something or the other happening. There’s a lot of interest from the outside to come and do business in the Middle East and GCC specifically.

World Finance: Tell me about some of the recent transactions you’ve been involved in.

Rohit Walia: We did a very interesting one recently. We sold a food company, a large ticket transaction, to a very large listed company in Saudi Arabia called Savola. A very nice transaction, very strategic in nature. So they took a 51 percent stake in the company, and they left the management as-is.

Complicated – it took us one year to the get the documentation done, but yeah!

We did another interesting one in Oman, where we sold a company belonging to one of our clients in Dubai, to another client in Qatar. But the business is in Oman. So yeah, we’ve done some interesting stuff along the way.

World Finance: What other emerging market opportunities are there in the region?

Rohit Walia: In the emerging market we’ve done a lot of work in Sri Lanka. We’ve funded a number of banks there, roughly three-quarters of a billion dollars. We’ve done funding in Cambodia, Bangladesh, Pakistan, India. So the emerging markets have done well for us.

We’re looking at two new markets I will visit myself now: one is Myanmar, and the other one is Indonesia. We’ll see how that pans out.

World Finance: And what sorts of transactions have you been involved in, in those regions?

Rohit Walia: Mostly financial institutions. So funding financial institutions – and I think one of the things we’ve looked at is impact funding, as they call it. So women, for example: women empowerment is big. Or SME businesses. Things that increase employment, that are good for the economy, sustainable. That’s been some kind of a focus.

Most of our funding has come from development financial institutions, which give you longer-term tenure money. And it’s good for the emerging markets to get funding from the global development institutions.

World Finance: I mentioned at the top your associate company, Alpen Asset Advisors; tell me about its offering in independent wealth management.

Rohit Walia: So it’s an independent asset management offering. We used to offer previously only one bank’s products, which was Bank Saracen. We changed that about five years ago, to have a number of banks: banks like CIC, Credit Suisse, Crédit Agricole, which we are all on-boarded with, and which provide us solutions for our clients.

So each of them has a product offering, which is then tailor-made to what clients really want. So we’ve done custom-made products, we did a very interesting one in Iraq recently, for Trade Bank of Iraq, called Dananeer fund, which buys Iraqi bonds. So bespoke products, depending on what the client is looking for from the solution – we put it together.

World Finance: And you mentioned a couple of new regions you’re going to be exploring; what else is in the future for Alpen Capital?

Rohit Walia: Africa; we’ve started covering Africa, we’ve done a few transactions there. So we’ve done Ghana, Kenya, Tanzania, Nigeria. We’re looking at Senegal. It’s a big continent, huge market, and I think a huge opportunity for growth.

World Finance: Rohit, thank you very much.

Rohit Walia: Thank you.

AFP Confía joins the experience economy with customer engagement tech

Posted on by World Finance

In the first half of this interview, AFP Confía CEO Lourdes Arévalo and board member Robert Vinelli discussed El Savlador’s 2017 pension reforms, and the big picture for Confía’s next five years. In this video, Investment Director Rafael Castellanos and Risk Director Kelvin Mejía explain how the region’s largest pension fund is embracing new technology to more effectively and efficiently engage with its 1.5 million customers.

World Finance: Rafael, we’ve heard about the big picture for AFP Confía; now tell me about your team and your processes. How do you ensure excellent performance?

Rafael Castellanos: Well our team is composed of young but very experienced individuals. Our portfolios are mainly in fixed income securities, and we’ve helped develop the Central American region and El Salvador’s industries through investing in municipal projects: water utilities, electricity, port and airport expansions, and a variety of different industries.

Throughout the years our team has also been a pioneer in regionalising our portfolios through investing in Costa Rica and Panama; a little over $500m in the last few years. With that, and the diversification of our portfolio, we’ve been able to achieve number one performance in the industry.

World Finance: Now Kelvin, you’re currently re-engineering your processes to make better use of technology and automation; tell me more.

Kelvin Mejía: Well, with this re-engineering, we want to guarantee that our customers are our primary focus. We’re using big data analysis and machine learning tools in order to help us be closer to our clients, but resolve their problems remotely.

For instance – Rafael and their team are using Python, R, and Power BI tools to resolve everyday problems within their investment processes. Such tools I think will help us raise awareness of the pension system, help our clients to know their returns in their portfolios, and also to highlight and communicate the advantage of voluntary saving for their retirement.

World Finance: And what changes have you seen in customer engagement or savings rates since you’ve been developing this stronger dialogue with your customers?

Kelvin Mejía: Well, since 2017 pension reform, engagement is rising. Nowadays our customers have new benefits, such as partial withdrawals, which is a huge improvement to our system. So engagement is rising.

But being the biggest pension fund in Central America and the Caribbean means that we have 1.5 million customers – more than 50,000 pensioneers – so rising engagement is actually a challenge. But Confía is stepping up to that challenge, and we’re doing it through technology. Nowadays we’re using biometric identifications to our customers, we’re using self-service stations and artificial intelligence for WhatsApp.

So finally, I think that the engagement will still increase in the following years, because at the end of this year we’re submitting to our local regulator an application for a new, voluntary, savings fund. So that will be a new challenge for us, in order to help our customers to have the best pension that they deserve.

World Finance: And Rafael, how has the investment team been empowered by the new tools that Kelvin mentioned?

Rafael Castellanos: Yeah – in order to find solutions through innovations, we’ve challenged our team to look for everyday processes that can be simplified and done a lot quicker.

Being able to manipulate big data has expanded our horizons; and at the same time we’re able to use data-led approaches to find solutions without having to depend on IT specialists or data scientists.

We’re being able to do this now in a few days or maybe a day, rather than weeks.

World Finance: So getting even closer to the voice of the customer. Rafael, Kelvin, thank you both so much.

Rafael Castellanos: Thank you, Paul

Kelvin Mejía: Thank you.

AFP Confía geared up for great change after El Salvador’s pension reform

Posted on by World Finance

2017 saw long-awaited pension reforms in El Salvador: increasing mandatory contributions, and allowing greater international investment by pension funds. AFP Confía is the largest pension fund in Central America and the Caribbean; CEO Lourdes Arévalo and board member Robert Vinelli discuss what the changes mean for Salvadoran retirees and pension funds, and how Confía is transforming its processes to provide better client experience.

World Finance: Robert, introduce us to AFP Confía and El Salvador’s pension system.

Robert Vinelli: Well, Salvador was originally a government-run retirement fund. And because they were having problems, they privatised it.

The issue really becomes the government has used funds in order to pay for the social security problems they had before. They were paying one percent, and now they are increasing it slowly. And the retirement of the workers is now becoming more and more healthy.

The economy of Salvador is growing; not as well as we’d like, but at a healthy 2.3 percent. And we expect that the funds will continue to grow very nicely for the retirement.

World Finance: So how have the 2017 reforms changed things – both for retirees and the pension funds themselves?

Lourdes Arévalo: I think one of the most important things the reform did was create a mechanism for longevity. This mechanism works like insurance for all the people, so they can have their pension paid for their lifetime.

The other thing the reform did was open the possibility to invest in foreign markets – we didn’t have that before. And also allow the people to obtain 25 percent of their fund in advance. So I think this was very, very good for the system.

World Finance: And how has AFP Confía responded to these changes?

Lourdes Arévalo: Well, change was always there, for the last 20 years that we have been operating the AFP. We have to think outside of the box, to see all the technologies, new ways to contact clients. Also we are changing our core system – we’re moving to SAP – which is a huge change for us. But it will be more efficient for the operations.

We’re focusing on innovation. Innovation, efficiency. Looking for our client experience. We’re just looking everywhere for best practices to introduce new technologies, new tools, to serve our clients.

The most important thing I think is, we have to assure our people that we’re protecting their money during their pension lifetime. So we have high standards in risk management, investment management, and there’s a lot of international standards we’re looking for and we’re following in audit, compliance, operations, human resources – and of course, technology.

World Finance: And Robert, what is the strategy and the ambition for AFP Confía over the next five years?

Robert Vinelli: Well, we’re not only expecting to be number one in Central America, as we are now, but even bigger. And serving more people, and serving them even better.

The fact that some of the reforms causes our profit to lessen for a short period of time, we’re expecting to recoup that, as Lourdes said, through technology, through efficiency, through all the other systems. But more important through South American expansion that we expect to carry out very quickly in the next years.

World Finance: Lourdes, Robert, thank you very much.

Lourdes Arévalo: Thank you very much.

Robert Vinelli: Thank you very much, it’s been a pleasure.

Spreading the word about responsible investing

Posted on by Jack Pearson

As Liechtenstein’s first institution to sign the UN Principles for Responsible Investing (PRI), at Kaiser Partner Privatbank we realise we have an important role to play in defining and promoting responsible investment. Responsible investment encourages active involvement from investors in shaping company culture by placing emphasis on environmental, social and governance (ESG) factors, taking into account the long-term stability of the market.

Investment of this kind recognises that the creation of long-term sustainable returns is dependent on stable, well-governed environmental and economic systems. It entails the incorporation of ESG issues, active ownership (in terms of engagement), commitment to transparency and constructive engagement with public policy. At Kaiser Partner Privatbank, we believe we are not only responsible for our own clients and financial practices; we have a duty to espouse the importance of responsible investment to the wider market as well.

Growing in popularity
Responsible investing is the next step in the evolution of traditional finance, as it focuses primarily on delivering competitive financial returns by mitigating the risks associated with ESG factors in order to protect value in the long-term. We see a few drivers have been accelerating this process; both public awareness and political pressure around the issue have significantly increased in recent times. Furthermore, recent research findings, as well as lessons from institutional investors already practising responsible investing, show this approach can be incorporated without overly limiting an individual’s investment options or how these options perform.

Responsible investment encourages active involvement from investors in shaping company culture by placing emphasis on environmental, social and governance factors

A new, more youthful demographic has also brought change. In terms of age, responsible investing is definitely favoured among the younger generations of our clients. We see most demand coming from Western Europe – but it is interesting to see how clients from emerging markets are increasingly interested in this approach. Regardless of demographics, the preference can also be seen as an evolution started by institutional investors and now shifting more and more towards private individuals.

The 2016 Global Sustainable Investment Review found approximately $23trn (out of a global total of $85trn) is being managed through investment strategies that incorporate environmental, social and governance considerations, an increase of 25 percent since 2014. This trend is ongoing and has major implications for any investors in capital and investment markets. In the years to come, responsible investment will represent a core aspect of any financial portfolio.

A sustainable future
Since signing the UN PRI more than 10 years ago, we have continued to incorporate ESG issues throughout our investment process. Today, we offer a holistic approach for sustainable investment solutions that involves enhancing client profiles by taking into account any sustainability preferences, and offering tailor-made solutions that are based on individual values. In this way, responsible investing needn’t be limiting at all; it can be surprisingly flexible and customised for each individual. We also carefully monitor our ESG practices with regards to controversies, impact measurement and business involvement to ensure we meet our high standards at all times.

While there is now a significant awareness about responsible investment on a broad basis, implementation still lacks depth. In our view, the translation from awareness to the incorporation of ESG within all aspects of client portfolios will intensify in the future.

We think the major shift will be less about the investment landscape itself and more about a holistic approach – something we are delivering for our clients already. It will not be enough to simply have a responsible investment offering. Increasingly, wealth management companies will start working with every client by adopting a value-based onboarding process to further raise awareness around sustainable investing and to learn the preferences of each client.

Additionally, reporting will be a key requirement as clients want (and need) to know if some portfolio holdings are involved in any controversies, what the carbon footprint of the portfolio is, and to what degree the portfolio contributes to achieving sustainable development goals. Although these approaches have been deployed at Kaiser Partner Privatbank for over a decade, there is still more we can do – beginning with ensuring the wider financial services industry is aware of the many benefits of responsible investment.

Banks must prepare to serve the growing number of billionaires in Africa

Posted on by Jack Pearson

Africa is made up of 1.3 billion people. Boasting ample natural resources, the continent has provided extraordinary wealth for a handful of individuals. Today, the region is reputed to be one of the fastest-growing in the world, with an annual GDP growth rate of approximately 3.5 percent.

Backed by resource-rich economies, Africa is also home to some of the richest people in the world, and the number is growing: an estimated 19,000 Africans became USD millionaires over the past decade. According to The AfrAsia Bank Africa Wealth Report 2018, there are now 148,000 high-net-worth individuals (HNWIs) living in Africa with net assets of $1m or more. The report also states that $920bn of the continent’s $2.3trn wealth – or 40 percent – is held by HNWIs, providing some indication of the concentration of wealth in the hands of a few. What’s more, there are currently 24 USD billionaires living in Africa, each with net assets of $1bn or more.

The growth of wealth in Africa and the rising number of USD millionaires will shape the type of wealth management solutions that are demanded by high-net-worth clients

The rich list
In December 2018, Forbes published a list of 23 African USD billionaires. In this report, Nigerian business magnate Aliko Dangote was singled out as the richest black person in the world, with a net worth of approximately $10.3bn (see Fig 1).

A further review of the top 10 billionaires on the Forbes list reveals real diversity in terms of the age, nationality and source of wealth of these individuals. Nicky Oppenheimer, for example, is a South African billionaire and philanthropist who has gained immense wealth mining diamonds. Naguib Sawiris is an Egyptian businessman who has made a great fortune in the telecommunications industry, in particular through the sale of Orascom to Russian firm VimpelCom (now Veon) in 2011.

Most of the top 10 billionaires listed are over the age of 60, with an average age of 65.2 years. Aged 44, Tanzanian Mohammed Dewji is Africa’s youngest USD billionaire and is ranked in 14th position. Women, meanwhile, are underrepresented on the list: Angolan Isabel dos Santos is the only woman featured among the top 10 USD billionaires.

Pleasing old and new
It is no longer news that Africa has produced a great number of individuals who have built successful business empires in what many would describe as a uniquely challenging business environment. It is important that private banks and wealth managers in Africa recognise the significance of this demographic shift. With rapid changes in client preferences, communications, technology, products and delivery channels, driving a successful and sustainable private banking or wealth business requires great skill. These businesses must be able to adapt to uncontrollable environmental changes and have well-managed responses. They must also have a thorough and in-depth understanding of the evolution of the private banking client through the years.

Further, wealth managers must adopt different models for profiling and managing ‘old-money’ and ‘new-money’ clients, and should devise effective acquisition strategies to close what I call the ‘20-year billionaire wealth gap in Africa’. This may involve challenging some common and strongly held beliefs about clients. For example, the belief that all Millennials are tech savvy and that investing heavily in technology will attract this cohort may be misleading. A few companies have learned that the hard way, pouring money into untested artificial intelligence (AI) systems or tools and only realising after repeated failed attempts at implementation that such tools were worthless.

The growth of wealth in Africa and the rising number of USD millionaires will shape the type of wealth management solutions that are demanded by customers. As such, wealth managers continue to face pressure to be more innovative and to align the needs of their clients in the new wealth class with the solutions they provide. Family offices in Africa, for example, are becoming more relevant to the continent’s growing HNWI population.

A new reality
The increase in wealthy Africans holding second citizenships means wealth managers must ensure such clients are protected at all times. It is important to understand that most developed markets place a tax on income an individual makes anywhere in the world. Regulatory requirements mandated by the Common Reporting Standard, which covers the automatic exchange of information on bank accounts between tax authorities in different jurisdictions, aim to reduce tax evasion through the cooperation of respective tax authorities. In the US, the Foreign Account Tax Compliance Act is targeted at US citizens either living in the US or abroad, and seeks to tie all offshore earnings back to their profiles in the US in a bid to reduce tax evasion.

With proper tax planning, private clients can reduce their tax burdens and improve tax efficiencies on their wealth. Wealthy Africans and, in particular, HNWIs holding US citizenship must have a clear line of sight on this. A good number of HNWIs rely on their wealth managers to make the appropriate introductions to competent tax advisory firms. For example, in October 2018, Nigerian President Muhammadu Buhari signed a presidential executive order introducing the Voluntary Offshore Asset Regularisation Scheme. The scheme allowed taxpayers who defaulted on the payment of taxes on their offshore assets in the last 30 years to pay a one-time levy of 35 percent within a period of one year, starting in October 2018. This enabled them to have immunity from prosecution.

It’s also important to take generational and succession planning into consideration. Planning for Generation X or Millennial successors or heirs to wealth introduces its own set of complexities. Children of HNWIs often end up living in countries other than that of their parents’ birth. Assumptions about them taking over their families’ businesses in Africa can therefore be misplaced, and understandably so. In Africa it is very common for high-net-worth families to send their children to study in schools in Europe and the US. Living abroad sometimes weakens the emotional and cultural ties that these children hold with their home countries, with some eventually choosing careers or vocations totally unrelated to their core family businesses. In this case, it is the wealth manager’s responsibility to put together succession planning structures that ensure the continuity of their clients’ businesses.

The growth in Africa’s HNWI population means wealth managers need to review their capability frameworks with the understanding that gaining private clients is becoming a lot more competitive. Portfolio performance alone can no longer suffice as a tool for retention, but must be supported by deeply personalised relationship strategies that are in sync with the client’s needs and preferences. There must be significant value added outside of the stellar performance of the client’s portfolio. The adoption of AI and algorithm scripts, even with the next generation, can never be a substitute for a real, personable client interface that is sensitive to the client’s individual needs. Managing their personal wealth should therefore always be a combination of sound technical skills and a strong emotional or even cultural connection.

Looking to the future, the source of wealth for private clients is set to change as the next generation enters the labour market. While the bulk of Africa’s billionaires have wealth embedded in industrial activities, resources and real estate, the next generation may have made their wealth in technology start-ups and other 21st-century sources. Wealth managers have to live up to these realities and brace themselves to cater to the needs of a generation that has vastly different values and expectations to its predecessors, but still seeks sound results.

Mexico an attractive investment option, despite wider economic turbulence

Posted on by Jack Pearson

Mexico’s new administration promised to transform the country for the better. Since Andrés Manuel López Obrador (AMLO) took office in December 2018, though, he has made several decisions that have caused turbulence within the economy.

While AMLO ensured Mexico was the first country to sign the United States-Mexico-Canada Agreement, he also abruptly cancelled the construction of a new airport in Mexico City. Moreover, the unpredictability of his policies has seen credit rating agencies issue warnings to the country – under AMLO’s presidency, both sovereign bonds and the debt held by state-owned oil and electric companies have experienced downgrades. The finance minister’s sudden resignation in July also pointed towards internal disagreements within the government and sent the Mexican peso tumbling.

Clearly, if any investor had foreseen these events at the beginning of 2019, they would have immediately sold their Mexican assets in anticipation of continued uncertainty in the country’s macroeconomic environment. However, this has not transpired. In fact, almost all major financial assets in Mexico have generated competitive returns when compared with other emerging markets. At SURA Investment Management, we think we can explain this oddity.

Almost all major financial assets in Mexico have generated competitive returns when compared with other emerging markets

Bucking the trend
SURA is dedicated to the administration of assets and investments for global institutional customers. Our knowledge and extended presence in six Latin American countries makes us an optimal investment vehicle, connecting the region with global markets. Overall, we manage more than 400 portfolios invested across fixed-income, equity, multi-asset and alternative assets. Among our most relevant products are mutual funds, pension funds and corporate mandates. What’s more, our parent firm, SURA Asset Management, is the region’s number one pension provider in terms of assets under management.

We believe the answer to Mexico’s high returns lies in global growth and the monetary policies of the world’s central banks. There is currently a relative attractiveness to the Mexican market, with investors starting to anticipate that a period of positive economic growth in developed markets may be coming to an end. Central banks around the world have raised concerns about low economic growth and have changed their monetary policy stance accordingly by slashing interest rates. This trend has boosted liquidity and triggered a search for yields around financial markets, with investors turning to countries that boast stable macroeconomic conditions and allocating assets to those with positive real rates and undervalued equity markets.

One such market is Mexico, which offers potentially high returns in its local fixed-income and equity markets. According to SURA data, the country ranks among the top five emerging markets when it comes to risk-adjusted real interest rates, so it is unsurprising that the Mexican stock market appears more attractive to investors in real terms than other major equity markets.

Remain vigilant
At SURA, we expect the Mexican economy to continue along a moderate growth path, but this is by no means guaranteed. A global economic slowdown, combined with unwise political decisions, could hinder the deployment of much-needed economic resources, negatively affecting consumer demand and jeopardising investor confidence.

Although there is yet to be any clear evidence to suggest that the current macroeconomic environment is unfavourable, Mexico must be careful to keep the economy stable and its conditions attractive to foreign investors. In order to do this, financial discipline is of paramount importance. The government must strive to achieve a primary surplus and keep debt under control. It must also try to stabilise the financial situation of Pemex, the nation’s heavily indebted oil company.

If the Mexican Government is able to maintain macroeconomic stability (even when pursuing unorthodox policies) then Mexico’s financial assets should continue to outperform those of its peers, particularly as some fundamental risks are still present within the Mexican fixed-income and equity markets. Assuming this is the case, the potential yield compression in local-currency Mexican bonds will remain attractive, while returns in the equity market should improve.

Finally, due to a combination of global liquidity (a result of dovish central banks) and the relative attractiveness of the Mexican market, positive trade is likely to continue until there is strong evidence to suggest the macroeconomic environment is deteriorating. The lack of any fundamental threat will boost Mexican financial assets, normalising the extra risk premium that prevails in several financial instruments. This should enable the country to rapidly catch up with the strong performance of its fellow emerging markets.

No sure thing: insurance companies face new challenges in a changing world

Posted on by Jack Pearson

In 2013, entrepreneur Freddy Macnamara needed to lend his car out for a few hours but realised it would be impossible. UK law requires vehicles driven on public roads to be covered by insurance, which, at the time, was not available for short-term periods. The thought irked him so much that he decided to launch a company offering hourly insurance. “I soon realised that insurance was completely broken and full of outdated processes, so I set out to create flexible insurance on mobile,” Macnamara said.

In 2014, he founded Cuvva, a company that connects customers directly with insurers to offer short-term solutions – including personal car, learner driver and van insurance – via an app. The company, the first in the UK to provide hourly car insurance, has so far sold more than one million policies. This August, it ventured into a new field, offering single-trip travel insurance.

Macnamara is scathing about the future of the industry. He told World Finance: “Insurance incumbents are no longer serving customers… as well as they could if they evolved and utilised technology to their advantage.”

Such harsh criticism is often dismissed by incumbent companies as marketing buzz generated by start-ups that promise disruption without understanding the fundamentals. However, many insurance veterans echo Macnamara’s views, admitting that tough challenges lie ahead for the sector. Mike McGavick, former CEO of XL Group and special advisor to AXA Group CEO Thomas Buberl, has urged the industry to embrace innovation before it is too late. “Products are becoming shop-worn and less relevant to the actual use of the clients,” McGavick said at a conference in Monte Carlo in 2016. “Unless they are reinvented, clients will continue to find them not terribly useful.” An EY study found that insurance is one of the world’s least-trusted industries, with more than half of responding consumers complaining about its lack of transparency and open communication.

For the time being, insurance powerhouses can rest on their laurels, as autonomous vehicles and other AI developments are still in the testing stages

Beware black swans
One problem insurers face is the emergence of unpredictable and extremely costly natural disasters linked to climate change. Losses associated with ‘black swan’ catastrophes – events that are extremely rare, damaging and difficult to predict, such as tsunamis, hurricanes and wildfires – have increased more than six times since the 1980s. The International Association of Insurance Supervisors estimates that in 2017, they caused damages worth around $340bn globally, more than a third of which was covered by insurance companies. Professor Joan Schmit, department chair for risk and insurance at the Wisconsin School of Business, told World Finance: “Climate change is a threat in that loss estimation is more difficult due to the combination of greater levels of volatility and environmental changes that make historical data less useful. Where before a potential loss might have been incredibly remote, today that potential may be meaningful.” A case in point is the 2018 wildfires in California – the most destructive natural disaster in the state since the San Francisco earthquake in 1906 – which will cost insurers an estimated $11.4bn.

The economic climate over the past decade has also hurt the industry. The 2008 recession led some insurance companies, such as AIG, to accept onerous bailouts. It was followed by a period of low interest rates on both sides of the Atlantic that reduced profitability. For an industry that places long-term bets by collecting insurance premiums and investing them to cover future claims, lower and more volatile returns can be a nightmare. “Actual returns may well be lower than had been anticipated when prices were set decades ago. Life insurers especially have struggled with this issue for the past decade,” Schmit said.

Another source of problems is demographic changes and generational shifts. In the developed world, an ageing population means more insurance payouts for the increasing number of retiring baby boomers. A study by LIMRA, an association of life insurance and financial services companies, found that fewer than a fifth of US Millennials are likely to buy life insurance; nearly nine out of 10 prefer usage-based insurance, according to a different study by insurance broker Willis Towers Watson. But there is a silver lining, Schmit said: “As people live longer, costs of life insurance and health insurance may be delayed, allowing insurers to earn higher returns than original prices. Longer lives also create a demand for long-term care insurance.”

Many insurers see a new frontier in the developing world. The Asian market is particularly promising due to the small number of people currently covered and booming economies that create demand for insurance. In China, the insurance penetration rate stood at 4.22 percent in 2018, below the global average of 6.09 percent (see Fig 1). Some also see a ray of hope in the rise of reinsurers: companies that insure the insurers. This has been the highest-performing segment of the industry over the past few years, according to McKinsey & Company, while many reinsurance companies are also making inroads into primary insurance. But even they might face problems, Schmit said: “They are in a highly volatile industry: risk-return. In the US, we went for an entire decade without a major hurricane loss. The industry made quite a bit of money. When loss hits, however, it tends to be enormous.”

Big tech muscles in
The other disruptive force is technology. Cyber-attacks are becoming a major threat, with malware and viruses, such as NotPetya and WannaCry in 2017, costing millions. A global ransomware attack could cost $193bn and affect more than 600,000 businesses, according to a 2019 report from the Cyber Risk Management Project. The industry itself can be a victim of attacks due to its storage of commercially sensitive data. In 2017, the servers of the US insurer Equifax were breached, costing the company up to $700m.

Big technology companies are also eyeing expansion in the sector: a survey by Capgemini found that nearly one out of three consumers would buy insurance from a large tech company. Last year, Amazon showed interest in launching a UK insurance comparison website, while Google invested in Applied Systems, an insurance software company. Google entered the market in 2015 with Google Compare, a service selling auto insurance, but discontinued it a year later. “The industry is incredibly highly regulated, which may act as a barrier to entry for an organisation such as Google,” Schmit said.

Many accuse incumbent insurance companies of being complacent; currently, no insurance company is included in the list of the world’s top 1,000 public companies in terms of research and development investment. ‘Insurtech’ start-ups are beginning to use this sluggishness to their advantage: more than $8.5bn was raised by insurtech start-ups between 2014 and 2018 in areas as diverse as healthcare and car insurance. Macnamara said: “Opportunities in the insurance sector are in abundance, as a result of the slower uptake of technology and digitalisation. It was only a matter of time before the insurance industry as we know it was challenged by technology-focused start-ups”.

Insurance on the go
One innovation that promises to upend current business models is the advent of big data, used to assess risks and optimise claims handling. Some even go as far as forecasting that big data and AI could render insurance obsolete. “The threat applies to incumbents who are slow to adopt a data-driven mindset and build the capabilities that will allow them to effectively leverage telematics or any new data source to inform business decisions,” Kirstin Marr, President of Valen Analytics, an insurance intelligence provider, told World Finance.

In the area of auto insurance, a host of start-ups have invested in telematics technology – software or devices, often attached to vehicles, that collect and transmit data in real time. Matt Fiorentino, Director of Marketing at telematics company TrueMotion, which has partnered with top US insurers, said: “Driving data flips the insurance industry on its head. Before, insurers would interact with their customers once a year. Customers would only think about their insurer nine minutes per year. But now, driving data allows insurers to create personalised, real-time experiences for their customers.”

Last year, the Floow, a UK-based software company, launched a service that turns anonymised mass data from vehicles and mobile sensors into detailed pictures of transport patterns. “Insurtech companies such as the Floow can bring capabilities that the insurer does not already have,” Andy Goldby, Chief Actuary at the Floow, told World Finance, citing as examples telematics scores that predict risk and claims based on a client’s profile.

Telematics also gives automakers access to driving data. Some, including Toyota and Tesla, offer insurance services directly to customers. In September, the Financial Times reported that Tesla was taking steps to underwrite its own policies, a move that could see intermediaries become redundant if it’s replicated by other car manufacturers. The advent of autonomous vehicles may also change how insurance is sold. “As vehicles become more autonomous, it is likely that insurance will evolve from cover for the individual to product liability for the vehicle,” Goldby said. For the time being, insurance powerhouses can rest on their laurels, as autonomous vehicles and other AI developments are still in the testing stages. But payout day might be due, Macnamara said: “Incumbents are being challenged to evolve and improve their product offerings if they want to stay relevant and fit for the 21st century.”

Turkish banks are pushing economic reform through digitalisation

Posted on by Jack Pearson

Until recently, Turkey’s $849.5bn economy – the 17th-largest in the world by nominal GDP and the largest in the Middle East – was a favourite among emerging-market investors. Thanks to its advantageous geographical position, Turkey serves as a bridge between Asia and Europe. However, this also leaves Turkey’s economy vulnerable to external risks. It experienced a volatile year in 2018, as it was rocked by events such as the US-China trade war, the implementation of US tariffs on Turkish steel and aluminium, and the currency crisis, which wiped out the lira’s value against the dollar.

Yet, despite the crisis unfolding in the wider economy, the country’s banking sector is going strong. Although Turkey’s banks are struggling with weakening asset quality and currency fluctuations, they are showing a resilience that is enabling them to weather the storm. That said, maintaining this resilience depends entirely on a bank’s ability to stay focused on its long-term strategies for growth and value creation. To unlock the opportunities of the banking sector, Garanti BBVA works constantly to streamline its processes, manage risk and ensure high levels of governance – all with the intention of creating value for its customers. In this way, Garanti BBVA has been able to unlock sustainable growth in the country for decades.

To unlock the opportunities of the banking sector, Garanti BBVA works constantly to streamline its processes, manage risk and ensure high levels of governance

The pursuit of growth
In recent years, Turkey’s banking sector has experienced tremendous growth. In fact, the industry registered more than 10 percent growth in 2018. This is partly thanks to the country’s favourable demographics: home to nearly 80 million people, Turkey has one of the largest populations in Europe, the Middle East and Africa. What’s more, this population is young and fast-growing – only six percent of the population is over 64 years old.

However, Turkey’s banking penetration levels are still relatively low, with 31 percent of the country’s over 15-year-olds remaining unbanked. As a result, Garanti BBVA estimates sustainable credit growth to stand at about 15 percent despite the banking sector’s outstanding performance. Furthermore, the volatility of exchange rates from the second half of 2018 onwards led to high inflation and increased interest rates in Turkey. These have caused a slowdown in economic growth and placed pressure on the banking sector’s asset quality.

There are still positive indicators for growth in the sector, though. Household debt in the country is reasonably low at just 14.8 percent (see Fig 1), which puts the banking sector in a good position to manage risk in the retail segment.

Another driver for growth within the Turkish banking sector is the high liquidity and solid capital structure of the banks. Customer deposits constitute half of the total assets and serve as the main source of funding for the Turkish banking sector. The high liquidity within Turkey’s banking industry gives it more resilience in the face of unexpected macroeconomic developments. Its hardiness has also been bolstered by recent initiatives aimed at increasing household savings in the medium term, increasing the depth of capital markets in Turkey, extending the maturity of funding resources and, finally, stabilising the shift to foreign currency.

Creating value
Established in 1946, Garanti BBVA is Turkey’s second-largest private bank, with consolidated assets of approximately TRY 400bn ($70.42bn) as of December 31, 2018. The bank has more than 18,000 employees and an extensive distribution network comprising 926 domestic branches, seven branches in Cyprus, one in Malta and two international offices in Düsseldorf and Shanghai.

We provide a wide range of financial services to more than 16 million customers, operating in every segment of the banking sector, including corporate, commercial, SME, payment systems, retail, private and investment banking. We also have subsidiaries in pension and life insurance, leasing, factoring, brokerage and asset management, with international subsidiaries in the Netherlands and Romania. This wide range of services has played a key role in helping the bank reach TRY 311.2bn ($54.79bn) in loans and non-cash loans.

Creating value for all our stakeholders is a core part of our long-term growth strategy – we strive to continually improve the customer experience by offering new products and services that are tailored to their needs. To this end, we have 5,258 ATMs and an award-winning call centre, as well as digital banking platforms built with cutting-edge technology. Through our dynamic teams, consistent investments in technology, and innovative products and services – all developed with a strict adherence to quality and customer satisfaction – Garanti BBVA is able to maintain a leading position in the Turkish banking sector.

In everything we do, we ensure that we engage with our customers in a transparent and responsible manner. Strong corporate governance forms the foundation of our success. Garanti BBVA’s majority shareholder, Banco Bilbao Vizcaya Argentaria, owns 49.85 percent of the company’s shares and plays a key role in establishing responsible governance and promoting the bank’s core values.

Another way Garanti BBVA creates value for all its stakeholders is through its world-class risk management. Garanti BBVA not only effectively manages financial risks, but also fosters high levels of organisational agility, allowing it to take advantage of new opportunities. Further, we drive positive change through impact investments, strategic partnerships and community programmes focused on tackling real issues for Garanti BBVA and its stakeholders.

A transformative process
Among Turkey’s young, digitally savvy population, there is a high demand for digitalisation from banks. The banking sector has embraced this demand and now offers more efficient and productive services through online platforms. Today, 65 percent of the banked population uses mobile banking. For the past 20 years, Garanti BBVA has been at the forefront of this digital transformation in the Turkish banking sector. Because of our consistent investment in digitalisation, 67 percent of our active customers now use mobile banking.

In the digital age, maximising convenience for the customer is a number one priority for banks. The fundamental purpose of digitalisation is to make it easier for the bank to listen to customers’ needs and address them as quickly and effectively as possible. With this in mind, Garanti BBVA provides an omnichannel banking experience. This enables our customers to carry out transactions online and makes our services more accessible and easier to use.

In 2018, as part of our digitalisation efforts, we reassessed our bank’s deposit management system while retaining our existing customers. As a result, we made significant operational improvements. By offering clear and easily accessible new solutions to our customers through our branches and digital channels, we were able to strengthen the loyalty of our existing customer base and increase the number of new customers who wanted to work with us. These operational improvements ultimately helped us increase our number of deposits.

As well as innovating our deposit management system, we recently designed an innovative new service model that enables us to provide one-stop delivery of all services to our customers. In 2018, we rolled out the new service model across our entire branch network. It has since had a wide-reaching impact on our operations. Thanks to the new model, we have increased the efficiency of our sales force, decreased waiting times in branches and improved our customer experience. Since it was built, 95 percent of the branch network has transitioned to the new structure.

The new service model ensures that customers can access our services from anywhere in the world. Moreover, as all business processes and operations have been digitalised and streamlined, the quality and speed of our services have increased. The figures speak for themselves: waiting times have been reduced by 20 percent; 85 percent of loans are now approved in a paperless manner, without the need for signatures; and the in-branch customer onboarding process is down from 25 minutes to just eight.

Looking to the future, Garanti BBVA will continue to drive innovation and put the customer at the heart of everything it does. With this in mind, we are currently exploring ways to unlock the opportunities of big data, artificial intelligence and Internet of Things technology in order to deliver solutions that are precisely tailored to our customers’ needs.

Garanti BBVA owes its leading position in Turkey’s banking sector to its long-term thinking and planning. Our main purpose is to provide a convenient service to our customers, bringing them the best banking solutions and helping them to make financial decisions that will suit their personal goals. Our strategy is not focused simply on short-term targets: it is formulated around investment plans that stretch far into the future. Regardless of macroeconomic developments, we will continue to drive transformation in our sector. It’s by constantly streamlining and enhancing our operations that we create real value for our customers.

FirstBank Private Banking: Our clients are keeping us on our toes

Posted on by World Finance

FirstBank of Nigeria’s 125 year heritage and growing international network gives its private banking division a strong foundation to provide best-in-class, bespoke services to its high net worth clients. Idowu Thompson, Group Head of Private Banking for FirstBank of Nigeria, explains how the bank works to understand its high net worth clients’ individual needs, how those needs have been changing in recent years, and what the future holds for the bank.

World Finance: Idowu Thompson is Group Head of Private Banking for FirstBank of Nigeria. FBN’s 125 year heritage in Nigeria, and growing international network, gives the private banking division a strong foundation to provide best-in-class, bespoke services to its high net worth clients.

Idowu – who are your clients, and how do you work to understand their unique banking needs?

Idowu Thompson: Our clients are largely ultra-high-net-worth, or high-net-worth, individuals. These clients cut across different cultures, different backgrounds, levels of education, age, gender, religion.

One of the things we pride ourselves in doing is not just listening to our customers, but also hearing them.

There are two ways in which we do that. So, one involves looking at what their buying patterns are; looking at their behavioural patterns are in terms of what they’re demanding, what they’ve used historically, in terms of the proposition – the private banking proposition.

The other part, which is also more qualitative, involves sitting with them and getting a deeper insight as to their individualities. There’s a need for us to be able to treat them as individuals.

What we try to do is to put the piece of our own expertise – in terms of investment knowledge, in terms of the wealth management offerings, in terms of what’s available out there in the global trends – and make some of these things available to them, so that they can make the right decisions for themselves. And continue to see us as their bankers of first choice.

World Finance: Tell me more about the changes that you’re seeing in your clients and their financial services needs.

Idowu Thompson: Our clients are a lot more demanding these days, in a very good way. A lot of the clients want high yield on their portfolios; at the same time a lot of them also want the safety of their portfolios!

And what that has done for us is to also put us on our toes, as the leading private bank in Nigeria. There’s a lot more questions around the wealth management needs. A lot of what we are seeing now is the demand for a relationship – and not just a relationship with the individual, but also the relationship with the family. So in those instances we talk about things like family benefits, family recognition. And just being able to know our clients thoroughly, and help them actualise their financial goals.

And in that way we find out that we’re able to build trust. We’re also able to add value to them in terms of the quality of advice that we give to them.

So I think by so doing, it’s a bit easier for us to work on longer-term relationships, and create the kind of stickiness that we would seek with our clients.

World Finance: How important is having the 125 year heritage of the FirstBank Group to building and maintaining that trust?

Idowu Thompson: Well I can say to you Paul that it’s a fantastic feeling for me. It makes my job easier. There’s a saying that FirstBank, in terms of a corporate entity, is a bank where everyone runs to as a flight to safety.

We’re under a very dynamic executive team, and a very well-focused board.

The banking sector in Nigeria has indeed gone through some transformation; but one of the tests of us as FirstBank, and as the leading bank, is the fact that we’ve been able to stand firm. We’ve been able to make good progress, even when the environmental climes were challenged. And we are heading in the right direction – I can see that clearly.

World Finance: So finally, what does the future hold for FirstBank Private Banking, and for your clients?

Idowu Thompson: In terms of what the future holds, we want to be the clear leader, and also the private bank of first choice for our clients.

We do expect that there’s going to be a lot more competition coming in from the non-traditional institutions; so you’re going to see a lot more insurance companies, asset management companies, deploying wealth management solutions, providing advisory services, to their clients.

We also have competitors coming from offshore banks; even from the developed banks that have representative offices in Nigeria.

So for us, it’s being able to be anticipatory. It’s about being able to create innovative products for our clients. It’s about being able to find the role of technology in what we’re doing. It’s also about being able to comply with the regulatory requirements – and a lot has changed in that clime. You’re looking at requirements like the Common Reporting Standards. We’re also looking at the GIPS, which basically impacts how investment managers reflect the performance of their portfolios.

But what I can dare say is that for us as FirstBank Private Banking, and as an institution in FirstBank, with the leadership of the bank, with the board, the management: we are thinking steps ahead. A journey is not a race that’s won in one day. And that’s the way we’ve tried to position ourselves.

We are indeed a bank that’s here to stay, and a bank that would continue to be the leading choice for Nigerians.

World Finance: Idowu, thank you very much.

Idowu Thompson: Thank you very much Paul.