“Yesterday I was clever, so I wanted to change the world,” the Persian poet Rumi wrote. “Today I am wise, so I am changing myself.”
The banking industry would be wise to change, too, and quickly.
In April, 43 global banks, including Bank of the West’s parent company BNP Paribas, joined the industry-led and UN-convened Net-Zero Banking Alliance (NZBA), committing their investment and lending portfolios to reach net-zero emissions by 2050. The NZBA is important to help meet the Paris Agreement’s objectives by mobilising the entire financial system to address the threat of climate change. Yet, not all of the major US banks, some of whom are the largest funders of fossil fuels, joined this global effort to reduce and track emissions. We can’t solve the climate crisis without banks.
Our low-carbon future depends in part on banks not making the climate crisis worse by underwriting carbon-intensive industries
Even if greenhouse gas emissions stopped today, lingering carbon dioxide in the atmosphere would keep global temperatures from cooling anytime soon, according to the National Academy of Sciences and the Royal Society. This raises the urgency for banks – including those making pledges to protect the planet – to take more substantive steps regarding their portfolios. Research from the non-profit CDP finds that emissions attributed to banks’ investing and lending activities are 700 times larger than emissions from banks themselves.
Bank of the West took action years ago to ensure that what it does and doesn’t finance are in line with supporting the planet’s health. We don’t have all the answers, and we know there is more work ahead, but the lessons we’ve learned along the way may be helpful for others in our industry to effect change.
We must close the climate financing gap
Financing targeting the climate crisis grew in 2018 to $546bn, with the private sector providing the majority at $323bn, according to the Climate Policy Initiative (CPI). However, the UN says up to $3.8trn is needed annually until 2050 to prevent an irreversible rise in global warming. We need to close this financing gap and soon. Private-sector banks have an important role. In fact, banks doubled their share of climate finance between 2013 and 2018 (see table).
Motivations matter
In 2017, Bank of the West implemented policies that restrict or prohibit financing of certain environmentally harmful activities, such as fracking and Arctic drilling. And in 2018, the bank committed $1bn over five years to finance a renewable energy transition. Our policies are publicly available, and we are well on our way to meeting our financing goal.
As part of BNP Paribas, we were motivated to act because we believe the private sector has a global responsibility to proactively address the climate crisis. We were driven by purpose.
Global finance can be a game changer
A planetary crisis affects us all. With that in mind, Bank of the West has used its global reach for the betterment of our customers and the planet.
For example, we’re providing working capital to the US subsidiaries of major European energy companies, supporting the growth of renewable energy generation across North America. This is part of our three-pronged strategy focusing on the development of renewables, cleantech and sustainable finance across industries.
We’re also using our balance sheet to encourage corporate borrowers to meet more ambitious social and environmental goals. Building on the industry-leading expertise of BNP Paribas, Bank of the West launched its sustainability linked loans offer in April.
What isn’t financed makes a difference
What banks stand for and what they finance are critical. So is what they decide not to finance. Our low-carbon future depends in part on banks not making the climate crisis worse by underwriting carbon-intensive industries. We know restricting financing based on principles is not easy because we have been on this path for a while. And we stand with the 43 global members of the UN’s NZBA because we firmly believe it’s necessary for the planet.
I’m humbled by the immensity of the task before us to stop the climate crisis. I also believe our global industry, collectively, can make a significant difference.
As the biggest banking group in Central America, with operations throughout the region, it is unsurprising that BAC Credomatic would lead the way in digital penetration for banking in the area. With a key customer base of individuals and SMEs, however, COVID-19 hit the region with no less force than anywhere else, and while technology and innovation remained vital, so too was retaining the personal feel people also needed in the midst of a pandemic.
Say ‘digital banking’ and you will likely think of mobile and online banking platforms. In fact, digital banking requires a complete transformation of all activities, programmes and roles, the automatisation of all banking processes, and the digitalisation of middleware, in order to get the different tools and systems to exchange information. In the banking industry, the transformation from traditional towards digital banking has been shaped by new technologies such as the cloud, big data and artificial intelligence.
These new technologies have forced the industry to improve customer experience in order to retain clients while staying ahead of the game. This means creating high-value digital services, ensuring their viability, and optimising their efficiency and profitability. The risk of not doing so is to alienate a client base in a region that still has problems with financial inclusion and a high proportion of unbanked populations.
At BAC Credomatic, therefore, the focus has been on listening to customers, monitoring customer interaction through digital platforms, and pivoting and adjusting the customer experience in order to make it simpler and more accessible. These efforts to streamline internal processes and improve their platforms have allowed the company to make great leaps in its digital adoption indicators.
BAC Credomatic’s digital customer penetration grew by almost 10 percent between 2019 and 2020 (from 33 percent to 42 percent). Over 1.6 million customers access its services via digital platforms every month, and four out of five do so through its mobile platform. Of course, the unavailability of banking in-branch accelerated this adoption more than it would have if the pandemic had not struck, but BAC Credomatic always intended to develop and innovate in this way.
Customer-driven innovation
Constant innovation is a strategic priority for all forward-thinking banks, and in fact the journey towards a more digital and customer-centric organisation began in 2017. The aim is to offer solutions that although complex from a behind-the-scenes perspective, actually make the customer experience seamless and straightforward, driven by a strategy focused on what customers in the region actually need.
Its digital banking platforms are not simply a by-product of that digital transformation.
The bank also made great progress with its customer service channels, which ensured customer interactions were smooth and agile
Robust online and mobile banking platforms allow customers to carry out virtually any type of transaction, but the bank has also taken the digital transformation to its physical assets. This led to branches being redesigned to emphasise relational banking and create well-thought-out spaces for self-servicing, meaning customers still have a physical place to bank should they wish, but are given more autonomy and convenience while doing so. The bank also made great progress with its customer service channels, which ensured customer interactions were smooth and agile.
Once COVID-19 took hold, social distancing measures were implemented that put the new digital platforms to the test. Fortunately, some of the digital transformation efforts that had been ongoing for years were prioritised throughout the pandemic, allowing the bank to take immediate action. Like many other organisations worldwide, BAC Credomatic leaned heavily on WhatsApp, and although servicing through this platform was already in place, it predictably skyrocketed last year given its accessibility to customers.
BAC has your back
The pandemic is clearly having a significant impact on people’s spending, saving and credit usage in all regions, and Central America is no exception. As a socially responsible financial entity, BAC Credomatic has the duty to support their customers throughout the crisis that we face globally. For this reason, BAC Credomatic implemented several financial relief measures in all the countries where it operates. From Guatemala to Panama, these measures took into account each country’s individual situation, while safeguarding the local operations’ solvency, risk appetite, and business continuity. For individual clients, measures included delaying payment of instalments for personal and home loans for various months and delaying payment of credit card debt.
These measures were applied across the board, no questions asked. Additionally, the bank offered customers exclusive benefits for essential purchases such as those made in supermarkets, pharmacies, hospitals and clinics. Offering tailored relief measures for its personal and corporate banking customers based on each client’s particular situation as well as for specific countries’ needs allowed the bank to individualise its response to the pandemic while further securing its reputation as the region’s leading financial institution. The measures were communicated to clients directly via email, on the website, and through BAC’s customer service channels. Its chatbot was amended to make sure frequently asked questions regarding the COVID-19 relief measures were easily accessible to all customers.
Customer responses to the pandemic have been varied, but there was of course definite concern around financial wellbeing. Perhaps surprisingly in a year where unemployment rose worldwide, BAC Credomatic’s experience was that most people turned from using credit to using their debit cards. This creates a challenge for a bank trying to maintain its margins, and these changes in customer behaviour led it to build a personal finance manager (PFM) for its clients, which will be released shortly.
Even though these relief measures are substantial, the bank maintained all liquidity indicators within a desirable range. Needless to say, financial risk indicators are being monitored constantly to ensure that the bank can continue providing the support that its customers need during these trying times, while ensuring the solvency and continuity of its operations.
Instant engagement
Pioneering digital banking in a region with a growing middle class and against a backdrop of global connectivity and instant-access information requires agility and responsiveness. Brand awareness in a noisy online world is vital, and banks of all stripes have increasingly been engaging customers digitally and by other means to gain a competitive advantage in the market. At BAC Credomatic, this means actively listening to the needs of customers, using an experience management platform called Medallia.
This allows businesses to stay in tune with their brand strengths and weaknesses with regards to processes, products and services, and obtain feedback and opinions directly from the customers themselves. Having this platform allows BAC Credomatic to react to customer needs in a timely manner and to design solutions that are built with a customer-centric perspective. In addition, it allows it to develop strategic tools that add value and diversify its services and digital platforms in order to offer customers a seamless experience.
Understanding customer needs allows the bank to create new platforms that not only improve the customer experience with the bank, but also allows its corporate customers to grow their businesses in turn, generating a positive impact on the region as a whole. In the early 2000s, BAC Credomatic was the first financial entity in the region to offer a mobile banking app. It was also the first to offer NFC payments with tokenised credit cards through a banking app. Coupled with extraordinary contactless penetration within merchants of all sizes, BAC Credomatic offers completely cardless and contactless experiences.
Musical outreach
During the pandemic, various industries pivoted and adapted in order to not only retain but delight their clients, and BAC Credomatic implemented a number of innovations to do just this. One initiative that was mobilised in record time was a programme called ‘momentos online’: a series of concerts featuring local artists in five of the six countries where it operates, streamed live via Facebook and Instagram. Another successful initiative saw a webinar series targeted to supporting SMEs as they navigated the emergency situation and pivoted to keep their businesses afloat. These initiatives have been very well received by customers, with close to 6,000 social media mentions related to momentos online throughout the pandemic, 96 percent of which were positive comments.
As banking adapts to the new reality it faces throughout the world, BAC Credomatic will surely continue leveraging its regional scale in each of the six countries where it operates, promoting the use of digital channels but always prioritising the wellbeing of its clients and employees. Here is an organisation that is making every effort to keep its customers at the centre of every initiative it undertakes.
Constantly researching the markets means the bank understands its customers’ behaviour in order to find solutions that appeal to and resonate with them. Looking forward, the bank will resume sending a UX team out to the field on a weekly basis to get customers’ input on new products and prototypes, which will yield extremely valuable results.
These insights lead the bank to adjust its language to make its products crystal clear for all customers. The institution is excited to give its customers a voice to express their opinions, which will be added to the 40,000 customers regionally who already provide feedback every month. BAC Credomatic can use this information to improve the digital experience even further. Technology is an enabler, but the customer will always dictate the clearest path to follow.
Today’s world is one of increasing transparency and accountability plus social and environmental consciousness. We at Kaiser Partner Privatbank AG are more aware than ever of the heightened effect our actions – and investments – will have on employment, food and clean water supplies, social order, health, and education, both for those around us, and the generations after us. Since signing the UN PRI more than a decade ago, we have continued to incorporate ESG issues throughout our investment process.
Today, we offer a holistic approach for sustainable investment solutions that reflects client-specific goals and values. We will look at tailor-made solutions based on client preferences. In addition, we carefully monitor our ESG practices with regard to controversies, impact measurement and business involvement to ensure we meet our own high standards at all times.
Throughout its history, the principality of Liechtenstein has always stood for innovation, liberty and entrepreneurship
Our responsible investment offering covers all aspects of the investment chain – starting from a value-based onboarding process through to a comprehensive report disclosing the portfolio’s carbon footprint, its ESG rating distribution and to what degree the client’s personal portfolio contributes to achieving sustainable development goals.
When investing responsibly, our mission is to deliver competitive financial returns by mitigating the risks associated with ESG factors to protect value in the long-term. In doing so, our approach is fluid rather than dogmatic, taking into account traditional risk and return figures, and allowing us to manage portfolios that are sustainable while focusing on strong risk-adjusted performance.
In our view, ESG considerations can be incorporated without overly limiting individual investment options or how these options perform. In this sense, we are committed to an active ownership approach – meaning that we will engage constructively with companies and public policy rather than choosing ‘easy’ options like divestments or greenwashing. This fluid approach, with concomitant emphasis on providing innovative and tailor-made solutions, leaves us well placed to adapt not only to the priorities inherent in responsible investing, but also to be dynamic in the event of shifting market tectonics.
Adapting to negative interest rates
Times have changed, and for a growing number of investors, negative interest rates are becoming a real challenge as more and more banks in European countries are charging their clients interest on cash balances – starting from ever lower levels. This issue is especially prevalent with small to medium-sized companies, which usually carry relatively large cash positions of several million euros just to be able to act quickly when business opportunities arise – or simply preparing for unforeseen cash outlays. For clients like these, we offer an attractive solution.
Instead of holding large cash positions with a bank and paying negative interest rates, our clients can invest in a minimum volatility portfolio that yields an estimated 1.5 percent annual return while keeping drawdowns at a minimum. If short-term liquidity needs arise, instead of selling some assets we offer the client a Lombard loan collateralised by the securities in the minimum volatility portfolio. This way, they only have to pay interest when liquidity is actually needed, while always being invested in a liquid solution with the cash portion that would otherwise be subject to negative interest rates.
But it is not only negative interest rates set by the SNB and ECB that pose challenges. We also have to contend with the wider implications of the ‘lower for longer’ interest rate environment – resulting from a decade of expansionary monetary policy globally, and especially in Europe. As a result, government bond yields are negative in Switzerland and Germany; and even Italy – with its huge debt burden – can refinance at extremely cheap prices.
For an investor, there is not much to gain from safe bonds as they will often lock in a guaranteed negative return if they hold these securities until maturity. Not only are bonds with high credit quality zero-yielding assets, but they are also an increasing risk to investors’ portfolios as the potential for price increases is very limited while the downside – in the case of a rising interest rate environment – is huge. And while high-quality bonds have traditionally acted as a form of portfolio insurance – as they often cushioned stock price drawdowns in the past – this kind of hedging behaviour looks questionable going forward.
The corona crash in spring 2020, during which government bonds didn’t help much in stabilising a balanced portfolio, was a reminder that the good old days of the 60/40 portfolio may be over – both in terms of absolute performance and risk characteristics. Investors looking for good risk-adjusted returns in the future will have to show a bit more creativity, particularly when configuring the fixed-income part of an investment portfolio.
The demands on this safe portfolio component remain the same as before – it should earn a solid minimum return, and its correlation to stocks should be relatively low so that the overall portfolio stays stable during periods of crisis.
Sound investment alternatives
Inflation-protected bonds, insurance-linked bonds (catastrophe or ‘cat’ bonds) and microfinance bonds are asset classes that particularly meet the above requirements, in our view. Adding these interest-bearing alternatives to conventional government and corporate bonds, as well as high-yield and emerging-market bonds, and combining these fixed-income components with stocks to build a balanced portfolio allows us to continue generating attractive future returns.
The average annual expected return for our optimised (and diversified) investment portfolio stands at plus 4.7 percent for the next five years, according to our calculations, entailing slightly less risk when compared to a simple portfolio consisting of 50 percent bonds and 50 percent equities (expected to return only 3.4 percent). This clearly shows that a strategic asset allocation, which we review on an annual basis, adds value for our clients and reflects our mantra ‘Responsibility in Wealth.’
However, there’s no such thing as a free lunch. If you integrate interest-bearing alternatives into a portfolio, you get similarly good diversification properties and a better return than with conventional bonds, but the liquidity properties will not be as good. But since a balanced portfolio typically has a three-to five-year investment horizon, this ‘liquidity premium’ is acceptable. Investors should generally move away from the idea of maintaining daily liquidity for their long-term fixed-income investments or should at least be aware of the opportunity costs of doing so.
A positive five-year outlook
Today, almost every asset category that could be deemed ‘traditional’ is over-valued and yields on safe interest-bearing securities are ultralow – or even negative – due to years of ongoing inventiveness on the part of central banks. Hence, financial market participants should expect lower returns, especially from the traditional asset classes, namely bonds and equities. The formulation of capital market expectations is one of the key components of our annual strategic portfolio review.
This process ensures that the client assets under our management are constantly invested in line with a forward-looking, sustainable strategic asset allocation (SAA) in lockstep with the times. Our annual review process covers a number of elements – among them the determination of the relevant asset classes and the time horizon, for which return expectations are to be formulated. We focus here on a medium to long-term period of five years, allowing us to take longer-term valuation anomalies into account and at the same time take into account current micro and macroeconomic trends.
Next, a sound model is developed for each asset class and sub-category to derive five-year return expectations. The stability of the estimated parameters is a crucial cornerstone for later mean-variance optimisation. We therefore use a combination of multiple models wherever possible to derive return estimates in order to obtain results that are as broad-based as possible.
A number of ingredients come into play here. For government and corporate bonds, the starting yield explains a very high portion of the expected five-year return and is hence a key input to our assumptions. As for equities, we combine three different models: equity risk premium, a sector-based approach and historical equity returns for different regions.
Capital market investments over the next five years will involve fewer classic instruments in the portfolio – or feature alternative ones (see Fig 1). Equities continue to be the asset class with the highest expected returns, but with estimates of around five percent for US equities, as an example, these are clearly lower than what investors were able to earn in the last decade.
Our results also show that alternative asset classes like hedge funds and private equity will have to play a larger role in an investor’s asset allocation going forward if the aim is to generate a decent return in the next five to 10 years. The same applies to fixed-income alternatives like insurance-linked bonds, microfinance and other more innovative instruments like peer-to-peer lending. Investors will have to increase their allocation of these alternatives while reducing their exposure to the more classic fixed-income instruments like government and corporate bonds – where return expectations are around one percent in the US – and lower still, close to zero, even, in Europe and Switzerland.
Strategic location
Kaiser Partner Privatbank’s base in Liechtenstein comes with many benefits. This tiny country in the heart of Europe is the epitome of political continuity and stability. The principality boasts a triple-A sovereign credit rating and is debt-free. Moreover, it combines the best of two worlds – Liechtenstein is tied to Switzerland through a customs and monetary union and has direct access to both the European Economic Area (EEA) and Switzerland. This unique combination facilitates attractive growth prospects in many sectors including the financial services industry.
Throughout its history, the principality of Liechtenstein has always stood for innovation, liberty and entrepreneurship – and the same could be said for the family-owned Kaiser Partner Privatbank AG.
The International Monetary Fund (IMF) is never known to heap praise on countries, particularly developing nations. Yet in early May, the Bretton Woods institution was all over itself pouring accolades on the Dominican Republic. Following the conclusion of Article IV Consultation, the IMF team led by Esteban Vesperoni praised the country for being one of the most “dynamic economies” in Latin America.
The plaudits from the IMF were not farfetched. For over a decade, the Dominican Republic has sustained a robust growth averaging 5.8 percent. The impressive growth, coupled by macroeconomic stability and a sound external position, to use IMF’s words, has resulted in notable improvement in the standard of living for a majority of the country’s 11 million inhabitants. This is indisputable. In 2010, the country’s per capita income was $11,000. By the end of last year, it was around $19,000. Despite the ravages of COVID-19, the Dominican Republic’s economy has remained resilient and is projected to grow by 5.5 percent this year.
The financial services sector has been at the heart of the country’s stellar economic performance by supporting key sectors even during the pandemic. In this respect, Banco Popular Dominicano has emerged among banks that have been committed to supporting the economy. With its wide exposure across sectors like tourism, construction, agriculture, renewable energy, health, education, and SMEs among others, the bank has effectively played a key role in maintaining the economy’s dynamism particularly during the difficult periods.
In the process, the bank has achieved significant growth and today stands as one of the leading lenders in the Dominican Republic. In the financial year ended 2020, Banco Popular Dominicano’s total assets stood at $9.7bn, a 16.5 percent growth from the previous year. During the year, its net loan portfolio grew by eight percent to $5.9bn while total deposits increased by 14.4 percent.
Growth in all parameters has seen the bank rated highly. In May, rating agency Fitch Ratings ratified the bank with the AA + (dom) rating. This was awarded on the basis that Banco Popular Dominicano is “a safe haven bank” particularly in times of systemic stress. The primary reason for this is the bank’s sound business model, stable profitability, healthy portfolio quality, good capitalisation and adequate liquidity management. These factors are critical in ensuring the bank maintains its organic growth going into the future.
Being part of Grupo Popular, Banco Popular Dominicano boasts a rich history dating back over five decades. Over the years, the bank has managed to build a formidable financial institution anchored on innovation. Innovation has been a fundamental pillar that has characterised the bank’s service delivery and growth strategy. For the bank, new technologies and digital transformation have enabled it to continue developing new business models, products and services that have been central to its growth.
Purposeful innovation
For this to happen, Banco Popular Dominicano made a conscious decision to embed innovation as part of its strategic plan. The result has been years of significant investments in establishing a modern open technological architecture that encompasses technologies such as cloud computing, ‘machine learning’ and artificial intelligence. It has also adopted the discipline of digital user experience (DX). This makes it possible to generate solutions to customers’ needs, listen to them and invite them to participate in the proofs of concept, prototypes and pilots prior to launching any product or service.
Building a growth strategy anchored on innovations and digital transformation has brought about significant rewards for Banco Popular Dominicano
Technological investments have made Banco Popular Dominicano a pioneer in innovation. It was the first bank in the Dominican Republic to launch an online banking platform back in 2001. A decade later in 2011, it was the first to introduce an app for mobile devices. Other firsts include the introduction of credit cards, incorporation of chip cards for safer transactions, contactless card payments through near-field communication (NFC) technology, virtual wallets and QR code payments. With a wide network of nearly 200 branches and 1,121 multifunctional automated teller machines, Banco Popular Dominicano has adopted the ‘AGILE’ methodology that allows it to constantly launch new innovations and accelerate its digital transformation process. Though designed to ensure the bank maintains its market leadership, the bottom line of its aggressive innovation drive is customer satisfaction.
Building a growth strategy anchored on innovation and digital transformation has brought about significant rewards for Banco Popular Dominicano. Today, the bank is a reference point for financial innovation not only in the Dominican Republic but across the wider western hemisphere. More importantly, the bank takes pride in serving over two million happy customers due to its efficient and customer-centric model of service delivery.
For the bank, which has repeatedly been voted the best private bank in the Dominican Republic, providing customers with platforms and channels that facilitate seamless transactions and interactions has been nothing short of transformative in driving growth. Even more prodigious has been the customer receptivity. This is because the platforms and systems are designed to make the lives of customers easier and help them accomplish their financial goals.
Today, more than 87 percent of Banco Popular Dominicano’s operations are digital.
Customer confidence
Almost 1.4 million customers are using digital channels, a growth of 33 percent last year. Annually, the bank receives in excess of 38 million visits to its Popularenlinea website. The bank’s Popular app, the main mobile application in the market, boasts over 700,000 users, a 20 percent increase compared to 2019. In 2020, the app accounted for 24 million transactions, a 34 percent increase from the previous year.
Creating an environment where customers can transact digitally has been a masterstroke for Banco Popular Dominicano in many aspects. It has arguably proved most valuable during the COVID-19 disruptions, a period that has seen the use of digital channels increase substantially. In essence, the growth has been a testament to the customers’ trust in the bank’s technological infrastructure resulting in a swift migration to digital platforms. The migration, on a broader perspective, has helped contain the spread of the pandemic. As the IMF observed, the Dominican Republic has performed well in containing COVID-19. By mid-May, the country had fewer than 300,000 reported cases.
Digital platforms have been central in guaranteeing clients uninterrupted service during the pandemic. For Banco Popular Dominicano, they are also critical for financial inclusion. By taking advantage of the fact that 80 percent of Dominicans own a mobile phone, with about 50 percent of these being smartphones, the bank has simplified wallets and accounts. In effect, it has allowed the unbanked to enter the formal financial services sector easily and quickly. Additionally, through its network of subagents, the largest and most extensive in the country, the bank has brought services closer to most remote communities.
Though a majority of customers are already transacting digitally, Banco Popular Dominicano wants more customers on its digital platforms. This explains why the bank continues to introduce initiatives and incentives for even the most conservative clients, who may be reluctant to migrate. The incentives include not charging commissions on basic transactions such as transfers between accounts, payments to third parties and payments for products and services, among others. Clients also have the option of choosing accounts and products that have no commissions for sophisticated products and services.
Banco Popular Dominicano strongly believes that digital migration is an unstoppable train with more clients experiencing the benefits of digital banking every day. However, it doesn’t mean leaving behind a trail of frustrated traditionalist customers who only know banking in its personalised form in the enclave of bricks and mortar. While conservative customers have traditional channels at their disposal, the bank is constantly making improvements and optimisations to maximise the service experience. One way that the bank has managed to enhance operational efficiency has been through investment in robotic process automation.
In its digital transformation journey, Banco Popular Dominicano understands that customer confidence in security of systems is paramount. Security cuts across two aspects – a guarantee that accounts will not be compromised or breached, and system failures will not cripple the customer’s ability to carry out transactions. It is for these reasons that the bank has strong commitments on security.
Secure and safe
Last year, the bank continued to strengthen its information security and cyber security program incorporating Central Bank of the Dominican Republic regulations. On top of this, it was proactive in the development of technical and procedural capacities for the monitoring, detection and management of cyber security incidents, making use of AI and machine learning technologies. During the year, over 30,000 events were monitored per second. Internally, the measures have put the bank at the forefront of maintaining integrity of customers’ transactions and information. Externally, customer confidence is boosted by a unique electronic key or Popular Token assigned to them for the sole purpose of authenticating each operation. The bank has also set up a digital communication channel through which clients can report ‘phishing and spoofing’ attempts.
Despite achieving remarkable milestones on the digital front, Banco Popular Dominicano has no intention of slowing down or resting on its laurels. It goes without saying that with 17 commercial banks, the top five of which command about 80 percent of the market, the Dominican Republic’s banking industry remains highly competitive. For this reason, coupled with the desire to maintain a growth trajectory, the bank intends to continue innovating and providing clients with new cutting edge solutions that satisfy their needs and make their experience the best it can be.
Priorities for new solutions will be oriented towards the intensive use of advanced digital analytics to facilitate the creation of products, an adequate adoption of AI in banking services and continuing to develop the media. The bank also plans to continue along the road of digital banking in promoting customer convenience. It remains a priority for the bank to always listen to its customers and co-create with them. This will continue to be the underlying principle of its innovations.
Established in 1978, Jordan Islamic Bank (JIB) began as a public shareholding limited company, and the first branch began its work in late 1979. Since those early days, the bank has come a long way. Now with 108 branches and offices around Jordan, it strives not only to keep pace with technological innovation by employing modern technologies, but also aims to provide the best Islamic products and services clearly and transparently.
The bank presents services through 269 ATMs and provides banking phone services, online banking, 3D secure shopping, online bill payments and an e-wallet service through Islami mobile. These services are available during official holidays and outside normal operating hours through a number of branches and offices. In addition to this, the bank’s Facebook page, Al Islami Messenger service and call centre are all available 24/7. JIB’s founding aims have always been to meet the economic and social needs of citizens in the fields of banking, finance and investment in accordance with the principles of Islamic Sharia.
Transactions and contracts are subject to the supervision of a Sharia board composed of specialist Sharia scholars. To ensure our clients are aware of our commitment to Sharia principles, we recently overhauled our branding, prefixing the names of our electronic channels with the word ‘Islami,’ as in Islami internet.
JIB pushed forward with several projects aimed at modernising its service provision via new technologies
Our banking operations are regulated by the central bank of Jordan and the bank is continually working to deepen and develop the principles of corporate governance, develop risk management and apply the requirements of the Basel III regulatory framework.
Success, naturally, has followed. The bank has been honoured with many international awards over the years, including the Best Islamic Bank in Jordan and the Best Islamic financial institution from several prestigious international institutions and magazines. We have also obtained credit and Sharia ratings from international rating agencies, as well as a letter of appreciation from the International Organisation for Standardisation (ISO) for our participation and commitment to CSR.
JIB’s CSR commitments offer an example for national institutions and companies to follow when it comes to fulfilling their own duties towards the community, particularly disadvantaged groups, those with special needs and the poor. By contributing to sustainable development and enhancing financial inclusion through various charitable programmes, social, cultural and voluntary activities, donations, Qard Al-Hasan and mutual insurance funds, the bank works to ensure that Jordanian society and the nation’s financial security is always at the heart of what we do (see Fig 1).
Another way we engage in bolstering Jordan’s economic stability is through our participation in the national self-employment programme, a scheme designed to promote entrepreneurism among young people. Working with the central bank of Jordan, we finance projects that create long-term career opportunities and income streams for the young people involved.
Comprehensive service
These days the bank provides a wide array of services, accepting deposits in Jordanian Dinar and foreign currencies across numerous current and investment accounts. We invest funds according to permissible practices of Islamic finance, making use of arrangements such as Mudarabah, Musharakah, Murabaha Sale, Ijarah Mawsufah Fi Al-Dhimmah. We also work with funds and products to provide financing to cover the costs of pilgrimage, education, medical treatment, renewable energy systems and construction. Our specialist wedding package enables the families of brides and grooms to cover wedding costs via an installment plan.
JIB provides other banking services such as issuing instant money transfers via Western Union, renting of safety deposit boxes and issuing letters of guarantee, penning letters of credit, and buying and selling FX. We also act as agents in buying and selling shares and investment certificates, and as a broker on the Amman Stock Exchange through our subsidiary Sanabel Al-Khair for Financial Investments.
JIB issues several different banking cards for both Visa and Mastercard, including Sharia-compliant and prepaid products. Our security protocols, as you would expect, are second to none. The bank also issues a blind card for those with visual impairments with the aim of bringing about a more inclusive banking landscape, providing all groups of society with access to financial and banking services. All of the bank’s customers should be able to administer their financial affairs with complete freedom and complete privacy.
Moving with the times
JIB is continuously working to develop its services and increase its market share through the expansion and geographical distribution of ATMs to cover all regions in Jordan. We are continuously developing the number of services available via our ATMs as well as updating and reviewing security measures across the network, which now consists of 269 units.
Our customers also have access to approximately 1,700 third-party ATMs within Jordan and the Visa International network worldwide. The wide availability of service naturally reflects positively on customer satisfaction and further solidifies the bank’s interests, profitability and competitiveness. A review of this network of ATMs is conducted annually with a view to ensuring wide and fair distribution of the most up-to-date services and encouraging customers to use ATMs rather than branches.
During 2020 JIB pushed forward with several projects aimed at modernising its service provision via new technologies. In order to relieve the pressure on branches during the COVID-19 pandemic, we quickly rolled out or expanded services such as the Islami Mobile app, an updated website, self-service kiosks, and dedicated ATMs and an interpreting app for clients with disabilities.
From its inception, Jordan Islamic Bank has committed to becoming a leader in the Jordanian banking sector. We strictly abide by a unifying vision to provide modern banking services via the largest network of ATMs spread throughout the Hashemite Kingdom of Jordan, with the hope of meeting the needs and aspirations of our current and future customers.
As the second strongest economy globally, China has also publicly been one of the most adamant in striking down cryptocurrency. However, most bitcoin block miners reside and toil on Chinese territory. In April 2021, the deputy governor of the People’s Bank of China (PBOC), Li Bo, officially termed bitcoin an ‘investment alternative.’ This breakthrough came amid a significant pullback of bitcoin and the entire crypto market. The Chinese admission nonetheless parallels the development of a centralised ‘digital yuan,’ hinting at Beijing’s more pragmatic multi-faceted approach.
The US and bitcoin
At times, a clear separating line runs between the public and the private sector in assessing the impact that bitcoin has had on the US. The latter is on an adoption rampage of sorts: Corporate America is slowly but undoubtedly putting its seal of approval on bitcoin as a long-term credible investment asset. Elon Musk’s Tesla is just one prominent example. More importantly, keep in mind that even Goldman Sachs, which until very recently held bitcoin in low regard publicly and showed distaste for the opinion that cryptocurrency would be a powerful investment asset, repented. The influential multinational investment bank, having close ties to the most powerful governments in the world, announced in March 2021 a ‘full-spectrum’ cryptocurrency investment offer, including bitcoin, for its private clients. All the while, the narrative from US state bodies suggests a different approach.
Complete and centralised control of new financial technologies by governments and central banks remains the main objective
By her admission, US Treasury Secretary Janet Yellen is eager to crush the influence of cryptocurrencies by pushing International Monetary Fund (IMF) capacities further, which many financial experts consider being the future issuer of a new worldwide digital currency – centralised, of course. In the same month, the current Federal Reserve Chairman, Jerome Powell, stated to Congress that the FED is ‘looking carefully’ at issuing a ‘digital dollar,’ describing it as ‘a high priority project for us.’ It would seem akin to the high stakes his Chinese counterparts put into their digital yuan. The recent publication by multinational investment bank Citi, ‘Bitcoin: At the Tipping Point,’ contains a crucial afterthought: according to their analysis, bitcoin could very well turn into the currency of choice for international trade within just a few years.
Green deal sentiments
At times, bitcoin, flirting with $1trn market value, continues to be a genuine concern for central bankers globally, leading policymakers, like Yellen, to press the ‘green argument’ of ‘sustainability’ to attack bitcoin and its kind, saying it is ‘an extremely inefficient way to conduct transactions,’ since ‘the amount of energy consumed in processing those transactions is staggering.’
Yellen and her counterparts in other major countries are more than interested in transitioning from cash to digital tokens, though. This process will undoubtedly make use of the framework of the coming ‘Fourth Industrial Revolution’ as laid down by the influential World Economic Forum’s founder, Klaus Schwab, in his publications. The scepticism towards decentralised blockchain technology will not fade away anytime soon since complete and centralised control of new financial technologies by governments and central banks remains the main objective. Nevertheless, this publicly expressed hostility may be weaker than it appears.
Behind closed doors, the sentiment is much more composed and collaborative. The best illustration is to look at the blockchain partners of the World Economic Forum itself: Elastos, Stellar, Algorand and Ripple – all future candidates to shape the financial technologies to come.
Geopolitical considerations
April 2021 had an interesting turn of sentiments when Peter Thiel (co-founder of PayPal with Elon Musk, Palantir Technologies) gave a political warning regarding bitcoin ‘as a Chinese financial weapon against the US,’ further contributing to a heightened sense of urgency. Thiel usually presents himself as a bitcoin maximalist and prime angel investor on the crypto market. So if a venture capitalist of Thiel’s proportions puts out such explicit political alerts, the public should anticipate a culmination between Washington and Beijing in this crucial ‘arms race’ sometime soon.
A month before, Yellen announced to the international forum G20 that the US would support a new issuance of the IMF’s international reserve asset, known as the ‘Special Drawing Right’ (SDR). Ten years ago, the IMF went public with their serious contemplations of replacing the current world reserve currency (the US dollar) with the SDR.
Who are the new kids on the blockchain?
Decentralised finance (DeFi) and smart contract platforms on blockchain networks have many runner-ups: Ethereum is the most used network and the first of its kind. Incepted in 2015, it garners the highest daily transaction rate, now hovering above 1.5 million – even beating bitcoin’s current average of 200,000–300,000 a day. Lack of scalability and high transaction costs give Ethereum competitors a chance to contribute and capture some market share. Polkadot, Cardano, Cosmos, Harmony and a few others have the most significant potential to solve these issues.
Stablecoins are the bridges between the classical and the crypto-financial networks – USD Tether being the most prominent, with the highest market cap. A definitive stablecoin has yet to emerge since projects like Terra, xDai, and the USDC (widely used on the Coinbase exchange and the Ethereum blockchain as a whole) are still on the rise. Their use case is self-explanatory: digital coins, stably pegged to the US dollar but active on blockchain networks. Even Peter Thiel heavily invested in an anti-inflation crypto project called Reserve Protocol, which is already active with its stablecoin (RSV) in Latin America, gaining adoption and traction swiftly.
Blockchain technologies aiming high
The marketing slogan of ‘helping the masses of unbanked people’ in Africa, Asia, and South America is prevalent in the DeFi crypto sphere – for instance, some of the projects listed above and Celsius Network. It garners significant trust in these populations – and the West, to be frank – over classical banking institutions.
On April 14, 2021, Coinbase, as the most prevalent cryptocurrency exchange, was directly listed on the Nasdaq exchange. This move signifies even more convergence of both domains and implies a rising future influx of retail investors into crypto assets.
Long-awaited alchemy
No other asset in history could level or come near the resilient and durable use case of gold. Although much debate rages over whether bitcoin deserves the title of ‘digital gold’ just yet, the chart from 2009 until now (see Fig.1) is a clear indication of a monumental uptrend.
But is bitcoin beating gold in market capitalisation anytime soon? Ex-hedge fund billionaire Michael Novogratz says yes, as he spelt it out at the end of March on CNBC, “bitcoin is on an inevitable path to have the same market cap and then a higher market cap as gold.” Right now, the prime cryptocurrency’s market cap fluctuates around the $1trn mark – that’s one-tenth of gold. Historically, governments have had their fair share of administrative problems with gold, implementing extreme measures.
The most notable was Franklin D. Roosevelt’s US administration seizing all gold through Executive Order 6102, obliging US citizens to sell all of their precious metal at what was far below market rates. Soon after, the strategically placed Gold Reserve Act 1934 imposed a new official gold rate that was much higher. Ownership of it continued to be illegal in the US until the 1970s. In 1959 the Australian government followed suit with a similar law, which granted them authority to seize gold from their citizens. One of the official justifications was the protection of ‘the public credit of the Commonwealth’ and ‘the currency.’ In the following decade, the UK administration highly restricted gold ownership and barred private gold import into the country entirely.
This historical precedence with gold should yield caution regarding bitcoin’s mid-term fate with governments. How the governments’ actual banning, restricting, or confiscation of bitcoin could be implemented technologically is not clearly outlined.
A win-win for Forex
Regardless of the transition’s nature into this advanced future financial order, Forex brokers need to adapt to this new vibrant dichotomy. If they want to stay innovative, competitive, and relevant in the long term, that is. On the one hand, offering the most potent and powerful cryptocurrencies represents a progressive attitude towards decentralisation, which the crypto sphere offers. That means the broker always keeps doors open for new demographics. On the other hand, it’s crucial to stay with legacy currencies. Their centralised successors, which the IMF, FED and others already plan to launch as digital counterparts to their crypto challengers, should not be disregarded.
The worldwide financial system is ripe for significant paradigm shifts, which will probably ignite even greater competition between centralised and decentralised systems and their services. But Forex brokers, like OctaFX, are already taking on the innovative duty of being open to both systems, offering assets from both worlds, and are likely to capitalise on new opportunities to upgrade and revolutionise their financial services. There is simply no reason for Forex brokers to engage in an unnecessarily false dichotomy of choosing one system over the other. They can keep on offering the best of both worlds, building long-term trading relationships with their growing client base – with the best of conditions.
According to the IMF, the outcome for the global economy in the wake of COVID-19 during 2020 was a GDP contraction of about 3.5 percent. Vaccination has already begun worldwide, which will enable faster normalisation than expected. The IMF is projecting global growth of 5.5 percent in 2021, although this will depend on the speed of the vaccination rollout. Swift and substantial monetary and fiscal policy support has been an important and largely successful strategy during the pandemic. This was a lesson learnt during the earlier financial crisis. Several central banks and governments have also recently increased and extended the stimulus and relief programmes.
Although GDP may approach pre-pandemic levels in 2021, the trend is fragile. A dangerous virus mutation or policy error in which stimulus support is withdrawn too early and causes a large wave of bankruptcies and job losses would once again damage the economic outlook. At present, the trends are pointing in the opposite direction. At the same time, surprisingly swift vaccination programmes combined with continued and substantial economic stimulus and relief could generate faster recovery than expected.
The risks of overheating and rising inflation are further away, especially because the labour markets are soft, but long rates have begun to rise. The central banks are struggling to push up inflation, are giving no signs of austerity and are not forecasting rate hikes in 2021 or 2022. Additionally, inflation in Europe is very subdued.
Controlled restart
An upturn in long-term rates from record-low levels will not necessarily be a problem for the economy or the stock market, as long as it occurs under controlled conditions. In general, the Nordic economies have generally weathered the pandemic better than others, partly due to less drastic lockdowns and restrictions, and because our economies are more dependent upon exports and industry than on the service sector and tourism.
Industrial supply chains have not broken down, which was critical for keeping activity up. Strong public finances in the Nordic countries have provided good opportunities for fiscal policy support and economic stimulus. It is also a relief that there is now, four years after Brexit, an agreement between the EU and the United Kingdom, as the UK is an important trading partner for the Nordic countries.
The pandemic is accelerating existing megatrends like digitalisation, automation and climate and sustainability work. Remote working and digital communication have also taken giant steps forward, which is probably subduing business travel and has, by extension, also affected the structure of the real estate market. Global supply chains are being reviewed and if companies become more inclined to insource production, in spite of higher costs at home, this will further drive automation. There is much to indicate that retail stores, hotels, air travel and offices will recover. The big question is how far the pendulum will swing.
Sustainability and renewable energy are the really big and accelerating trends. They are driven not only by more urgent awareness of the climate situation, but also technological progress and cost advantages. This is especially true for the EU, which is an important market for the Nordic countries. The post-pandemic fiscal policy measures are to a great extent more future-oriented than those taken after the financial crisis, with investments in digitalisation and more sustainable societies, which is positive.
Transformation pressure on established companies is increasing, which is also creating fertile ground for new enterprises in areas including cleantech, gaming, technology, fintech and new energy. This is creating a need for growth financing and there is a lively IPO market on the Nordic stock exchanges for small and high-growth companies that has few equals in the rest of Europe. At the other end, the EU, US and China are pressuring the major platform companies on matters related to taxation and market dominating positions. Ultimately, this may lead to new regulations or to the forced break-up of large, dominant companies.
Perhaps most surprising of all, it seems like China is moving the fastest. These processes take time, but increased competition often promotes economic productivity and development. If new standards and regulations were to come, it could create entirely new opportunities and exciting changes like those happening in the banking system with fintech and the digitalisation of healthcare.
The green megatrend
ESG is the biggest trend going and it affects all investments. The pandemic has had a serious impact on how we live our lives and has given us new perspectives, which also apply to corporate executives and decision-makers. More importantly, we have realised that we can in fact change course and change our behaviour very quickly if we have to. The understanding that companies must have sustainable business models has grown during the pandemic. If you have a business model that is not currently sustainable, it will take profound change for the company to remain relevant to its customers in the future.
Focus on sustainability is a critical element of being a knowledge-driven bank and providing optimal advisory. To a great extent, ESG is about communication, information and education that equip people to make the right long-term decisions. There is much to be done, and through our sustainability expertise we can be involved and influence companies and investors – and really make a difference. It is important to us that our clients have access to the best available information so that they can make decisions that are socially sustainable in the long run. That is where we can help.
The pandemic is accelerating existing megatrends like digitalisation, automation and climate and sustainability work
As far as investments go, among both institutions and private clients, the focus is increasingly on the opportunities, rather than the risks. The point is no longer what one should avoid owning, but rather which companies and sectors will profit by a climate transformation and thus have a bright future ahead.
Carnegie has carried out an extensive project to determine where Nordic companies stand ahead of the new EU Taxonomy. The results of the analysis show that several companies that the market previously considered green did not perform as well, while others that had been overlooked suddenly became green darlings. This is due to the Taxonomy rewarding companies that are investing in the green transition, meaning that these companies earn high scores with their future-oriented initiatives.
We have been working actively with ESG in our advisory. Carnegie Private Banking became a signatory to the UN Principles for Responsible Investment (UNPRI) in 2020.
UNPRI is a well-known framework that results in greater transparency surrounding ESG efforts. Carnegie checks and evaluates all funds and fund managers that are included on the bank’s recommendation list and are the basis for discretionary management, combined with Carnegie’s own products.
We are working proactively in our wealth management to identify long-term, structural growth trends, which we translate into thematic investments. Our ambition is to either identify themes in an early phase or find niches within megatrends like healthcare, technology and the environment. We aim to look at the entire value chain rather than simply buy the biggest companies that the market already associates with the trend.
Is water the next big trend?
In recent years, the themes we have identified have included 5G, cyber security, robotisation and automation, artificial intelligence, biotech and the pharmaceuticals of the future. In the ESG segment, we see attractive investment opportunities in areas including renewable energy, sustainable food and water supply.
We have observed a distinct trend in the last year where the market has bumped up the value of companies that focus on ESG. In some cases, the flows have contributed to bubble valuations of companies that are clear winners in the environmental trend – especially in clean energy. The somewhat more defensive water companies are not such obvious winners and have been a little overlooked.
Investor focus on sustainability is a structural trend that will potentially benefit the water companies. Right now, everybody is talking about the carbon footprint, but the water footprint could be the next trend, for both companies and consumers.
Four billion people struggle with water shortages every day. The supply of fresh water is finite, unevenly distributed among geographical regions and shrinking due to pollution and climate change. Demand is rising in pace with population growth, urbanisation and growing prosperity – most rapidly where there are already water shortages. We are already seeing conflicts related to water.
In the western world, more resource-efficient management of fresh water would save money. In Africa, it would save lives. Drastic cuts to consumption would also be very attractive from a sustainability perspective. Resolving the water shortage problem will require major investments in infrastructure and new technology to secure access to water for the world population.
The widening gap between supply and demand is the most important driver of water as an investment theme. The global demand for water is growing twice as fast as the global population and is expected to double again in the next 15 years. The need for water is also being driven by urbanisation and higher consumption of goods that require a great deal of water in their production. India, China and other emerging countries in Asia will account for a large share of the demand growth until 2050, according to the OECD.
In short, nearly $500m a year needs to be invested to give all people access to clean water by 2030, and urbanisation and growing prosperity will further increase the need for water.
The modern Islamic finance industry is young but evolving rapidly, serving a growing population of Muslims as well as non-Muslims. According to the Global Islamic Finance Markets Report 2019, the industry’s total worth, in conjunction with key industry stakeholder organisations across its three main sectors (banking, capital markets and takaful), was estimated to be $2.05trn in 2017, marking an 8.3 percent growth in assets in USD terms.
Shariah stipulation is a prime driver of digitalisation and ICS Financial Systems (ICSFS) is one of the first providers of Islamic banking software applications in the industry, with a customer-first approach and streamlined services of its epic best-of-breed technologies. World Finance spoke with the company’s managing director Robert Hazboun to learn about the challenges of digitalising Islamic banks.
How has the pandemic hastened digital changes for the bank?
The pandemic has forced the Islamic banking industry to quickly grow its market ecosystem by embracing new digital trends. We saw Islamic banks taking the lead in adopting digital transformation, and I believe we will see a significant increase in the adoption of Islamic Shariah-compliant products by many conventional banks, and even countries. The pandemic has also accelerated the creation of Islamic fintechs, which are embracing digital tools in every step of the customer journey, from onboarding to digital lending and automatic payments.
What do you consider the key essentials for the Islamic bank of the future?
It must create innovative product strategies to meet customer expectations and trends, by studying and analysing behaviour. Consumer behaviour is constantly changing – millennials are referred to as tech-savvy and now Generation Z is the tech-native generation.
The Islamic bank of the future must embrace dynamic product building with business intelligence (BI), artificial intelligence (AI), robotics and vast touchpoints coverage with omnichannel experience. It is also essential to embrace fintech’s agility to take advantage of the opportunities that its innovations are bringing to the market. Islamic banks need business technology partners that provide financial inclusion, full coverage of Islamic finance, open banking, cloud availability and, most importantly, RegTech solutions.
What are the biggest challenges you and your customers face in becoming an effective digital presence?
Islamic banking is an interest-free investment house rather than the interest-based money lending institute model of conventional banking, which would lead to sharing profit and risk. This can cause a number of challenges.
There are major Islamic finance Shariah standards such as AAOIFI and IFSB.
Also, various intellectuals look at Islamic financing differently, with each country, region and even bank having its own Shariah board to set rules and regulations. Having an interconnected Islamic finance ecosystem that covers all lines of business is therefore essential. Islamic finance is based on a trade contract, and contract control is a major undertaking. Precise paperwork is a must for contracts and handling them is a difficult issue.
The pandemic has forced the Islamic banking industry to quickly grow its market ecosystem by embracing new digital trends
Another challenge is that there is no single methodology used for product development. Additionally, Shariah regulations obligate the bank to have constant interactions with the customer, so maintaining focus on the customer is difficult.
One of the major challenges that ICSFS has seen as an Islamic banking software provider is that many Islamic banks have embarked on product-led digital solutions rather than taking a holistic approach. Another is that since Islamic banking products must be Shariah-compliant, the processing cycle takes a long time because more manual processes are needed.
Also, there is no standardisation or harmonisation of documentation, which increases the cost of transactions compared to conventional peers. All banks face challenges. We must all apply operational risk management, and have solid cyber security and business continuity strategies to be able to expand our digital offerings.
How does your ICS BANKS Islamic banking software suite provide the key essentials for a true Islamic bank and what benefits does it bring to clients?
ICSFS is one of the first providers of Islamic banking software applications in the industry, with a customer-first approach and streamlined services for its best-of-breed technologies. ICSFS launched its ICS BANKS Islamic banking software almost 20 years ago, based on Shariah law and with the aim of covering the full Islamic finance ecosystem cycle.
The suite is designed to cover all Islamic banking requirements and cater to each bank’s Shariah regulations, with agility one of its core virtues. It provides Islamic banking essentials such as a strong, flexible, fast and reliable industry-approved profit distribution engine.
It also provides full Shariah-compliance, covering the various intellectual Islamic views in different regions. It utilises business process management (BPM) and a document management system (DMS) to help automate processes and save time. Additionally, it offers extensive customer engagement through omnichannel touchpoints and open APIs to connect to the outside world and support fintech activities.
Explain how your software works with cloud banking and what are the benefits.
The software’s unique features allow any bank to compete in the market, and can be deployed either in a fully-fledged Islamic bank, or as an Islamic window for a conventional bank.
A DMS enables a fast-accurate flow of documents. The software is built based on AAOIFI and IFSB standards, with the capability of accommodating various intellectual standards and local Shariah regulations. Constant interaction with the customer is made during processes via various omnichannel touchpoints.
Geographical and transaction limits are fading away because of robotics, AI and digital coverage, while the online reporting and inquiries tools such as business intelligence (BI) and management information system (MIS) and cloud reduce infrastructure costs.
Digital touchpoints include open banking, open API architecture and a holistic cloud platform for real financial inclusion. It profiles customer engagement offering unified solutions with smooth processes across business lines for increased customer satisfaction and loyalty.
We offer high security and scalability. Our dynamic product building offers RegTech solutions and adopts an agile approach to drive productivity and efficiency, stop revenue leakage and increase profitability. Combined, this offers a lower total cost of ownership (TCO) and time to market. Our Islamic banking software is fully integrated and provides open products with international standards, real-time business processing and the value-added capabilities of tailoring products, on-premises or on the cloud. It future-proofs banking activities by providing a broad range of seamless and flexible features.
Are there advantages to being more digital in this time of myriad regulations?
The regulation is a critical challenge in having a digital presence. Shariah-compliant products have a long processing cycle. An automated process tightens the cycle while keeping operational costs at a minimum and maximising revenue and growth. Our software adds a competitive edge. Banks can rely on banking and financial technology providers to refine their Islamic products to suit their clients’ needs while addressing regulations and remain Shariah-compliant.
Looking into the future, innovation of processes and modernisation of the delivery of products that are Shariah-compliant are key.
ICSFS has always been one of the leading companies in providing award-winning banking and financial services and best-of-breed products. It is recognised on a global level for its devotion to excellence and customer satisfaction. ICS BANKS Islamic is no exception to this rule. The software was built brick-by-brick on delivering real value to customers and is designed to be hassle-free with customer satisfaction at the top of the agenda. From trouble-free implementation, through support for its wide range of functionalities and features, to peace of mind on free upgrades, it keeps customers’ operational costs at a minimum, while maximising revenue and growth.
Garanti BBVA is an integrated financial services group operating in every segment of the banking sector, including corporate, commercial, SME, payment systems, retail, private and investment banking. It also has local subsidiaries in pension and life insurance, leasing, factoring, brokerage and asset management, and international subsidiaries in Cyprus, Malta, Netherlands, Germany, Switzerland and Romania.
As of March 31, 2021, Garanti BBVA provides a wide range of financial services to over 19 million customers. It has 18,615 employees through a network of 885 domestic branches, seven foreign branches in Cyprus, one in Malta, and two international representative offices in Düsseldorf and Shanghai. It offers a seamless omnichannel experience with 5,296 ATMs, an award-winning call centre, internet, mobile and social banking platforms, all built on a cutting-edge technological infrastructure. Managing the largest digital customer base among the private banks in Turkey, Garanti BBVA Digital Banking enables 9.8 million digitally active customers to execute any banking transaction anytime, anywhere.
Garanti BBVA’s business model is driven by strategic priorities focused on responsible and sustainable development, customer experience, employee happiness, digitalisation, optimal capital utilisation and efficiency. Custom-tailored solutions and a wide variety of products have played a key role in its huge success. World Finance spoke with Mahmut Akten, Executive Vice President of Retail Banking at Garanti BBVA, about its continuing quest to improve for both its customers and employees.
What work have you done on your company corporate profile?
At Garanti BBVA, we always focus on our customers and work in order to meet their needs and expectations at the highest level, and provide them with a flawless experience, with our qualified employees plus a healthy and strong technological infrastructure.
In banking that has evolved into digital; we adopt an approach that adds value to our customers with our products and services, and that ensures our digital channels are human-oriented and user-friendly. In this context, the concept of financial health is a new strategy for us. We believe that a healthy life includes being financially healthy. Our experienced employees and strong technological infrastructure help us to meet our customers’ needs and expectations at the highest level.
We want to create sustainable value for society and the national economy. Financial health is among our most important strategic priorities – we want to be ‘the bank that always cares about its customers and gives them financial advice.’ We define the concept of ‘boşluk gerekiyor financial health’ as being able to manage the monthly budget, be prepared for unexpected expenses, make the more enjoyable purchases of life with peace of mind, and take advantage of opportunities for the future of your dreams.
Tell us about your company values and how you maintain them throughout the business
Our values lie at the heart of our employee-centric approach. Our ‘customer comes first’ value identifies empathising with the customer as the top priority for employees. It also describes the need to disclose all necessary information when responding to customer needs – within the frame of responsible business practice – and calls for a result-oriented approach.
Innovation is embedded in our culture. Employees inspire each other and their teams. When serving customers, employees go above and beyond meeting their needs and offer solutions that amaze our clients – ‘we think big.’ Our work culture encompasses employee collaboration, the importance of commitment to work, and the sense of responsibility that needs to exist in order for us to achieve a common purpose because our mantra is that ‘we are one team.’
How are you planning to reach more customers?
We are focused on offering a better experience on our digital channels and have a strict omni-channel strategy: to reach users at the right time with the right message. We emphasise creating an unrivalled user experience through thorough analysis of data and regular usability surveys. We are conscious that ‘people’ should be at the centre of every service or design.
We also listen to the needs of our customers using ‘Garanti BBVA’ya Sor’ (Ask Garanti BBVA) – the first 24/7 social media customer satisfaction channel in the Turkish banking sector. While about 9.8 million of our customers use mobile banking, seven million are mobile-only. Approximately 580 million transactions are performed through internet and mobile banking channels annually.
In fact, 97 percent of all non-cash financial transactions go through digital channels at Garanti BBVA. The number of monthly logins to Garanti BBVA Mobile also increases regularly – we reached two billion logins in 2020. With the enactment of the open banking law in our country this year, digital banking and payment services are being reshaped and developed.
With Garanti BBVA Mobile, onboarding starts and ends at Garanti BBVA Mobile. With end-to-end digitalisation of the onboarding process, the use of this channel is being expanded through business partnerships. For instance, with ‘quick loan,’ after filling in the ‘how much can I borrow?’ form, non-customers are referred to the digital onboarding process.
Tell us about your sustainability goals and how they are progressing
We strive to reduce Garanti BBVA’s carbon emissions and be environmentally friendly in our non-in-house actions. To illustrate, we met the electricity needs of approximately 73 million kWh (which corresponds to the consumption of approximately 30,000 houses in our 46 buildings and 809 branches) from renewable energy.
This prevented 34,790 tons of CO2 equivalent carbon emission, which corresponds to the amount of greenhouse gas that can be reduced by 2.2 million trees. Our ‘GoGreen’ project encourages customers to increase their contribution to sustainability. We will continue to motivate our customers to adopt more sustainable business models with innovative products and services.
We have a target of providing a minimum of TL2.5bn (€244m) to finance sustainable development and fight climate change in 2021, with a commitment to allocating a minimum funding of TL14bn (€1.3bn) in this field by 2025.
Has remote working within your company affected processes – and has remote working for customers made a difference?
During the pandemic, digital channels went beyond being an alternative and came to the fore as the sole banking method. The entire sector discerned that fully digitalised banking enabling 100 percent remote execution of processes – a concept long owned by Garanti BBVA – was not the vision of a remote future but a necessity of today’s world.
We were able to make the transition in operations seamlessly, thanks to our strong technological infrastructure. To ensure the safety of our employees, we provided the equipment necessary for working from home, and more than 1,000 call centre agents began offering services from home within just 10 days. At present, 92 percent of head office employees, 60 percent of branches and the entire body of call centre employees are working remotely.
Customer habits was another area affected by the pandemic. The most fundamental change for the banking sector was the increased use of alternative channels and the surge in number of digital customers. March 2020 marked the highest increase in the number of digital customers. The ratio of transactions realised at branches went down from between five to six percent to between two to three percent. In the future, we might see in-branch services being restructured and digital channels beginning to furnish advisory services designed to improve customers’ financial health, rather than operational services.
Any changes in your banking during the pandemic and for the ‘new normal’?
We saw our relationship with our customers acquire a new dimension. Customers no longer regarded the bank as just a financial advisor but expected it to adopt the hygienic measures of a healthcare expert at the same time. We took action to prevent density in branches and we destroyed any credit cards that were to be collected in branches, then re-issued them to be delivered to home addresses.
During the pandemic, digital channels went beyond being an alternative and came to the fore as the sole banking method
Because of measures like these, 95 percent of the customers visiting branches between April and September commented that they were very satisfied with branch services and precautions. To guarantee service continuity, we took steps to enrich functionality on digital channels, and reached nearly 500 transaction sets on our mobile banking app. To encourage customers to perform their transactions digitally, we removed fees for digital money transfers, organised new campaigns, updated existing ones, and increased money transfer limits on digital channels.
We offered to defer and restructure the debts on our loan products and increased credit card payment limits to facilitate online spending for retail customers (see Fig 1). Also we have launched a credit card payment deferral offer for customers financially distressed because of the pandemic. Additional measures included three-month postponement and six-month instalment repayment plans for easy repayment of the total debt at the end of this period.
Solutions like these helped customers manage temporary payment difficulties, preserved their cash assets amid the uncertainty, postponed their card debts while allowing them to continue to use their cards, and prevented any downgrading of their credit scores. The number of annual contactless transactions tripled with contribution of payment with QR, mobile and GarantiPay. We increased the number of QR-enabled devices and established links with a number of e-commerce companies.
Any recent or planned innovations?
End-to-end digitalisation of the Garanti BBVA Mobile onboarding process launched in 2019. It is now fully enabled upon completion of the regulatory framework in May 2021. Application processes for products such as credit, credit cards, shopping loans and overdraft accounts to name a few, are all integrated. Furthermore, with the inclusion of salary customers, we are presenting individuals with the chance to complete the onboarding process at any time, from anywhere. This new step will mitigate the workload on branches and will also open channels for new customer acquisition. Garanti BBVA Mobile onboarding will set us apart from our competition upon expansion with business partnerships.
Considering that we deliver almost every product to the customer through digital channels, the only basic transaction customers could not perform in the digital environment was the experience of becoming an account holder. With this arrangement, bank customers are now able to open an account in a maximum of 10 minutes, and access the products they want, without going to the branch or signing sheets of paper. Customers want fast solutions for their needs. Financial institutions with a strong technological infrastructure will have an advantage in meeting and exceeding these expectations. Digitalisation will give us the opportunity to reach every household and gain customers in every corner of Turkey.
The last five years have been ones of intense transformation for the largest pension fund in Mexico. Establishing a sound and replicable investment process has been one of the main challenges for the team. Changing the team’s culture towards long-term investing, based on optimising diversification, has been the name of the game, and even though there are additional challenges in the future, positive results arise both from a quantitative and qualitative perspective.
As a fusion between Banorte Bank and the Mexican Social Security Institute (IMSS), Afore XXI-Banorte is Mexico’s largest pension provider and is rightly held to extremely high standards of responsible investing. This partnership resulted in strong governance that provides both robustness and business continuity.
This partnership provides a unique mix of social responsibility, focus on profitability and awareness of environmental, social and governance (ESG) issues, which are increasingly important both to corporations and individuals investing for their pension. The knowledge sharing has not only resulted in high profitability levels for the company, but also in levering high standards that have resulted in having the most extensive regulatory licences in the system, which brings to the table better options for building portfolios in a more diversified way and the flexibility to diligently manage risk and active exposure in the markets.
The social approach towards investing is embedded into the process and the culture within Afore XXI-Banorte. It is no longer enough to simply pursue high investment returns, and the firm is keenly aware of its corporate and social responsibility, so much so that it is the only pension fund in Mexico that complies as signatory to the UN Principles for Responsible Investment. This reflects the engagement that the firm has in creating investment decisions that help model a better society for their affiliates. In this fiduciary role, ESG issues are assumed to affect the performance of investment portfolios, while also recognising that applying these principles may better align investors with the broader objectives of society.
Creating awareness
Pioneering ESG requirements in Mexico’s local market wasn’t an easy task. The first years in creating awareness within the investment community created a necessity of changing how this was usually done and rethinking the local dynamics. The trend was clear, but the market engagement wasn’t that evident.
But the pandemic forced everyone to re-engage and accelerate the changes that were needed, and the results can be seen. On the last annual review, Afore XXI-Banorte sent an ESG questionnaire to more than 300 companies in its investment portfolio regarding covering a broad spectrum of concerns such as carbon emissions, gender equity policies, contribution to Mexican society (in terms of employment generation and social commitments), ethical practices, and independence of the board, among others. The response of the investment community was surprisingly positive, which reflects the speed at which the approach is changing.
Several risks arise from these fast-changing trends, the most relevant being ‘greenwashing.’ That is why the team’s awareness on identifying the use of capital resources and periodically monitoring progress is key to achieving the firm’s objectives.
Independent women
Another pleasingly circular way in which Afore XXI-Banorte is engaging with and assisting women to improve their financial future is through offering microloans. This stimulates small and local enterprise and increases independence, income, and education of women in their own communities, which brings attendant benefits to those around them. Afore XXI-Banorte, through its investments, has provided credit to more than 400,000 women in rural and urban communities in Mexico, and it did this via the mechanism of one of its investments in a CKD portfolio – development equity certificates that provide credit to individuals while also benefitting from the future success of the resulting enterprise.
Offered exclusively to women, these investments provided microcredit in different communities that do not have easy access to financing, as well as development tools applicable to different areas of their lives, such as financial education, training, and incentives for entrepreneurship, among others. The resulting information is then fed into the Retirement Funds Administrator (Afore)’s annual report and is considered part of its ESG alternative portfolio strategy.
Improving the system
In 2020, Mexico approved a relevant pension reform that helps to address many of the most urgent issues with the pensions system. That being, flexibilising the investment regime by establishing sophisticated glidepaths, reduction in management fees and more than doubling the contribution rate in the next four years. All of this will help address the most important challenge in achieving a higher replacement rate (the proportion of an individual’s pre-retirement income they continue to receive after retirement), and perhaps the greatest obstacle to this is informality in the workforce.
In 2020, Mexico approved a relevant pension reform that helps to address many of the most urgent issues with the pensions system
This is a factor that has deep historical and cultural roots in Mexico that may take many more years to address. Mexican workers come in and out of the formal workforce during their working lives, and this reduces the time they make contributions to their pension funds. A Mexican may spend 40–60 percent of their professional life in the informal market, which will not include a structure to save for pensions.
Mexican women are over-represented in this pattern, given that they tend to take on a greater proportion of domestic and child-rearing responsibilities, which could mean many years out of the formal workforce during their lives. Women in Mexico live to an average age of 79.2 years compared to 74 for men. This means that older women who may have spent decades of their lives away from the formal workforce and whose husbands may have done the same, earning instead through informal means, may find themselves struggling to make ends meet in their later years or worse, living in poverty.
Afore XXI-Banorte is hoping to shift this trend by making pension savings accessible to all and fostering a change in attitudes and in structures that allow for improved pension savings and replacement rates.
The pension reform is a step in the right direction that tries to address the most relevant problems of a pension system, but additional work must be done to achieve better results, and this addresses a more difficult and long-term task, financial education.
Saving for the future
Against the backdrop of saving for the future, financial literacy and communication can present an important opportunity for pension providers to educate and encourage low-earning Mexicans about the need to save for retirement simply and without significant impact on take-home wages. To this end, Afore XXI-Banorte has focused on developing communication strategies that allow it to connect with less financially educated clients by using simple and colloquial communication, ensuring that the information is understandable by anyone.
This has been achieved by simplifying the language of advertising and messaging for the product to increase familiarity, since understanding what an Afore is involves a certain degree of complexity.
Accessibility is key to this messaging, and different savings channels are offered so people can choose where they want to save according to their activities and position in life. From convenience stores and banks to the institution’s own website and mobile app, the aim is for people to build, saving little and often as part of their financial plan, making retirement part of their investment.
Afores have come a long way in recent years, but there is still more to achieve. By maintaining a focus on financial education and high service standards, Afore XXI-Banorte aims for people to enjoy a dignified retirement after all their productive years through a robust investment process that has sustainability as the highest priority to ensure a better future for everyone.
One of those looking at radically reimagining its role in a digital-first world is Nigeria’s Guaranty Trust Bank (GTBank), the country’s third-largest by assets, that under the visionary leadership of chief executive Segun Agbaje is preparing the bank for the next decade and beyond. While presiding over a major restructuring, Agbaje and the board are reconfiguring GTBank to be more nimble and responsive so that it can combat a fast-emerging wave of fintechs and payments specialists.
The bank is also investing heavily in sustainability in the broadest sense in Nigeria’s communities. And it is expanding a highly innovative model for supporting small businesses that holds great promise for the future. In one of the first initiatives following the restructuring, GTBank will launch its own in-house fintech rather than, as many banks do, forming partnerships with outside firms.
At the time of writing, the bank is in the final stages of completing its transition to a holding company structure, which would allow it to own and operate non-banking financial services businesses.
The logic behind the strategy of building a payment company from scratch is that the home-grown fintech will fend off upstart, fast-moving digital competitors before they make inroads into the bank’s main businesses, notably payments. “It’s like a ship competing with a speedboat,” explains Agbaje. “We want to make sure we don’t lose to fintechs, and if we must, it should be to our own fintech.”
Simultaneously, GTBank will rely more on digital channels for delivering efficient banking services. With 220 domestic branches and 44 e-branches, it already has a much smaller footprint than its rivals, some of whom have 700 branches. However, where the bank truly dominates is with its online and mobile banking platforms, which is a leader in cashless transactions in Nigeria. Overall, GTBank counts over 24 million retail customers and is one of the most profitable banks in Africa. The strategy is clear. “We are building an inexpensive channel for serving customers and growing our business,” says Agbaje.
Most banking experts would give GTBank full marks for building an agile fintech within its own walls rather than waiting to be attacked from outside. “We are right in the middle of the disruption cycle in finance at the moment,” explains Homa Siddiqui, global head of digital transformation and products lab at Credit Suisse, who was speaking at an international conference in May. “Incumbents are having to rethink business models and delivery models.”
Those views coincide with Agjabe’s. “After Covid, a lot of businesses in Nigeria will move online. The bricks and mortar business model will undergo change as people travel less and more business is conducted remotely,” he predicts. “That’s why we will focus on alternative channels for doing business.”
Playing a key role
Now in his 10th year as managing director and chief executive, Agbaje has made it a habit of being a step ahead in Nigeria’s banking sector in his long career. He is an alumnus of the Harvard Business School and holds a Bachelor of Science in accounting and a Master of business administration degree from the University of San Francisco. As he worked his way up the ranks at GTBank after joining in 1991, he developed a reputation for leading some of the most complex and largest transactions across the bank’s operations. These included structured and project finance as well as the raising of debt and equity capital for some of Nigeria’s biggest companies – across the oil and gas, energy, telecommunications, financial services and manufacturing sectors. Few bankers would have a deeper view of the country’s economy.
Along the way, he played a key role in the increasing sophistication of Nigeria’s banking sector, such as developing the interbank derivatives market. In one landmark deal, he helped put together GTBank’s $350m Eurobond offering in 2007 and, later that year, oversaw a global offering that culminated in the bank’s listing on the main market of the London Stock Exchange, the first sub-Saharan institution to make the big board. So, innovation is nothing new for GTBank’s chief executive, who is reshaping the institution in the middle of a pandemic. He is also leading the bank to invest heavily in the latest technologies through 2021 and beyond. “We are taking a deep dive into tech,” Agbaje explains. “For instance, more activities are being pushed into the cloud and legacy systems are being modernised.”
Although Agbaje acknowledges the risks in building new systems at a time when banking technology is undergoing rapid development, he believes it is better than dragging one’s feet. “The longer you wait, the higher the risk,” he says. Outside experts would approve of this attitude too. “Those four brick-and-mortar walls we were seeing are not so necessary anymore,” argues Siddiqui. “A lot of the underlying assumptions of what we thought was needed for service is being disrupted at a very accelerated pace.”
A good decade
The current restructuring follows a successful decade for Guaranty Trust under the present incumbent. Having quit its non-banking businesses in 2010 in response to reforms initiated by the Central Bank of Nigeria and concentrated efforts on growing the commercial banking activities, the institution has gone from strength to strength. Profit before tax has shot up from Naira 48.5bn ($117m) in 2010 to Naira 219.4bn ($532m) in 2020, clocking a compounded annual growth rate of 16.3 percent. Measured by post-tax return on equity, GTBank posted a ratio of nearly 27 percent in 2020, superior to rival institutions domestically and its peers elsewhere in Africa.
Fuelled by ample profits, GTBank continues to expand within Nigeria and in the wider African region.
We want to make sure we don’t lose to fintechs, and if we must, it should be to our own fintech
When the bank opened commercial operations in Tanzania in 2017, it gave the parent company a footprint in its 10th country, following steadily expanding subsidiaries in the Ivory Coast, Gambia, Ghana, Kenya, Liberia, Rwanda, Sierra Leone, Uganda and the UK, where the LSE-listed institution operates mainly as a conduit for international Nigerian businesses by providing letters of credit and other services that help smooth their path abroad.
The London Stock Exchange, where GTBank listed in 2007
After the pandemic
As the pandemic lifts and sub-Saharan Africa makes a fragile recovery from the economic devastation, GTBank and its subsidiaries will play a vital role in rescuing the region. As IMF economists reported in May, the region faces three immediate challenges because widespread vaccination remains out of reach for much of the population, with inevitable consequences.
“The bad news is that for sub-Saharan Africa near-term growth prospects are somewhat more subdued in a region whose development path has been set back by almost a decade,” the IMF argue. Employment fell by about 8.5 percent in 2020 because of COVID-19, 32 million people were thrown into poverty, and disruptions to education have jeopardised the prospects of an entire generation of schoolchildren.
The IMF’s think tank believes finance ministers face “an incredibly difficult balancing act.” While meeting increased spending needs, they must also contain a pronounced increase in public debt as well as finding more tax revenues. “How policy-makers navigate this trilemma will have a huge bearing on economic and social outcomes in coming years,” the economists conclude.
If this sounds pessimistic, rating agency Fitch is in broad agreement. In a report in May, it noted that while the recovery from the shock of the pandemic is underway, it is being slowed by the weak state of public finances and the slow pace of vaccination programmes. Also, some economies are heavily indebted: “median public debt in the region leapt to 68 percent of the gross domestic product in 2020, from 56 percent in 2019, and is likely to rise further to 75 percent in 2022,” Fitch advise.
Fortunately though for GTBank, Fitch believes Nigeria is managing the recovery better than most. “Nigeria’s B rating is supported by the large size of the economy, a low general government debt-to-GDP ratio, small foreign-currency indebtedness, and a comparatively developed financial system,” writes Fitch, also citing in the country’s favour an expected rise in oil prices. Against that though, in common with other rating agencies, Fitch believes the Naira is overvalued and is critical of the government of president Muhammadu Buhari, now in their sixth year in power, for “weaknesses in public finance management.”
Inflation is running at high levels, with consumer prices jumping by 15.7 percent year-on-year in December 2020, notes Fitch. Relatively speaking, the country’s banking sector has sailed through the pandemic.
As well as providing a lifeline to these businesspeople, GTBank has boosted its own assets
According to a variety of sources, most institutions have recovered from the initial shock and their profitability and capitalisation – essentially, their robustness – have held up while the inevitable deterioration in the quality of assets has been contained. And importantly, most banks have been able to shed the rating agencies’ negative outlook imposed on them when the pandemic first hit.
The Nigerian banking sector was hardly alone in being put on negative watch at that dangerous time.
At the end of 2020, nearly two-thirds of the world’s banks were in that position, a designation that reflects near-term risks as governments slowly withdraw the massive and unprecedented financial support that has propped up borrowers. In Africa, however, about half of bank ratings were put on negative watch, significantly less than the global average. Most of Nigeria’s banks have been given a ‘B’ rating, in part because the country’s sovereign rating sets the standard (no bank can be rated above that of the government).
Compared with most of its peers, GTBank scores well with the rating agencies. Currently, it boasts a ‘B+’ ranking from Fitch and a ‘B’ from Standard & Poor’s, both based on the strength of its domestic franchise, quality of assets and consistently robust record of earnings.
GTBank food and drink exhibition
Small oil
In the recovery from the pandemic, GTBank is pinning considerable hope on its initiatives with small businesses. Indeed, Agbaje sees them as a pathway to a different kind of future for Nigeria as the country inevitably comes to rely less on oil, currently the mainstay of the economy. As Standard & Poor’s notes, over 85 percent of goods exports and about half the country’s fiscal revenues are derived from oil revenues.
“Nigeria’s economy depends on oil but what happens when fossil fuels are no longer the principal source of power,” GTBank’s boss asks rhetorically. “We are obliged to keep an eye on the sustainability of the economy.”
Thus the fortunes of Nigeria’s banks have long been tied to that of the oil and gas industry. Roughly a quarter of the loan book lies with the oil sector, which was hit by low oil prices in early 2020 followed by production cuts.
Taking a broader view of corporate social responsibility, Agjabe foresees a more diversified economy as Nigeria navigates a long-term transition from a fossil fuel-based economy. “Our initiatives with SMEs are an important part of our views on sustainability,” he says. “We started by encouraging entrepreneurs from the fashion and food and drink sectors to come to us for support. They are the bedrock of the economy but they have been neglected, with limited access to funds.”
Building a strong business and making the world a better place are essential ingredients for long-term success
Now in its fifth year, the policy has proved an outstanding success. At GTBank’s annual gatherings for small businesses seeking support and guidance, attendance has soared from a few hundred to over 4,000. The bank’s fashion week has become a showcase for the industry.
Although most of these small businesspeople have no storefront or security, GTBank backs its loans against their cash flows. A boon to these entrepreneurs, the loans have enabled them to develop new opportunities. As well as providing a lifeline to these businesspeople, GTBank has boosted its own assets.
The experiment has proved so successful that GTBank will widen its support and invite entrepreneurs in technology and service industries such as delivery and distribution networks. “Covid taught us something, logistics is coming along strongly and GTBank can help build the sector in ways that are of considerable benefit to Nigeria,” says Agbaje. In the coming years, GTBank is being positioned to play an enriching role in Nigeria as it supports hundreds and perhaps thousands of entrepreneurs. “We are driven by a belief that building a strong business and making the world a better place are essential ingredients for long-term success,” explains the bank’s chief executive. In short, proudly African and international.
Alistithmar for Financial Securities and Brokerage Company (Alistithmar Capital) is a major player in the financial services industry. The company offers a wide range of products and services such as asset management, brokerage, and investment banking. Over the past couple of years, the company has achieved significant growth in AUM with a broadened product and services offering and has delivered superior performance.
Setting the benchmark
Alistithmar Capital’s public equity funds have significantly outperformed their respective benchmarks in 2020. This was a repeat of the stellar performance of these funds in 2019. This success was a result of leveraging the company’s research capabilities, fund managing experience, and dynamic investment philosophy. In fact, Alistithmar Capital’s public equity funds demonstrated superior performance against their respective benchmarks not only on an annual basis but also over longer time horizons. In the three-year and five-year categories these funds continued to produce significant excess returns (see Fig 1, 2 and 3).
The funds’ performances not only stood out against the respective benchmark but also against their respective peers. Alistithmar Capital’s flagship funds, SAIB Saudi equity fund and SAIB Saudi company fund, both ranked in the top quartile against their respective peers in 2020. Similarly, at the end of 2020 these funds also ranked in the top quartile in the three years and five years categories, respectively. This showcases the investment team’s adaptive decision-making and consistent selection abilities.
A boost in business
On the business size aspect, Alistithmar Capital experienced a significant growth in the value of the assets they manage. By the end of 2020 the company’s AUM increased to SAR 21bn ($6bn) from SAR 5bn ($1bn) at the end of 2017 (see Fig 4). Alistithmar Capital’s AUM increase in the reference period was up 298 percent and has notably outpaced the industry’s AUM increase of 56 percent during the same period.
Furthermore, the company’s ranking has improved from being ranked 13th by the end of 2017 to being ranked 7th by the end of 2020 in terms of AUM. This was also visible in Alistithmar Capital’s AUM share of total AUM where it has increased to 3.4 percent from 1.3 percent for the same period.
This increase in value and share reflects investors’ appreciation of the company’s superior performance and outstanding customer service.
Regarding the real estate division of the firm, Alistithmar Capital has successfully launched a series of private real estate funds, all of which offered its investors a unique opportunity to participate in prime real estate investments in Saudi Arabia. The latest real estate fund launched was Kaden Alistithmar fund with a size of SAR 2bn ($533m), which invested in high-quality income-generating real estate assets. The fund was fully subscribed before the end of the subscription period, reflecting investors’ confidence in the company.
The Saudi government launched the financial sector development programme in 2017 aiming to develop the financial sector. In relation to the asset management industry specifically, the programme set a number of goals such as increasing the value of managed assets, attracting foreign investors and increasing investment products, from which Alistithmar Capital was able to build a strategy to benefit, as displayed by a surge in AUM and product offering.
Outstanding service
In terms of the Alistithmar Capital brokerage unit, the company was able to successfully execute clients’ transactions of over SAR 70bn ($18.6bn) annually from the period 2017–20. In addition, the firm was able to maintain its leading position in a growing market. The Saudi equity market traded value registered a compound annual growth rate (CAGR) of around 36 percent during this period. Despite this remarkable increase in value traded, the firm sustained its ranking in the top 10 in each of the years for the period in question.
Furthermore, Alistithmar Capital increased its market share in the US against Saudi competitors, resulting in constant growth due to the firm’s superior execution capabilities and customer service.
It is important to acknowledge the changes taking place in the brokerage industry. The Saudi market hit an important milestone when it was included in a number of global equity indices (the MSCI Emerging Markets Index, FTSE Russell Emerging Markets and S&P Dow Jones Emerging Market Indices) during the period. This development resulted in an increased number of foreign investors and a significant increase in trading activities. Nevertheless, Alistithmar Capital has continued to build up its capabilities throughout the years to benefit from such a trend, as evidenced by the successful handling of the annual transaction value as well as continuing to maintain a leading position in the industry.
Looking forward
In the coming years, the direction for the Saudi market has been set. The Saudi Arabian Capital Market Authority, the Saudi financial markets regulator, recently announced its strategic plan for 2021–23. They aim to further develop the Saudi market and make it an attractive market for local and foreign investments. The main pillars of this strategy are to facilitate funding, encourage investment, promote confidence and build capacity. The plan offers many exciting details such as increasing the AUMs as a percentage of GDP from 17 percent in 2019 to 27 percent in 2023, as well as increasing the number of listings annually.
This increase in value and share reflects investors’ appreciation of the company’s superior performance and outstanding customer service
Alistithmar Capital aims to leverage its expertise to develop its own strategies based on these governmental strategic plans so that it can not only benefit, but also respond more effectively to any future changes in the Saudi financial markets landscape. The company will continue to invest in people, processes, and systems to cater to an even wider range of clientele.
It is Alistithmar Capital’s continuing mission to create value for its investors by delivering outstanding performance, increasing the value of assets under management, sustaining a leading position in brokerage, increasing product offerings and refining the overall customer experience.
Meeting the expectation of current customers has always been a priority and in order to continue serving effectively, as well as attracting new clients, Alistithmar Capital will leverage its current technological capabilities, adopting new technology where necessary, to refine and expand its reach. The company is looking forward to exploring the future opportunities in the Saudi Arabian financial markets.
It’s been 10 years since the launch of FXTM. Today, our brand is one of the global leaders in online trading and we have a network of offices located in Europe, Africa, Latin America and Asia. From day one we decided that long-standing growth and success would be built on a foundation of industry-leading customer care. On our 10-year anniversary, we are proud to say that over two million individuals in 150 different countries have agreed with our decision. As we celebrate our birthday, it might be a great time to look back and reflect on some of the changes we have made along the way.
It really has been an interesting journey, one that has shaped our thinking and taught us to adjust quickly in order to meet customer needs. It is also a good time to reflect on what we have learned and how the knowledge gained will shape our plans for the decade ahead. It is difficult to overstate the changes technology has made in the world of online trading.
When FXTM was first established, many trades were still agreed over the telephone or desktop application. Dealing rooms were noisy places, full of excitement, fuelled by adrenaline and often appeared to operate in complete chaos. Trading was often regarded as a pursuit for those in the know or with the right connections.
Today that notion could not be further from the truth, and the technology for buying and selling thousands of the world’s most popular financial instruments is literally in the palm of your hand. Ten years ago the technology powering trading platforms was relatively straightforward. More often than not, a trading price would have a single origin.
Therefore, a trader would only see the highest bid and lowest offer from one market source. Today FXTM supports a far more complex, highly sophisticated and unique framework of pricing sources derived from some of the world’s best institutional liquidity providers. Our trading clients now receive the best prices, aggregated from multiple sources. Liquidity is improved and execution is faster than ever.
So, how has the office environment changed in the last 10 years? The noise has certainly been reduced. In the office today you are far more likely to hear a high-level debate on pricing technology rather than numbers being frantically hollered across the room. To put that into context, FXTM was started with a technology team of 10, while today we have more than 60 in-house developers tasked with maintaining and optimising our pricing engines. In sharp contrast, a large team of telephone dealers has been reduced to a much smaller number of highly experienced risk management specialists.
What’s changed for our customers?
We now have very robust and reliable pricing technology. Behind the scenes, our pricing infrastructure is consistently load tested. We are more capable than ever of processing increased trading volume in fast-moving markets and continue to build in higher tolerances.
The technology for buying and selling thousands of the world’s most popular financial instruments is literally in the palm of your hand
When FXTM began, the euro/dollar currency pair could trade with an average 10-point spread between the bid and offer. That was direct cost to traders of 10 points on every position. Today, we are pleased to be able to offer zero trading spreads on some major currency pairs, and spreads across the board have been dramatically reduced. Working to increase the efficiency of the data pathways linking our price providers has improved execution speeds to less than 50 milliseconds.
This level of service and efficiency would have been unthinkable 10 years ago, but significant investment in the right technology and the right expertise has paid off. There have of course been difficult decisions to make along the way. Procuring third-party technology solutions can provide huge cost savings, but this is an option we decided against. In doing so, we have avoided development queues that we have little control over and increased the security of our intellectual property. However, above all else, we have proven that in-house technology teams can react faster when meeting customer expectation. FXTM’s track record of rapidly deploying unique equity indices and currency baskets is a testament to this.
Our story actually began in 1998, the early days of online retail trading, with the launch of Alpari Group. The company quickly became an early pioneer of the MetaTrader platforms, expanding rapidly in the world’s emerging markets. In 2011 Alpari was joined by its sister company FXTM. Together these brands have built a leading global presence and currently support trading clients in 150 countries. In 2020 we announced the launch of Exinity Group, bringing together our established services and our ambition for the future.
There is a fast-growing global audience of millennials who want to build a better future for themselves, and so want better access to the world of higher-risk investments. Our mission at Exinity Group is to develop risk-driven trading and investment solutions, backed by risk management tools, education and support, to help our clients become confident, empowered investors.
Empowering through education
We have come a long way since 1998, but success would simply not be possible without the support and loyalty of a growing number of trading customers. Inevitably, there are risks involved with these short-term investments. As an international online broker, FXTM offers contract for difference on spot metals, shares, commodity futures and indices.
These leveraged products come with a high level of risk, with 77 percent of retail investors losing money when trading. FXTM strongly believes that a successful trader is an educated one. That’s why we strive to provide our clients with free educational courses and outstanding customer support whenever they need it.
FXTM has an extensive library of educational content and we provide regular online workshops. Our educational programmes are specifically tailored to reflect the products we offer and promote sensible steps to manage risk. Of course, we cannot guarantee profitability, but we do provide comprehensive guidance for using leverage, trading in volatile market conditions and the effective use of stop-loss instructions. We are also strong supporters of regulation in our industry and are committed to ensuring that we are transparent and fair in our treatment of customers.
Before the COVID-19 pandemic, we enjoyed hosting live educational events and getting to know our customers in person. With the safety of our employees and customers remaining a priority, we have facilitated similar events online, but rest assured we look forward to meeting again as soon as it is safe to do so.
At FXTM we are confident that we provide the right service, support and education for traders, but it is always great to see this recognised by the wider industry. We are delighted to have received this year’s World Finance award for Best Trading Experience. This is testament to the hard work of our client-facing teams and the consistent efforts we’ve made to add value to our customers’ trading journey.
In the future, many of our clients will continue to be self-directed traders and we will continue to build on our experience to offer direct access to the very best trading services and functionality. New currency indices are already available, designed to price the majors against a basket of exchange rates, and we have stock indices for tracking the fortunes of social, green, space and vegan related equities.
News is moving faster and reaching a greater number of people around the world. Social media has become a building block for consumer trends, with CEOs at the helm of some of the world’s biggest brands, and even presidents dropping market-moving posts to millions of followers. We can expect the new generation of investors to be technology literate; they will also be comfortable consuming a blend of information across multiple mediums. We already have evidence to suggest that millennials prefer timely, concise and easily digestible bites of news over a wait for fully published articles. Podcasts and webinars are also now a popular and convenient educational resource.
In order to meet the demands of a new generation of customers, the Exinity brand will bring new digital wealth solutions to individuals with a desire to create their own financial freedom. We are also launching a new feature-rich mobile application with an innovative coaching experience, designed to ensure our clients can build the knowledge and skills they need to succeed. We see huge potential in transforming access to financial markets for millennial audiences in emerging economies, and our new products and services will reflect this. Fully paid share dealing and wealth management products will complement our leveraged trading offer.
With a number of exciting new initiatives underway, we are looking forward to the next 10 years and providing the technology, products and support to meet a wider range of investment objectives, experience and risk appetites.
Established in 1994, Baiduri Bank is a full-service bank serving individuals, business, corporate and institutional clients in Brunei – while its wholly owned subsidiaries Baiduri Finance and Baiduri Capital specialise in consumer financing and investment solutions respectively. With a Standard & Poor’s rating of BBB+/A-2 with stable outlook, Baiduri Bank is recognised as the leading conventional bank in Brunei and one of the strongest in the region.
2020 was an unprecedented year, with the COVID-19 pandemic bringing forth a massive human, social and economic crisis on a global scale. Owing to the effective whole-of-nation approach in combating the pandemic, Brunei recorded positive GDP growth of 1.2 percent in spite of the challenges. According to the Autoriti Monetari Brunei Darussalam (AMBD), a statutory body acting as the central bank of Brunei, the banking sector is liquid and well capitalised. Industry profitability fell by 4.8 percent mainly as a result of the global low interest rate environment, which has adversely impacted interest/profit income on offshore placements with banks and financial institutions.
Against this backdrop, Baiduri Bank demonstrated high resilience and a solid performance. Despite the difficult operating environment, its market share in assets grew by 21.98 percent while net profit grew by 1.09 percent to BND56.2m ($42.1m). With robust credit risk management, loan impairment saw a significant reduction of 51.19 percent even after factoring in additional allowances in anticipation of higher defaults caused by the pandemic. Return on Equity (ROE) was slightly lower, in line with the bank’s direction to maintain higher tier one capital, which has increased by 7.98 percent. Subsidiaries Baiduri Finance and Baiduri Capital also demonstrated strong business momentum during the same period.
Speaking to World Finance, Ti Eng Hui, Chief Executive Officer of Baiduri Bank said, “Overall the bank demonstrated a solid performance in 2020 amid the uncertainties of COVID-19. The fact that we were the only major bank in Brunei that recorded an increase in profit in 2020 attests to the strength of our business model and the quality of our execution.” In the last 12 months, Baiduri Bank achieved several key milestones in its efforts to adapt to the changing financial landscape and position for growth. “We have enhanced our digital offerings, relocated to our new headquarters, launched our refreshed brand, forged new strategic partnerships, invested heavily in people development and reinvigorated our corporate social responsibility (CSR) programme,” Ti commented.
Enhanced digital offerings
In March 2020, the bank launched Baiduri b.Digital Personal, a digital banking platform available for desktop as well as a mobile app version. Recognised as the ‘Best Mobile Banking App for Brunei in 2020’ by World Finance, Baiduri b.Digital Personal offers enhanced UI/UX, new and improved features including biometric login, single-view account dashboard, in-app calculators and more. The app offers full functionalities to cater for the most common retail banking transactions. Adopting mobile-first design logic, it is a pre-requisite to download the app in order to transact using the desktop version, as the app serves as a digital token for authentication.
“Since the launch, we saw a 40 percent year-on-year increase in average monthly transaction volume and a 43 percent increase in active user base between March and November 2020. Undoubtedly, the pandemic has accelerated digital adoption and the launch of our refreshed offerings was not only timely, but also met a huge need for ‘contact-free’ alternatives to access banking services,” Ti elaborated.
Relocation to new headquarters
In June 2020, the bank relocated to its new headquarters at Jalan Gadong, the hub of commercial and retail activities in Brunei. The new headquarters features an eight-storey building with an adjourning multi-storey car park. Inspired by hospitality design to provide best-in-class service, the bank’s new headquarters are designed using modern materials with distinguishing touches of contemporary architecture and incorporate green features that are based on the requirements of the BCA Green Mark Scheme, an international benchmark for best practices in environmental design and performance.
The new headquarters are equipped to provide an enhanced customer experience with the introduction of several new features, one of which is the placement of a front desk reception to greet and assist all walk-in customers, vendors and guests. A digital queuing system was also introduced, where customers can join a virtual queue by scanning a QR code and track their queuing status directly from their mobile device. Other features include a spacious prestige centre for high-net-worth customers, a dedicated digital hub to showcase the bank’s suite of digital offerings, as well as an onsite café for financial consultation in a more relaxed setting.
Brand refresh
In September 2020, Baiduri Bank launched its refreshed brand following an intensive year-long process of planning, research and assessment in partnership with an international team of brand consultants. At the heart of the new brand promise, ‘co-creating your future’, is a renewed focus on being customer-centric and financially inclusive.
A full brand refresh campaign was launched, which saw the introduction of a refreshed logo, collaterals, frontline uniform and a new look and feel across various customer touchpoints. A brand new, mobile optimised website was also launched, along with an artificial intelligence (AI) chatbot, Emmi.
“With our new brand promise, we will continue to explore more platforms and initiatives to fulfil our mission to enrich, empower and engage the communities we serve, adopting a collaborative approach by working closely with various stakeholders,” Ti emphasised.
Forging strategic business partnerships
In October 2020, the bank partnered with Brunei’s flagship carrier, Royal Brunei Airlines, to launch the first co-branded Visa travel cards in the country, equipped with the latest contactless payment technologies. Although travel has come to a temporary halt in many parts of the world including Brunei due to the pandemic, both brands decided to proceed with the launch, repositioning the proposition to focus on how cardholders could start earning and accumulating Royal Skies miles from everyday spending, in order to redeem free flights or vacations once travel restrictions are lifted.
Investing in people
Since 2019, the bank has been working on a major initiative to digitalise its human resource management and service delivery with the implementation of SAP SuccessFactors, one of the largest cloud-based human capital management systems. Aspiring towards becoming a learning organisation, the bank also partnered with international learning providers such as Moody Analytics and Intuition Knowledge Service (IKS) to enrich its learning curricula for employees.
In February 2021, Baiduri Bank introduced the graduate apprentice programme (GAP). GAP is a six-month holistic development programme aimed at providing recent graduates with the necessary knowledge, skills and experience that will increase their employability in the local job market. Eleven successful apprentices joined the bank towards the end of March 2021, embarking on a series of activities designed to introduce them to the banking world and help them gain comprehensive knowledge of various financial products and services. At the end of the six-month programme, apprentices may apply for any suitable vacancies within Baiduri Bank or its subsidiaries, or pursue their careers with other organisations in the industry.
Ti explained, “GAP is a testament to Baiduri Bank’s commitment to support recent graduates by helping them develop employability skills and a learning mindset. This is also in support of goal one for Wawasan Brunei 2035, reflecting the national aspiration to be widely recognised for an educated, highly skilled and accomplished workforce.”
Empowering the community
Aligning to the bank’s refreshed brand, three main pillars have been identified for its corporate social responsibility programme: support for social community (social), developing the economy (economic) and promoting environmental sustainability (environmental).
In recent months, Baiduri Bank has successfully implemented a number of important initiatives in the CSR space. In April 2021, the bank launched its employee volunteer programme named ‘Baiduri cares,’ a platform that enables its employees to give back to the community by being directly involved in various volunteering activities focusing on the bank’s CSR pillars.
“Aligning with our new brand promise, we have identified new brand values for our employees which include trustworthiness, being inclusive, empathic and enterprising. Through ‘Baiduri cares,’ we hope to put these values into practice as we seek to make a positive impact in our community,” Ti further explained.
In the same month, Baiduri Bank also partnered with the Ministry of Home Affairs to launch a food truck entrepreneurship initiative, ‘urban bites by Baiduri.’ It also inked an agreement with the Ministry of Culture, Youth and Sports for the development of the nation’s first native mobile volunteer app named ‘Mengalinga’ (translated as ‘caring’). Both initiatives are a strong testament to Baiduri Bank’s commitment to support the needs of the community in collaboration with its stakeholders.
Doing well by doing good
With the growing emphasis on triple bottom line and sustainability, companies around the world are embracing corporate responsibility in their business operations, setting forth and staying true to their purpose – in particular, purpose beyond profit. “At Baiduri Bank, we believe that safeguarding the interests of employees, communities and the public at large is not necessarily at odds with the imperative of profit. On the contrary, the adage of ‘doing well by doing good’ holds a lot of truth today. The COVID-19 pandemic has illuminated vulnerabilities within the existing socio-economic systems and underlined the importance of the sustainability agenda. Corporate social responsibility is, and will continue to be, the foundation of sustainable growth.”
“As we seek to deliver greater value to our customers and shareholders, we will also embed sustainability and responsible banking in our business strategy. By delivering on our purpose, and helping individuals and businesses achieve success, we grow as a business and we can help meet the needs of the community too,” Ti concluded.
