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Informing decisions

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BRE Bank has grown from the need of the young capital market in Poland at early stages of its development. From the very beginning it had an ambition to create innovative products, offer cutting edge business solutions and build partnering relations with its clients. Thus, it aimed to establish cooperation with prominent foreign banks, support export-oriented projects and meet market needs with regard to acquisition of foreign currencies.

In line with its “stand out or die” principle, the bank has many a time played a role of pioneer, setting new trends both in terms of customer service and product offering. It was the first privatised Polish bank to be included in the WIG20 index. It established a strategic partnership with Commerzbank, one of the largest and most important German banks. Thanks to its consistency in following through the adopted strategy, BRE Bank has managed to win and maintain the position of one of leading Polish financial institutions in terms of capital, range of activity, pace of development, variety of offered products and high advancement of banking technology.

Today, after over 20 years of operations, BRE Bank’s uniqueness lies in its technological advancement, innovative edge and approach to clients, based on professional advice and customised financial solutions. BRE Bank’s mission and ambition is to maintain the position of “the best financial institution for demanding clients.”
    
Client relationships
BRE Bank focuses on supporting modern and dynamic companies: international corporations, large enterprises and fast growing SME. It offers clients top service standards and a range of tailor-made products. With specialised financial services offered by the group’s strategic companies added to its portfolio, BRE Bank has created a very modern, comprehensive and flexible offering in the area of corporate, investment, retail and asset management banking, supplemented with factoring, leasing, advisory and brokerage services, as well as insurance and investment products. The implemented strategy allows the bank to cater for all financial needs, even the most non-standard ones. BRE Bank is an expert in the area of specialised investment banking transactions, executed at the client’s order, and a valued partner for companies which BRE Bank assists in all export and foreign trade transactions. The bank also specialises in advice and financing of projects from the European Union funds.

The bank has also prepared a wide range of products and services for retail clients. It was a pioneer with regard to services offered to financially or socially high-profile clients with sophisticated product and service needs. In 1995, as one of the first banks on the Polish market, it offered private banking services to clients. Today it is the segment leader and offers professional and comprehensive BRE Private Banking & Wealth Management services.

BRE Bank caters for affluent clients and entrepreneurs, representatives of Poland’s developing middle class, who expect products and services fit for their needs, via MultiBank – a friendly world of finance. Active clients who value convenience and eagerly take advantage of modern technologies and standard banking products have been offered mBank, an open financial platform where clients are offered only the best products and services according to the “Top Quality at the Best Price” principle – namely maximum benefit and convenience.

New technologies
For years BRE Bank has been associated with innovations and cutting edge technologies. In 20 years of its operations the Bank has many a time surprised the market with ground breaking solutions in the area of technology, products or non-standard financial solutions, setting the tone for Polish banking. It continually improves its offering while regularly launching front-line IT solutions. In 2000, it launched mBank, the first internet bank in Poland. Now the retial branch of BRE is servicing over 3m clients. Four years later, it implemented iBRE system – one of the most innovative online banking systems for companies, offering full transaction security and top level banking services and technologies.

Growth strategy for 2010-2012
BRE Bank seeks to achieve revenue growth at an average annual rate of above 10 percent and increase the pre-tax return on equity to about 20 percent by implementing its strategy for 2010–2012. An important element of the strategy will be a share capital increase with the targeted proceeds of PLN 2 billion, which is expected to improve core Tier 1 ratio.

BRE Bank’s new strategy focuses on profitable growth in two key segments: retail and corporate. “We have a strong position both among affluent retail banking customers and among business clients.” said BRE Bank CEO Mariusz Grendowicz. “We want to exploit this potential during the anticipated improvement in the economy. In addition, we wish to provide the necessary flexibility in anticipation of the expected changes in the regulatory environment.”

In retail banking BRE Bank seeks to attract new customers and increase the average number of products used by each customer. “Individual accounts are one of the strengths that allow us to steadily gain new customers among the most active users of banking products,” Grendowicz explained. “Now we want to offer them new products.” Non-mortgage lending, including car loans, is a product group that BRE Bank’s Management Board thinks has the potential to increase the Bank’s revenue in the retail segment. BRE Bank also seeks to increase its non-interest revenues from such services as payment cards, brokerage commissions and bank transfers.

BRE Bank also intends to attract new customers in the corporate segment. “Here we want to focus primarily on winning SMEs as customers,” CEO Mariusz Grendowicz explained. “We also plan to strengthen our presence in the capital markets, for example by improving our position as the leading organizer and dealer on the market for non-Treasury debt securities.”

The planned revenue growth is expected to go hand-in-hand with stricter cost controls, and BRE Bank seeks to reduce its cost/income ratio to ca. 50 percent by the end of 2012. The share capital increase should also allow the Tier 1 ratio to be maintained in the range of 8–10 percent.

Prioritising growth

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Constantly developing and improving its services, Blom Bank Group provides universal banking services that meet its’ clients needs. These services include: Commercial Banking, Corporate Banking, Private and Investment Banking, Asset Management, Retail Banking, Islamic Banking and Insurance products and services.

Blom Bank’s strategy is based on the expansion in the region and the diversification of its services to become a leading regional bank while continuing to ensure peace of mind to its customers and stakeholders.

In fact, as one of the oldest established banks in Lebanon, if not the region, Blom Bank has always been at the centre of the country’s banking system. Its universal banking services revolve around trust and credibility, built with its clients through long-term personal relationships, integrity, and the strong results that it has consistently delivered. And the bank’s renowned conservative management has paid off over the years: for decades, Blom has been the most profitable and among the largest banks in Lebanon. It is proud to have become its clients’ preferred banking partner, meeting all their financial needs and making it the lender that provides “peace of mind”.

Throughout the years, Blom Bank has also maintained a track record of exceptional performance. On the one hand, Blom’s operational and managerial efficiency has enabled it to maintain in 2009 the lowest cost–to-income ratio among its peers at 35.47 percent. Blom Bank’s profit increased by a CAGR of 17 percent to reach $293m by 2009, the highest in Lebanon. Blom Bank has the highest return on equity increasing at a CAGR of 21 percent. In addition, assets increased at a CAGR of 16 percent to a total of 20.719bn and customer deposits increased at a CAGR of 19 percent to a total of $18bn at end 2009.

Moreover, Blom’s consolidated Basel II Capital Adequacy reflected solid solvency with ratio of 12.61 percent by June of this year, well beyond the international minimum of 8 percent. Additionally, Tier I Capital increased by 11.9 percent to $1.6m from end 2009, attributed mainly to increase in retained profits. In fact, the Bank’s policy is to strike a balance with respect to maximising shareholder value without compromising its Tier I capital growth.

Blom Bank has a presence in the following 12 countries: Lebanon, Syria, Jordan, UAE, France, UK, Switzerland, Romania, Cyprus, Egypt, Qatar, and Saudi Arabia. Blom Bank conducts worldwide operations, either directly or through its subsidiaries: Bank of Syria and Overseas, Blom Bank France, Blom Bank (Switzerland), Blom Bank Egypt, Blom Egypt Securities, Blom Bank Qatar, Blom Invest Saudi Arabia, Blominvest Bank, Blom Development Bank (Islamic Bank), Arope Insurance, Arope Syria Insuarance, Arope Egypt Insurance. In its drive to diversify its revenue base and enrich its asset class, the bank is prioritising its expansion by adopting an organic growth policy. To this end, the bank is capitalising on its competitive edge in terms of common language and existing relationships to strengthen its foothold in the region and beyond.

Recognition for Blom Bank
– Best Bank in the Middle East for 2009 from The Banker
– Best Bank in the Middle East for 2009 from Banker Middle East
– Best Bank in Lebanon for 2009 from The Banker
– Best Bank in Lebanon for 2009 from Global Finance
– Best Banking Group in Lebanon for 2009 from World Finance
– Best Bank in Lebanon for 2009 from Emea Finance
– No 1 banking brand in Lebanon for 2010 from The Banker
– Best Trade Finance Bank in Lebanon for 2010 from Global Finance
– Best Foreign Exchange Bank in Lebanon for 2010 from Global Finance
– Best Trade Finance Bank in Lebanon for 2009 from Emea Finance
– The Strongest Bank in Lebanon for 2009 from The Asian Banker
– Best Lebanon Web Awards for 2010 from Pan Arab Web Awards Academy
– Best Commercial & Corporate Bank Website in Lebanon for 2009 from Pan Arab Web Awards Academy
– Best Mutual Fund in the Middle East for 2009 from Banker Middle East
– Best Investment Advisory Service in the Middle East for 2009 from Banker Middle East
– Best Private & Investment Banking website in Lebanon for 2009 from Pan Arab Web Awards Academy
– Best Brokerage Award for 2009 from Emea Finance
– Best Balanced Fund Award for 2010 from MENA FM

Bank’s balanced approach

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As the third largest financial institution in Mexico, Grupo Financiero Banorte (“GFNorte”) is measured by size of loans and deposits, with a 13 percent and 12 percent market share, respectively. It provides a full range of banking, insurance, retirement savings funds, leasing, factoring and brokerage services, serving more than 15 million customers. The bank conducts a wide range of commercial and retail banking activities in Mexico through its nationwide footprint of almost 1,100 branches and 4,500 ATMs. Banorte also has a presence in the US Hispanic market through the Texas-based InterNational Bank and the remittance companies Motran and Uniteller located in California and New Jersey, respectively.

Performance
2009 was one of the most challenging in over a decade for the Mexican economy and its financial system. Mexico was not only affected by the fallout of the problems faced by global financial institutions in 2008, but also by difficulties in its corporate sector, a depreciation of the currency, less liquidity in the financial markets and a sharp economic downturn.

In spite of this difficult operating environment, Banorte was able to achieve positive operating results, reporting an ROE of 15 percent, a higher level compared to the industry average of less than 13 percent.  The bank also strengthened its balance sheet, stabilised asset quality and improved its market position.

The bank’s balanced approach to growth has placed it as one of the best performing institutions in the financial system, with solid financial ratios, sound asset quality and important market share gains.

Financial strength
In terms of balance sheet management, the bank improved its funding sources by undertaking a series of initiatives to accelerate growth in core deposits. This resulted in core deposits’ growth of almost 10 percent during the last twelve months, and an improved funding mix with more than 70 percent derived from retail deposits. Banorte also strengthened its capitalisation levels, especially its core equity, by reinvesting profits, growing in low risk weighted assets and finding new sources of capital to feed its future growth needs, such as the IFC’s investment in the banking subsidiary. The bank has also improved its risk management models, revamped its collection practices and implemented restructuring programmes for clients that needed temporary relief.

Market position
Banorte took advantage of market opportunities to consolidate its position in various segments. It acquired three pension funds that positioned the bank as one of the four most important players in this market segment in terms of accounts managed. 

Its market share in loans and deposits has increased by more than 100 basis points over the past 12 months, making Banorte the third largest institution in Mexico, surpassing HSBC and Santander during the year. It is also one of the top three players in mortgage, SME & commercial lending, and financing to State and Municipal governments.    

Innovation and client service
Banorte has actively launched new products and services to continue fulfilling the needs of Mexican clientele.  As part of the 110th anniversary, the bank launched a new mortgage product with a low interest rate and origination fee, as well as the lowest initial payment available in the market, unemployment insurance and access to Mobile Mortgage Quotes, the only tool in the market providing instant quotes for a whole range of mortgage options over a mobile phone. Banorte also introduced “Cuenta Fuerte”, a packaged product that includes checking account, credit card, demand and time investments, internet banking, mobile banking, telephone banking, ATM services and life insurance; all under one contract.

Banorte has always been at the forefront of innovation in Mexican financial services. The bank recently launched “Banorte Movil”, an innovative electronic banking service that operates via cellular phone and mobile devices using the internet from anywhere in the country, regardless of the phone’s model and the mobile telephone provider. This represents the first fully operational mobile banking service launched in Mexico. Also, Banorte initiated a strategy to penetrate the un-banked population through third party correspondents. Under this framework, Mexico’s Telecomm-telegraph company and Banorte began to jointly offer financial services nation-wide under this new figure, reaching regions of the country with no banking presence. Similar joint ventures are being established with important institutions.  

ADR program in the us and listing in madrid Banorte began an ADR Level I Program in the US OTC markets and listed its shares in the Latibex market in Madrid during 2009 in order to expand the presence of its shares in the international financial markets and access new investor pools.

The ADR Program was established with Bank of New York Mellon as the depositary institution, and is currently traded in the pink sheet markets under the symbol GBOOY. During 2009, a total of almost 2 million ADRs were issued, and ADR price and market capitalisation of the programme increased substantially. The ADRs will begin trading in the OTCQX electronic platform in 2010.

Regarding the listing in the Madrid Stock Exchange, Banorte began trading in that market during the month of June 2009 under the symbol XNOR. The shares were included in the FTSE Latibex All Shares Index and the FTSE Latibex Top Index as part of this listing.

Future outlook
Over the coming year, Banorte will focus on the execution of a strategic plan to increase its cross selling ratios. It will implement organisational changes and continue IT investments to optimise its operations, restart the distribution network expansion, continue seeking opportunities to consolidate a leading position in many market segments and reinforce the initiatives undertaken to achieve balanced growth.

France’s perfumed assassin

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Apart from being told the forensic accounting team has just uncovered a major fraud in the securities-trading floor, probably the last thing the boss of a French bank wants is an invitation to a meeting with finance minister Christine Lagarde.

At the last meeting, for example, the titans of banking were ordered to step up their lending to businesses, or else. That was in February. The institutions had failed to meet their credit commitments agreed in exchange for government support last year. Around the same time, the nation’s top bankers were told their own bonuses would be taxed along the same lines as their traders.

According to insiders, Mme Lagarde conducts these get-togethers in an atmosphere of steely cordiality. Not inclined to prevarication, the finance minister regards herself as the headmistress of a sometimes wayward fraternity of bankers who must be regularly disciplined.

Married to a businessman, the 54 year-old mother of two teenage boys has shown herself to be a woman of action in her two and a half years in the job. Indeed she once castigated the nation’s elite for thinking too much and doing too little – an observation that went down badly with the ‘intellos’, the self-styled intellectual elite.

Named last year by the Financial Times as Europe’s top finance minister, Lagarde has waded fearlessly into one issue after another. She thinks big and she’s in a hurry. In early 2009 she warned it was vital to agree on a much-improved regulatory structure ‘as soon as possible’. In mid-2009, firing a warning shot across the bows of French banks, she declared hefty bonuses paid by Citibank, Nomura among others to be ‘an absolute disgrace’.

And right now, in the row over Greece’s public accounts, she’s believed to be the finance minister who wants tough measures against Athens as well as an investigation by Eurostat, the EU’s statistics office, to establish whether Greece employed special instruments to hide its breach of eurozone debt rules. US treasury secretary Tim Geithner regularly calls her from Washington to check on the eurozone’s state of play. (Five years a resident of Chicago, Lagarde speaks excellent English.)

The finance minister is a stickler for transparency. She wants the new European Securities and Marketing Authority to take a long hard look at the dark-pool trading exchanges such as Turquoise that have sprung up to do sub rosa block deals. For the same reasons, she’s just agreed hefty fines on certain French steel-producers for running a price-fixing cartel. And her ministry has just released its own black list of what France calls ‘tax paradises’ with a view to slapping heavier imposts on domestic companies with operations in them.

In her spare time she’s drawn up plans to revolutionise corporate bond-trading in Europe through its very own exchange. No small project this, because it would put corporate bonds up in lights instead of being traded privately between banks, a practice she believes is hostile to pan-European economic stability.

As long as people stay on the right side of her, Lagarde does all this with considerable charm and elegance. She handles a hefty work load with the same discipline that once got her into France’s synchronised swim team, a sport that requires endless practice and absolute precision.

Clearly, one of her skills is an ability to cut to the chase. Perhaps this comes from her training as a lawyer – she has no formal economic, financial or banking qualifications – and from her stellar stint as first female chairman of international law firm Baker & McKenzie where she lifted earnings by 30 percent (unlike many French politicians, she’s actually worked abroad).

She’s also France’s first female finance minister and she just may be the best in a long time.

Rethinking the gold bubble

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The financial crisis of the late noughties continues to define global financial markets; from the supranational policies of G20, national intervention and global trade flows to debt restructuring, corporate insolvency and unemployment levels. This most recent of recessions is the worst post-war contraction on record. In the US, real GDP began contracting in the third quarter of 2008, and by early 2009 was falling at an annualised pace not seen since the 1950s. In 2009, the UK economy suffered its first annual contraction in GDP since 1991.

Globally, wealth has been eroded on a frightening scale. Worldwide, share markets lost an estimated $14trn during 2008 and, over the same period, private wealth was reduced by 20 percent. With the OECD also reporting that the value of pension funds in the developed world had plummeted by similar amount, both institutional and private investors were hit hard and left reeling. Now, as we venture forth into a new decade, all eyes are on potential recovery but, even with slowing job losses and rallying stock markets, there is still a pervading and persistent sense of uncertainty as to how secure and sustainable that recovery might be.

The recounting of these tales of woe is, of course, now commonplace, with book shelves rapidly filling with new explanations and exposés of where it all went wrong. But hindsight must also teach us something and its lessons must be enduring. Recent events may have been unprecedented for well over a generation, but that certainly does not make them unique. There is a pressing need not only to rebuild asset values but also to rebuild confidence; we must learn from the recent past and make plans to stabilise our collective and individual futures.

One of very few beacons of stability and growth over the last few years has been an age-old but, until fairly recently, much-neglected asset – that is, gold. As fund managers and investment strategists scrabbled to identify a means by which they might halt the accelerating slide of their assets, the gold price remained relatively unperturbed and, indeed, prospered. At the time of writing, the gold price has risen 67 percent from its value three years previous. But this is no flash in the pan or even, as is so often assumed, merely a reflection of tactical safe haven buying; the price has been steadily rising since the turn of the millennium. And even with the recent bounce in equity markets and sporadic signs of life in the dollar, the gold price remains robust.

Gold’s ascendancy and exceptional performance during recent crisis conditions have attracted a corresponding growth in attention both from financial media and from headline commentators. This has now led to a deluge of articles speculating on the supposed fragility of gold’s position and the possibility that its price appreciation is ultimately, and imminently, unsustainable. The proposition being advanced by some parties is that gold represents a bubble that may soon burst. Unfortunately, such discussions frequently fail to examine the complex and diverse factors that shape the gold market. It may, therefore, be worthwhile to spend a little time examining some of the arguments that have been presented in support of the gold bubble theory and to what degree they correspond to research and experience.

Recent anxiety about both the health of the US dollar and the consequences of US monetary policy have also led some observers to focus on the fact that low US interest rates enable investors around the globe to borrow dollars for next to nothing and invest them elsewhere at higher rates, thus profiting from the spread. Known as the dollar carry trade, this is often cited as the keenest downward pressure on the value of the dollar. Several high profile economists have speculated on what might happen when this carry trade unwinds or collapses and the dollar snaps back. They suggest that this will trigger a wide scale asset ‘bust’; that the ‘bubble’ in higher yield, riskier assets, further inflated by the recent waves of liquidity, will burst. Recent investment in commodities, particularly gold, and the economies of faster-growing emerging markets will, it is argued, consequently suffer.

Proponents of the gold bubble argument also frequently make assertions as to gold’s lack of utility or ‘intrinsic value’ and suggest that its fundamentals are unclear or uncertain. Many also point to broader short term economic prospects, particularly deflationary pressures, as probably not being favourable to gold.

But in proposing that these factors may create a gold price bubble, protagonists are overestimating the shift to commodities, failing to understand the diverse nature of the gold market and underestimating the breadth of gold’s price drivers and investors’ motivations.  Gold is many things to many people – luxury good, commodity and monetary asset – and its price is driven by a much broader range of factors than those which influence other assets, and even other commodities.

During the financial crisis most traded commodities and diversified commodity baskets lost between six percent and 63 percent; the price of oil dropped 56 percent. Around the same time (the two years leading to June 2009), gold rose by 42 percent. Gold has remained relatively insulated from the forces that have dragged down other asset classes.

This is nothing new; gold has consistently shown itself to be less vulnerable to the economic cycles and prevailing market sentiment that affect most other assets. Its low correlation with the vast bulk of financial instruments can be proved to hold across time, markets and countries.

It can be argued that much of the bubble debate is indicative of a fairly common feature of commentary in the financial media; that is, relatively short term speculation on immediate fluctuations which often obscure longer term trends. For example, while recently there have undoubtedly been significant inflows from more tactical traders into gold investment products, there has also been a reawakening of the retail gold investment market in the developed world – a source of demand that has been relatively dormant for decades, but which typically represents ‘sticky’, long-term money.

In reality, the gold price has been building steadily for nine consecutive years, underpinned by a range of market developments and growing demand from diverse sources. For example, the last decade has seen the development and rapid growth of the gold ETF market, deregulation in several key consumer countries, the introduction of design-led jewellery in China, the development of gold-backed savings products in the Far East, renewed private investor interest in the US and Western Europe, a growing acknowledgement of gold’s unique diversifying properties by institutional investors, a geographical broadening of the production base, a marked reduction in Central Bank sales, and a growing number of official sector purchasers. The current trading range should not be regarded as a spike, but the result of a fairly measured rise, supported by favourable and robust market fundamentals. Gold’s relatively stable rise is also reflected in its relatively low volatility, something frequently misunderstood or misrepresented. Gold is typically far less volatile than other commodities and comparable to most blue-chip stock indices.

The lack of clarity in many discussions regarding gold market fundamentals is perhaps not surprising given the range of price drivers, both in terms of supply and demand, but it can cause an exaggerated perception as to gold’s potential vulnerability. For example, while investor flows have, for some years, provided a key means of support, recently reinforced by Western market interest during the course of the credit crisis, the larger portion of gold’s traditional demand base comes from jewellery (averaging 63 percent of total demand over the last five years), mostly from emergent economies such as India, China, and the Middle East. This geographical diversity provides much needed balance to the market and reduces the volatility in the gold price. During periods when investment demand may be relatively flat, possibly reflected by a sideways movement in the price, this stability may stimulate buying activity in the local gold jewellery markets in India and the Far East.

Returning to discussions of the dollar carry trade, it would seem a little short-sighted if considerations as to the fate of the dollar and possible consequences for gold do not acknowledge the bigger picture; the volume of greenbacks in circulation, the size of the US budget deficit – according to recent projections running over 10 percent – and US gross national debt, currently estimated at 86 percent of GDP.

Of course, the dollar is not the only currency currently faltering and while some commentators have suggested deflation should be our most pressing concern, the issue of long term currency depreciation and, ultimately, the ravages of inflation cannot be dispelled for long, particularly as we ponder the impact of quantitative easing measures and ‘emergency’ liquidity pumped into the system to stem the threat of protracted, deeper recession.

Empirical studies show that gold is a leading indicator of a rise in the velocity of money and a consequent increase in inflation pressures. The gold price can be seen to have a positive correlation with global money supply growth, whether in expansionary or recessionary periods.

Regardless of whether the economic recovery gathers momentum or stumbles in 2010, it can be argued that much of the talk of a gold market ‘bubble’ is based on relatively superficial and short term views of the gold market. Furthermore, this debate neglects gold’s key benefit to long-term investors and that is its role as an ‘insurance’ asset that can be proven to enhance and protect portfolios. Gold’s relative stability and diverse drivers ensure that it does not exhibit the boom and bust characteristics so evident in most other asset classes over the last decade and can therefore be relied upon to preserve wealth and provide a secure foundation for pursuit of broader recovery.

Marcus Grubb is MD of Investment at the World Gold Council

Bridging the pensions gap

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How has the past year affected OTP Pension Funds’ performance?
After a negative, pessimistic year in 2008 we achieved real success last year. In terms of investments, 2009 was also the most successful year of the Funds. Last year for instance we achieved a yield of 33.51 percent in our growth portfolio, having the highest risk-exposure in our Private Pension Fund. I believe everybody would love to make as high a yield as that on their own savings. However I must note with respect to these figures that in 2008 our yield was nearly at the same level, however with a negative sign. Last year nearly all portfolios outweighed the loss of 2008.

Last year the entire fund segment saw an upswing. In April, capital markets started to move. Those who did not leave the given investment position but hoped for a long term winning strategy could achieve excellent yields.

In my opinion, in the near future, the drive for growth of the Private Pension Funds will be return on the investments and not deposits. The recent figures show that Funds have compensated the losses that they suffered due to the crisis more rapidly than was expected. The optional portfolio system which last year all Private Pension Funds had to introduce – in line with the expectations – generated significant market variance. Like the billiard balls that were hit, the market players have moved along with their investment strategies.

What accounts for OTP Pension Funds’ success, particularly in the past year?
The fact that last year we also achieved significant yields in the funds segment is the result of our consequent investment policy.

On January 1, 2008 OTP Private Pension Fund was one of the first to introduce the optional portfolio system, which enables the fund members to invest the membership fees paid to the private pension funds at the expected yield according to the investment package, bearing risk according to their choice. Previously, the domestic private pension funds have managed the assets of all members based on a uniform investment strategy. However, international experience shows that asset management is more successful if the investments are adjusted by the funds to the path of life, yield expectations and risk-taking willingness of the members.

Therefore we have opted for an early launch in case of the Private Pension Fund and to similar reasons in case of the Voluntary Pension Fund. The fact that this coincided with the financial and capital market crisis was a misfortune. Obviously if we had changed the portfolio to higher exposure to shares we could have benefited. But the change-over did not happen overnight.

Last year we struggled to explain to all fund members not to worry. In the case of a 15-year-long portfolio a decline similar to the worst record of 2009 is indeed reckoned, which will however be balanced out in the long run as stocks will generate long-term, extra yields for our fund members.  The fact that we have managed to overweight all previous losses in one year is more than we have expected.

What percentage of your pension funds’ are actively managed?
The portfolios of OTP Funds are actively managed. We have assigned a benchmark to each of the portfolios, but the fund manager is applying an active strategy to achieve the best possible result that surpasses the benchmark.

What is the breakdown of your portfolios? Bonds? Commercial property? Equities?
In accordance with the regulations, members of the Hungarian Private Pension Funds can select from three, while members of OTP Voluntary Pension Fund from five investment packages.

Law limits the share ratio of the Private Pensions Fund’s “Classic” portfolio to a maximum of 10 percent, which is in the case of the “Balanced” portfolio between 10-40 percent and the “Growth” portfolio created for young people of more than 40 percent. OTP Funds, including the Voluntary Fund however having a dynamic view, backed up with careful analysis, have created their portfolios having one of the highest exposure to shares.

Unfortunately a new government decree came into effect last June in order to encourage HUF investments, which is a step back for OTP Funds compared to the previous situation. We need to reduce FX-exposure of certain portfolios in the Private Pension Fund segment. Unfortunately this has reduced diversification options for the different portfolios as the present Hungarian stock market is rather narrow, and there are less investment opportunities.

The new decree limits on the percentage of foreign assets in private pension fund portfolios to 35 percent in the case of the portfolios bearing the highest risk, to 20 percent in the case of the balanced and to five percent in the case of classic portfolios, which can be basically foreign shares and government securities.

In terms of equities, do you follow a “growth” or “value” approach?  
Our investment style is fundamental in character and has a bottom-up structure. The investment decisions are based on the detailed analysis of individual companies and their fundamental assessment. We buy only those shares whose rates are under the target value established by us and at the same time carry a low risk as compared to the yield they are able to realise. We sell all securities that are becoming overvalued as compared to our analysis. While modifications of the fundamental image do influence our decisions, smaller market fluctuations do not. The latter are considered by us as favourable purchase opportunities.

To what extent does the changing political and economic environment influence the day-to-day operation of OTP Private Pension Fund?
The recent period has been indeed lively in the Fund business. Several new regulations came into effect that have affected both the mandatory and the voluntary pension funds, and have changed the operation of the funds. The next period also seems to bring a lot of news, as the changes in the pension system will have great influence on the operation of the funds.

We face the issue of pension benefit as the current fund system is only suitable for collection of pension contributions. In order to make the first benefit payment in 2013 we have to set up the proper organisation structure for the funds.

Do your pension funds’ follow a basic broad model?
Today, complementary pension savings in Hungary – including both the compulsory and the volunteer private savings sector – operate on the basis of defined contribution. Although there is legal opportunity to create pension funds operating on the basis of defined benefit, at present there are no such funds in Hungary. Just like the neighbouring countries of CEE, we have adopted the South American model. Although the system has been at work for 12 years now, it still needs further refinements and fine-tuning. One of these refinements involves the question of crossing between the portfolios. In Chile, for example, people may cross from a given portfolio to another not only at a given point of time, but in the course of a one or two year period. It makes it possible to ward off the unfavourable effects of hectic market movements.

Is your fund management internally or externally managed?
The portfolios are managed by OTP Alapkezelo Zrt. (OTP Fund Management), which is the largest domestic fund and assets management company. OTP Alapkezelö is the market leader in both securities fund management and institutional fund management.

How do you measure an asset fund performance? Is it based on any particular benchmark or bourse indices?
The performances of the portfolios are compared to a benchmark. A reference index reflecting the investment policy is assigned to each portfolio and the performance of each portfolio is measured against this index. The goal is, of course, to surpass the benchmark performance in the long run, with reasonable risk assumption.

How does the Hungarian banking background influence performance?
The difference in the funds with or without banking background is reflected not so much in performance. Stable and safe background is an advantage in case of a fund having banking background, which is especially true for us, as we are supported by OTP Bank, the largest retail bank in Hungary.

Furthermore, the difference can get more importance in the future with respect to benefit payment as significant guarantee capital is a precondition for benefit payment even pursuant to the previous draft legislation.

What changes in the banking market is also undergoing simultaneous change that might be similar to your own journey?
Today all career starters are obliged to join a mandatory private pension fund. But similar to banking products, the demand for voluntary savings is also declining. Today the largest challenge in the financial sector is to regain trust.

How many people in Hungary have private pensions now?
In Hungary the private pension fund system was established in 1997, so we have achieved significant growth in the last 12 years in terms of the number of members. And as career starters are obliged to join a mandatory private pension fund, the number of members grow year by year. The total number of the private pension funds members is more than three million. Unfortunately in Hungary most of the people do not think of how they will be able to provide funds for maintaining their current living standards, therefore the market of voluntary funds is below 1.5 million members.

What about home-grown oversight and supervision?
Hungarian supervision is an integrated financial supervision that controls the activities of not only banks, but also of insurance companies and of the players of equity markets on a permanent basis. We have managed to establish a stable professional relationship between the supervision and the players of the pension insurance market. Luckily, numerous leaders and colleagues of the supervision are participating in supervisory and control projects of the EU (CEIOPS, OPC), through which they might also contribute to the improvement of the Hungarian market.

What about tax incentives for ordinary Hungarians to contribute more into private pensions – are there any?
The prevailing government has realised the importance of self-provision and supports it under specific conditions: the mandatory pension fund membership fee can be supplemented up to a certain extent and 30 percent of the individual voluntary pension fund contributions (up to a limit) can be reclaimed.
On the other hand optimisation of state funds can also generate decisions, like the one that has become effective this year: employers’ voluntary pension fund contribution bears a 25 percent tax burden, while this rate was 0 percent last year. As a result voluntary pension fund contributions have decreased, however to a lower rate than we have expected.

How could economic integration into the EU affect the future performance of OTP Pension Funds?
Today it is rather natural that we are a member of the European Community, with all its benefits and disadvantages. Opportunities have opened up, both with respect to investment instruments and professional knowledge. In the course of our investment activities we have been able to establish close business relationships with international fund managers, who might have a beneficial influence on our yields in the long run. Naturally, in the course of integration we must not forget that a bigger market generates greater competition as well, and as a result we need to serve our domestic clients at an ever increasing level.

What are your reflections on the functioning, role and future of Hungarian funds?
I find it essential that state and private pension fund services may not be treated and handled separately. Either element of the system is changed, it will influence the other. The pension system needs to be sustainable and balanced in the long run.

Therefore as the chairman of the Stability Funds Association (Hungarian Association of Pension and Health Funds) representing the Hungarian private pension fund segment and as the chair of EFRP’s (European Federation for Retirement Provision) forum on private pensions in Central and Eastern European countries based on international experiences I work to develop and improve our current system.

Csaba Nagy is MD at OTP Mandatory Private Pension Fund

Fresh capital, benefits

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Despite its small size, Slovenia may flatter itself for having weathered the storm of the financial and economic crises. The country’s orientation towards the outside world is seen in its busy international trade and a number of international agreements signed. The European Union is Slovenia’s leading trade partner and exports to the countries of  south-east Europe are significant. Legislation favourable in supporting FDI with incentives for the manufacturing industry, selected services and research and development is in line with the European Union.

Foreign investment has benefited the modernisation of Slovenia’s economy making its businesses prepared to take on competitors in the sectors that range from pharmacy and the environment to electronics and information technology. Tourist infrastructures would also benefit from fresh capital as Slovenia starts to enhance its sites more effectively and puts new water treatment stations and refuse management facilities along with other infrastructure high on its list of priorities.

The state has made opportunities for investors more even attractive by reducing the weight of its civil service. The privatisation programme continues so as to best prepare  for its OECD membership this spring, including the liberalisation of the last sectors preciously closed to foreign investment. The recent crisis has slashed inflation but fuelled the budget deficit, the balance of trade is improving and high unemployment is starting to shrink. Slovenian labour is qualified and flexible and there is also a pool of efficacious migrant workforce for large projects. A long tradition of trade with the countries in the region and with Arab states has many advantages Slovenian companies and their foreign business partners can profit from.

In 2010, pressures to become more efficient are redefining both government and corporate strategies and adding to investment activity. The Slovenian government has adopted a combination of economic policy measures, structural reforms and institutional reform in line with commitment to tackle the country’s deficit and give impetus to economic growth without threatening price stability.  By curbing public spending to the national development priorities: entrepreneurship, flexicurity and social cohesion, and transport and energy infrastructure, the budget deficit should fall to 1.6 percent of GDP in 2013. The government is set on the implementation of the reforms to range from the labour market the employment relationships, social security arrangements to rising the retirement age and introducing defined-contribution pension schemes. Commitment to increase the administrative capacity of Slovenia’s institutions includes setting up an agency for management of state property and overhaul of KAD and SOD, the two para-governmental funds. Since the Republic of Slovenia has equity holdings in a number of enterprises potentially interesting for foreign investors, majority of these holdings will be put up for sale in line with the promise made by the government to withdraw from supervisory boards of enterprises acquired during the transition period.

After inviting tenders for the purchase of the biggest national retailer and the high-end sea-side hotels, DARS, the motorway company, will be on the selling block for partial privatisation. The establishment of an agency for public procurement and giving more power to the “guardians” of competition and consumers by blending the two functions into an independent agency is certainly good news for potential foreign investors and contractors.

JAPTI’s role
Slovenia’s economic well-being is largely attributable to foreign investment and despite current global economic uncertainties, support to foreign investors remains unshaken.

JAPTI has highly qualified and committed staff to respond to the business needs of potential and existing foreign investors by developing a lasting relationship. The Slovenian network of embassies and representative offices of the Slovenian economy facilitate the two-way exchange of information and provide contacts with the right people and competent authorities in Slovenia and abroad.

Excellent, highly professional service throughout the investment process is what foreign investors and buyers can expect from JAPTI’s people being always ready to provide fast, high quality information and advice, benchmarking Slovenia offer against other locations to help investors with their decision-making process.
JAPTI’s after-care service means that JAPTI’s experts will listen to their clients’ evolving requirements and tailor the services and support to their needs in effort to remain their location of choice.

As your long term partner, JAPTI will continue to improve Slovenia’s competitive position, going for growth and making adjustments where they are needed, so that you can remain confident about building your future success as investors in Slovenia.

For more information tel: +386 (0) 1 5891 870; e-mail: fdi@japti.si; www.InvestSlovenia.org

Financier strengthens arm

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In 2009 the Black Sea Trade and Development Bank celebrated ten years of operational activity. These years have proven to be a great success for the cooperation of the countries in the Black Sea Region. The bank has experienced substantial development since its establishment and compares favourably with peers in many respects. It has achieved both a sound operating structure and a balanced portfolio and it has demonstrated a capacity to grow and fulfill its dual mandate to support the economic development of the member countries and regional cooperation. While it is still a relatively small development financier in the region, mostly due to its young age, the bank has the potential to become a prominent player.

During the period of high demand, larger than anticipated operation size, and benign market conditions that prevailed in the region in between 2000 and 2008, the bank demonstrated rapid portfolio growth and increasing profitability while maintaining conservative provisioning procedures and excellent portfolio quality. At the end of 2008 the bank had an outstanding portfolio of 94 operations for a total value of $950m.

As the global financial crisis precipitated a regional economic crisis, the climate of insecurity and uncertainty has greatly shaped the bank’s operating outlook. Not being a triple-A rated institution, BSTDB found itself in a more challenging position with respect to securing financing and facing larger spreads than do other IFIs. On the other hand, the freezing up of credit markets increased demand for the bank’s financing from regional banks and firms. At the same time, BSTDB had to be careful to protect the quality of its portfolio and to safeguard its rating. This inevitably led to a slowdown in lending activities, but the bank posted a positive net profit in 2009 for the sixth consecutive year.

In June 2009, BSTDB adopted its Long-term Strategic Framework 2010-2020, which lays out an ambitious agenda for development of the institution in this decade. The bank’s vision for this period is to become recognised as the prominent development finance institution for the Black Sea region providing well-focused development assistance and solutions. As such BSTDB would become a preferred partner in the region for multilateral and bilateral donors and for other partners in development. Among the BSTDB key strategic goals are to:

– Obtain a credit rating of Aa3 (AA- equivalent) from Baa1 currently.
– Increase overall outstanding portfolio of operations to SDR 2.5 – 3bn (about $4.5bn) by 2020.
– Increase the share of public and quasi-public sector operations (backed and non-backed by sovereign guarantees) in the outstanding portfolio to 25 percent by 2020 from 11 percent currently.
– Focus on financing operations in sectors with high development impact, such as: physical infrastructure and related services; social infrastructure; renewable energy, power generation, transport and distribution; municipal services; and environmental protection.

Return of the private deal

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Going private transactions — deals in which a private equity sponsor (or club of sponsors) agrees with a public company’s board to cash out the public company’s stockholders, thereby causing the public company to delist and become a private entity owned by the private equity sponsor and the company’s management — have  increased as part of the upturn in the general M&A market. Will this trend of increased going private activity continue? Yes, so long as each of the following four market conditions exist:
– Equity is Available: Do private equity sponsors have equity capital that they are willing to deploy in going private transactions?
– Leverage is Available: Are financial institutions (and the leveraged loan syndication market) “open for business”, with such institutions willing to make new loans to support going private deals?
– Equity Market P/E Ratios are Favourable: Are public company “targets” trading at a level that permits going private transactions to clear the market?
– Strategic Position Favours Private Equity Sponsors: Are potential strategic acquirers unable (or unwilling) to top the private equity sponsor’s proposed going private deal?

In 2006-2007, all four of these ingredients existed in the market, and the result was a spectacular wave of going private transactions in the US and the UK. In this period, Carlyle’s David Rubenstein publicly predicted that there would be a $100bn going private deal. As it turned out, the largest going private deal completed in the 2006-2007 cycle was KKR and TPG’s $44bn acquisition of TXU.

So where is the market today? In the US, the market exhibits each of the four necessary ingredients for a robust level of going private deals:
– Sponsors’ war chests have abundant equity.
– Stock markets are trading at levels that will not prohibit going private transactions. There is a limit on the price that a private equity sponsor can pay for a public target. A target’s stock must be trading, and expected to trade, below such a price for a going private proposal to be attractive to stockholders.
– Strategic companies are not, at the moment, positioned to be the inevitable winners in competitive bidding wars for public companies.
– Financial institutions are prepared to make some new leveraged loans.

So, in the US, deals are getting done and new deals are in the pipeline. At the moment, the relatively limited amount of available leverage constrains both the volume of going private deals, as well as the maximum size of any individual deal. In today’s market, Mr Rubenstein’s prediction is too optimistic by an order of magnitude; sponsors are currently contemplating transactions with a ceiling of $10bn.

Where will it go throughout 2010? Watch the leveraged loan market. If the leveraged loan market continues to improve in 2010, and the rate of improvement continues to accelerate, the pace of going private transactions will also accelerate and the size of transactions will increase.

In the US, the legacy of the more than 20 going private transactions announced during 2006-2007 that never closed cannot be ignored by boards and their advisers. Boards (and their advisers) have learned from these “busted” going private deals that there needs to be, to use the phrase making the rounds in today’s negotiations, “absolute certainty” that the committed financing will be there at closing; “absolute certainty” that the target shareholders will receive their cash. The busted going private transactions illustrated that there was some degree of conditionality to the funding of the financing commitments, and that there was some daylight between the financing commitments and the cash.

Today’s boards would like to remove all of this conditionality. In essence, they would like to obtain the functional equivalent of a letter of credit from the private equity sponsor and its lending banks. In the UK, such “certain funds” are required by law. Before a private equity sponsor can launch a going private transaction, it must have unconditional commitments from its financing sources and an independent investment bank must review such commitments and deliver its own opinion that such commitments are certain funds.

In the US, there is no similar regulatory requirement. At present, institutions providing financing commitments to US going private transactions do not provide the functional equivalent of the UK certain funds commitments. This is the case even for the US operations of a financial institution that provides, through its UK operations, such certain funds to UK going private transactions.

Could boards of targets push for certain funds? There is no legal, regulatory or other roadblock preventing a US lending institution from making a certain funds commitment; lending institutions are, however, reluctant to take on the incremental risks associated with certain funds. It is, therefore, a matter of pricing. How much will lending institutions charge for such unconditional commitments? As any such change will presumably reduce the cash price offered to a target’s shareholders, will a target’s board be willing to make this trade of “absolute certainty” on the financing for a lower price? These are the key questions that remain to be answered in today’s boardrooms.

It will be interesting to watch whether certain fund commitments become part of the deal landscape in the US in 2010. If they do, the last half of 2010 will be extremely busy.

Kirk A Radke is a partner at Kirkland Ellis LLP

Maintaining the balance

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Specialising in market niches such as government banking, infrastructure projects, factoring to suppliers of government-owned firms, agribusiness, and fiduciary services, Banco Interacciones continues to strengthen its structure through good results and a 100 percent plough back net income policy. In 2009 the net income was 39 percent higher than the previous year, exceeding shareholders expectations. The institution has been named the Best Investment Bank in Mexico for 2010 by World Finance.

Growth in a downturn
The Institution managed not to be a part of crisis, acting proactively to take preventive measures anticipating the effects that the subprime crisis could cause, and identifying the business opportunities within the market segments it regularly attends, in order to continue with the sustained growth.

Banco Interacciones has been disciplined in following a clearly defined strategy entering market segments which demand a high degree of specialisation in designing flexible financing mechanisms.

Its target market is the public sector in its three levels: federal, state, and municipal governments; as well as state-owned firms and other government owned companies. These types of markets have payment sources with the lowest credit risk which allows the bank to maintain a healthy balance and certain source of payment for its loan portfolio.

Interacciones is not a branch network institution; instead it is a well recognised and respected bank with a high degree of market penetration in the niches where it participates. The low operative cost that this implies is a value proposition for the depositors that allows them to receive a personalised service and high yield for the money invested.

The prices of its services reflect a balance between risk, return, and the opportunity cost of its capital.

Interacciones aggressively pursues strict risk management and capital allocation policies to support its business.

In these past years, the bank has accomplished important results, as measured by profitability, capitalisation, loan portfolio size, minimum rates of default, and other indicators, and it is among the market leaders in each of these categories ranging on average from third to first place.

Background
Its productive assets are healthy and have low exposure to credit and market risk. And the bank has supported its niche markets:

– Its loan portfolio accounts for 71 percent of its total assets.
– It has no exposure to credit risk regarding consumer credit (credit cards, automotive credits or individual mortgages).
– Its past due loan rate is very low, which avoids the creation of additional reserves for loan losses.
– 96 percent of its loan portfolio has (directly or indirectly) a government related source of payment.

Competitive advantages
– The bank has a flexible strategy where it can adapt to the specific needs of every client.
– Banco Interacciones has a short time to market in assisting with financial solutions for its clients needs.
– The bank grows its loan portfolio with loans backed by government guarantees which make them very safe.
– Increases liquidity by offering a high interest rate. The savings created by the avoidance of high operating costs related to a big branch network are transferred directly to the depositor in the form of a handsome yield premium.

Banco Interacciones will continue to follow its current strategy, supporting governments and related companies, and will participate in eligible infrastructure projects. The bank will support those projects which can help it grow, be it organically or inorganically, all inside the guidelines set by its strategy.

The bank works to solve customers’ needs by listening carefully to their aims, in order to develop a high quality tailor made solution.

In 2009 the Mexican stock market (IPC Index) showed a surprising recovery, offering an accumulated yield of 43 percent. The share of Financial Group Interacciones (GFINTER O) showed an accumulated yield of 26 percent.

Once again Banco Interacciones has shown consistent and very low volatility results given the adverse financial and economic scenario companies and mainly financial intermediaries are facing. The outlook for the bank is very promising given the fact that the institution fully adheres to the business model mentioned above which is also responsible for its excellent financial performance in the past seven years.

For further information email:
mceguiluz@interacciones.com;
visit www.interacciones.com

The new broker generation

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At present, without giving unnecessary specifics the whole foreign exchange market can be described in a few words: expanding, progressive, capacious, a kind of melting pot (as applied to the group and level of its participants). The last characteristics will be considered in details. Stability to different financial disasters (due to the principal of functioning), investment potential and efficient investment management, which is close to the absolute, made forex manna from heaven not only for traders but also for a great number of companies, specialised in various activities: from brokerage to educational courses, from Expert Advisors’ sales to organisation of forex exhibitions. However, if even an ordinary company can afford to get over the threshold of market entry, only outstanding companies and superior top-management, entering into the cohort of leaders, can stay on and capture the confidence of quite so many traders.

Just have a look at any forex rating or enter the phrase “forex broker” in any search engine and there will be a huge number of real companies providing an access to the forex market. But only 15-20 companies in the world can be entitled as reliable and high-quality brokers having universal approach to trading. The rest have neither financial nor professional or communicative resources to compete with brokers of the forward echelon.

There is a proverb “No sweat no sweet” which reflects the philosophy of forex leaders. To get to the forex brokers vanguard and achieve the necessary level (client base more than 100,000 traders; aggressive geographical expansion, universal and affluent range of instruments; the most convenient trading conditions) companies need to invest significant capital and resources into all directions of development.

Only then and there companies may pretend to a piece of forex-pie, but not to the crumbs from the world’s currency table. Meanwhile, the major part of forex brokers is satisfied with crumbs preferring to get somewhat at minimal cost. This approach is doomed. Some day or another, traders will leave small brokers of the second and third echelon for a leader.

Moreover, the process of sanation has already started at the foreign exchange market. And traders play the role of process catalyst, because they quickly move from small brokers to the large ones. Actively working traders concentrate on the segment of leaders, thus leaving small brokers with the crumbs they wanted to get. The times when a trader decided to try his or her skills on forex and opened account with the first broker he or she came across, have passed.

Take a look at the present market leaders and divide them into three parts: expensive for a trader – institutional (forex-departments of banks), long-standing companies which have been growing “fat” for many years, having significant time handicap, and real prospects, outgrew in the market fleet leader within several years. The distinctive features of the last ones are innovative approach, aggressive marketing policy, unique character and convenience of trading conditions, and the most noticeable, against the background of other leaders, dynamics of development. The brightest representative of the third type leaders is the international forex broker InstaForex Company. In the course of two years, InstaForex has been able to make the lion’s share of neighbours in the market vanguard afraid. However, such an aggressive approach to the competitive battle, considerable resources, used in achievement of strong positions, and long-term development of the company are beneficial to consumers. Traders have already realised attractiveness of InstaForex Company, putting their names to everything said above in the terms of opened accounts with the company. Nowadays, InstaForex clients are more than 140 000 traders from 80 countries of the world. At present moment, besides the best trading conditions on the market, InstaForex offers a range of unique instruments: segregated accounts, VIP accounts, PAMM accounts, the US cent accounts, the system of spread repayment – InstaRebate, contests and campaigns with annual prize fund more than $300,000, and many others.

InstaForex Company is not only a forex broker, InstaForex – fully established brand which includes the group of companies, covering all possible directions and segments on Forex market: finance and investment; training and education; information technology and media business.

As a result, InstaForex is a market leader. Having started once you will never quit working with it.

Merger stimulates growth

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ICBC Macau was established by integrating the Macau Branch of ICBC (Macau Branch) with Seng Heng Bank (Seng Heng) in July 2009. Holding a full banking licence issued by the Monetary Authority of Macau (AMCM), ICBC Macau has 14 branches, three subsidiaries and 500 staff members in Macau. It is the biggest local bank in Macau and ranks second in terms of total assets – close to 55bn patacas ($6.8bn) – among the 27 banks in Macau. ICBC has transferred all the Macau Branch’s assets and liabilities as well as the rights and obligations of its businesses to Seng Heng. Accordingly, Seng Heng has been renamed as ICBC Macau and is 89.3 percent owned by ICBC. The integration enables ICBC to expand its scope of businesses as well as to enhance its influence and competitive edge in the market.

ICBC entered into the Macau financial market by opening its first branch in May 2003. Benefiting from the strong economic development in Macau, Macau Branch has rapidly expanded its business during the past six years. The Macau Branch has achieved double digit growth for five consecutive years in total assets, deposits, loans, non-interest income and net profit, with compounded annual growth by 82 percent, 101 percent, 99 percent, 80 percent, and 121 percent respectively. In 2009, ICBC Macau (the combined entity) has achieved a net profit of $57m, representing growth by 60 percent over the combined net profit of the Macau Branch and Seng Heng in the previous year. As the second largest bank in Macau in total assets, ICBC Macau has consolidated its market leadership and has achieved growth in assets and deposits by 28 percent and 12 percent over the respective combined figures in the previous year. The successful integration will provide a solid foundation for ICBC’s long term business development in Macau.

Local community
In the eyes of the local people, ICBC Macau does not resemble a foreign bank. Among its 500 employees, only 30 are from Mainland China, while the rest are all locals. ICBC Macau provides a wide scope of financial services, covering general banking services (such as deposits, personal cheque services, payroll services, utilities collection, payment of social security, credit cards, education loans, auto loans, and mortgage loans) and investment services (such as brokerage, investment funds, market research, and insurance).

Equally important is the localisation strategy adopted by ICBC. Mr Cheng Wing Fai, having worked at Seng Heng for 18 years and now being Deputy CEO of ICBC Macau, has been witnessing ICBC’s efforts to integrate into the local community. He remembers the period when ICBC newly acquired Seng Heng.

“Everyone was quite worried that we might not be able to adapt to the working environment when the new shareholder came. We were relieved subsequently when we found that the new management team appointed by ICBC was paying great respect to the local staff. They were willing to listen to our opinion and advice.” ICBC treasures the role played by local staff, and strives to create a mutually supportive working environment. The bank encourages its staff to contribute to the business expansion and development. “Everyone was deeply moved by this. The initial worry among the local staff gradually turned into confidence. What’s more, the staff commenced to show more passion and enthusiasm in our work,” says Mr Cheng.

Owing to the hard work of the local staff and the support from the Macau government and shareholders of Seng Heng, ICBC quickly established a foothold in Macau. Besides maintaining Seng Heng’s old customers, ICBC has fully integrated into the local community and absorbed a new group of premium clients.

Enhancing value
After the integration, ICBC Macau has continued to improve the scope and quality of its services, invest in IT infrastructure, and strengthen its risk management.

As the largest local bank in Macau, ICBC Macau has expanded its deposit-taking business by tailoring its products for retail clients, large corporate customers, and government entities. The investments in the branch network and automated systems have improved the level of service to our customers.

ICBC has developed an advanced overseas business processing system, ‘FOVA’, for ICBC Macau’s operation. It increases the efficiency of the daily banking operations and allows the integration of ICBC Macau’s various business data into ICBC’s master system and organisation. This new platform greatly strengthens the service capabilities of ICBC Macau and assures technical advantages in customer relationship management, risk management, RMB clearing and trade settlement.

ICBC Macau has adopted an integrated risk management framework for managing its credit, market, and operational risks. With its increased businesses in Mainland China, ICBC Macau has leveraged the resources and market intelligence of ICBC to better manage the credit risk of its lending activities in China. ICBC Macau has continued to invest in technology and specialised personnel to manage the risks of its international investment activities and daily operations.

Cooperative efforts
After the integration, ICBC Macau has adopted “Based in Macau, radiating out into Mainland China, expanding into the peripheral markets, and extending into Portuguese-speaking countries” as its development strategy. ICBC Macau is capitalizing on Macau’s advantage as an international financing platform, particularly for businesses in China, Portuguese-speaking countries, and resource-rich African countries. A series of successful integration activities have allowed ICBC Macau to expand its market and widen its scope of businesses substantially. Cooperation and interaction with the ICBC group provide ICBC Macau an opportunity to tap into the premium market segment in China, and enlarge its business and market coverage. In addition, it also enables ICBC Macau to receive higher customer awareness and recognition which eventually laid a good foundation for its long-term development.

To celebrate the 10th anniversary of Macau’s return to China, ICBC Macau has co-organised a credit card, tourism, and shopping promotion event with the Macau government, ICBC, and leading retail merchants in Macau. ICBC Macau invited the Peony credit card VIP customers of ICBC from all over China to participate in a three-day tourism and shopping trip in Macau. The event has attracted substantial business for the participating merchants and has received satisfactory feedback from the card customers. The bank has also established a permanent VIP service centre in Macau to serve the needs of the VIP card holders from China. ICBC Macau will continue to organize such events to help promote Macau as a tourism and shopping destination.

In developing the mainland markets, ICBC Macau has been greatly supported by it major shareholder, ICBC. The bank has been establishing cooperation opportunities in areas such as trade financing, syndicated loans, investment banking, individual pre-settlement, credit card acquiring, clearing of UnionPay business and cash management. ICBC Macau has broadened the scope of cooperation with ICBC China branches. For example, the bank has increased its lending business to Hong Kong and Macau subsidiaries of big enterprises with mainland background. This allows ICBC Macau to tap into the market segment of premium customers in China. In 2009, ICBC Macau has established close business relationship with more than 10 commercial banks in Hong Kong. ICBC Macau has been actively involved in the syndicated loans for Cheung Kong Holdings, Sun Hung Kai, China Resources Gas, Beijing Holdings, Shanghai Industries with a total loan commitment of HK$1.45bn.

ICBC Macau has expanded its business relationship with Portguese-speaking countries and resource-rich African countries to support China’s economic growth. For example, ICBC and ICBC Macau have jointly coordinated the US$1bn syndicated loan to the Standard Bank of South Africa. ICBC has successfully invited other leading banks in China as participants in the loan. The loan signifies a new era of cooperation between the Chinese banking industry and the South African banking industry, and promotes Sino-African economic and trade cooperation,

Mr Jiang Jianqing, Chairman of ICBC, said at the opening ceremony of ICBC Macau that the bank would make use of the successful integration as an opportunity to accelerate its development, deepen internal and external cooperation, improve operating performance, strengthen the regional service network and further enhance its brand image and market position in accordance with its development strategy of “being rooted in Macau, ICBC Macau will continue to extend its businesses in Mainland China, surrounding areas, and Portuguese-speaking countries.”  

ICBC Macau has established a solid foundation in the local community and will continue to strengthen its efforts in infrastructure development, pillar projects, services provided for local residents and social services. The bank follows the Macau government’s overall economic strategy and continues to promote the diversification and structural adjustment of the Macau economy and to contribute to the economic development and social prosperity in the region.

Rallying regulation

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Our running discussion about transparency in 2010 has led to an interesting first year with this publication.

Admittedly, I have not been universally acclaimed for staking out a rather simplistic position on transparency and the virtues of parallel online due diligence. Indeed, feedback on my “pie in the sky” take on a potentially important aid for finance as outlined in my first editorial, The Way Forward (Jan-Feb p139), was more heated than I would have expected. Nevertheless, according to many respondents, I was “fighting the good fight” even if they thought it was a losing one. Many also thought I made some good points in Banking on Transparency (March-April p95). Among the most cited points was the role that ego plays in M&A.

I still maintain that technology can help us win the battle for transparency. Naturally, the technology I am speaking about is online due diligence platforms that are purpose-built to handle the heavy loads of parallel due diligence processes. After all, we cannot forget that speed is the key in corporate life. Clearly, the speed with which any due diligence process is carried out is a key factor in managing risk, which weighs heavily on managers everywhere.

A return to risk management
As risk managers regain their collective mojo after a scorching time in the desert I think more and more attention will be paid to risk in areas that traditionally have not been the stronghold of risk management. While it is en vogue to discuss “regulatory” risk as politics sticks its nose into finance, this type of risk primarily concerns monster banks that might become government-run any time. The types of risk I wish to discuss involve more common corporate activities, ones to which we can apply current technological solutions and come closer to reaching the goal of using transparency to mitigate risk. By way of illustration, I will discuss one common type of corporate activity –– restructuring.

Restructuring
Some will cry “foul” at my labeling restructuring as one of the more “common” corporate activities. Still, we must face the fact that this is an activity on which a disproportionate number of companies are spending increasing amounts of time and energy.  Herein, we discuss a simple way to make the exercise of restoring company health less painful in the long run while acknowledging the possibility of extra pain in the short term.

The reason for the extra pain is that many firms have deep-rooted problems that are not immediately visible to those charged with fixing them. In many cases, unfortunately, this is by design and can lead to quite sensitive situations. Yet, by exposing lagging performance, transparency can help solve even the most sensitive of problems.

Of course, determining the critical path to corporate health can be incredibly complex. If restructuring were easy, there would be no need for advisory. Two reasons for this complexity are that debt and equity structures are far more complex today than they were just a few years ago, and that stakeholders are more numerous and more diverse (not to mention more vocal) than ever before. At the same time, when you need to restructure, time is obviously critical. Any delay can mean the difference between solvency and insolvency. Therefore, rapid communication must be the order of the day and all communication must be reviewable and attributable once the restructuring activities have been implemented.

Restructuring is the most complicated type of due diligence due to the critical nature of the objective. The sheer amount of data that must be reviewed is mind-boggling. Thus the need has never been greater to use secure, flexible, powerful technology to help maximize the workout process.

By applying virtual due diligence processes, users can index data and assign permissions even for merely viewing key data.  Virtual due diligence tools now have sophisticated Q&A features and extensive reporting capabilities. All the data and the tools, can readily be accessed via the Web. During  due diligence, the board, advisors and management can disseminate communications securely, reliably and more swiftly than by using the methods of yesteryear.

As discussed in my previous editorial, the use of such technology is becoming more widely used in the world of M&A. It also should become mandated for such vital matters as restructuring. The day will come when virtual due diligence will be standard for advisory firms for the sake of successful outcomes and for law firms for compliance purposes. For some companies, that day will not come fast enough.

Robert Andrade is VP of Sales and Marketing at Data Room Services. For more information tel: +49 (0) 69 478 6400; www.drs-digital.com

Bank modernises capacity

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Following its internalisation policy and considering the historical ties and commercial trade between Portugal and Cape Verde, Caixa Geral de Depositos decided to open a branch in the Cape Verde islands. The CGD Cape Verde branch was inaugurated in January 1998.

One year later, it decided to upgrade its presence in Cape Verde, in order to increase its participation in the economic development of the country and to benefit from investments opportunities offered by a modernising economy, particularly in the financial sector.

Therefore, in July 1999 Caixa Geral de Depositos, the largest Portuguese bank, and a group of local investors, created Banco Interatlântico, by incorporating the GCD Cape Verde branch’s activity.

Since the beginning of its activities Banco Interatlântico chose to be different from existing banks in the market. It decided to give special attention to corporations and high income private individuals, which was quite challenging, given the small size of the Cape Verde Economy and its corporate market. This strategic option explains therefore the bank’s competitive strategy, its branch network policy, its selective notoriety and its achievements.

As matter of fact, as of December 2008, 73 percent of the bank’s loan portfolio was corporate loans and 53 percent of its deposits were corporate deposits. This is a unique situation in Cape Verde banking system, where corporate loans represent about 45 percent of total loans and corporate deposits represent about 38 percent of total deposits.

Committed to delivering quality global financial services, Banco Interatlântico was soon recognised for its innovation and technological modernisation capacity, especially in the payment system where it played a significant role in the expansion of bank automation network (ATM and POS) in the country.

The bank offers debit cards, credit cards, pre-paid cards, internet banking and mobile banking.

Having CGD as its major shareholder and major partner, allowed Banco Interatlântico to have extended capacity in dealing with international payments, which has been a competitive advantage in the past, when foreign currency asset was an important competitive instruments.

In this regard the bank introduced a credit facility for Trade Finance which became very popular and has granted to the bank a good deal of awareness among imports companies.

Banco Interatlântico started its activity in a moment where Cape Verde was living an exciting moment in its history and was undertaking significant changes in its economy. The country was undergoing its modernisation, liberalisation and privatisation programmes, which positive impact in the economic and outlook and social atmosphere.

Banco Interatlântico participated actively in the financial system privatisation, and with Caixa Geral de Depósitos, they acquire about 70 percent of Banco Comercial de Atlantico, the largest bank in the country, as well Garantia, the largest insurance company, and Promotora, the only existing risk capital company in the country.

To increase its landing capacity, since de beginning of its activity, the bank has been every active in using international financial institution facilities. Credit lines from European Investment Bank and French Development Agency have been used as well as guarantee facilities from GARI (west Africa, guarantee Funds for private sector).

With recent economic changes in the country, namely the tourism development, which led to an increasing importance of new economic centres (Sal, Boavista and Maio). The bank had to adjust its branch network to provide better coverage to these economic centres, benefiting of new business opportunities while supporting its clients’ activities. Thus, the bank opened a second branch on Sal islands, located in Santa Maria, in December 2007. In July 2008 the bank opened its first branch on Boa Vista island.

Banco Interatlântico has been playing important role in supporting European companies, especially Portuguese, Spanish and Italian, in Cape Verde. Some major tourism developments in Sal, Boa Vista and Santiago, are support by Banco Interatlântico, either alone or in syndication.

With the development of tourism real estate and the increasing interest of European investors specially from the UK and Ireland, in Cape Verde real estate market the bank designed a special lending facilities for Non Resident to finance home acquisition. This facility is also available under the brand “Live in Cape Verde” registered and promoted by Caixa Geral de Depósitos, Portugal.

In order to further increase its lending capacity and improve capital adequacy ratio, Banco Interatlântico issued in 2008, through the stock exchange, with great success, the first subordinated obligation in Cape Verde financial system history. In the beginning of this year the bank share capital has been increased in 66 percent, from Ä5.44m to Ä9.67m.  

The bank had positive evolution of all its main indicators such as Total asset, Asset quality, profitability, equity, number of employee, branch network etc. It ranks as third largest bank in the country with 13 percent market share in the deposits and 12 percent in loans, as of December 31, 2008.

With total assets of Ä138.6m, it employs 82 people and its branch network covers the four main islands of the country (Santiago, S. Vicente, Sal and Boavista) which represent more than 85 percent of the country’s population and GDP.

Perspectives
Since September 2008 the bank has a new management team, committed with further development of the bank. A new strategic plan has approved in March 2009 which include an action plan aiming the strengthening the bank position as global financial service provider committed with service quality, innovation and customers convenience.
 
The bank’s vision is:  to be the preferred bank for corporate clients recognised for its innovation and high standard service quality.

Under the new strategic plan, the branch network will be selectively expanded in order to better serve the market. During 2009, one new branch was opened in Assomada, Santa Catarina. Another one will opened in Praia, the country Capital city, in the first quarter of 2010.

Internal and external communication will be developed as strategic axis to increase the bank awareness and institutional development.

Recruitment and training process will be significantly improved in order to match the staff’s qualification and behaviour to the bank vision and to reinforce and consolidate the bank’s position in a more than ever competitive market.  

International Accounting and Reporting principles as well as an Operational Risk Prevention program are under implementation in the bank, in order to improve its prudential indicators adequacy and the service quality.

Human resources improvement, internal procedure enhancement, brand notoriety reinforcement and innovation in serving our customers and the country, will guide the bank in the near future.  

For more information: www.bi.cv

Banco Popolare CEO sees 2010 results in line

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Italy’s Banco Popolare expects 2010 results to be in line with forecasts while possible sales of non-strategic assets could boost its capital ratios, its chief executive said recently.

In La Stampa daily, Pier Francesco Saviotti also ruled out any merger with Italian cooperative bank peer Ubi Banca, speculation which regularly surfaces, and said there had never been any contacts on a tie-up.

“I think there can only be marginal operations,” he said in the interview when asked about consolidation in the sector.

This year’s results are “in line with the forecasts. We ought to close (the year) with a few million more profit than 2009”, he said in the interview.

In 2009, the bank, Italy’s seventh-largest, returned to net profit of Ä267m.

In the first two months of this year, loans were up 1.2 percent, investment inflows are flat, while loan losses were less than the budget, he said.

The bank’s supervisory board has approved the sale of non-strategic assets and Saviotti said there are talks to sell Caripe, a Pescara, east Italy savings bank but he gave no details on the possible buyer.

Banco Popolare will only sell its Sicilian branches if they do not reach planned targets while talks on selling investment banking unit Efibanca to Barclays PLC have been shelved, he said.

Saviotti also commented on recent calls by the Northern League Italian government coalition partner to influence banks’ policies. He said he had never had pressure put on him.

“I respect politics, but the bank does its job: to grant loans only to those who merit them,” he said.