Artificial intelligence (AI) has made tremendous advancements in recent years. This progress became not just recognisable to the general public, but also testable in late 2022 with the rollout of the ChatGPT chatbot. Be it for summarising books and texts, as a source of inspiration and a brainstorming aid, for artistic/creative input, or even simply for amusement, generative language models can already help us today in our work and can provide fun entertainment.
Self-confidence at a click
In any case, AI certainly doesn’t lack self-confidence, not even when it comes to crafting the right wording. This is demonstrated impressively when the chatbot is asked how Donald Trump would explain Bitcoin – you can hardly get the voice of the former US president out of your head afterwards. But are ChatGPT (from the US-based artificial intelligence research firm OpenAI) or its numerous kin also suitable to act as investment advisors? Our virtual mystery shopping tour revealed that chatbots still lack necessary financial education. Moreover, even more powerful generative language model versions in the future will not be capable of replacing intimate conversations between clients and advisors.
Advisor without a pocket calculator
When we enter OpenAI’s virtual office and ask our first question regarding a suitable investment strategy, the chatbot starts out by alerting us that it is not a certified investment consultant and cannot give specific investment recommendations.
While AI is becoming increasingly sophisticated, it still has limitations
But as is the case with so many other subjects, ChatGPT quickly sheds its restraint when we chat about a hypothetical example. Our query asks ChatGPT to construct for an investor with a moderate risk appetite a multi-asset portfolio composed of 15 to 20 ETFs that outperforms a simple 50/50 portfolio of stocks and bonds over the long term. Within seconds, the advisory bot recommends a mix of low-correlated asset classes. Stocks, bonds, commodities, and alternative assets are just the ticket, the bot says, and it names corresponding ETFs.
After a few more follow-up questions, we end up with a portfolio of 25 ETFs that also incorporates small and mid-caps, sector-based, factor-based, and thematic strategies as well as exposure to international markets alongside the US in its equity component. The original portfolio also becomes broader and more diversified in its fixed-income component and in its allocation to alternative assets in the course of the ‘client advisory conversation.’ However, the electronic advisor seems a little overwhelmed by a sophisticated client like ourself.
Falling short of the benchmark
After ChatGPT recalculated the weights for us, we could now subject the portfolio to a test or, more specifically, to a backtest (see Fig 1). However, the backtest only stretches back to 2017 due to the relatively young theme ETFs in the portfolio. But that’s good enough for an interim appraisal. Over the first six years up until the world equity market’s peak in late 2022, the ChatGPT basket gained more than 60 percent and outperformed the 50/50 portfolio by up to five percentage points. But since the end of 2022, the much better-diversified portfolio of ETFs has fallen behind the simple benchmark. The chatbot thus shares the anguish of so many other investors who have difficulty beating the performance of a simple mix of stocks and bonds in the long run. Two other metrics also disillusion the client: the equity beta and the volatility of the portfolio recommended by the chatbot are both higher than they are for the 50/50 portfolio. This means that the asset mix does not quite fit our risk profile (yet).
Personalised is different
A number of additional question marks pop up for the client in other regards as well. Is the recommended portfolio really tailored to us? ChatGPT seems to be proceeding on the assumption that we regularly trade on US securities exchanges with the focus on US-based ETFs. After we inform the electronic advisor that our domicile is in Europe, it promptly proposes a comparable palette of ‘European’ ETFs that completely excludes the US. A similar scene plays out when we express our desire for a sustainable strategy, which prompts the chatbot to quickly generate a list of ETFs bearing ‘ESG’ in their names. But serious concerns about the quality of the advice arise at the latest when we look at the original portfolio recommendation’s costs, finding that far cheaper alternatives exist. Moreover, the almost single-minded focus on only two fund providers raises doubts about ChatGPT’s independence. The chatbot must be given credit, however, for having pointed out its lack of training as a consultant right from the start.
Refreshingly self-critical
The conversation ends with the consolation that the advisor at least is refreshingly self-critical.
When asked if artificial intelligence poses an existential threat to professional asset managers, the chatbot replies: “Artificial intelligence has the potential to disrupt many industries, including the financial industry. However, it is unlikely that AI will present an existential threat to professional money managers. Here are a few reasons why:
“AI is a tool, not a replacement: AI is a powerful tool that can assist professional money managers in making investment decisions. However, it cannot replace the human expertise, experience, and judgment that professional money managers bring to the table. Professional money managers have a deep understanding of the markets, the economy, and the companies they invest in. They can use AI to enhance their decision-making process, but they will always be needed to interpret the data and make final investment decisions.
“AI has limitations: While AI is becoming increasingly sophisticated, it still has limitations. AI can only analyse data that has been inputted into it, and it cannot predict unforeseeable events that can impact markets. Professional money managers can use their judgment to navigate these unpredictable events and adjust their investment strategies accordingly.
“Human touch is still valued: Many investors prefer to work with professional money managers because they value the human touch. Investors want to work with someone who understands their individual needs and goals and can provide personalised investment advice. While AI can provide data-driven insights, it cannot provide the personalised attention that many investors seek.
“In summary, while AI will continue to play an important role in the financial industry, it is unlikely to present an existential threat to professional money managers. Professional money managers can use AI as a tool to enhance their decision-making process, but they will always be needed to provide the human expertise and judgment that AI cannot replace.”
We have little to add to the bot’s assessment. As things currently stand, an investment advisory meeting in cyberspace cannot replace a dialogue with a private banker in any way whatsoever. Whoever puts trust in the inadequately educated chatbot will most likely end up with an impersonal standard strategy or in the worst case an incredibly risky investment recommendation. Even more powerful generative language model versions in the future will not be capable of replacing intimate conversations between clients and advisors. And you also don’t get a good cup of coffee in a virtual conference room.
Your personal advisor awaits
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To realise this approach for wealthy individuals and their families in an efficient way, our partner organisation Kaiser Partner Wealth Advisors has introduced the ‘Wealth Table.’ Together with other partners, Kaiser Partner Privatbank AG participates as an independent expert. All these wealth partners, therefore, follow the same goals and interests when answering questions around your wealth to offer you advice – personally and tailored to your individual needs.
Home to over 200 million people and rich in natural resources, Nigeria is a true African powerhouse. The nation boasts the largest economy on the continent, with a high-performing banking industry and a vibrant tech hub based in the commercial city of Lagos. Nigeria is one of the fastest-growing economies of the 21st century, with its young, dynamic population helping to drive the nation forward.
And yet, despite its vast potential, the last few years have certainly proved challenging for Nigeria. In 2016, a slump in oil prices saw the economy shrink for the first time in 25 years, triggering a deep recession that sent inflation soaring and saw unemployment rising. The nation had entered a period of tentative recovery when it was hit by a fresh crisis with the arrival of Covid-19 in 2020.
The pandemic pummelled the Nigerian economy, sending it back into another crushing recession. Despite the government’s efforts to get the economy back on track, Nigeria has struggled to rebound in the post-pandemic years. Inflation remains stubbornly high at over 20 percent, leaving many families struggling to cope with the rising cost of living. Unemployment, too, is a real cause for concern, with 33 percent of the population currently out of work.
The country’s new President, Bola Tinubu, certainly has a daunting in-tray, and will need to prioritise tackling insecurity and inequality in his first months in power. But, while the government has a crucial role to play in reducing poverty and repairing the economy, the private sector is also key to unleashing Nigeria’s potential. And with some of the continent’s largest and best-performing banks based in Nigeria, the banking sector may be in prime position to drive the country towards a brighter, more sustainable future.
Indeed, amid global economic uncertainty and immense domestic challenges, Nigeria’s banking industry has remained strong. The sector continues to outperform the rest of the national economy, with a number of firms reporting healthy rising profits. One of the sector’s greatest success stories is Zenith Bank, which, during these testing times, has maintained its position as one of Nigeria’s most profitable banks, all while growing its customer base and ramping up its commitments to corporate social responsibility projects. With leading firms such as Zenith Bank prioritising Nigerian prosperity, the private sector will be a powerful force as the nation looks to recover from recession and fully unlock its vast economic potential.
Nigerian President Bola Tinubu
Small business champions
Across the globe, small businesses have been particularly hard hit by the Covid-19 pandemic. Repeated lockdowns put immense strain on smaller firms, with stay-at-home orders and social distancing measures dramatically impacting sales – particularly within the informal economy. In Nigeria, street traders, artisans and vendors all saw their businesses grind to a halt with the introduction of a national state of emergency in March 2020. The end of Covid restrictions brought some welcome relief to the nation’s small business owners, but the pandemic has left its mark on the SME sector, with many firms still struggling to find their feet.
The size of Nigeria’s SME market can’t be overstated. Small-to-medium businesses account for an incredible 48 percent of the country’s GDP, while over 80 percent of the Nigerian workforce are either employed by SMEs or run their own microbusiness. The sector is crucial to Nigeria’s wider economic growth and reducing inequality, but has been plagued with problems even ahead of the arrival of the Covid-19 pandemic.
Obtaining finance continues to be one of the most pressing problems for SMEs. According to a 2020 survey carried out by PwC, 48 percent of small business owners rely on friends and family as financing sources, highlighting just how difficult it is for SMEs to secure credit from formal banking institutions. These unmet financing needs are a key constraint to SME growth in Nigeria, holding many firms back when they wish to expand their operations and grow their businesses.
Thankfully, lenders are becoming increasingly aware of the challenges facing SMEs. Zenith Bank, one of the nation’s leading financial institutions, has established itself as a major player in the Nigerian SME ecosystem. Taking an innovative, holistic approach to supporting SMEs, Zenith Bank combines lending services with mentorship programmes, providing entrepreneurs with the tools and knowledge that they need to take the next step in their business journey.
Lenders are becoming increasingly aware of the challenges facing SMEs
“In 2021, the bank launched a trailblazing new product, specifically designed for SMEs,” explains Dr Ebenezer Onyeagwu, Chief Executive Officer at Zenith Bank. “SME Grow My Biz is an innovative platform focused on helping small businesses achieve growth and boost their profitability. At Zenith Bank, we understand the challenges facing the nation’s SMEs, and wanted to create a tool that addressed those major pain points.”
The bank has partnered with Google to offer increased visibility and market reach for SMEs through the SME Grow My Biz (SME-GMB) platform, while entrepreneurs can also receive further training on adopting and optimising digital marketing strategies. This allows small business owners to reach a larger customer base, generating more digital engagement and ultimately driving up sales.
But that’s not the only advantage offered to SMEs. The SME-GMB platform provides discounted prices on a host of essential products and services, including insurance, logistics and training. The bank has collaborated with Visa to expand their offer to small businesses, with the partnership enabling discounted use of Google Ads, Microsoft Office products and virtual assistants.
What’s more, Zenith Bank also partners with other Nigerian organisations and agencies focused on supporting SMEs. The bank is a partner of the Lagos State Employment Trust Fund – a programme designed to provide funding, training and other services to SMEs in the country’s Lagos State. The bank also works alongside the Bank of Industry and the Small and Medium Enterprises Development Agency of Nigeria to further extend access to affordable finance among the nation’s SMEs.
“Through these partnerships, Zenith Bank is helping to foster a collaborative, supportive environment for small business owners in Nigeria,” says Onyeagwu. “In this way, we hope to bridge the financing gap for SMEs and create an ecosystem in which all businesses can thrive.”
Dr. Ebenezer Onyeagwu, CEO, Zenith Bank
Making banking accessible
While access to credit is certainly a barrier to growth for the nation’s SMEs, for many Nigerians, access to any financial services remains frustratingly out of reach. The nation has seen a reduction in financial exclusion over the course of the past decade, but large swathes of the population remain unbanked.
According to the World Bank, 64 million Nigerians do not have a formal bank account with a financial institution – with the majority of the country’s unbanked living in rural and hard-to-reach communities. Financial inclusion is a key tool for driving economic development, particularly among lower-income communities, as it allows individuals to effectively take control of their financial lives.
“Zenith Bank is deeply committed to driving financial inclusion in Nigeria,” says Onyeagwu. “The bank has taken several steps to ensure that people can access financial services and participate in the formal economy – particularly in rural areas where connectivity remains challenging.”
As part of its commitment to financial inclusion, Zenith Bank has launched an agency banking programme, called ZMoney. The programme encompasses a network of agents located in over 760 local government areas throughout the country, each of whom is responsible for delivering basic banking services to people without access to a physical bank branch. This breaks down the geographic barrier to banking for those in more isolated, rural communities, with agents able to carry out vital services such as cash deposits, withdrawals, bill payments and more. Since its launch, the programme has been instrumental in bringing traditional banking services to Nigerians living in financially underserved and excluded areas.
In places where accessing a brick-and-mortar bank – or indeed a remote agent – remains a challenge, new technologies are helping to bring banking to the masses. Zenith Bank has developed a user-friendly mobile banking app, specifically designed with accessibility in mind. The app’s easy-to-use interface is straightforward and intuitive – even for those who are unfamiliar with technology or new to mobile apps. With customers able to access their accounts and perform a range of vital transactions from their mobile phones, the app has unlocked financial freedom for many.
However, while progress has certainly been made in reducing financial exclusion across Nigeria, there remain significant challenges to achieving widespread access to financial services. Financial literacy remains low, with many Nigerians unaware of the specific financial services available to them – and how they may benefit from them in both the immediate and long term. According to a survey carried out by EFInA, a UK-based development organisation, more than half of Nigerian adults have limited financial literacy, particularly when it comes to forward financial planning. As such, boosting money management skills and improving awareness of financial services will help to further expand financial inclusion across the country.
“Zenith Bank is at the forefront of this educational drive,” says Onyeagwu. “The bank partners with a number of non-governmental and community-based organisations to provide financial training to people living in rural areas. It also sponsors several financial literacy seminars across the country, while also organising financial education programmes in schools for the benefit of children in remote, hard-to-reach areas.”
Taken together, this programme of activity aims at boosting financial resilience among Nigerians, giving them a greater understanding of the products – both traditional and digital – that they can make use of in their personal and professional financial lives.
A digital future
Across the globe, technological developments have reshaped the banking industry in recent years – and Nigeria is certainly no exception. The Covid-19 pandemic accelerated an existing trend towards digital solutions, with customers beginning to expect online options as standard. While not seeing mobile money usage at the same levels as early adopters such as Kenya and Tanzania, digital payments were steadily picking up in the years prior to the pandemic – and the arrival of Covid-19 saw many more Nigerians turn to mobile transactions for the first time. With customers embracing digital options at a scale and speed not seen before in Nigeria, this represented an exciting new opportunity for Zenith Bank.
“Since its inception, Zenith Bank has been at the very forefront of technological innovation,” says Onyeagwu. “The bank was one of Africa’s first financial institutions to adopt internet banking, positioning it as a leader in online services from its earliest days as a business.”
For citizens of the 21st century, it is hard to imagine a world with no ATM machines, no debit or credit cards and no digital networks. But those were the very conditions in which Zenith Bank first launched in 1990. The bank was quick to adopt new technologies, opening its first offsite ATM machine in 2003. From there, it looked to unlock the vast opportunities presented by the internet. The following years saw the bank launch real-time online banking, transaction notifications via SMS and email, online payment gateways and QR payments.
“Today, the bank remains equally committed to developing innovative new products and services that best meet the evolving needs of its customers,” says Onyeagwu. “The customer experience continues to shape the bank’s digital transformation, and Zenith Bank is continuously working on new products that will enhance engagement and create a more personalised service.”
One such product is ZiVA, an AI-driven chatbot, which interacts with customers just as a human would. This allows customers to receive help and advice at any hour of the day – even when bricks-and-mortar stores would usually be shut. New customers are even able to open an account through ZiVA, demonstrating just how effective and advanced the platform has become.
Elsewhere, the bank is also revamping its mobile banking platform to improve the overall customer experience. Exciting new features will include lifestyle payments, personal finance management, cardless withdrawal, loyalty schemes, wearable tech and voice banking. These forward-thinking options will further transform the customer experience at Zenith Bank, with new digital options to match what is an increasingly digital world.
However, with online banking fast becoming the norm, staying safe online has never been so important. That is why, as it grows its digital presence, Zenith Bank is equally committed to ensuring robust cybersecurity measures.
“Each month, Zenith Bank sends monthly emails to its customers, providing tips for staying safe while using internet banking,” explains Onyeagwu. “We also employ highly-skilled cybersecurity professionals to constantly monitor threats targeting online banking platforms – that way, we can be assured that we are doing all we can to keep our customers safe.”
From its digital identity intelligence to its fraud monitoring solutions, the bank is guided by international standards and best practices for cybersecurity, and is constantly developing new security technologies to better protect its customers from any cyber threats they may encounter.
Adaptability is key
Just as Zenith Bank takes a proactive approach to managing digital threats, it is just as prudent when it comes to its wider risk management operations. Indeed, the pandemic has served to emphasise the importance of robust risk management in the banking sector, given the heightened operational threats to businesses during times of crisis and uncertainty. The 2008 financial crisis completely transformed risk management in the financial industry, and the pandemic will likely have a similarly profound, long-lasting impact on how banks approach risk functions.
“Risk management is the foundation on which effective and successful businesses are built,” says Onyeagwu. “This is particularly true in the post-Covid global economy, where the ability to successfully navigate a new range of increased risks is defining businesses’ performance and success.”
In these new, challenging economic circumstances, Zenith Bank is leading by example. Risk culture permeates every level of the organisation and all business decisions, with the bank continually striving to maintain a conservative balance between risk and revenue considerations. In fact, Zenith Bank’s risk appetite statement is the core instrument for aligning its overall corporate strategy, and is integral to every aspect of its business.
Zenith Bank has been at the very forefront of technological innovation
This carefully-considered approach has steered Zenith Bank to success, even in the most testing times. From post-pandemic recovery to high inflation rates and cost-of-living pressures, 2022 was a year of many challenges. While Zenith Bank was not immune to these thorny issues, it was able to adapt its strategies and respond effectively to the challenges it faced, ultimately emerging as one of Nigeria’s best-performing banks in terms of profitability.
Like many other financial institutions, one of the most pressing challenges that Zenith Bank has faced over the past year has been rising interest rates. In 2022, the Central Bank of Nigeria took the decision to raise the monetary policy rate (MPR) in order to combat skyrocketing inflation, which had risen to over 20 percent. While a necessary decision to ease cost-of-living pressures on Nigerians, the MPR hike posed a challenge for the bank’s interest-rate sensitive businesses, such as lending and treasury management.
In response, Zenith Bank rebalanced its deposit sources, allowing it to lower its cost of funds, while boosting its loan portfolio to take advantage of the rising rate environment.
Another challenge Nigerian banks experienced in 2022 was the beleaguered redesign of the nation’s currency, the Naira. The policy was announced in October, with new bank notes to be released in mid-December, and old banknotes to cease circulation by the end of January. The speed of the intended phase-out led to a cash shortage, with many Nigerians finding it hard to source the newly-redesigned banknotes. This resulted in long lines outside of Nigerian banks as people sought to get their hands on the new notes.
“The Naira redesign put a severe burden on Zenith Bank’s IT infrastructure,” Onyeagwu explains. “But, in response, the bank launched its Project Tiger initiative, which upgraded and expanded its existing infrastructure to cope with the rising demand. For some time, the bank’s senior management had predicted that there may be a time when the current infrastructure may be overwhelmed, and thus began a series of system transformations in 2020. This stood us in good stead for the challenges of the last few months, when demand peaked.”
In successfully navigating these issues, Zenith Bank has shown that adaptability is key, particularly in testing times. It has shown its customers that it is dependable and resilient, even in the face of wider economic challenges. As a result, last year, the bank succeeded in growing its customer base from 18 million to 22 million customers – a remarkable achievement that speaks to Zenith Bank’s ability to adapt and meet the evolving needs of its clients.
Building prosperity for all
One of the most valuable lessons emerging from the Covid-19 pandemic and the ensuing recovery years is that businesses don’t operate in a vacuum – they are part of a much greater, interconnected world. This is certainly true of financial institutions, which directly and indirectly impact the lives of so many. And, as customers increasingly make financial choices that align with their own principles, sustainable, responsible banking has never been so important.
Zenith Bank has long been a champion of Corporate Social Responsibility principles, embracing honesty, accountability and ethical conduct as its core values. The bank embraces the ‘Triple Bottom Line’ principle, which equally prioritises people, planet and profit, and through its social responsibility projects, is committed to boosting prosperity throughout Nigeria. It has committed itself to the United Nations Sustainable Development Goals and the United Nations Global Compact, and is working to embed sustainability into every aspect of the bank’s overall strategy.
Financial inclusion is a key tool for driving economic development
“At Zenith Bank, we recognise that the long-term viability of our business is closely linked to the value we create not just for our stakeholders, but also for the wider society,” says Onyeagwu. “That’s why we have committed to addressing a number of challenges facing Nigeria – particularly those relating to health, education, poverty elimination, zero hunger, decent work and economic growth, sustainable cities and responsible consumption and production.”
And the bank is following up on its commitments with significant investments, too. In 2021, Zenith Bank invested $10.8m in social projects across Nigeria, directing funding towards public infrastructure enhancements, sports development and women and youth empowerment, among other initiatives. One such project is a flagship Information and Communications (ITC) centre in Niger state, which looks to enhance digital skills and boost opportunities for young people growing up in the country’s largest state.
“Through these community investment initiatives, Zenith Bank is delivering a range of projects with long-term social and economic benefits,” says Onyeagwu. “We are deliberate in our approach to CSR, and want to ensure that we address some of society’s most significant challenges.”
And as the bank looks to the future, these social and sustainable commitments will remain at the very core of its business. By prioritising CSR now and in the years to come, Zenith Bank is making a long-term commitment not just to its valued stakeholders, but to enhancing economic prosperity for all Nigerians.
With Global GDP growth in 2023 likely to remain relatively low, at around 3 percent according to IMF estimates, it reflects a general uncertainty in the economic outlook for the near-term. According to Deloitte’s 2023 banking and capital markets outlook report, “escalation of geopolitical risks, deglobalisation, and fracturing payments systems are pushing the world toward a new economic order.” Despite multiple factors including tightening monetary policy, inflation, supply chain issues and energy shocks leading to ripple effects that many banks have found tough to navigate, a few have stood out during these challenging times.
World Finance Banking Awards 2023
Best Investment Banks
Argentina Puente Brazil BTG Pactual Chile BTG Pactual Colombia BTG Pactual Dominican Republic Banreservas France BNP Paribas Georgia TBC Bank Germany Deutsche Bank Hong Kong Jefferies Jordan Arab Bank Kazakhstan Tengri Partners Investment Banking Kuwait National Investments Company Mexico BBVA Mexico Netherlands ABN AMRO Nigeria Coronation Merchant Bank Oman Bank Muscat Pakistan HBL Paraguay Puente Taiwan Fubon Financial Thailand Siam Commercial Bank Turkey QNB Finansinvest US Puente
Most Sustainable Banks
Brazil BTG Pactual Dominican Republic Banco Popular Dominicano Nigeria Access Bank Turkey Garanti BBVA
Most Innovative Banks
Europe BNP Paribas Latin America BTG Pactual Middle East Commercial Bank of Qatar Africa GT Bank Asia Habib Bank
Best Commercial Banks
Austria Raiffeisen Bank International Belarus Belagroprombank Belgium BNP Paribas Fortis Canada BMO Colombia Davivienda Czech Republic Ceska Sporitelna Denmark Nordea Dominican Republic Banreservas France BNP Paribas Germany Deutsche Bank Hungary OTP Bank Macau Bank of China Netherlands ING Nigeria Zenith Bank Norway Nordea Poland Bank Pekao Portugal Banco Finantia Sri Lanka Sampath Bank Sweden SEB Taiwan Mega International Commercial Bank US BMO Vietnam Sai Gon J.S. Commercial Bank
Best Retail Banks
Austria BAWAG Group Azerbaijan AccessBank Belarus Belarusbank Belgium BNP Paribas Fortis Bulgaria Postbank Canada BMO Chile Santander Chile Colombia Bancolombia Costa Rica BAC Credomatic Denmark Nordea Dominican Republic Banreservas Finland Nordea France BNP Paribas Germany Deutsche Bank Greece Eurobank Hungary CIB CSOPORT Iceland Landsbankinn Israel Bank Leumi Italy Intesa Sanpaolo Macau Bank of China Mexico Banorte Netherlands ING Nigeria GTBank Norway Nordea Pakistan Meezan Bank Peru BCP Poland Bank Pekao Portugal Santander South Africa NedBank Spain Banco Bilbao Vizcaya Argentaria Sri Lanka Sampath Bank Sweden Nordea Turkey Garanti BBVA UAE Mashreq UK Barclays Bank US Bank of America Uzbekistan Asakabank
Best Banking Groups
Austria BAWAG Group Brunei Baiduri Bank Chile Banco Internacional Denmark Nordea Dominican Republic Banco Popular Dominicano Egypt Banque Misr Finland Nordea France Crédit Mutuel Germany Commerzbank Ghana Zenith Bank Ghana Hong Kong HSBC Israel Israel Discount Bank Jordan Jordan Islamic Bank Kosovo BKT Macau ICBC (Macau) Nigeria Guaranty Trust Bank Pakistan Meezan Bank Peru BCP Saudi Arabia Al-Rahji Bank Turkey Akbank UAE Abu Dhabi Commercial Bank UK Lloyds Banking Group
Best Private Banks
Argentina Puente Austria Schoellerbank Belgium BNP Paribas Fortis Brazil BTG Pactual Canada BMO Czech Republic Erste Private Banking Denmark Nordea Private Banking Dominican Republic Banreservas France BNP Paribas Banque Privée Germany Deutsche Bank Greece Eurobank Ergasias Hungary Erste Bank Italy BNL BNP Paribas Liechtenstein Kaiser Partner Monaco CMB Monaco Netherlands ING Nigeria First Bank Norway Nordea Private Banking Paraguay Puente Poland Bank Pekao Portugal Santander Private Banking Spain Banco Santander Sweden Carnegie Private Banking Switzerland BNP Paribas Wealth Management Turkey TEB Private Banking UAE Mashreq UK Standard Chartered Private Bank Uruguay Puente US BMO
Bankers of the Year
Europe Petia Dimitrova (Postbank) Latin America Ilan Goldfajn (Inter-American Development Bank) Middle East Ahmed Hashem (Dukhan Bank) Africa Segun Agbaje (GT Bank) Asia Ilias Tsakalidis (Tengri Partners Investment Banking)
According to a recent report by Harvard Law, the defining corporate governance trends are a critical spotlight on executive compensation, increased scepticism about board quality, and, perhaps most pressingly, the maturation of ESG programmes and disclosures. The report goes on to say: “the Corporate Sustainability Reporting Directive will disrupt the ESG landscape across the European Union by harmonising standards and shaping the reporting environment for years to come”.
The Islamic finance industry is expected to grow by around 10 percent in 2023 into next year and, as Moody’s reports, Sukuk issuance is set to “rise sharply in 2023”. Issuance last year was postponed “because of capital market volatility, companies seeking to refinance near-term sukuk maturities and first-time rated sukuk issuers looking to diversify funding sources,” said Rehan Akbar, a Moody’s Senior Vice President. Demand for Sharia-compliant financing is high and growth is expected in several areas despite an economic slowdown in other major markets. There is also significant growth potential with green sukuk issuance with many Islamic banks adopting sustainability plans. World Finance celebrates those who have led the way to this positive outlook in its Islamic Finance Awards.
World Finance Islamic Finance Awards 2023
Best Islamic Banks
Bahrain
Al Salam Bank
Egypt
National Bank of Egypt
Jordan
Jordan Islamic Bank
Kenya
Dubai Islamic Bank Kenya
Kuwait
Kuwait International Bank
Morocco
Al Akhdar Bank
Qatar
Qatar Islamic Bank
Saudi Arabia
Al Rajhi Bank
Tunisia
Banque Zitouna
UAE
Emirates Islamic
UK
Gatehouse Bank
Best Takaful Insurance
Bahrain
Takaful International Company
Jordan
The Islamic Insurance Company
Kuwait
KFH Takaful Insurance Company
Malaysia
Jubilee General
Qatar
AlKhaleej Takaful Insurance
Saudi Arabia
Tawuniya
UAE
Abu Dhabi National Takaful
Special Recognitions
Best Islamic Banking & Finance Software Solutions
ICS Financial Systems
Best Digital Banking & Finance Software Solutions
ICS Financial Systems
Best Customer-Focused Islamic Banking Products and Services (Kuwait)
Kuwait International Bank
Best SME Bank (UAE)
Emirates Islamic
Best Retail Bank (UAE)
Emirates Islamic
Best Cash Management Bank (UAE)
Emirates Islamic
Best Treasury Management Bank (UAE)
Emirates Islamic
Most Connected and Strategically Located Financial Centre (MENA)
Qatar Financial Centre
Lifetime Achievement in Islamic Banking and Dedication to the Community
Sheikh Mohammed Al-Jarrah Al-Sabah, Chairman, Kuwait International Bank
Lifetime Achievement in Financial Technology Innovation
Robert Hazboun, Group CEO & MD, ICS Financial Systems
Business Leadership and Outstanding Contribution to Islamic Finance
H. E. Musa Shihadeh, Chairman of the Board of Directors, Jordan Islamic Bank
Kuwaiti Visionary CEO – Development & Growth Driver
Raed Jawad Bukhamseen,VC & CEO, Kuwait International Bank
Best Insurance Company for Customer Service Quality (Turkey)
Bereket Sigorta
Best Participation Insurance Company (Turkey)
Bereket Sigorta
The general financial sentiment heading into this year has been that we are rapidly entering a new era “potentially marking the end of cheap money and a long period of low volatility,” according to a research paper authored by the Thinking Ahead Institute. With pension fund asset owners globally controlling $51.9trn, managing increasing macro uncertainty and systemic risk in the past year has been a daunting task to say the least. Balancing the investor desire for returns with the progressive imperative to decarbonise portfolios has added a layer of complexity making the effective stewardship of funds that much harder. With this in mind, we highlight those who have demonstrated resilience in what has been a tough year for the pension fund industry.
World Finance Pension Fund Awards 2023
Australia
Unisuper
Austria
APK Pensionkasse
Azerbaijan
State Social Protection Fund of Azerbaijan
Belgium
Pensioenfonds UZ Gent – UGent
Bolivia
BISA Seguros y Reaseguros
Brazil
Bradesco Seguros
Canada
OMERS
Caribbean
NCB Insurance
Chile
AFP Plan Vital
Colombia
Grupo Sura
Croatia
PBZ Croatia Osiguranje
Czech Republic
CSOB
Denmark
Nordea Pension
Estonia
Swedbank
Finland
IImarainen
France
AG2R LA Mondiale
Germany
HVB Trust Pensionsfonds
Ghana
Pensions Alliance Trust
Greece
Piraeus Asset Management
Iceland
Almenni Pension Fund
Indonesia
BNI
Ireland
Accenture Defined Contribution Pension Plan
Italy
Fondo Pensione Nazionale BCC/CRA
Jamaica
JMMB Fund Managers
Macedonia
Sava Penzisko
Malaysia
Gibraltar BSN
Mexico
Afore XXI Banorte
Mozambique
Moçambique Previdente
Netherlands
Pensioenfonds Zorg en Welzijn
Nigeria
Fidelity Pension Managers
Norway
KLP
Peru
Prima AFP
Poland
Pocztylion-Arka
Portugal
Santander
Serbia
Dunav Voluntary Pension Fund
South Africa
University of Johannesburg Pension Fund
Tackling the climate change headwinds continues to be priority number one on the business agenda and, according to Daniel Hanna, Global Head of Sustainable Finance for the Corporate and Investment Bank, Barclays, “we’re seeing significant momentum in terms of the flow of capital into renewables and new decarbonisation technologies.” Ensuring that we take sufficient steps now to avoid difficulty in the future means businesses must take sustainable action across all facets of their operations.
According to a report by ING Bank, towards the end of 2022, following a historic 18-month dollar bull run, the FX outlook became less clear, with “FX markets in 2023 to be characterised by less trend and more volatility”.
Meera Chandan, Global FX Strategist at J.P. Morgan follows on from this, saying “the confluence of factors that had proved so supportive of the dollar earlier in 2022 has since inverted. Markets are now aggressively pricing Fed easing on the back of growing signs of disinflation, while the outlook for global growth this year is no longer looking as pessimistic as it did earlier in 2022”.
Nevertheless, with continuing economic uncertainty across the globe, navigating the markets has proved especially difficult and once more World Finance has recognised those who have stood out in the forex industry.
A list of the companies awarded in the World Finance Forex awards 2023 can be seen below.
Despite the transition to serving customers digitally during the pandemic not being without its challenges, the banking industry has changed and some of what are being considered ‘new normal’ consumer behaviours and expectations are likely here to stay. However, some of the digital solutions and communications tools deployed as part of this evolution to digital experiences are falling short of providing a seamless experience for customers, resulting in an erosion of trust.
The current cost of living crisis presents opportunities for traditional banks to reimagine the banking model of a ‘one size fits all’ approach and find new ways to perfect it. Fintech brands such as Moneybox and Tink are already taking a fresh approach to some of the tactics deployed by traditional players. Recently Tink and Snoop announced they are teaming up to help UK customers navigate the cost of living crisis through offering its customers money management services.
It’s not too late for financial institutions to reimagine the experience they give customers. Embracing new technologies, developing a better understanding of customer needs and placing a greater emphasis on educating them, will result in trust and greater loyalty.
Setting the right tone
The importance of offering appropriate channels of communication that work for your customers across demographics, thinking styles and usage patterns, is vital for a positive relationship instilled with confidence. Relying on the historical ‘one size fits all’ approach can risk customer longevity. For example, some customers prefer traditional telephone banking because of the human-centric nature of being directly linked to another person in real time. Many banks have invested in upgrading their call centre models, as well as automated messaging services such as chatbots and online FAQs. However, in some cases, we have seen this have an adverse effect, with banks losing human-centricity and being unable to operate consistently across touch points, particularly when it comes to more complicated financial needs.
Banks looking to provide a superior customer experience would do well to follow in the footsteps of First Direct, who have transformed their telephone banking service. Offering a tailored and quick service means customers get reassurance they are speaking to a professional with the capabilities to respond to all manner of financial needs. If the process to reach help is uncomplicated and obstacle-free, customers won’t look to bank elsewhere. To solidify trust and ensure that information is clear, banks could consider recapping the information shared online or discussed over the phone via app, email or text.
Security above all
Around 36 million UK citizens were targeted by scams in 2021, which makes security a big consideration for customers needing to feel high levels of trust in a bank’s approach. Designing security into the digital offering is a great way to make people feel at ease when managing their money online. Examples of enhancement include more progressive disclosure, clear and accessible advice, and sharing educational resources resulting in customers feeling like they are being looked after and proactively protected by their bank.
Customers will, in turn, become wiser about online security threats and learn how their bank operates, instilling greater confidence when moving beyond surface level transactions into more complex financial transactions. Banks need to be clear in their communication with customers, including the exact types of communication they can expect to receive, and how. A simple and definitive ‘we will only contact you via text’ can go a long way to building trust, and decreasing confusion or misunderstanding.
Branch out
Many people still value visiting bricks and mortar branches and receiving an in-person experience despite some shaping products and services around ‘digital-first.’ With many branches having slimmed down their services offered in-store or closed entirely, rethinking how branches operate will be key.
Designing security into the digital offering is a great way to make people feel at ease when managing their money online
Lloyds Bank runs a mobile branch service to help eliminate any disruption to the local community caused by local branches closing. Running on a fortnightly timetable, the mobile branches allow customers to pay bills, deposit cash and cheques, and order foreign currency, among other financial tasks. Understanding what customers still need from an in-person experience, and then reorganising services accordingly is a way of establishing trust and long-term relationships.
Banks should consider turning the branches they do have into financial hubs; central to bringing communities together and providing support and education through seminars or classes. Partnerships with other centres or hubs that act as pillars of the community would also increase loyalty and engagement with banks, while providing extra support.
While financial institutions have responded as best they can digitally to accommodate the ever-changing landscape, digital does not always mean what’s best for the customer. The need now is for banks to move beyond pure digitisation into looking to supplement efficient and automated systems with a greater degree of customer centricity and personalisation.
A complete analysis of how customers interact with the services provided and the cultural context can lead to banks operating proactively, to future-proof tomorrow’s banking experience. By raising the experience bar, they will not only gain trust from customers but ultimately benefit their business too through happier relationships, better supported customers and a chance to build a lifelong relationship.
“We fled when we could. I only took my laptop and a few clothes with me.” Vitaly {the source’s name has been changed}, a 34-year-old Russian software engineer, remembers leaving his home on the outskirts of Moscow with his wife last February as a bad dream. Having found a job at an IT firm in Europe, he does not expect to get back soon. His former employer lost 70 percent of its clientele within a few days of the war in Ukraine starting, a side effect of massive sanctions on Russia.
In a bid to pressure Vladimir Putin to withdraw his troops, most NATO members have taken a wide range of measures, from energy import bans to freezing the country’s foreign currency and gold reserves stored in Western banks. However, it is the brain drain, intensified after the partial mobilisation announced last autumn, that is expected to inflict more lasting damage on the Russian economy, depriving it of skilled workers like Vitaly. “Many of these people are young men fleeing mobilisation. They do not want to take part in the conflict,” says Armand Arton, CEO of Arton Capital, a Canadian consultancy that facilitates second citizenship acquisition.
The firm has seen a rise in the number of Russians seeking to obtain a second passport, a sign that they are out for good. Unlike the affluent businessmen who would previously go down that route, most are professionals aiming to build a life overseas, according to Arton.
Sanctions against rockets
Although economic sanctions have a long history, traced back to ancient Greece, it was mainly after the Second World War that they were utilised to put pressure on rogue states without resorting to military means. Data collected by researchers at Drexel University show that sanctions rose from two in 1949 to 230 in 2019, with the US accounting for nearly half of them. Following the attacks of September 11, 2001, the US unleashed an unprecedented ‘War on Terrorism’ on terrorist organisations and countries such as Iraq, Iran and North Korea, dramatically increasing the use of sanctions. A tacit recognition that they led to humanitarian crises precipitated a gradual move towards more ‘targeted’ sanctions focusing on businessmen, politicians and state-run firms.
Seizing yachts from oligarchs or making it more difficult for them to drive their Ferraris around London is not going to change Russia’s behaviour
The conflict in Ukraine has rekindled the debate on whether sanctions work against authoritarian regimes where public opinion matters little and rulers can use the ‘rally round the flag’ effect to consolidate their power. For some experts, sanctions are mainly a domestic policy tool, often aimed at placating politically powerful minorities, such as the Cuban community in Florida. In some cases, as with the pre-Second World War US fuel embargo against Japan, they have increased tensions. More recently, renewed US sanctions on Iran, following the Trump administration’s withdrawal from an accord on the country’s nuclear programme, had little effect.
However, some point out that it was sanctions that had previously brought Iran to the table. “I spent many years having everybody explain to me that sanctions could never impact Iran’s behaviour. Now the only thing everybody agrees about in regard to Iran is that sanctions worked,” says Daniel Glaser, who helped formulate sanctions against Iran, North Korea, Syria and Russia as former Assistant Secretary for Terrorist Financing and Financial Crimes at the US Treasury, adding: “Over time they create economic problems that even authoritarian governments have to grapple with.” Even a leader whose power is virtually uncontested domestically, like Putin, cannot ignore their long-term impacts. “There is a social compact between the Russian people and their government that they will tolerate whatever the government is up to as long as it delivers on certain things, especially economic wellbeing. He is now putting that compact at grave risk,” says Glaser, currently global head of jurisdictional services at K2 Integrity, a risk advisory firm.
The avalanche of economic sanctions has already taken its toll on the Russian economy. According to Yale University’s sanctions tracker, over 1,000 foreign firms have curtailed operations in the country or pulled out altogether, creating gaps in supply chains and leading to a drop in consumer spending of up to 20 percent. Russia’s non-energy exports have plummeted, while many of its industries have ground to a halt. By May, its car manufacturing industry had slumped by a staggering 97 percent compared to the previous year; it may never recover, according to Konstantin Sonin, a Russian economist who teaches at the University of Chicago. The IMF forecasts that Russia’s economy will contract by 3.4 percent this year.
Some sanctions target billionaires with connections to the Kremlin, the so-called ‘oligarchs.’ However, most analysts believe that such measures make only a symbolic contribution, given Putin’s shrinking circle of advisers. “Seizing yachts from oligarchs or making it more difficult for them to drive their Ferraris around London is not going to change Russia’s behaviour,” Glaser says.
Some hope that exclusion from sports events like Wimbledon and the World Cup may have a stronger impact on a sport-loving nation like Russia. But even that will take time. “Football fans understand that this is a consequence of the war,” says Sonin. “But it’s naive to think that this will lead to a revolution. There is no immediate mechanism that will translate this feeling into action.”
For sanctions to make a difference, two things matter most: unity and purpose. Researchers at Drexel University have found that sanctions have been more effective when they aim to promote democracy and defend human rights, whereas destabilising regimes and ending conflicts have been more elusive goals. Notable successes, such as the boycott of South Africa’s apartheid regime, were achieved through consistent enforcement by a coalition of developed economies.
Although the scale of sanctions on Russia is unprecedented, most developing countries – by some estimates representing up to 87 percent of the world population – have refused to toe the line. A case in point is India, which has increased its energy imports from Russia. This has raised concerns that enforcing sanctions is more difficult in a globalised economy, given the rise of alternative trade and financial routes. The ruble has gained ground, courtesy of rising energy prices and dropping imports, while Russia is still earning up to $1bn a day from its oil and gas exports. Experts fear that Russian firms and banks can keep sidestepping sanctions through various backchannels, including a ‘dark fleet’ of tankers transferring oil and grain, under-the-table deals with non-Western banks and digital currencies. Following the annexation of Crimea in 2014, the Russian government took measures to insulate the country’s banking system. But this policy, says Sonin from the University of Chicago, also affects growth: “There is no way Russia’s economy can grow back to 2021 levels until it opens up to international markets.”
Tacit acknowledgment that sanctions have failed to damage Russia’s economy as much as hoped has led to an increased focus on secondary sanctions on non-Russian firms, aiming to unravel the shady network of banks, lawyers and accountants assisting Russian firms to skip sanctions. Following the invasion, five Turkish banks joined the Mir payment system, Russia’s answer to Visa and Mastercard, only to withdraw in September after pressure from the US and the EU. Monitoring compliance can also be problematic due to lack of data and the complexity of international business networks, according to Farnoush Mirmoeini, co-founder of KYC Hub, a UK firm specialising in automated business verification and AML compliance. “Complex corporate structures and use of relatives and associates in financial transactions cause firms to be unable to detect the beneficiary of these transactions,” Mirmoeini says, adding: “Foreign names that are spelled in many different ways in English also enable sanctioned entities to fly under the radar.”
Next stop, China
Despite the central role of sanctions in the global effort to contain Russia, some fear that they could backfire. Coupled with the pandemic, which highlighted the importance of autarky, sanctions could accelerate deglobalisation, as multinationals ‘onshore’ their global supply chains to prioritise security. The war has also brought Russia and China closer, creating an alliance against the West’s dominance of the global financial system. The two countries aim to develop an alternative to the SWIFT interbank messaging system, while Russian banks have started lending in yuan. The collaboration has reinforced fears that China seeks to undermine the dollar’s role as a global reserve currency. “Current sanctions against Russia most likely reconfirm and accelerate China’s desire to create independent and alternative financial channels to those that currently dominate the global financial system,” says Douglas Rediker, a foreign policy expert at Brookings Institute, a US think tank.
The speed and scale of sanctions serve as a cautionary tale for the Chinese government, which has seen its relationship with the US deteriorate over trade disputes and Taiwan. However, using the same playbook on China would be difficult. “Sanctions on China’s exports would likely result in retaliation through China also stopping specific exports to the US, including that of rare earth elements, critical raw materials and more that would devastate the US and world economy,” says Skyler Chi, a global supply chain expert at the US risk management consultancy Exiger. The Asian superpower holds vast dollar-denominated reserves; getting rid of them would send global markets into a tailspin. But given the precedent of the West closing ranks to protect its interests, China has few alternative options, according to Rediker: “China’s economy is not structured to become a major debtor country ready to launch the renminbi as a challenge to the dollar. So they have to accumulate reserves and they have to keep them somewhere.” If anything, the war has proven that a united West still calls the shots, Rediker says: “That common front is probably the most important lesson they have learned, and it will be difficult for them to find an effective response, as long as that cohesion remains.”
We hear a lot of the technological dangers to our planet – oil, gas, coal, concrete, plastics, the list goes on – but what of the technological solutions? Lithium, an unremarkable silvery grey in appearance and a harsh metallic to the taste, is a part of that conversation. In fact, if we assume that the biggest technological bottle-neck for the all-electric transition is batteries, you could say it’s the most important part of it.
But, as with any precious resource, there are winners and losers. And lithium is so precious in fact that it may just remake the geopolitical landscape – or at least tilt it towards a South American trio (and China).
A ‘new type of petroleum’
Lithium batteries – as opposed to their low-density lead acid counterparts – are the future. Their commercial debut didn’t come until Sony’s CCD-TR1 camcorder in the early 1990s, but now they’re the de facto choice for electric toothbrushes, mobile phones, even your country’s military drones.
In a report last year, the World Bank found that the production of key minerals, including lithium, would need to rise by nearly 500 percent by 2050 to meet the growing demand for critical clean energy technologies. The organisation’s Global Director of Energy and Extractive Industries, Riccardo Puliti, was clear, “ambitious climate action will bring significant demand for minerals.”
Elon Musk himself has called them a “new type of petroleum.” And he would know. The battery of a Tesla Model S uses around 12kg of lithium. Without it, electric vehicles will not account for 60 percent of new car sales by 2030, as he hopes and many others predict. So naturally, demand is high (see Fig 1).
Overall demand for Lithium-ion batteries has exploded from just 0.5 gigawatt-hours in 2010 to around 526 gigawatt hours a decade later. Experts expect it to increase 17-fold come 2030. For just the US alone to go all-electric by 2030, production capacity must grow 200–300 percent. The upward curve in demand is mirrored – perhaps even more dramatically – by its price. In 2021, it was up almost 500 percent on the year. Who then is profiting from lithium?
China rising
To you or me, Tesla is the undisputed poster child of the all-electric transition. It may surprise you to hear then that Chinese companies – and not American behemoths buoyed by the spirit of free enterprise – have made by far the most progress.
Just five companies are responsible for around three-quarters of global lithium production. They operate at every stage of the production line, from resource development, refining and processing, to battery manufacturing and recycling. In fact, of the 200 battery mega-factories in the pipeline up until 2030, 148 will be in China.
As with oil and gas extraction, abundant resources can be a blessing. They can also be a curse
This is no accident. The administration decided at the turn of the millennium, long before almost any other nation, to aggressively pursue the production of electric vehicles and the associated supply chain. The strategy has paid off.
The IEA puts China’s share of global lithium chemical production at 60 percent. It’s an especially impressive feat once you consider that it’s home to only 25 percent of the world’s lithium reserves.
The rest of the world are years, if not decades, away from catching up. That said, the importance of metals like lithium, and to a lesser extent graphite and cobalt, is not lost on governments around the world.
“Governments have realised that there’s going to be a new regime with respect to energy generation and usage, and that is clearly going to revolve around a new class of metals,” said Chris Berry of House Mountain Partners, speaking on a panel at this year’s Fastmarkets Lithium Supply and Raw Materials conference. “I think what governments are realising is the idea that these metals, lithium in particular, are really going to underpin the next generation of how energy is generated.” Not just how, but where.
Whereas petropolitics have long placed the Middle East and the western world, particularly the US, at the centre of its supply-demand dynamics, the current structure of the lithium industry places South America at its heart, with China out in front.
New opportunities, old problems
South America holds around 75 percent of the world’s known reserves, with Argentina, Chile and Bolivia representing the so-called ‘lithium triangle’ of producers. The big three of Argentina, Chile and Bolivia have already discussed the possibility of creating their own OPEC for lithium, a discussion they’re expected to pick up in earnest as the race for raw materials heats up. Though ramping up lithium production is far harder than it sounds.
In Bolivia we’re seeing a revival in resource nationalism. In Chile there are calls to create a state-run lithium mining company. And in Argentina the government has taken a liberal approach with little state involvement, little red tape and low taxes. In Mexico, meanwhile, the government is all too aware of its lithium reserves and this year banned private miners from developing them altogether. The lithium triangle does enjoy certain advantages over the rest of the world.
Namely, that it’s the world’s cheapest source of lithium carbonate to date. Add to that the fact that brine extraction is arguably more sustainable than hard-rock extraction in that it uses fewer harmful chemicals and less energy.
Advantages notwithstanding, a slick, functioning system, the likes of which we’ve seen in China, are a long way off. It’s far from clear that any member of the lithium triangle will be able to quickly ramp up production to ease supply shortages – or that their governments will reap windfall revenues while the high prices last. As it stands, there is no one single approach to lithium production taken by the three. Nor will they be for as long as they’re so divided on politics.
Even with these difficulties, we can say that the rise of electric vehicles and the rocketing demand for lithium-ion batteries has given rise to a distinctly non-Western global power structure. Sure, lithium is only one factor in a web of overlapping and/or competing dynamics. Though it’s clear the above countries will profit.
As Puliti puts it, “these countries stand to benefit from the rise in demand for minerals but also need to manage the material and climate footprints associated with increased mining activities.” Because, as with oil and gas extraction, abundant resources can be a blessing. They can also be a curse.
A resource curse?
The concentration of resources does mean that any localised physical or political turmoil will disproportionately impact the global availability of minerals, and in turn prices. But the environmental implications – and those for people living locally – hint at the harmful effects global demand could inflict on ordinary people. According to the IEA, “more than half of today’s lithium production is in areas with high water stress. Several major producing regions such as Australia, China and Africa are also subject to extreme heat or flooding, which pose greater challenges in ensuring reliable and sustainable supplies.”
This matters, because lithium extraction, and particularly the method most commonly used in the lithium triangle, requires masses of water. Bolivia’s San Cristóbal mine reportedly uses 50,000 litres of water a day, and lithium mining companies in Chile have been accused of depleting vital water supplies. Worse still, lack of reliable reporting on the issue means that the actual amount of water used is proving difficult to track.
One report by the non-profit BePe (Bienaventuradors de Pobres) also identifies water as a big concern for lithium mining operations. It claims that not enough research has been done on the potential contamination of water and “activity must be stopped until studies are available to reliably determine the magnitude of the damage.” Another report by Friends of the Earth says, “as demand for lithium rises, the mining impacts are increasingly affecting communities where this harmful extraction takes place, jeopardising their access to water.”
What we have here is a situation familiar to many countries competing in the energy market. One where, on the one hand, rocketing demand has supply-rich countries staring down a potential fortune. Though it’s also one where overenthusiastic production could threaten people living in those same countries, be it through pollution, environmental destruction or displacement.
The outlook for lithium production then is…complicated. Healthy demand and high prices bode well for a trio of countries that haven’t held much influence in global energy decisions. Clearly, China is leading on production in 2022, but who will control the future? And perhaps more importantly, at what cost?
In Fontainebleau the hammer fell at the Osenat auction house in October 2022, denoting the end of a bidding war that resulted in a Tianqiuping-style porcelain vase selling for a little over €9m. This would not have been controversial, except that the expert had valued it at €1,500–€2,000 and so it had achieved roughly 4,000 times its estimate.
The consequences of what auction house president, Jean-Pierre Osenat, called “a serious mistake” by the expert resulted in their employment being immediately terminated. At first glance, this seems a little harsh given that there is scant evidence to refute their assessment save for the frenzy of interest from 300 mostly Chinese bidders. But, the market determines the value of a commodity and this hard lesson is taught daily to many millions of traders who take it upon themselves to decide what the price ought to be and get it wrong.
Where we have a group with the power to move the market as the bidders do in the above example, the poor expert is not much different than the average retail trader, poring over charts and news and trying to figure out market sentiment ahead of time. All they have to go on is what happened in the past. The auction house serves as a sort of full-service broker offering advice and making a profit on the commission. While they had a day that broke records in this regard, the reputational damage of being this wrong in their respective market is a bitter pill to swallow. They are supposed to know exactly where the market is at and if they don’t, who is to trust them? Asking them to put a price on anything is like rolling the dice. So how does the next expert price a similar vase from the Republic period? It’s not a job any market economist would want. All he knows is that some of them sell for €2,000 and some of them sell for €9m.
Pricing in subjectivity
The value we place on art is highly subjective, while the markets teach us that we should shoot for objectivity. Tell that to the auction bidders or indeed, the lady who has just learned her vase has sold for 4,000 times the asking price. And yet these factors must remain the same no matter what is being sold.
The market is made up of people, and our personalities, our emotional traits and character flaws inherently dictate our actions
But we mustn’t forget that the market is made up of people, and our personalities, our emotional traits and character flaws inherently dictate our actions. When we understand this, we understand that a candlestick chart doesn’t simply record price movement over time; it also charts us over time. We don’t need to look very hard for concrete examples of this.
During the 2020 run on gold, we see fearful investors rushing towards what is regarded as a safe haven, as a second wave of coronavirus bore ominously down upon the world. Russia’s invasion of Ukraine in February 2022 prompted a spike in oil and gas prices, just as the pandemic two years ago had seen oil demand collapse as lockdowns brought the world to a standstill.
Following the recent mini-budget announced in the UK, the pound fell to a record low against the dollar, the FTSE 100 fell over 200 points, and food price inflation surged along with UK government bonds. We use phrases such as ‘the market was spooked’ or ‘market elation’ to explain why the markets move, which is as psychologically interesting as using bears and bulls to describe markets that are falling or rising, respectively.
In the financial markets there are three types of analysis. Technical and fundamental are pretty cut and dry, but it’s sentiment where I think most of us struggle, because how do we accurately discern how a group of people are feeling at any given moment? It falls back on gut instinct and what is that? An opinion we’ve formed over time. Call it experience. And it’s tricky, because by grossly misreading market sentiment, traders of all stripes can be wiped out.
The conscious element involved not just in a single trade but also in all the human links that make up the market cannot be underestimated. We rarely stop to consider exactly how one feels about gold, or oil, or the macroeconomic effects that a very real crisis might have on either. If we can accurately guess even in basic terms the motivating factors, then we can trade and invest with some degree of confidence.
As the auction house expert discovered, you underestimate the market forces at your own peril. Wrapped up in that small ornamental vase is hundreds of years of culture, it has become an emblem, representative of something far greater, it is meaning that cannot be put into words, something that renders price almost irrelevant. And the markets can seem a little like this sometimes, boundless and immeasurable, but something that is ultimately a reflection of us. So I suppose the only question left to ask is: what’s the vase worth to you?
When Concorde was taken out of service in 2003, it looked like the end for three-hour hops between London and New York. Deafening sonic booms, prohibitive prices and safety concerns – fuelled by the crash in France in July 2000 – spelt the end for this headline-dominating venture, leaving many to question whether supersonic aircraft would ever take off again. But recent endeavours by the likes of Boom Supersonic, Spike Aerospace, Exosonic and Hermeus are putting the possibility of supersonic back in the spotlight – and several major airlines are getting in on the game.
In August, American Airlines announced it had placed a pre-order for 20 Overture jets from Boom, with an option to buy 40 more. Last year, United Airlines pledged to buy 15 of them, and in 2017, Japan Airlines put in a pre-order for another 20 with an initial investment of $10m.
Boom says the jets, expected to be produced in 2025 and flying by 2029, would have capacity for 80 passengers across more than 600 routes, cutting journey times to as little as half of their subsonic equivalents.
It’s not only private companies getting involved; through its Quesst programme, NASA is working on the X-59, a supersonic aircraft designed to make the notorious ‘boom’ quieter in order to avoid the pitfalls of Concorde (which was only allowed to reach supersonic speeds over the ocean).
The jet is due to fly over a handful of residential communities in the US in 2024 in order to gauge on the ground response to the sound; data will then be presented to the International Civil Aviation Organisation in a bid to get noise regulations changed. If it’s successful, that could mean opening up hundreds of new airline routes to supersonic flight.
The supersonic supporters
Those on the side of supersonic believe it could transform the way we travel in a matter of years. Boom says it could get passengers from New York to London in 3.5 hours, Tokyo to Seattle in 4.5 hours and Miami to London in less than five. Spike – which is developing an 18-passenger corporate jet that could be ready by 2028 – is said to be working on upping the speed even further, with the aim of whisking travellers between London and New York in as little as 90 minutes.
They’re also promising sustainability; Spike is aiming for net zero carbon by 2040, while Boom is targeting net zero by 2025 and claims Overture will “run on 100 percent sustainable aviation fuel, making it the first new commercial airplane capable of using 100 percent SAF.”
Both companies are also working on lowering the boom through various technologies; Boom says its jets will feature noise-reducing features including “engine updates – without afterburners – and an automated noise reduction system” to ensure take-off is no louder than subsonic planes, while Exosonic – which is working on a 70-passenger aircraft with VIP suites – claims its sound will be quieter than that of everyday traffic.
Perhaps most crucially, Boom says its prices will be relatively affordable. “Concorde was plagued with high operating costs, leading to cost-prohibitive fares and trouble filling the plane,” said a spokesperson for Boom. “We are working to make Overture profitable for airlines to fly at fares comparable to today’s business class fares, opening up supersonic travel to a much larger pool of passengers.”
Battling the headwinds
But while the proponents are painting a rosy picture, not everyone is so convinced. Among the sceptics is Bruce McClelland, Senior Consulting Analyst at Teal Group. “The problems are both economic and political,” he says. “The faster an aeroplane flies – especially supersonically – it encounters an exponential increase in drag. That requires a lot more engine thrust, which requires a lot more fuel. Concorde needed as much as eight times more fuel to move one passenger from New York to London compared to a Boeing 747, so that’s expensive.”
“There’s also the cost of developing, building and testing a plane,” McClelland says. “Development of modern jetliners runs into the multiple billions of dollars. I don’t see there being sufficient demand for a large production run, so it’s going to have to be priced pretty high. Given the physical limits, I don’t see a way to overcome this.” Prohibitively high costs were among the reasons both the US and Soviet Union developed but then abandoned their quest for supersonic flight. The only successful endeavour was Concorde, and that was funded by the British and French governments.
“Boeing was developing its own supersonic aircraft back in the 1960s, and it dropped out when it saw that the US government wasn’t going to support it,” says Kevin Michaels, Managing Director of AeroDynamic Advisory. “There are only two airlines that used Concorde – BA and Air France – and it never made money for the manufacturers that produced it,” he says. “If the manufacturer can’t make money producing it, then it’s not going to be a viable market in the long run. The economics of being part of an airline are what ends up killing you, and that was one of the biggest lessons from Concorde.”
There’s also a very large question mark over who would produce the engine. In September, Rolls-Royce announced it was pulling out of its partnership with Boom, declaring in a statement that the commercial aviation supersonic market was “not currently a priority.”
General Electric, Safran and Honeywell Aerospace have since all stated they wouldn’t be producing the engine. “That left only Pratt & Whitney, and they said it’s not core to them and their brand and they’re focusing on other projects,” says Michaels. “Engines take years and years and years of development, and a brand new one costs billions of dollars. These five companies are the only companies that have a remote chance of pulling this off technologically – so as it stands, Boom doesn’t have an engine.”
Eco-issues
Even if Boom does find an engine, there are likely to be further headwinds. Whether the issue of the sonic noise can be overcome remains to be seen – and NASA’s project likely wouldn’t be ready in time for Boom’s supposed take-off in 2029.
Current supersonic jets are limited on the distances they can fly without needing to refuel
There’s also the issue of consumer demand. Current supersonic jets are limited on the distances they can fly without needing to refuel, writing off flights across the Pacific that might have gotten consumer uptake. And, perhaps most crucially right now, many have questioned the sustainability claims – including how viable using 100 percent sustainable aviation fuel will be when stocks are still limited. “The claim that Boom’s flights will be offset by using only sustainable aviation fuel strikes me as stretching credibility,” says McClelland. “The only way that works is if the producer of a supersonic aircraft has its own source for SAF. Otherwise, operators will be forced to queue up with everyone else and take whatever they can get their hands on, most of which will probably be plain jet fuel. SAF right now is more expensive than regular jet fuel, so it just adds to the operating costs. Right now, known SAF production represents only a small fraction of a percent of the total worldwide demand for jet fuel, and the most optimistic scenario I’ve seen is that this might ramp up to 30 percent by 2050.”
At a time when consumers are becoming ever-more conscious of their environmental footprint, it’s not hard to imagine the backlash against the likes of United and American Airlines if they direct their limited SAF supply into supersonic flight – especially if, like Concorde, the jets end up consuming several times more fuel per passenger than a standard aircraft.
Lessons from Aerion
These difficulties are all too familiar for Aerion Supersonic – the business jet giant that collapsed last year. Founded in 2004 by a group of industry experts, the company was developing a $120m supersonic aircraft initially due to fly in 2029 – and it was widely considered the most viable option in the supersonic world. But it never succeeded in building an aircraft and ended up filing for bankruptcy after 17 years of trying, citing “difficulties in raising capital to achieve the next steps in the manufacture and regulatory approval of the company’s supersonic aircraft.”
“Aerion was very highly thought of in the industry,” says Michaels. “It was aimed at business aviation and charter companies rather than commercial flight, so there was a much smaller capacity. It had a really interesting design, they were extremely well-funded, and they had some of the big OEM manufacturers on board. Then one day last year, they announced chapter 11 bankruptcy, and it was over. There’s only been one successful entrant into the jetliner business globally, and that’s Embraer in Brazil,” Michaels says. “Everyone else has failed – it has the biggest entry barriers imaginable. Like nuclear reactor type entry barriers, and it’s incredibly tough. Combine that with the fact you have to overcome the other limiters for supersonic flight – the boom, the environment and the concern about carbon emissions – and these are just enormous headwinds.”
Future possibilities
None of this is to say it’s the end for supersonic altogether, of course. But the obstacles suggest that if it does ever take off again, we’re more likely to see success in the business aviation market rather than with large-scale commercial planes.
That’s at least the opinion of Michaels. “Demand for supersonic travel is there, but it’s very niche,” he says. “It doesn’t lend itself to commercial airlines. It lends itself to lower capacities, and ultra-high-net-worth individuals. So is it something that’s going to revolutionise the airline industry as we know it? I don’t think so.”
Of course, if NASA’s project is successful, sustainable aviation fuel becomes more readily available, operational costs can somehow be lowered and supersonic jets can cover longer distances, there’s still hope that we could one day be whizzing around the world in a few hours, and semi-sustainably too. But getting there by 2029 seems like more of a marketing stunt for the likes of United and American Airlines than anything else – and, sadly, we might have to wait a little longer before we’re hopping over to Australia in half a day.
During the summer-long Conservative leadership election, many in the City were surprised to hear the successful candidate, the now replaced Liz Truss, talk about the need to reform Solvency II, the decade-old rules inherited from the European Union governing the matching of liabilities and investments of insurance companies. For the then Prime Minister these were symptomatic of the restrictive EU rules that are holding back the UK economy.
This view is shared widely across the sector, with the Association of British Insurers estimating that up to £95bn could be liberated from insurers’ funds to invest in infrastructure and the green recovery if the Solvency II rules are relaxed, especially giving more credit for less liquid long-term assets when matching assets with liabilities. The potential reforms go much further than just a re-jig of the solvency rules for insurers – it is a topic of heated debate in the EU too, where industry and regulators are at loggerheads over similar proposals to relax the current regime.
The role of financial regulators in the UK is also under intense scrutiny. The financial services sector has been pressing for several years for regulators – the Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority – to be given a duty to promote the competitiveness of the sector. This means many different things depending on who you speak to. Most see it as a need to promote the sector against foreign competition, others as a duty to ensure competition within the market, especially by encouraging innovation in areas such as cryptocurrencies. These pleas were already finding a sympathetic ear in government before the abrupt departure of Boris Johnson.
Regulatory reform
The Financial Services and Markets Bill – a wide-ranging package of reforms – published in July contained a commitment to make promoting competitiveness a secondary objective of UK regulators, behind their primary objectives of financial stability and consumer protection. The Chancellor of the Exchequer at the time, Nadhim Zahawi, told a high-level City audience at the traditional Mansion House banquet that this was the right approach.
“We will give the FCA and PRA a new, secondary objective: to facilitate growth and competitiveness. I know that some people will say that making this a secondary objective, doesn’t go far enough. Others will say that having it as an objective at all, goes too far,” Zahawi said.
He argued that this “balanced approach” was the best solution. “But, by making it secondary, we’re giving the regulators an unambiguous hierarchy of objective with financial stability and consumer protection, prioritised,” he continued.
UK Finance, which represents a large part of the banking and finance sector, backed his approach: “We strongly welcome the new secondary objective for competitiveness and growth that the Bill assigns to the FCA and the Prudential Regulation Authority. This will demonstrate that the UK is open for business and will give firms the confidence to invest for the future. A thriving, internationally competitive financial services sector provides hundreds of thousands of high-quality, well-paid jobs, lends to help businesses grow and contributes tax revenue for the public services on which we all rely.”
However, some in the City are now hoping the government will go further and believe the new Chancellor, currently Jeremy Hunt after Kwasi Kwarteng’s brief stint, can be persuaded to make this a primary objective of the regulators. The promise in Kwarteng’s UK growth plan that “the government will bring forward an ambitious deregulatory package to unleash the potential of the UK FS Sector,” has encouraged this view. This was not dampened when the sector lobbied the new Treasury ministers at the recent Conservative Party conference, according to Graeme Trudgill, executive director of the British Insurance Brokers’ Association.
Ministers “appeared to accept our point that the new growth and competitiveness objective on the regulator needs to have more teeth and would be better suited as a ‘primary’ or ‘operational’ objective, not a ‘secondary’ one, which makes it effectively tertiary to their operations,” says Trudgill.
With the new Chancellor still supporting most of the headline supply side reforms, such as the low regulation enterprise zones, the sector is optimistic that the competitiveness objective will remain, although it is still seeking clarity on how the balance will be struck between promoting domestic and international competitiveness.
Separating bank and state
This will not be the only contentious issue the new Bill will raise. There has already been debate around the extent to which regulators can be held accountable to the government. This started with some sabre-rattling about limiting the Bank of England’s independence. While this threat seems to have slipped away, the extent to which the activities of the two main regulators – the PRA and FCA – should be subject to government scrutiny has not.
In the run-up to the publication of the Financial Services & Markets Bill, there was speculation that it would include powers for the Treasury to ‘call in’ decisions of the regulators that it wanted to review. In the end, it was left out but it is by no means clear that this debate is over, as Hunt may be tempted to grant such powers if he feels regulators are not fully on board with his agenda.
This would re-open the debate about the bank’s independence as the key regulators all operate under its remit, warns Professor Sarah Hall from the University of Nottingham: “There is a risk that should ministers be permitted to call in regulatory decisions made by the Bank of England, the position of the bank as an arm’s length regulator would be undermined.
This move risks re-politicising regulation which, in turn, could undermine the attractiveness of the UK as a location for financial services.” There has been talk of even wider changes. During her leadership campaign, Truss floated the idea of sweeping up Prudential Regulation Authority, the Financial Conduct Authority and the Payment Systems Regulator into a single new mega-regulator. Nothing has been said yet to discourage speculation that this is a serious proposition.
What goes around
We have been here before. Not once, but many times as it seems the life span of a financial services regulator nowadays is little more than a decade. The current arrangement with the PRA and FCA as the two lead regulators was only implemented in 2013 after the global financial crisis and the decision to break up the Financial Services Authority – a single regulator. The FSA itself was created in 1997 when the new Labour government decided to reform the fragmented system it inherited. Before that there was the Securities & Investments Board, the Personal Investment Authority and a plethora of other regulatory bodies.
Those who have seen many of these changes from the inside caution against creating another mega-regulator. Mick McAteer, co-director of the Financial Inclusion Centre and a former non-executive director of the FSA, who sat on the committee that oversaw the transition to the current regime, says it would be a retrograde step. “The break-up made sense. It was an impossible task for the FSA to cover everything. It really did make sense to split it up,” McAteer said. He warns that throwing those reforms into reverse now would have “a destabilising effect that would be considerable.”
The EU on bonfire watch
Brexit is one of the key drivers behind the broader supply side reforms, with the government promising a ‘bonfire’ of unwanted EU regulations. This has not gone unnoticed in the European Union. Pan-European regulator The European Insurance and Occupational Pensions Authority (EIOPA) moved with unusual speed and, at the end of July when the Bill was published, issued a consultation paper of its own on the use of governance arrangements in third countries, which is the status the UK now enjoys in relation to the EU.
There has already been debate around the extent to which regulators can be held accountable to the government
EIOPA says it is seeking views on “how to enhance the supervision and monitoring of insurance undertakings’ and intermediaries’ compliance with relevant EU legislation concerning governance arrangements in third countries.” Brexit is top of the list of the reasons why it has launched this consultation, which runs until the end of October: “These issues were initially identified in the context of the discussion on the risks arising from the UK withdrawal from the EU”, says the consultative paper.
And it does not mince its words when it highlights the potential risks it sees if third countries drift too far out of alignment with EU regulations: “These governance arrangements may impair risk management and effective decision making, and have the potential to pose financial, operational and reputational risk and ultimately impair policyholder protection.” What is not clear from the consultative paper is the potential responses EIOPA might adopt if it feels any third country steps too far away from its requirements and whether this could extend beyond the insurance and pensions markets it regulates.
A chance for change
The government will also have to win over the regulators themselves as Sam Woods, Deputy Governor for Prudential Regulation and CEO of the PRA made clear at a recent Bank of England webinar. “Brexit gives us an opportunity to rewrite the insurance regulations we inherited from the EU – and in doing so help drive further investment in the economy. But we need to be clear that this is not a free lunch. If changes simply loosen regulations which were over-cooked by the EU, without tackling other areas where regulations are too weak, then we are putting policyholders at risk”, said Woods.
He made it very clear that the PRA was in no mood to take risks with regulation just to satisfy the impatience of pro-Brexit ministers. “Following Brexit we have a once-in-a-generation opportunity to re-shape insurance regulation to work better for the UK. We can do this while loosening parts of the regime which were over-calibrated by the EU and making it easier for insurers to invest in a wider range of assets, but we also need to strengthen it … in order to avoid risks to the millions of current and future pensioners who rely on insurers for their retirement income. The combined effect of these changes should support the government’s objectives for competitiveness, growth and investment in the economy.”
The turmoil on the financial markets following Kwarteng’s ill-fated September 23 mini-budget, which forced the Bank of England to step in to stabilise bond markets because of the threat to pension funds, will reinforce the Bank’s determination not to be forced into what it sees as risky regulatory changes.
Reform is in the air but it is by no means clear how it will conclude.
Despite postal services being essential for bridging the gaps between individuals, organisations, and governments around the world, the sector is currently facing its biggest obstacles yet: climate change and digital disruption. The sector, which possesses all the qualifications needed to tackle these challenges, needs to innovate, and become more sustainable to ensure it continues to compete and boost the world economy. The pandemic, the geopolitical instability caused by the war between Russia and Ukraine and soaring energy prices are causing companies to re-evaluate their existing corporate strategies and adopt more innovative, sustainable, and resilient business models.
To address the current crises and anticipate future ones, at Poste Italiane, we believe the postal sector needs a ‘green transition,’ where it implements strategies that emphasise digitalisation and follow a ‘platform’ model. This could involve a move towards a more inclusive business, where companies provide services and products capable of responding to the needs and interests of citizens everywhere. It is imperative to the success of this approach that companies combine their business plans with ambitious ESG goals. Both will add value and produce positive economic, environmental, and socially beneficial outcomes.
The green transition
As part of the journey towards the green transition, we need to integrate environmental concerns into company strategy and set clear objectives. The postal service relies heavily on shipping, which is carbon intensive. Around 940 million tonnes of CO2 are emitted by shipping each year, which accounts for approximately three percent of global greenhouse gas (GHG) emissions. Without intervention, the European Commission predicts that within a few decades, shipping might account for 10–13 percent of world emissions.
In addition, according to the World Economic Forum, the energy shift in the shipping sector has created an investment opportunity of $1trn–$1.4trn. In this regard, in line with the Paris Agreement, the recent 2021 Glasgow Climate Pact, and the European Green Deal, Poste Italiane has published an ambitious roadmap, aiming to achieve a 30 percent reduction in total CO2 emissions by 2025 and carbon neutrality by 2030.
A responsible and resilient model
There are numerous responsible and resilient initiatives that the postal sector can adopt to minimise their environmental impact and energy consumption. Companies should commit to a corporate fleet renewal plan, a path that envisions the complete replacement of the entire vehicle fleet with next-generation electric, hybrid and endothermic low-emission models. Poste Italiane, for example, aims to replace the entire corporate fleet with 27,800 next-generation green vehicles with reduced environmental impact, achieving a 40 percent reduction in emissions.
Green initiatives don’t need to be drastic to make a significant difference. An open goal for reducing emissions would be to ensure that the electricity powering company real estate comes from 100 percent renewable sources. Poste Italiane is coordinating more than 90 energy efficiency projects across Italy, including the use of photovoltaic panels on its own buildings throughout the country, which will not only have a noticeable impact on our carbon emissions, but reduce our long-term business expenses through a cheaper, sustainable energy supply.
One thing is certain: the postal sector is being positively disrupted by technological innovation, which is driving major growth in the market. Postal services need to accelerate the digitalisation of their products in order to remain competitive in an increasingly crowded market. With a history going back more than 150 years, Poste Italiane deftly brings traditional postal services to the cutting edge of digitalisation, through innovation and partnerships in the financial and insurance services as well as mobile communications.
According to the International Post Corporation (IPC), over 50 percent of users are willing to accept slower deliveries for less polluting alternatives, as consumers become increasingly aware of the environmental impact of delivery. According to the Green Postal Day, in response to the growing consumer demand for solutions with a low environmental impact, post offices are collectively aiming for a minimum of 50 percent of their fleet to be powered by alternative fuel vehicles (compared to 22 percent in 2020). In addition, post offices have reduced their yearly carbon emissions by over 30 percent as well as their electricity use by 30 percent
