The modern Islamic finance industry is young but evolving rapidly, serving a growing population of Muslims as well as non-Muslims. According to the Global Islamic Finance Markets Report 2019, the industry’s total worth, in conjunction with key industry stakeholder organisations across its three main sectors (banking, capital markets and takaful), was estimated to be $2.05trn in 2017, marking an 8.3 percent growth in assets in USD terms.
Shariah stipulation is a prime driver of digitalisation and ICS Financial Systems (ICSFS) is one of the first providers of Islamic banking software applications in the industry, with a customer-first approach and streamlined services of its epic best-of-breed technologies. World Finance spoke with the company’s managing director Robert Hazboun to learn about the challenges of digitalising Islamic banks.
How has the pandemic hastened digital changes for the bank?
The pandemic has forced the Islamic banking industry to quickly grow its market ecosystem by embracing new digital trends. We saw Islamic banks taking the lead in adopting digital transformation, and I believe we will see a significant increase in the adoption of Islamic Shariah-compliant products by many conventional banks, and even countries. The pandemic has also accelerated the creation of Islamic fintechs, which are embracing digital tools in every step of the customer journey, from onboarding to digital lending and automatic payments.
What do you consider the key essentials for the Islamic bank of the future?
It must create innovative product strategies to meet customer expectations and trends, by studying and analysing behaviour. Consumer behaviour is constantly changing – millennials are referred to as tech-savvy and now Generation Z is the tech-native generation.
The Islamic bank of the future must embrace dynamic product building with business intelligence (BI), artificial intelligence (AI), robotics and vast touchpoints coverage with omnichannel experience. It is also essential to embrace fintech’s agility to take advantage of the opportunities that its innovations are bringing to the market. Islamic banks need business technology partners that provide financial inclusion, full coverage of Islamic finance, open banking, cloud availability and, most importantly, RegTech solutions.
What are the biggest challenges you and your customers face in becoming an effective digital presence?
Islamic banking is an interest-free investment house rather than the interest-based money lending institute model of conventional banking, which would lead to sharing profit and risk. This can cause a number of challenges.
There are major Islamic finance Shariah standards such as AAOIFI and IFSB.
Also, various intellectuals look at Islamic financing differently, with each country, region and even bank having its own Shariah board to set rules and regulations. Having an interconnected Islamic finance ecosystem that covers all lines of business is therefore essential. Islamic finance is based on a trade contract, and contract control is a major undertaking. Precise paperwork is a must for contracts and handling them is a difficult issue.
The pandemic has forced the Islamic banking industry to quickly grow its market ecosystem by embracing new digital trends
Another challenge is that there is no single methodology used for product development. Additionally, Shariah regulations obligate the bank to have constant interactions with the customer, so maintaining focus on the customer is difficult.
One of the major challenges that ICSFS has seen as an Islamic banking software provider is that many Islamic banks have embarked on product-led digital solutions rather than taking a holistic approach. Another is that since Islamic banking products must be Shariah-compliant, the processing cycle takes a long time because more manual processes are needed.
Also, there is no standardisation or harmonisation of documentation, which increases the cost of transactions compared to conventional peers. All banks face challenges. We must all apply operational risk management, and have solid cyber security and business continuity strategies to be able to expand our digital offerings.
How does your ICS BANKS Islamic banking software suite provide the key essentials for a true Islamic bank and what benefits does it bring to clients?
ICSFS is one of the first providers of Islamic banking software applications in the industry, with a customer-first approach and streamlined services for its best-of-breed technologies. ICSFS launched its ICS BANKS Islamic banking software almost 20 years ago, based on Shariah law and with the aim of covering the full Islamic finance ecosystem cycle.
The suite is designed to cover all Islamic banking requirements and cater to each bank’s Shariah regulations, with agility one of its core virtues. It provides Islamic banking essentials such as a strong, flexible, fast and reliable industry-approved profit distribution engine.
It also provides full Shariah-compliance, covering the various intellectual Islamic views in different regions. It utilises business process management (BPM) and a document management system (DMS) to help automate processes and save time. Additionally, it offers extensive customer engagement through omnichannel touchpoints and open APIs to connect to the outside world and support fintech activities.
Explain how your software works with cloud banking and what are the benefits.
The software’s unique features allow any bank to compete in the market, and can be deployed either in a fully-fledged Islamic bank, or as an Islamic window for a conventional bank.
A DMS enables a fast-accurate flow of documents. The software is built based on AAOIFI and IFSB standards, with the capability of accommodating various intellectual standards and local Shariah regulations. Constant interaction with the customer is made during processes via various omnichannel touchpoints.
Geographical and transaction limits are fading away because of robotics, AI and digital coverage, while the online reporting and inquiries tools such as business intelligence (BI) and management information system (MIS) and cloud reduce infrastructure costs.
Digital touchpoints include open banking, open API architecture and a holistic cloud platform for real financial inclusion. It profiles customer engagement offering unified solutions with smooth processes across business lines for increased customer satisfaction and loyalty.
We offer high security and scalability. Our dynamic product building offers RegTech solutions and adopts an agile approach to drive productivity and efficiency, stop revenue leakage and increase profitability. Combined, this offers a lower total cost of ownership (TCO) and time to market. Our Islamic banking software is fully integrated and provides open products with international standards, real-time business processing and the value-added capabilities of tailoring products, on-premises or on the cloud. It future-proofs banking activities by providing a broad range of seamless and flexible features.
Are there advantages to being more digital in this time of myriad regulations?
The regulation is a critical challenge in having a digital presence. Shariah-compliant products have a long processing cycle. An automated process tightens the cycle while keeping operational costs at a minimum and maximising revenue and growth. Our software adds a competitive edge. Banks can rely on banking and financial technology providers to refine their Islamic products to suit their clients’ needs while addressing regulations and remain Shariah-compliant.
Looking into the future, innovation of processes and modernisation of the delivery of products that are Shariah-compliant are key.
ICSFS has always been one of the leading companies in providing award-winning banking and financial services and best-of-breed products. It is recognised on a global level for its devotion to excellence and customer satisfaction. ICS BANKS Islamic is no exception to this rule. The software was built brick-by-brick on delivering real value to customers and is designed to be hassle-free with customer satisfaction at the top of the agenda. From trouble-free implementation, through support for its wide range of functionalities and features, to peace of mind on free upgrades, it keeps customers’ operational costs at a minimum, while maximising revenue and growth.
Garanti BBVA is an integrated financial services group operating in every segment of the banking sector, including corporate, commercial, SME, payment systems, retail, private and investment banking. It also has local subsidiaries in pension and life insurance, leasing, factoring, brokerage and asset management, and international subsidiaries in Cyprus, Malta, Netherlands, Germany, Switzerland and Romania.
As of March 31, 2021, Garanti BBVA provides a wide range of financial services to over 19 million customers. It has 18,615 employees through a network of 885 domestic branches, seven foreign branches in Cyprus, one in Malta, and two international representative offices in Düsseldorf and Shanghai. It offers a seamless omnichannel experience with 5,296 ATMs, an award-winning call centre, internet, mobile and social banking platforms, all built on a cutting-edge technological infrastructure. Managing the largest digital customer base among the private banks in Turkey, Garanti BBVA Digital Banking enables 9.8 million digitally active customers to execute any banking transaction anytime, anywhere.
Garanti BBVA’s business model is driven by strategic priorities focused on responsible and sustainable development, customer experience, employee happiness, digitalisation, optimal capital utilisation and efficiency. Custom-tailored solutions and a wide variety of products have played a key role in its huge success. World Finance spoke with Mahmut Akten, Executive Vice President of Retail Banking at Garanti BBVA, about its continuing quest to improve for both its customers and employees.
What work have you done on your company corporate profile?
At Garanti BBVA, we always focus on our customers and work in order to meet their needs and expectations at the highest level, and provide them with a flawless experience, with our qualified employees plus a healthy and strong technological infrastructure.
In banking that has evolved into digital; we adopt an approach that adds value to our customers with our products and services, and that ensures our digital channels are human-oriented and user-friendly. In this context, the concept of financial health is a new strategy for us. We believe that a healthy life includes being financially healthy. Our experienced employees and strong technological infrastructure help us to meet our customers’ needs and expectations at the highest level.
We want to create sustainable value for society and the national economy. Financial health is among our most important strategic priorities – we want to be ‘the bank that always cares about its customers and gives them financial advice.’ We define the concept of ‘boşluk gerekiyor financial health’ as being able to manage the monthly budget, be prepared for unexpected expenses, make the more enjoyable purchases of life with peace of mind, and take advantage of opportunities for the future of your dreams.
Tell us about your company values and how you maintain them throughout the business
Our values lie at the heart of our employee-centric approach. Our ‘customer comes first’ value identifies empathising with the customer as the top priority for employees. It also describes the need to disclose all necessary information when responding to customer needs – within the frame of responsible business practice – and calls for a result-oriented approach.
Innovation is embedded in our culture. Employees inspire each other and their teams. When serving customers, employees go above and beyond meeting their needs and offer solutions that amaze our clients – ‘we think big.’ Our work culture encompasses employee collaboration, the importance of commitment to work, and the sense of responsibility that needs to exist in order for us to achieve a common purpose because our mantra is that ‘we are one team.’
How are you planning to reach more customers?
We are focused on offering a better experience on our digital channels and have a strict omni-channel strategy: to reach users at the right time with the right message. We emphasise creating an unrivalled user experience through thorough analysis of data and regular usability surveys. We are conscious that ‘people’ should be at the centre of every service or design.
We also listen to the needs of our customers using ‘Garanti BBVA’ya Sor’ (Ask Garanti BBVA) – the first 24/7 social media customer satisfaction channel in the Turkish banking sector. While about 9.8 million of our customers use mobile banking, seven million are mobile-only. Approximately 580 million transactions are performed through internet and mobile banking channels annually.
In fact, 97 percent of all non-cash financial transactions go through digital channels at Garanti BBVA. The number of monthly logins to Garanti BBVA Mobile also increases regularly – we reached two billion logins in 2020. With the enactment of the open banking law in our country this year, digital banking and payment services are being reshaped and developed.
With Garanti BBVA Mobile, onboarding starts and ends at Garanti BBVA Mobile. With end-to-end digitalisation of the onboarding process, the use of this channel is being expanded through business partnerships. For instance, with ‘quick loan,’ after filling in the ‘how much can I borrow?’ form, non-customers are referred to the digital onboarding process.
Tell us about your sustainability goals and how they are progressing
We strive to reduce Garanti BBVA’s carbon emissions and be environmentally friendly in our non-in-house actions. To illustrate, we met the electricity needs of approximately 73 million kWh (which corresponds to the consumption of approximately 30,000 houses in our 46 buildings and 809 branches) from renewable energy.
This prevented 34,790 tons of CO2 equivalent carbon emission, which corresponds to the amount of greenhouse gas that can be reduced by 2.2 million trees. Our ‘GoGreen’ project encourages customers to increase their contribution to sustainability. We will continue to motivate our customers to adopt more sustainable business models with innovative products and services.
We have a target of providing a minimum of TL2.5bn (€244m) to finance sustainable development and fight climate change in 2021, with a commitment to allocating a minimum funding of TL14bn (€1.3bn) in this field by 2025.
Has remote working within your company affected processes – and has remote working for customers made a difference?
During the pandemic, digital channels went beyond being an alternative and came to the fore as the sole banking method. The entire sector discerned that fully digitalised banking enabling 100 percent remote execution of processes – a concept long owned by Garanti BBVA – was not the vision of a remote future but a necessity of today’s world.
We were able to make the transition in operations seamlessly, thanks to our strong technological infrastructure. To ensure the safety of our employees, we provided the equipment necessary for working from home, and more than 1,000 call centre agents began offering services from home within just 10 days. At present, 92 percent of head office employees, 60 percent of branches and the entire body of call centre employees are working remotely.
Customer habits was another area affected by the pandemic. The most fundamental change for the banking sector was the increased use of alternative channels and the surge in number of digital customers. March 2020 marked the highest increase in the number of digital customers. The ratio of transactions realised at branches went down from between five to six percent to between two to three percent. In the future, we might see in-branch services being restructured and digital channels beginning to furnish advisory services designed to improve customers’ financial health, rather than operational services.
Any changes in your banking during the pandemic and for the ‘new normal’?
We saw our relationship with our customers acquire a new dimension. Customers no longer regarded the bank as just a financial advisor but expected it to adopt the hygienic measures of a healthcare expert at the same time. We took action to prevent density in branches and we destroyed any credit cards that were to be collected in branches, then re-issued them to be delivered to home addresses.
During the pandemic, digital channels went beyond being an alternative and came to the fore as the sole banking method
Because of measures like these, 95 percent of the customers visiting branches between April and September commented that they were very satisfied with branch services and precautions. To guarantee service continuity, we took steps to enrich functionality on digital channels, and reached nearly 500 transaction sets on our mobile banking app. To encourage customers to perform their transactions digitally, we removed fees for digital money transfers, organised new campaigns, updated existing ones, and increased money transfer limits on digital channels.
We offered to defer and restructure the debts on our loan products and increased credit card payment limits to facilitate online spending for retail customers (see Fig 1). Also we have launched a credit card payment deferral offer for customers financially distressed because of the pandemic. Additional measures included three-month postponement and six-month instalment repayment plans for easy repayment of the total debt at the end of this period.
Solutions like these helped customers manage temporary payment difficulties, preserved their cash assets amid the uncertainty, postponed their card debts while allowing them to continue to use their cards, and prevented any downgrading of their credit scores. The number of annual contactless transactions tripled with contribution of payment with QR, mobile and GarantiPay. We increased the number of QR-enabled devices and established links with a number of e-commerce companies.
Any recent or planned innovations?
End-to-end digitalisation of the Garanti BBVA Mobile onboarding process launched in 2019. It is now fully enabled upon completion of the regulatory framework in May 2021. Application processes for products such as credit, credit cards, shopping loans and overdraft accounts to name a few, are all integrated. Furthermore, with the inclusion of salary customers, we are presenting individuals with the chance to complete the onboarding process at any time, from anywhere. This new step will mitigate the workload on branches and will also open channels for new customer acquisition. Garanti BBVA Mobile onboarding will set us apart from our competition upon expansion with business partnerships.
Considering that we deliver almost every product to the customer through digital channels, the only basic transaction customers could not perform in the digital environment was the experience of becoming an account holder. With this arrangement, bank customers are now able to open an account in a maximum of 10 minutes, and access the products they want, without going to the branch or signing sheets of paper. Customers want fast solutions for their needs. Financial institutions with a strong technological infrastructure will have an advantage in meeting and exceeding these expectations. Digitalisation will give us the opportunity to reach every household and gain customers in every corner of Turkey.
The last five years have been ones of intense transformation for the largest pension fund in Mexico. Establishing a sound and replicable investment process has been one of the main challenges for the team. Changing the team’s culture towards long-term investing, based on optimising diversification, has been the name of the game, and even though there are additional challenges in the future, positive results arise both from a quantitative and qualitative perspective.
As a fusion between Banorte Bank and the Mexican Social Security Institute (IMSS), Afore XXI-Banorte is Mexico’s largest pension provider and is rightly held to extremely high standards of responsible investing. This partnership resulted in strong governance that provides both robustness and business continuity.
This partnership provides a unique mix of social responsibility, focus on profitability and awareness of environmental, social and governance (ESG) issues, which are increasingly important both to corporations and individuals investing for their pension. The knowledge sharing has not only resulted in high profitability levels for the company, but also in levering high standards that have resulted in having the most extensive regulatory licences in the system, which brings to the table better options for building portfolios in a more diversified way and the flexibility to diligently manage risk and active exposure in the markets.
The social approach towards investing is embedded into the process and the culture within Afore XXI-Banorte. It is no longer enough to simply pursue high investment returns, and the firm is keenly aware of its corporate and social responsibility, so much so that it is the only pension fund in Mexico that complies as signatory to the UN Principles for Responsible Investment. This reflects the engagement that the firm has in creating investment decisions that help model a better society for their affiliates. In this fiduciary role, ESG issues are assumed to affect the performance of investment portfolios, while also recognising that applying these principles may better align investors with the broader objectives of society.
Creating awareness
Pioneering ESG requirements in Mexico’s local market wasn’t an easy task. The first years in creating awareness within the investment community created a necessity of changing how this was usually done and rethinking the local dynamics. The trend was clear, but the market engagement wasn’t that evident.
But the pandemic forced everyone to re-engage and accelerate the changes that were needed, and the results can be seen. On the last annual review, Afore XXI-Banorte sent an ESG questionnaire to more than 300 companies in its investment portfolio regarding covering a broad spectrum of concerns such as carbon emissions, gender equity policies, contribution to Mexican society (in terms of employment generation and social commitments), ethical practices, and independence of the board, among others. The response of the investment community was surprisingly positive, which reflects the speed at which the approach is changing.
Several risks arise from these fast-changing trends, the most relevant being ‘greenwashing.’ That is why the team’s awareness on identifying the use of capital resources and periodically monitoring progress is key to achieving the firm’s objectives.
Independent women
Another pleasingly circular way in which Afore XXI-Banorte is engaging with and assisting women to improve their financial future is through offering microloans. This stimulates small and local enterprise and increases independence, income, and education of women in their own communities, which brings attendant benefits to those around them. Afore XXI-Banorte, through its investments, has provided credit to more than 400,000 women in rural and urban communities in Mexico, and it did this via the mechanism of one of its investments in a CKD portfolio – development equity certificates that provide credit to individuals while also benefitting from the future success of the resulting enterprise.
Offered exclusively to women, these investments provided microcredit in different communities that do not have easy access to financing, as well as development tools applicable to different areas of their lives, such as financial education, training, and incentives for entrepreneurship, among others. The resulting information is then fed into the Retirement Funds Administrator (Afore)’s annual report and is considered part of its ESG alternative portfolio strategy.
Improving the system
In 2020, Mexico approved a relevant pension reform that helps to address many of the most urgent issues with the pensions system. That being, flexibilising the investment regime by establishing sophisticated glidepaths, reduction in management fees and more than doubling the contribution rate in the next four years. All of this will help address the most important challenge in achieving a higher replacement rate (the proportion of an individual’s pre-retirement income they continue to receive after retirement), and perhaps the greatest obstacle to this is informality in the workforce.
In 2020, Mexico approved a relevant pension reform that helps to address many of the most urgent issues with the pensions system
This is a factor that has deep historical and cultural roots in Mexico that may take many more years to address. Mexican workers come in and out of the formal workforce during their working lives, and this reduces the time they make contributions to their pension funds. A Mexican may spend 40–60 percent of their professional life in the informal market, which will not include a structure to save for pensions.
Mexican women are over-represented in this pattern, given that they tend to take on a greater proportion of domestic and child-rearing responsibilities, which could mean many years out of the formal workforce during their lives. Women in Mexico live to an average age of 79.2 years compared to 74 for men. This means that older women who may have spent decades of their lives away from the formal workforce and whose husbands may have done the same, earning instead through informal means, may find themselves struggling to make ends meet in their later years or worse, living in poverty.
Afore XXI-Banorte is hoping to shift this trend by making pension savings accessible to all and fostering a change in attitudes and in structures that allow for improved pension savings and replacement rates.
The pension reform is a step in the right direction that tries to address the most relevant problems of a pension system, but additional work must be done to achieve better results, and this addresses a more difficult and long-term task, financial education.
Saving for the future
Against the backdrop of saving for the future, financial literacy and communication can present an important opportunity for pension providers to educate and encourage low-earning Mexicans about the need to save for retirement simply and without significant impact on take-home wages. To this end, Afore XXI-Banorte has focused on developing communication strategies that allow it to connect with less financially educated clients by using simple and colloquial communication, ensuring that the information is understandable by anyone.
This has been achieved by simplifying the language of advertising and messaging for the product to increase familiarity, since understanding what an Afore is involves a certain degree of complexity.
Accessibility is key to this messaging, and different savings channels are offered so people can choose where they want to save according to their activities and position in life. From convenience stores and banks to the institution’s own website and mobile app, the aim is for people to build, saving little and often as part of their financial plan, making retirement part of their investment.
Afores have come a long way in recent years, but there is still more to achieve. By maintaining a focus on financial education and high service standards, Afore XXI-Banorte aims for people to enjoy a dignified retirement after all their productive years through a robust investment process that has sustainability as the highest priority to ensure a better future for everyone.
One of those looking at radically reimagining its role in a digital-first world is Nigeria’s Guaranty Trust Bank (GTBank), the country’s third-largest by assets, that under the visionary leadership of chief executive Segun Agbaje is preparing the bank for the next decade and beyond. While presiding over a major restructuring, Agbaje and the board are reconfiguring GTBank to be more nimble and responsive so that it can combat a fast-emerging wave of fintechs and payments specialists.
The bank is also investing heavily in sustainability in the broadest sense in Nigeria’s communities. And it is expanding a highly innovative model for supporting small businesses that holds great promise for the future. In one of the first initiatives following the restructuring, GTBank will launch its own in-house fintech rather than, as many banks do, forming partnerships with outside firms.
At the time of writing, the bank is in the final stages of completing its transition to a holding company structure, which would allow it to own and operate non-banking financial services businesses.
The logic behind the strategy of building a payment company from scratch is that the home-grown fintech will fend off upstart, fast-moving digital competitors before they make inroads into the bank’s main businesses, notably payments. “It’s like a ship competing with a speedboat,” explains Agbaje. “We want to make sure we don’t lose to fintechs, and if we must, it should be to our own fintech.”
Simultaneously, GTBank will rely more on digital channels for delivering efficient banking services. With 220 domestic branches and 44 e-branches, it already has a much smaller footprint than its rivals, some of whom have 700 branches. However, where the bank truly dominates is with its online and mobile banking platforms, which is a leader in cashless transactions in Nigeria. Overall, GTBank counts over 24 million retail customers and is one of the most profitable banks in Africa. The strategy is clear. “We are building an inexpensive channel for serving customers and growing our business,” says Agbaje.
Most banking experts would give GTBank full marks for building an agile fintech within its own walls rather than waiting to be attacked from outside. “We are right in the middle of the disruption cycle in finance at the moment,” explains Homa Siddiqui, global head of digital transformation and products lab at Credit Suisse, who was speaking at an international conference in May. “Incumbents are having to rethink business models and delivery models.”
Those views coincide with Agjabe’s. “After Covid, a lot of businesses in Nigeria will move online. The bricks and mortar business model will undergo change as people travel less and more business is conducted remotely,” he predicts. “That’s why we will focus on alternative channels for doing business.”
Playing a key role
Now in his 10th year as managing director and chief executive, Agbaje has made it a habit of being a step ahead in Nigeria’s banking sector in his long career. He is an alumnus of the Harvard Business School and holds a Bachelor of Science in accounting and a Master of business administration degree from the University of San Francisco. As he worked his way up the ranks at GTBank after joining in 1991, he developed a reputation for leading some of the most complex and largest transactions across the bank’s operations. These included structured and project finance as well as the raising of debt and equity capital for some of Nigeria’s biggest companies – across the oil and gas, energy, telecommunications, financial services and manufacturing sectors. Few bankers would have a deeper view of the country’s economy.
Along the way, he played a key role in the increasing sophistication of Nigeria’s banking sector, such as developing the interbank derivatives market. In one landmark deal, he helped put together GTBank’s $350m Eurobond offering in 2007 and, later that year, oversaw a global offering that culminated in the bank’s listing on the main market of the London Stock Exchange, the first sub-Saharan institution to make the big board. So, innovation is nothing new for GTBank’s chief executive, who is reshaping the institution in the middle of a pandemic. He is also leading the bank to invest heavily in the latest technologies through 2021 and beyond. “We are taking a deep dive into tech,” Agbaje explains. “For instance, more activities are being pushed into the cloud and legacy systems are being modernised.”
Although Agbaje acknowledges the risks in building new systems at a time when banking technology is undergoing rapid development, he believes it is better than dragging one’s feet. “The longer you wait, the higher the risk,” he says. Outside experts would approve of this attitude too. “Those four brick-and-mortar walls we were seeing are not so necessary anymore,” argues Siddiqui. “A lot of the underlying assumptions of what we thought was needed for service is being disrupted at a very accelerated pace.”
A good decade
The current restructuring follows a successful decade for Guaranty Trust under the present incumbent. Having quit its non-banking businesses in 2010 in response to reforms initiated by the Central Bank of Nigeria and concentrated efforts on growing the commercial banking activities, the institution has gone from strength to strength. Profit before tax has shot up from Naira 48.5bn ($117m) in 2010 to Naira 219.4bn ($532m) in 2020, clocking a compounded annual growth rate of 16.3 percent. Measured by post-tax return on equity, GTBank posted a ratio of nearly 27 percent in 2020, superior to rival institutions domestically and its peers elsewhere in Africa.
Fuelled by ample profits, GTBank continues to expand within Nigeria and in the wider African region.
We want to make sure we don’t lose to fintechs, and if we must, it should be to our own fintech
When the bank opened commercial operations in Tanzania in 2017, it gave the parent company a footprint in its 10th country, following steadily expanding subsidiaries in the Ivory Coast, Gambia, Ghana, Kenya, Liberia, Rwanda, Sierra Leone, Uganda and the UK, where the LSE-listed institution operates mainly as a conduit for international Nigerian businesses by providing letters of credit and other services that help smooth their path abroad.
The London Stock Exchange, where GTBank listed in 2007
After the pandemic
As the pandemic lifts and sub-Saharan Africa makes a fragile recovery from the economic devastation, GTBank and its subsidiaries will play a vital role in rescuing the region. As IMF economists reported in May, the region faces three immediate challenges because widespread vaccination remains out of reach for much of the population, with inevitable consequences.
“The bad news is that for sub-Saharan Africa near-term growth prospects are somewhat more subdued in a region whose development path has been set back by almost a decade,” the IMF argue. Employment fell by about 8.5 percent in 2020 because of COVID-19, 32 million people were thrown into poverty, and disruptions to education have jeopardised the prospects of an entire generation of schoolchildren.
The IMF’s think tank believes finance ministers face “an incredibly difficult balancing act.” While meeting increased spending needs, they must also contain a pronounced increase in public debt as well as finding more tax revenues. “How policy-makers navigate this trilemma will have a huge bearing on economic and social outcomes in coming years,” the economists conclude.
If this sounds pessimistic, rating agency Fitch is in broad agreement. In a report in May, it noted that while the recovery from the shock of the pandemic is underway, it is being slowed by the weak state of public finances and the slow pace of vaccination programmes. Also, some economies are heavily indebted: “median public debt in the region leapt to 68 percent of the gross domestic product in 2020, from 56 percent in 2019, and is likely to rise further to 75 percent in 2022,” Fitch advise.
Fortunately though for GTBank, Fitch believes Nigeria is managing the recovery better than most. “Nigeria’s B rating is supported by the large size of the economy, a low general government debt-to-GDP ratio, small foreign-currency indebtedness, and a comparatively developed financial system,” writes Fitch, also citing in the country’s favour an expected rise in oil prices. Against that though, in common with other rating agencies, Fitch believes the Naira is overvalued and is critical of the government of president Muhammadu Buhari, now in their sixth year in power, for “weaknesses in public finance management.”
Inflation is running at high levels, with consumer prices jumping by 15.7 percent year-on-year in December 2020, notes Fitch. Relatively speaking, the country’s banking sector has sailed through the pandemic.
As well as providing a lifeline to these businesspeople, GTBank has boosted its own assets
According to a variety of sources, most institutions have recovered from the initial shock and their profitability and capitalisation – essentially, their robustness – have held up while the inevitable deterioration in the quality of assets has been contained. And importantly, most banks have been able to shed the rating agencies’ negative outlook imposed on them when the pandemic first hit.
The Nigerian banking sector was hardly alone in being put on negative watch at that dangerous time.
At the end of 2020, nearly two-thirds of the world’s banks were in that position, a designation that reflects near-term risks as governments slowly withdraw the massive and unprecedented financial support that has propped up borrowers. In Africa, however, about half of bank ratings were put on negative watch, significantly less than the global average. Most of Nigeria’s banks have been given a ‘B’ rating, in part because the country’s sovereign rating sets the standard (no bank can be rated above that of the government).
Compared with most of its peers, GTBank scores well with the rating agencies. Currently, it boasts a ‘B+’ ranking from Fitch and a ‘B’ from Standard & Poor’s, both based on the strength of its domestic franchise, quality of assets and consistently robust record of earnings.
GTBank food and drink exhibition
Small oil
In the recovery from the pandemic, GTBank is pinning considerable hope on its initiatives with small businesses. Indeed, Agbaje sees them as a pathway to a different kind of future for Nigeria as the country inevitably comes to rely less on oil, currently the mainstay of the economy. As Standard & Poor’s notes, over 85 percent of goods exports and about half the country’s fiscal revenues are derived from oil revenues.
“Nigeria’s economy depends on oil but what happens when fossil fuels are no longer the principal source of power,” GTBank’s boss asks rhetorically. “We are obliged to keep an eye on the sustainability of the economy.”
Thus the fortunes of Nigeria’s banks have long been tied to that of the oil and gas industry. Roughly a quarter of the loan book lies with the oil sector, which was hit by low oil prices in early 2020 followed by production cuts.
Taking a broader view of corporate social responsibility, Agjabe foresees a more diversified economy as Nigeria navigates a long-term transition from a fossil fuel-based economy. “Our initiatives with SMEs are an important part of our views on sustainability,” he says. “We started by encouraging entrepreneurs from the fashion and food and drink sectors to come to us for support. They are the bedrock of the economy but they have been neglected, with limited access to funds.”
Building a strong business and making the world a better place are essential ingredients for long-term success
Now in its fifth year, the policy has proved an outstanding success. At GTBank’s annual gatherings for small businesses seeking support and guidance, attendance has soared from a few hundred to over 4,000. The bank’s fashion week has become a showcase for the industry.
Although most of these small businesspeople have no storefront or security, GTBank backs its loans against their cash flows. A boon to these entrepreneurs, the loans have enabled them to develop new opportunities. As well as providing a lifeline to these businesspeople, GTBank has boosted its own assets.
The experiment has proved so successful that GTBank will widen its support and invite entrepreneurs in technology and service industries such as delivery and distribution networks. “Covid taught us something, logistics is coming along strongly and GTBank can help build the sector in ways that are of considerable benefit to Nigeria,” says Agbaje. In the coming years, GTBank is being positioned to play an enriching role in Nigeria as it supports hundreds and perhaps thousands of entrepreneurs. “We are driven by a belief that building a strong business and making the world a better place are essential ingredients for long-term success,” explains the bank’s chief executive. In short, proudly African and international.
Alistithmar for Financial Securities and Brokerage Company (Alistithmar Capital) is a major player in the financial services industry. The company offers a wide range of products and services such as asset management, brokerage, and investment banking. Over the past couple of years, the company has achieved significant growth in AUM with a broadened product and services offering and has delivered superior performance.
Setting the benchmark
Alistithmar Capital’s public equity funds have significantly outperformed their respective benchmarks in 2020. This was a repeat of the stellar performance of these funds in 2019. This success was a result of leveraging the company’s research capabilities, fund managing experience, and dynamic investment philosophy. In fact, Alistithmar Capital’s public equity funds demonstrated superior performance against their respective benchmarks not only on an annual basis but also over longer time horizons. In the three-year and five-year categories these funds continued to produce significant excess returns (see Fig 1, 2 and 3).
The funds’ performances not only stood out against the respective benchmark but also against their respective peers. Alistithmar Capital’s flagship funds, SAIB Saudi equity fund and SAIB Saudi company fund, both ranked in the top quartile against their respective peers in 2020. Similarly, at the end of 2020 these funds also ranked in the top quartile in the three years and five years categories, respectively. This showcases the investment team’s adaptive decision-making and consistent selection abilities.
A boost in business
On the business size aspect, Alistithmar Capital experienced a significant growth in the value of the assets they manage. By the end of 2020 the company’s AUM increased to SAR 21bn ($6bn) from SAR 5bn ($1bn) at the end of 2017 (see Fig 4). Alistithmar Capital’s AUM increase in the reference period was up 298 percent and has notably outpaced the industry’s AUM increase of 56 percent during the same period.
Furthermore, the company’s ranking has improved from being ranked 13th by the end of 2017 to being ranked 7th by the end of 2020 in terms of AUM. This was also visible in Alistithmar Capital’s AUM share of total AUM where it has increased to 3.4 percent from 1.3 percent for the same period.
This increase in value and share reflects investors’ appreciation of the company’s superior performance and outstanding customer service.
Regarding the real estate division of the firm, Alistithmar Capital has successfully launched a series of private real estate funds, all of which offered its investors a unique opportunity to participate in prime real estate investments in Saudi Arabia. The latest real estate fund launched was Kaden Alistithmar fund with a size of SAR 2bn ($533m), which invested in high-quality income-generating real estate assets. The fund was fully subscribed before the end of the subscription period, reflecting investors’ confidence in the company.
The Saudi government launched the financial sector development programme in 2017 aiming to develop the financial sector. In relation to the asset management industry specifically, the programme set a number of goals such as increasing the value of managed assets, attracting foreign investors and increasing investment products, from which Alistithmar Capital was able to build a strategy to benefit, as displayed by a surge in AUM and product offering.
Outstanding service
In terms of the Alistithmar Capital brokerage unit, the company was able to successfully execute clients’ transactions of over SAR 70bn ($18.6bn) annually from the period 2017–20. In addition, the firm was able to maintain its leading position in a growing market. The Saudi equity market traded value registered a compound annual growth rate (CAGR) of around 36 percent during this period. Despite this remarkable increase in value traded, the firm sustained its ranking in the top 10 in each of the years for the period in question.
Furthermore, Alistithmar Capital increased its market share in the US against Saudi competitors, resulting in constant growth due to the firm’s superior execution capabilities and customer service.
It is important to acknowledge the changes taking place in the brokerage industry. The Saudi market hit an important milestone when it was included in a number of global equity indices (the MSCI Emerging Markets Index, FTSE Russell Emerging Markets and S&P Dow Jones Emerging Market Indices) during the period. This development resulted in an increased number of foreign investors and a significant increase in trading activities. Nevertheless, Alistithmar Capital has continued to build up its capabilities throughout the years to benefit from such a trend, as evidenced by the successful handling of the annual transaction value as well as continuing to maintain a leading position in the industry.
Looking forward
In the coming years, the direction for the Saudi market has been set. The Saudi Arabian Capital Market Authority, the Saudi financial markets regulator, recently announced its strategic plan for 2021–23. They aim to further develop the Saudi market and make it an attractive market for local and foreign investments. The main pillars of this strategy are to facilitate funding, encourage investment, promote confidence and build capacity. The plan offers many exciting details such as increasing the AUMs as a percentage of GDP from 17 percent in 2019 to 27 percent in 2023, as well as increasing the number of listings annually.
This increase in value and share reflects investors’ appreciation of the company’s superior performance and outstanding customer service
Alistithmar Capital aims to leverage its expertise to develop its own strategies based on these governmental strategic plans so that it can not only benefit, but also respond more effectively to any future changes in the Saudi financial markets landscape. The company will continue to invest in people, processes, and systems to cater to an even wider range of clientele.
It is Alistithmar Capital’s continuing mission to create value for its investors by delivering outstanding performance, increasing the value of assets under management, sustaining a leading position in brokerage, increasing product offerings and refining the overall customer experience.
Meeting the expectation of current customers has always been a priority and in order to continue serving effectively, as well as attracting new clients, Alistithmar Capital will leverage its current technological capabilities, adopting new technology where necessary, to refine and expand its reach. The company is looking forward to exploring the future opportunities in the Saudi Arabian financial markets.
It’s been 10 years since the launch of FXTM. Today, our brand is one of the global leaders in online trading and we have a network of offices located in Europe, Africa, Latin America and Asia. From day one we decided that long-standing growth and success would be built on a foundation of industry-leading customer care. On our 10-year anniversary, we are proud to say that over two million individuals in 150 different countries have agreed with our decision. As we celebrate our birthday, it might be a great time to look back and reflect on some of the changes we have made along the way.
It really has been an interesting journey, one that has shaped our thinking and taught us to adjust quickly in order to meet customer needs. It is also a good time to reflect on what we have learned and how the knowledge gained will shape our plans for the decade ahead. It is difficult to overstate the changes technology has made in the world of online trading.
When FXTM was first established, many trades were still agreed over the telephone or desktop application. Dealing rooms were noisy places, full of excitement, fuelled by adrenaline and often appeared to operate in complete chaos. Trading was often regarded as a pursuit for those in the know or with the right connections.
Today that notion could not be further from the truth, and the technology for buying and selling thousands of the world’s most popular financial instruments is literally in the palm of your hand. Ten years ago the technology powering trading platforms was relatively straightforward. More often than not, a trading price would have a single origin.
Therefore, a trader would only see the highest bid and lowest offer from one market source. Today FXTM supports a far more complex, highly sophisticated and unique framework of pricing sources derived from some of the world’s best institutional liquidity providers. Our trading clients now receive the best prices, aggregated from multiple sources. Liquidity is improved and execution is faster than ever.
So, how has the office environment changed in the last 10 years? The noise has certainly been reduced. In the office today you are far more likely to hear a high-level debate on pricing technology rather than numbers being frantically hollered across the room. To put that into context, FXTM was started with a technology team of 10, while today we have more than 60 in-house developers tasked with maintaining and optimising our pricing engines. In sharp contrast, a large team of telephone dealers has been reduced to a much smaller number of highly experienced risk management specialists.
What’s changed for our customers?
We now have very robust and reliable pricing technology. Behind the scenes, our pricing infrastructure is consistently load tested. We are more capable than ever of processing increased trading volume in fast-moving markets and continue to build in higher tolerances.
The technology for buying and selling thousands of the world’s most popular financial instruments is literally in the palm of your hand
When FXTM began, the euro/dollar currency pair could trade with an average 10-point spread between the bid and offer. That was direct cost to traders of 10 points on every position. Today, we are pleased to be able to offer zero trading spreads on some major currency pairs, and spreads across the board have been dramatically reduced. Working to increase the efficiency of the data pathways linking our price providers has improved execution speeds to less than 50 milliseconds.
This level of service and efficiency would have been unthinkable 10 years ago, but significant investment in the right technology and the right expertise has paid off. There have of course been difficult decisions to make along the way. Procuring third-party technology solutions can provide huge cost savings, but this is an option we decided against. In doing so, we have avoided development queues that we have little control over and increased the security of our intellectual property. However, above all else, we have proven that in-house technology teams can react faster when meeting customer expectation. FXTM’s track record of rapidly deploying unique equity indices and currency baskets is a testament to this.
Our story actually began in 1998, the early days of online retail trading, with the launch of Alpari Group. The company quickly became an early pioneer of the MetaTrader platforms, expanding rapidly in the world’s emerging markets. In 2011 Alpari was joined by its sister company FXTM. Together these brands have built a leading global presence and currently support trading clients in 150 countries. In 2020 we announced the launch of Exinity Group, bringing together our established services and our ambition for the future.
There is a fast-growing global audience of millennials who want to build a better future for themselves, and so want better access to the world of higher-risk investments. Our mission at Exinity Group is to develop risk-driven trading and investment solutions, backed by risk management tools, education and support, to help our clients become confident, empowered investors.
Empowering through education
We have come a long way since 1998, but success would simply not be possible without the support and loyalty of a growing number of trading customers. Inevitably, there are risks involved with these short-term investments. As an international online broker, FXTM offers contract for difference on spot metals, shares, commodity futures and indices.
These leveraged products come with a high level of risk, with 77 percent of retail investors losing money when trading. FXTM strongly believes that a successful trader is an educated one. That’s why we strive to provide our clients with free educational courses and outstanding customer support whenever they need it.
FXTM has an extensive library of educational content and we provide regular online workshops. Our educational programmes are specifically tailored to reflect the products we offer and promote sensible steps to manage risk. Of course, we cannot guarantee profitability, but we do provide comprehensive guidance for using leverage, trading in volatile market conditions and the effective use of stop-loss instructions. We are also strong supporters of regulation in our industry and are committed to ensuring that we are transparent and fair in our treatment of customers.
Before the COVID-19 pandemic, we enjoyed hosting live educational events and getting to know our customers in person. With the safety of our employees and customers remaining a priority, we have facilitated similar events online, but rest assured we look forward to meeting again as soon as it is safe to do so.
At FXTM we are confident that we provide the right service, support and education for traders, but it is always great to see this recognised by the wider industry. We are delighted to have received this year’s World Finance award for Best Trading Experience. This is testament to the hard work of our client-facing teams and the consistent efforts we’ve made to add value to our customers’ trading journey.
In the future, many of our clients will continue to be self-directed traders and we will continue to build on our experience to offer direct access to the very best trading services and functionality. New currency indices are already available, designed to price the majors against a basket of exchange rates, and we have stock indices for tracking the fortunes of social, green, space and vegan related equities.
News is moving faster and reaching a greater number of people around the world. Social media has become a building block for consumer trends, with CEOs at the helm of some of the world’s biggest brands, and even presidents dropping market-moving posts to millions of followers. We can expect the new generation of investors to be technology literate; they will also be comfortable consuming a blend of information across multiple mediums. We already have evidence to suggest that millennials prefer timely, concise and easily digestible bites of news over a wait for fully published articles. Podcasts and webinars are also now a popular and convenient educational resource.
In order to meet the demands of a new generation of customers, the Exinity brand will bring new digital wealth solutions to individuals with a desire to create their own financial freedom. We are also launching a new feature-rich mobile application with an innovative coaching experience, designed to ensure our clients can build the knowledge and skills they need to succeed. We see huge potential in transforming access to financial markets for millennial audiences in emerging economies, and our new products and services will reflect this. Fully paid share dealing and wealth management products will complement our leveraged trading offer.
With a number of exciting new initiatives underway, we are looking forward to the next 10 years and providing the technology, products and support to meet a wider range of investment objectives, experience and risk appetites.
Established in 1994, Baiduri Bank is a full-service bank serving individuals, business, corporate and institutional clients in Brunei – while its wholly owned subsidiaries Baiduri Finance and Baiduri Capital specialise in consumer financing and investment solutions respectively. With a Standard & Poor’s rating of BBB+/A-2 with stable outlook, Baiduri Bank is recognised as the leading conventional bank in Brunei and one of the strongest in the region.
2020 was an unprecedented year, with the COVID-19 pandemic bringing forth a massive human, social and economic crisis on a global scale. Owing to the effective whole-of-nation approach in combating the pandemic, Brunei recorded positive GDP growth of 1.2 percent in spite of the challenges. According to the Autoriti Monetari Brunei Darussalam (AMBD), a statutory body acting as the central bank of Brunei, the banking sector is liquid and well capitalised. Industry profitability fell by 4.8 percent mainly as a result of the global low interest rate environment, which has adversely impacted interest/profit income on offshore placements with banks and financial institutions.
Against this backdrop, Baiduri Bank demonstrated high resilience and a solid performance. Despite the difficult operating environment, its market share in assets grew by 21.98 percent while net profit grew by 1.09 percent to BND56.2m ($42.1m). With robust credit risk management, loan impairment saw a significant reduction of 51.19 percent even after factoring in additional allowances in anticipation of higher defaults caused by the pandemic. Return on Equity (ROE) was slightly lower, in line with the bank’s direction to maintain higher tier one capital, which has increased by 7.98 percent. Subsidiaries Baiduri Finance and Baiduri Capital also demonstrated strong business momentum during the same period.
Speaking to World Finance, Ti Eng Hui, Chief Executive Officer of Baiduri Bank said, “Overall the bank demonstrated a solid performance in 2020 amid the uncertainties of COVID-19. The fact that we were the only major bank in Brunei that recorded an increase in profit in 2020 attests to the strength of our business model and the quality of our execution.” In the last 12 months, Baiduri Bank achieved several key milestones in its efforts to adapt to the changing financial landscape and position for growth. “We have enhanced our digital offerings, relocated to our new headquarters, launched our refreshed brand, forged new strategic partnerships, invested heavily in people development and reinvigorated our corporate social responsibility (CSR) programme,” Ti commented.
Enhanced digital offerings
In March 2020, the bank launched Baiduri b.Digital Personal, a digital banking platform available for desktop as well as a mobile app version. Recognised as the ‘Best Mobile Banking App for Brunei in 2020’ by World Finance, Baiduri b.Digital Personal offers enhanced UI/UX, new and improved features including biometric login, single-view account dashboard, in-app calculators and more. The app offers full functionalities to cater for the most common retail banking transactions. Adopting mobile-first design logic, it is a pre-requisite to download the app in order to transact using the desktop version, as the app serves as a digital token for authentication.
“Since the launch, we saw a 40 percent year-on-year increase in average monthly transaction volume and a 43 percent increase in active user base between March and November 2020. Undoubtedly, the pandemic has accelerated digital adoption and the launch of our refreshed offerings was not only timely, but also met a huge need for ‘contact-free’ alternatives to access banking services,” Ti elaborated.
Relocation to new headquarters
In June 2020, the bank relocated to its new headquarters at Jalan Gadong, the hub of commercial and retail activities in Brunei. The new headquarters features an eight-storey building with an adjourning multi-storey car park. Inspired by hospitality design to provide best-in-class service, the bank’s new headquarters are designed using modern materials with distinguishing touches of contemporary architecture and incorporate green features that are based on the requirements of the BCA Green Mark Scheme, an international benchmark for best practices in environmental design and performance.
The new headquarters are equipped to provide an enhanced customer experience with the introduction of several new features, one of which is the placement of a front desk reception to greet and assist all walk-in customers, vendors and guests. A digital queuing system was also introduced, where customers can join a virtual queue by scanning a QR code and track their queuing status directly from their mobile device. Other features include a spacious prestige centre for high-net-worth customers, a dedicated digital hub to showcase the bank’s suite of digital offerings, as well as an onsite café for financial consultation in a more relaxed setting.
Brand refresh
In September 2020, Baiduri Bank launched its refreshed brand following an intensive year-long process of planning, research and assessment in partnership with an international team of brand consultants. At the heart of the new brand promise, ‘co-creating your future’, is a renewed focus on being customer-centric and financially inclusive.
A full brand refresh campaign was launched, which saw the introduction of a refreshed logo, collaterals, frontline uniform and a new look and feel across various customer touchpoints. A brand new, mobile optimised website was also launched, along with an artificial intelligence (AI) chatbot, Emmi.
“With our new brand promise, we will continue to explore more platforms and initiatives to fulfil our mission to enrich, empower and engage the communities we serve, adopting a collaborative approach by working closely with various stakeholders,” Ti emphasised.
Forging strategic business partnerships
In October 2020, the bank partnered with Brunei’s flagship carrier, Royal Brunei Airlines, to launch the first co-branded Visa travel cards in the country, equipped with the latest contactless payment technologies. Although travel has come to a temporary halt in many parts of the world including Brunei due to the pandemic, both brands decided to proceed with the launch, repositioning the proposition to focus on how cardholders could start earning and accumulating Royal Skies miles from everyday spending, in order to redeem free flights or vacations once travel restrictions are lifted.
Investing in people
Since 2019, the bank has been working on a major initiative to digitalise its human resource management and service delivery with the implementation of SAP SuccessFactors, one of the largest cloud-based human capital management systems. Aspiring towards becoming a learning organisation, the bank also partnered with international learning providers such as Moody Analytics and Intuition Knowledge Service (IKS) to enrich its learning curricula for employees.
In February 2021, Baiduri Bank introduced the graduate apprentice programme (GAP). GAP is a six-month holistic development programme aimed at providing recent graduates with the necessary knowledge, skills and experience that will increase their employability in the local job market. Eleven successful apprentices joined the bank towards the end of March 2021, embarking on a series of activities designed to introduce them to the banking world and help them gain comprehensive knowledge of various financial products and services. At the end of the six-month programme, apprentices may apply for any suitable vacancies within Baiduri Bank or its subsidiaries, or pursue their careers with other organisations in the industry.
Ti explained, “GAP is a testament to Baiduri Bank’s commitment to support recent graduates by helping them develop employability skills and a learning mindset. This is also in support of goal one for Wawasan Brunei 2035, reflecting the national aspiration to be widely recognised for an educated, highly skilled and accomplished workforce.”
Empowering the community
Aligning to the bank’s refreshed brand, three main pillars have been identified for its corporate social responsibility programme: support for social community (social), developing the economy (economic) and promoting environmental sustainability (environmental).
In recent months, Baiduri Bank has successfully implemented a number of important initiatives in the CSR space. In April 2021, the bank launched its employee volunteer programme named ‘Baiduri cares,’ a platform that enables its employees to give back to the community by being directly involved in various volunteering activities focusing on the bank’s CSR pillars.
“Aligning with our new brand promise, we have identified new brand values for our employees which include trustworthiness, being inclusive, empathic and enterprising. Through ‘Baiduri cares,’ we hope to put these values into practice as we seek to make a positive impact in our community,” Ti further explained.
In the same month, Baiduri Bank also partnered with the Ministry of Home Affairs to launch a food truck entrepreneurship initiative, ‘urban bites by Baiduri.’ It also inked an agreement with the Ministry of Culture, Youth and Sports for the development of the nation’s first native mobile volunteer app named ‘Mengalinga’ (translated as ‘caring’). Both initiatives are a strong testament to Baiduri Bank’s commitment to support the needs of the community in collaboration with its stakeholders.
Doing well by doing good
With the growing emphasis on triple bottom line and sustainability, companies around the world are embracing corporate responsibility in their business operations, setting forth and staying true to their purpose – in particular, purpose beyond profit. “At Baiduri Bank, we believe that safeguarding the interests of employees, communities and the public at large is not necessarily at odds with the imperative of profit. On the contrary, the adage of ‘doing well by doing good’ holds a lot of truth today. The COVID-19 pandemic has illuminated vulnerabilities within the existing socio-economic systems and underlined the importance of the sustainability agenda. Corporate social responsibility is, and will continue to be, the foundation of sustainable growth.”
“As we seek to deliver greater value to our customers and shareholders, we will also embed sustainability and responsible banking in our business strategy. By delivering on our purpose, and helping individuals and businesses achieve success, we grow as a business and we can help meet the needs of the community too,” Ti concluded.
Sri Lanka’s first localised COVID-19 case was detected in March 2020 right around the time the official declaration by the WHO confirmed it as a pandemic. As nations around the world began shutting down en masse in a desperate effort to rein in surging infection rates and control the mounting death toll, the Sri Lankan government also announced an island-wide lockdown that lasted from March until May in a bid to control its first wave.
The timing of the decision however could not have been worse, as it came at a time when the local economy was only just recovering from the spillover effects of the April 2019 Easter Sunday terror attacks that had threatened to unravel the country’s delicate social fabric and derail years of solid economic progress.
In the weeks and months that followed, the country was left grappling with the toll on human life and livelihoods, as the tourism industry came to a standstill and the disruption to industry, commerce and trade raised concerns regarding widespread job losses.
Volatility in equity and capital markets and the low level of foreign direct investment were a few of the other notable pandemic-related setbacks. Against this backdrop, Sri Lanka’s economy contracted by an unprecedented four percent in 2020, while available data suggests that unemployment shot up to 5.2 percent in 2020 from only 4.8 percent in 2019.
However, some noteworthy action by the government provided a much-needed boost to help businesses and individuals to tide over the difficult times. The broad-based economic stimulus package, which included the Saubhagya COVID-19 Renaissance Facility and the Debt Moratorium scheme, both for the benefit of COVID-19 affected businesses and individuals, were launched alongside a combination of fiscal and monetary policy measures.
These included restriction on imports, a low interest rate environment and the decision to lower the statutory reserve ratio (SRR) for licensed commercial banks as well as the involvement in the domestic foreign exchange market. These measures taken together aimed to stimulate economic activity and preserve the stability of the country’s financial system.
Caught in the crosshairs of the pandemic-induced economic slowdown, the local banking industry also experienced what can only be described as an exceptionally tough year. The performance of the banking sector fell below expectations in 2020 as asset quality and profitability were both compromised due to the higher credit risk. On a positive note however, the banking sector did continue to operate with adequate capital and liquidity buffers and coverage ratios throughout the 12-month period that ended on December 31, 2020.
Building resilience
While the COVID-19 outbreak has brought several issues to the forefront, one area that has been in the constant spotlight in recent months is organisational resilience. For Sampath Bank, building resilience is not a new theme triggered merely as a reactionary response to the pandemic, but rather a consistent long-term effort that goes hand in hand with the annual strategic planning cycle. The Triple Transformation (TT2020) Agenda is the latest in a series of resilience building initiatives that was developed in conjunction with Sampath Bank’s latest strategic planning cycle.
The TT2020 agenda forms part of a long-term strategy to transform three core areas – technology, business and people – to serve as the fundamental building blocks towards building overall resilience for the next three to five years. Having begun the implementation of the TT2020 agenda in the latter part of 2019, the first phase, which focused on augmenting the bank’s digital capabilities, was well underway when the pandemic hit the country in March 2020.
Preemptive thinking to strengthen digital competencies held the bank in good stead throughout the pandemic, for it was without doubt the most critical tool for enhancing the transactional capability of Sampath Vishwa (Retail and Corporate) platforms to allow customers to perform their banking needs during the lockdown period.
Preemptive thinking to strengthen digital competencies held the bank in good stead throughout the pandemic
It is also thanks to the early adoption of digital technology that Sampath Bank was able to create an omni channel environment to provide seamless connectivity across multiple platforms and give customers an even better banking experience than they would otherwise have experienced through our physical channels. Some notable examples include: the ‘cash-in-a-flash’ delivery service, the mobile ATM facility and the ‘Doorstep Banking’ facility, all launched in the midst of the two-month island-wide lockdown to assist retail customers to perform mainstream banking transactions without having to visit a branch. On this basis, the bank was able to divert over 90 percent of the average monthly routine transactions to digital channels during the initial lockdown period. Thereafter, approximately 80 percent of routine transactions continued to be performed digitally, a further testament to the versatility of Sampath Bank’s digital initiatives in meeting the customers’ expectations.
Proving its commitment to support its customers at their time of need, the bank also initiated proactive efforts to give eligible corporates and SMEs the opportunity to access the government-led relief measures such as the Saubhagya COVID-19 Renaissance Facility offered at a concessionary rate of four percent and the debt moratorium scheme. Accordingly, phase one of the debt moratorium was granted to approximately 50 percent of customers on the loan book, while phase two was extended to approximately 30 percent of the bank’s loan book.
Keen to play its part in supporting Sri Lanka’s post-pandemic economic recovery, Sampath Bank went beyond the regulatory mandated relief measures and mapped out its own relief efforts under the theme ‘Revive Sri Lanka.’ This initiative was kicked off in mid-2020 with the launch of the ‘Sampath Diriya,’ a bank-funded special loan scheme to enable manufacturing and export-related SMEs to access funding at a concessionary interest rate. To complement these efforts, the bank launched ‘Evolve,’ a robust ecommerce platform for SMEs.
Community commitment
Meanwhile, with banking operations declared an essential service as per the COVID-19 emergency laws, the safety of employees took on a whole new meaning. Prioritising the physical safety of employees was crucial and staff were asked to work from home where possible. All recommended health and safety guidelines were implemented for the safety of employees, including detailed work schedules for branch teams and corporate management, along with special transport arrangements accompanied by a comprehensive COVID-19 monitoring system. Furthermore, no pay cuts or retrenchments were announced and all confirmed employees were granted their full entitlement earned under the performance-based bonus scheme for the year 2019.
A new learning management system was also rolled out to ensure training activities would continue unhindered. In an effort to build overall resilience and help the bank to manage the long-term impacts of COVID-19, risk management systems were further strengthened with the implementation of sophisticated early warning systems along with a series of machine learning tools for the detection of potential non-performing advances. Business Continuity Planning (BCP) controls were also tightened to ensure cognizance of the varying risk profiles of different branches. In addition, after a comprehensive bank-wide vulnerability assessment, it was decided to further strengthen the independent disaster recovery site framework currently in place as an additional BCP measure.
At the same time, seeing the pandemic as an opportunity to reiterate its commitment to attend to underserved communities, the bank continued with its flagship CSR initiative – the ‘Wewata Jeewayak’ tank restoration programme. Two major tank restoration projects were undertaken and completed in 2020, bringing the total number of tanks restored to nine, since the initiative was first launched in 2001. The bank also teamed up with two leading corporates to jointly donate a fully equipped PCR laboratory to the army hospital in Colombo, adding a considerable boost to the country’s overall COVID-19 testing capacity. The donation was made via the ‘Hope for Life’ fund, an internal fund maintained by Sampath Bank to fulfill its purpose of uplifting public healthcare standards in Sri Lanka.
Continued growth
Meanwhile, at a time when many in the local banking industry were struggling to cope with the impact of the economic downturn, Sampath Bank demonstrated its tenacity by continuing to grow in 2020. The bank’s asset base crossed the historic Rs 1trn mark to reach Rs 1.1trn ($5.5bn) as of December 31, 2020, denoting a 15.4 percent expansion from the Rs 962bn ($4.8bn) reported at the end of the previous financial year. Surpassing the one trillion mark in total assets in just over 33 years represents a significant milestone in the bank’s journey to date as it places Sampath Bank in the local banking record books as the youngest bank to reach this remarkable landmark. Fuelled by robust asset growth, the bank recorded PAT of Rs 8bn ($40m) and PBT of Rs 11.2bn ($56m) for the FY 2020, which enabled the declaration of a cash dividend to shareholders at a 39 percent dividend payout ratio. These are all very credible achievements that demonstrate without a doubt Sampath Bank’s resilience and further prove the bank’s ability to consistently meet stakeholder expectations even in times of economic adversity.
The most important aspect of any sustainable company lies in its success in bringing relevant development to the communities that it gains from. Hindustan Zinc strives to conserve natural resources and adopt greener technologies wherever possible to ensure its environmental footprint shrinks year-on-year. It embarked on a digital transformation programme to drive a different way of working for a sustainable future, aimed at enhancing stakeholder value through exploration, innovation, safety, and sustainability, maintaining market leadership, and increasing customer delight.
Technology is the catalyst that is at the heart of making mining operations ‘smart,’ ‘sustainable’ and ‘safe’ by leveraging digital tools and processes that make operations instrumented, interconnected, intelligent and data-driven. Hindustan Zinc has increasingly been using technology for the automation of processes and has started integrating technologies across the value chain to reduce waste, increase resource efficiency and drive up productivity while promoting the harnessing of renewable energy sources. Some of the emerging technology trends that we are fast integrating into our mines are in the areas of automation and remote operation, real-time data capture, telemetric data for predictive analysis, digital twins, drones, mine-to-mill process integration, and safety innovation.
Automation and remote operation use the mine’s wireless network and allow the operator to utilise the machine functions from a remote location. These functions include drilling, levelling, remote bogging, tramming, and GPS hole navigation to increase the productivity, safety, and cost efficiency of the process. Also, advances on the internet of things (IoT) technology are enabling a connected network of low-cost, highly capable sensors to capture data in real time and enable integrated planning, control, and decision support in our mines at Hindustan Zinc.
Digital twins (digitised geological, engineering, and asset data) is an emerging technology that enables the creation of a digital model of the physical environment, constructed using geological, engineering, and asset information. This can be continuously updated with data from sensors and location-aware mobile devices enabling robust, real-time, data-driven decision-making.
Our vision is to be the world’s largest and most admired zinc, lead and silver company
Additionally, for data collection, inspection, stock control, condition, and safety monitoring, new and improved unmanned drones are also being used. Another noteworthy technological intervention that we have successfully embraced in our operations at Hindustan Zinc is the mine-to-mill process integration technology that maximises mine-to-mill metal extraction.
We are continually adopting digital technologies and advanced process controls in our mills and smelters for process capability improvement. The organisation firmly believes that data is the new gold and have outlined a long-term strategy to digitise every aspect of the entire value chain of the business.
The holistic view aims to upgrade, procure, and connect key critical assets of underground mines, mills, smelters and power plants through best-in-class technology while ensuring data security and data loss prevention measures are in place. The organisation has put all its effort into maximising productivity, efficiency, and equipment reliability through proven digital technologies. There are dedicated teams, and budgets are allocated in line with business needs.
We are consciously working with our partners towards building and adopting these capabilities, because we look at it as an investment into the future of mining, where sustainability, safety, efficiency, and innovation are an integral part of operations. Increasingly, different digital solutions are being bundled into the offerings of the equipment manufacturers and service providers too.
Taking a holistic view
Hindustan Zinc is built on inherently sustainable principles. We believe in driving long-term sustainable economic development and value creation for our stakeholders by protecting the health and safety of our people and community, minimising the environmental impact of our operations, respecting human rights, and sharing benefits with the community. Our vision is to be the world’s largest and most admired zinc, lead and silver company.
We have taken a holistic view in setting our sustainability goals for 2025, aligning them with UN Sustainability Global Goals. Following a formal materiality analysis process and extensive internal and external stakeholder dialogue in 2019, we identified the high priority material issues, and subsequently set ambitious sustainability goals for 2025. Over the next five years, we will focus on expanding the work towards creating positive changes.
An open goal for sustainability
Our 2025 targets include reducing our GHG emissions, passing on our sustainability standards to our suppliers, reducing our dependency on freshwater, moving towards zero waste to landfill, improving the livelihoods of one million people and increasing diversity and inclusion in the workplace. With our goals, we are pursuing a comprehensive approach that includes the entire product life cycle, considering social, environmental, and economic aspects. Furthermore, we want to share our progress transparently with our stakeholders.
We have a well-structured sustainability governance strategy in place to drive our goals and our own executive sustainability committee, which is responsible for formulating sustainability strategy and long-term goals and targets. It plays a strategic role in all business decisions to ensure workplace safety, eliminating any potential damage to the environment, enhancing a commitment towards stakeholders, and maintaining our reputation. Under this committee, we have eight teams to drive each of our eight sustainability goals and to facilitate the decisions of the committee.
We remain focused on strengthening our efficiency, technology, and digitalisation initiatives to build on our industry leadership and deliver consistent returns to our shareholders. Apart from the above ambitious goals, we have also joined the global movement by committing to various science-based targets to limit the increase in the world’s temperature by 1.5 degrees Celsius. These targets include cutting carbon emissions by at least 14 percent from the company’s operations by the end of the fiscal year, 2027. Hindustan Zinc will also work with its customers and suppliers to reduce its indirect emissions by 20 percent.
Our 2027 greenhouse gas targets have been approved by the Science-Based Target Initiative (SBTi) and are also consistent with the challenge presented to corporations by the Intergovernmental Panel on Climate Change (IPCC), the United Nations body for assessing the science related to climate change. The company is taking all possible efforts to limit climate change, mitigate its catastrophic effects, and ultimately save lives. In addition to setting ambitious targets to achieve sustainability in the business, we have established a stronger governance structure, for increased transparency and for higher levels of support that we will provide to our stakeholders.
Improving water use efficiency
Water is one of the key natural resources and is of the utmost importance for our operations as our operating units are in Rajasthan, which is a water-scarce state. We understand its importance, and adopt best practices for making judicious use of water in our processes. We constantly look to improve our performance through improvement of water use efficiency, using less water-intensive technologies, and implementing water recycling opportunities to help minimise the use of fresh water and maintaining zero discharge.
Water scarcity and the non-availability of water is a key risk for our business. To mitigate this risk, we are reducing dependence on fresh water by exploring alternative resources, increasing the recycling and reuse of water and replenishing as much water as possible.
We are a water positive company and during the year, the company has completed a sewage treatment plant expansion and community projects in water harvesting. Hindustan Zinc maintains several water sources in conjunction with the government. A network of sewage treatment plants (STPs) was also set up in Udaipur, which provides a sustainable water source to its operations.
Our performance has improved considerably on several ESG metrics on the back of our sustainability and technology efforts carried out over the last few years. The increased use of recycled and treated water, improved smelter efficiency, higher metal recoveries, gainful utilisation of waste, and focus on renewable power, has inevitably led to the conservation of natural resources and therefore a lower impact on the environment.
The company is ranked first in the Asia-Pacific region and seventh globally in the metal and mining sector by the Dow Jones Sustainability Index for the third consecutive year and is among India’s first companies to be included in the CDP climate change ‘A list’ for 2020. Our efforts towards a more structured journey of innovations continues. One of our objectives is to bring out hidden creativity among employees and business partners. A dedicated portal and innovation café – ‘a space out of workspace’, was set up as a means of exchanging ideas and capturing innovative thoughts.
The sustainable journey so far
We have found that sustainability is vital to steer operational excellence and ensure business growth. By adhering to the Vedanta Sustainable Development Framework we have managed to integrate sustainability throughout our business management and our operational drivers of governance, safety, and social responsibility. Responsible stewardship, building strong relationships, strategic communication, as well as adding and sharing value, are the cornerstones of our sustainability framework.
Our policies, procedures, and best practices are all aligned to this strategy, which is why our employees have a clear understanding of their role in driving business success. With this approach, we predict a sustainable future for our business operations, one in which we continue to meet our growth targets and create long-term value for all our stakeholders.
Protecting and enhancing biodiversity is also an integral part of Hindustan Zinc’s commitment to sustainable development. The company has a separate policy on biodiversity and stays committed to preventing risk on biodiversity throughout our business. Renewable energy is a huge thrust area for us at Hindustan Zinc.
We aim to be self-sufficient and green in fulfilling our energy requirements so as not to put any stress on the energy-starved state of Rajasthan, which plays host to a significant part of our operations. Our portfolio of over 348.54 MW of renewable energy generation is testimony to our philosophy of growing responsibly. We are already a significant wind power producer in India with a capacity of 273.5 MW across five states. We have been continually prioritising and emphasising the need to ensure compliance and improve our social and environmental performance.
We have established stringent management systems centred on safety, health, the environment, and social performance. Our resilience was especially tested during the COVID-19 pandemic when we emerged with the highest ore and MIC production levels ensuring returns to shareholders, all while remaining committed to our sustainable path.
Hindustan Zinc is on a journey, one which focuses on nurturing leaders, conserving resources, improving health, safety, and wellbeing. We aim to be the example that others wish to emulate when it comes to environmental performance, enhancing the quality of life, and fostering innovation.
Nearly everywhere one looks nowadays – newsrooms, corporate manifestos, and government agendas – climate change has moved from the fringe to centre stage. And central banks, after standing on the sidelines for so long, have recently begun to play a starring role. The Bank of England (BOE), for example, just became the first central bank to include in its policy remit a reference to supporting the transition to a net-zero-emissions economy.
The European Central Bank is discussing how – not merely whether – to incorporate climate considerations in its own monetary policy. And the Network for Greening the Financial System (NGFS), a global group of central banks and financial supervisors, has more than doubled its membership over the past two years. Its 62 central banks include those of all but four G20 member states.
Such a speedy shift is bound to invite spirited debate – as well it should. But the overall premise for the change is sound. If anything, the overriding risk is that central banks will still do too little, rather than too much, about climate change.
Climate stress tests
Over the past few years, a consensus among central-bank leaders regarding climate risks to financial stability has emerged. The bank for international settlements database shows that whereas only four central-bank governors delivered speeches on green finance in 2018, 13 did just two years later. And now, nearly half of NGFS members have assessed climate risks, and more than one-tenth have already carried out climate stress tests, according to research by BlackRock. Central banks’ investment activities have duly followed suit.
Almost 60 percent of developed economies’ central banks now invest using broad environmental, social, and governance criteria, and Eurosystem central banks have agreed to a common stance on climate-related investments in non-monetary policy portfolios. Finally, even monetary policy itself has begun to align with climate issues. Late last year, Sweden’s Riksbank announced a new climate-related exclusion policy.
Similarly, the BOE is expected to indicate later this year how it will account for the climate impact of its corporate-bond holdings. Several ECB decision-makers have called for climate risks to be incorporated into corporate bond purchases and collateral policy.
And the NGFS has just published technical guidance for ‘adapting central bank operations to a hotter world.’ There are three main causes for this shift – all of them legitimate. First, close to 130 governments around the world have committed to large reductions in carbon dioxide emissions over the coming decades. While the policies for achieving this have yet to be fully specified, the premise that meaningful change will occur is no longer merely an act of faith.
Economic policies
Central banks that integrate climate considerations into their activities thus can no longer be accused of front-running governments. And where a central bank’s mandate includes supporting a state’s economic policies, agnosticism (or, in central-banking jargon, market neutrality), will be increasingly untenable if it clashes with official climate commitments.
Second, the case for incorporating climate change into macroeconomic modelling and investment decisions has never been stronger. Extreme weather events have become more frequent, and their impact on growth and inflation more visible.
Boosting portfolio resilience
Moreover, as policy plans take shape, the uncertainty around climate-impact scenarios over the coming decades has become less daunting. Climate-related data have improved enormously in quality and quantity, and the availability of climate-aware investment instruments and strategies has increased dramatically. Their emerging performance record already indicates that they can boost portfolio resilience without sacrificing returns.
Accordingly, a majority of institutional investors globally now consider sustainability to be fundamental to their investment strategies. The third reason for central banks’ new stance is a growing recognition that advocacy alone is insufficient. To have a greater impact, they must lead by example.
Central banks will likely exert great influence over the speed with which climate-related risks are priced into the financial system
This calls for greater transparency about their own exposure to climate-related risks and how such risks are modelled and priced. Better disclosure will rest, in turn, on the receipt of adequate data from issuers whose assets central banks choose to hold. As such, central banks will likely exert great influence over the speed with which climate-related risks are priced into the financial system.
There are risks in moving both too slowly and too fast, so establishing a clear path ahead is essential. That said, central bankers’ conversion to the climate cause is still in its youth. Many central banks have yet to join the NGFS, let alone integrate climate change meaningfully into their activities.
The vast majority of emerging-market central banks have not signed up. And, globally, the BOE is the only central bank so far to have published a statement in line with the most exacting recommendations of the task force on climate-related financial disclosures, albeit Eurosystem central banks have committed to do so within two years.
Obstacles to overcome
Central banks are understandably wary of mission creep, and of raising expectations that can be met only by becoming reliant on governments. Still, the work of the NGFS and the actions of its leading members should demonstrate to other central banks that their mandates not only permit but in fact require climate change to be incorporated into their activities.
Numerous challenges remain on the road ahead, and domestic circumstances can differ too; but that is absolutely no excuse for inaction. Central bankers’ response to climate-change risks has plenty of room to grow in the coming months and year ahead.
After raising capital from its founding banks, FXSpotStream (FSS) has added functionality to support FX algos and allocations over its API. Now live with multiple clients, this is the industry’s first multi-bank service FX algo API and provides access to the entire algo suite of its liquidity providing banks (LPs).
FXSpotStream was created in 2011 as a market utility to reduce the costs of trading FX as the ‘electronification’ of the FX market continued to accelerate. Originally supporting only FX spot, the service has grown considerably since its formation and now supports trading in FX spot, swaps, forwards, NDF/NDS and precious metals spot and swaps.
Clients pay nothing to access liquidity from up to 15 tier one LPs via a single API or GUI from sites in London, New York, and Tokyo, with no brokerage, data or hosting fees. LPs are charged a flat fee for the core streaming offering to trade an unlimited amount of volume, resulting in the LPs paying less on a per million basis as their volume grows; thus, clients can expect better pricing from the LPs.
FX algorithmic trading
The automation of the foreign exchange market has seen a strong shift from its roots of telephone trading, voice desks and opaque price information, to today’s technological world with online trading and streaming of prices. Algorithmic trading is another area of the FX market that has seen significant growth as clients aim to obtain a better price and execution, while limiting the risk on their part.
Today, algorithmic trading accounts for approximately 20 percent of all institutional foreign exchange trading volume and half of all equity trading volume. By supporting algos over their API, FSS are targeting a gap in the market – with most algos being supported over a GUI – and meeting a growing demand from clients. These functionality enhancements allow FSS to support the additional e-FX capabilities of their LPs and clients giving them wider access to liquidity while reducing the risk of information leakage.
Algorithmic trading accounts for approximately 20 percent of all institutional foreign exchange trading volume
FXSpotStream provides clients with access to over 70 different algos and 200+ algo parameters supported by the LPs. Clients will also be able to choose a specific liquidity profile at the bank with the ability to select to execute against the bank’s liquidity alone or a variation of the bank’s full offering.
A great deal of work has taken place to support this move, and the aim was always to make the interaction between client and LP as efficient as possible. Clients seeking to access the algos of the FSS LPs will not need to add any additional network infrastructure, connecting in the same way as they do today – accessing a normalised API through a single FIX session that provides access to algos offered by multiple providers.
The decision to accommodate FX algos will also see a move to FIX 5.0 standards and the addition of ‘amend and cancel’ capabilities. Clients will also have the added options of ‘fill now’ and ‘suspend and resume.’ This also includes support for resting orders and benchmark fixing orders, as well as spot, forwards and NDFs over the LP algos. Following the launch of the algo functionality over the API, algos are targeted to be available over the FSS GUI by the end of the year.
FX allocations
With the significant growth of hedge funds and wealth management firms, FXSpotStream has added functionality to support FX allocations over its API. The combination of the algo functionality with the support for allocations will appeal to hedge funds, asset managers, multinational corporations and regional banks. However, that is not the extent of their focus, and ultimately any client, with an interest in accessing the algo suite of a tier one provider or needing allocation functionality, will be able to utilise the new algo service.
Though pre-trade allocations are generally executed in the RFQ protocol, FSS will support this for full amount ESP orders. Post-trade allocations will be limited to those clients pre-approved by their LPs. Allocations can either be implemented by the client or through an OMS or third-party vendor. FXSpotStream is vendor agnostic and actively encourages clients to discuss their opportunities with our partners to find the one that best suits their needs.
The broad impact and long duration of the COVID-19 pandemic has dealt a severe blow to Macau’s service-export-oriented economy. Affected by travel restrictions and social distancing measures, GDP fell by more than 50 percent in 2020 and visitor arrivals decreased by 79.6 percent in the fourth quarter. Nowadays, the economy is still on a slow recovery path and development of the banking industry in Macau remains static. The pandemic had a profound impact on people’s lives and online commerce has become more popular.
To adapt to the changes and speed up the economic recovery, the Macau government laid out its vision to develop into a ‘smart city’ – an urban space that uses different types of technology and electronic data to enhance operational efficiency.
By grasping this opportunity, ICBC (Macau) developed e-payment services with the goal of promoting ‘cross-border, ‘cross-industry,’ and ‘banking without borders’ services – overcoming obstacles and creating a new business model for the industry.
The road to recovery
Last year marked a difficult and extraordinary year for the Macau Special Administrative Region, facing unprecedented challenges from the novel coronavirus pandemic. Gaming and tourism revenues have suffered the most. By contributing more than 50 percent to GDP, and generating over 70 percent of government revenue, gaming and tourism is the core pillar of industry in Macau. Due to the outbreak of the pandemic, gaming revenue has fallen by 79.3 percent for 2020 and GDP fell by 45.9 percent in real terms for the fourth quarter of 2020.
Private consumption decreased by 16.3 percent year-on-year as residents went out less and made fewer trips abroad amid the outbreak and economic outlook remained uncertain. All sectors of society – ranging from small to large enterprises – have been greatly affected and have encountered multiple difficulties and challenges. Despite the downturn in the gaming and tourism industry, unemployment rates have only risen from 1.7 percent (2019 Q4) to 2.7 percent (2020 Q4).
As COVID-19 was gradually brought under control, travel restrictions were eased in August 2020. As of March 2021, visitor arrivals totalled 750,000, an increase of 76.7 percent month-to-month and an upsurge of 255.4 percent year-on-year.
Consumer demand in Macau has been unleashed and the market atmosphere has improved. Gaming revenue has returned to about 40 percent of its pre-pandemic level in the first quarter of 2021. In March 2021, gaming revenue leapt by 58 percent year-on-year to $1.04bn, which is the best it has been since the start of the pandemic. As the vaccination programme continues on, the upward trend in the economy is expected to continue (see Fig 1).
The banking industry of Macau remained robust and resilient in 2020. The value of assets among local lenders totalled $277.9bn by the end of 2020, rising 10.2 percent year-on-year, while the operating profits of the sector reached $2.14bn, representing a rise from $2.13bn by the end of 2019, according to the Monetary Authority of Macau (AMCM).
The capital adequacy ratio remained around 14 percent and non-performing loan ratio below one percent throughout 2020. However, the total loan growth rate declined from 10 percent to three percent by the end of 2020 (see Fig 2). In addition to the traditional banking business, the banking industry in Macau needs to find new areas of growth to sustain the industry’s momentum, such as e-payments and online banking.
Developing an e-payment market
In the city’s first official five-year development plan, covering the period 2016–2020, and also Macau’s 2021 policy address, the government laid out its vision to develop Macau into a smart city. Mobile payments are one of the major elements in turning Macau’s smart city vision into a reality. As stated by AMCM, the city has approximately 70,000 POS systems utilised for QR code payments (e-payments). In fact, new regulations have been published to boost the development of the smart city since 2019, such as the cybersecurity law, e-governance law and amendments to the cybercrime prevention law. In light of the coronavirus outbreak, bricks and mortar operations have recently witnessed a decline.
The government also recommended contactless payment and online banking solutions over traditional over-the-counter services for residents. Taking into account the mobile payment applications currently available and the financial institutions that promote e-payments in Macau, the banks have adopted a more modern and technology-based approach.
Simple Pay, a new form of payment introduced by AMCM, will allow customers to use their mobile phones to scan businesses’ QR codes to pay for a service or product. Its pilot period for the first stage was initiated in February 2021. Simple Pay aims to integrate all types of e-payment opportunities into one system, allowing businesses to accept all existing payment methods using a single terminal or QR code. Before the adoption of Simple Pay, vendors would need separate machines to accept payment from different banks.
In 2020, Macau logged over 65.49 million internet payment transactions, involving a total of $791.25m. AMCM would input more resources this year to improve the local digital financial infrastructure. Contactless payment is expected to continue to grow beyond the pandemic.
Turning challenges into opportunities
In 2020, ICBC (Macau) accurately identified the development trend of financial technology and actively implemented the localisation of its e-ICBC strategy. It is the first local bank to establish an intelligent network, improving the financial service ecosystem and leading the development of financial technology. In 2020, the number of customers using online banking and mobile banking began to increase rapidly.
ICBC (Macau) therefore continued to advance its e-banking service and achieved positive results. The bank is the first overseas ICBC Group member to launch e-payments, covering online e-commerce platform payment scenarios and offline code scanning payments. The e-payment is a contactless payment solution, increasing operational efficiency and enhancing security over traditional card payment methods.
In 2020, the number of customers using online banking and mobile banking began to increase rapidly
Furthermore, the tap-to-pay feature promotes hygiene in light of recent events with customers only making contact with their mobile phone, decreasing the chance of the virus spreading.
ICBC (Macau) continued to optimise aggregate payment services, creating multiple firsts and providing diversified and convenient acquisition services for merchants, leading the development of electronic payments in Macau. ICBC (Macau) further developed the local market to enhance core competencies and maintain market leadership through online card application, aggregate payments, mobile payments and various other payment scenarios. The issuance of credit cards increased by five percent in 2020.
Though the transaction amount slightly declined by six per cent due to the pandemic, it was still above the average decline of 18 percent in Macau’s banking industry. The bank led the founding of the Macau Cross-Border E-Commerce Industry Association and was honoured as a life chairman, building a comprehensive platform for local cross-border e-commerce businesses.
The bank also executed the strategic transformation of smart banking and launched a new version of Mobile Banking 4.0, transforming the bank services from offline to online, aiming to improve service quality and increase customer activity. ICBC (Macau) integrated popular retail banking products into mobile banking with multiple first-of-its-kind features in Macau, such as one-click transfer, ICBC Express, and 24/7 services for remittance, maintaining the leading position in local mobile banking services.
Financial ecosystem
Finally, ICBC (Macau) continued to develop innovative businesses and established the foundation for the continuous development of online banking payment services. The bank launched ICBC e-payment with a comprehensive retail transformation, creating an open financial ecosystem.
In 2020, ICBC e-payment had more than 110,000 users and was available at more than 7,000 merchants in Macau, an increase of 140 percent compared to 2019. The number of transactions was close to three million and volume exceeded $50m, a growth of more than 200 percent year-on-year. The bank continues to optimise the life platform in mobile banking and launched an online application interface for SMEs to improve processing efficiency and meet customer needs.
The last 12 months have tested the resolve of the banking industry, and ICBC (Macau) has risen to the considerable challenges by committing fully to the e-commerce and contactless payment market in Macau and assuming social responsibility for Macau’s post-pandemic economic recovery.
When Katherine Tai, the new US trade representative, announced last May that the US would support a patent waiver for COVID-19 vaccines as part of the World Trade Organisation (WTO) TRIPS agreement on intellectual property, she sent a signal that the pandemic has shaken long-established norms of global trade. Historically, the US, the world’s leading producer of pharmaceutical and technology patents, has resisted calls for intellectual property liberalisation.
The debate on patent-free vaccines started last October when India and South Africa requested a patent waiver for vaccines and several Covid-related drugs, a call supported by most developing countries. Opposition came immediately from the EU, Switzerland and the UK, all major drug producers, with Brussels pushing an alternative plan for flexible compulsory licensing across different countries. For their part, pharmaceutical companies have warned that a waiver would risk transferring state-of-the-art technology to China and Russia. The ball is now in the WTO’s court, with a decision expected to be made this summer. In early June, a WTO panel agreed to start a “text-based process” to resolve the issue.
WTO headquarters in Geneva, Switzerland
Reform or die
The dispute is emblematic of broader challenges facing the WTO. The pandemic has sparked concerns over the entrenchment of global protectionism with the emergence of insular trade blocs, a trend already prevalent before COVID-19 disrupted global supply chains. In 2019, the dollar value of world merchandise exports dropped by three percent, reflecting a rise in ‘onshoring,’ as an increasing number of multinationals bring production closer to home. The pandemic has exacerbated this trend, pitting corporations against governments and developing countries against developed ones. In this context, the rise of ‘vaccine nationalism’ is seen as a symptom, rather than the cause of the WTO’s troubles.
Although most WTO members agree that reform is needed for the organisation to stay relevant in the 21st century, few concur on the form this should take. Some fear that the rise of bilateral and regional trade agreements threatens to render the WTO’s arcane rules, lengthy procedures and overstuffed panels obsolete; by late 2020, 300 such agreements were in force, compared with fewer than 60 in 1995 when the WTO was founded. Pessimists warn that it may not even survive the end of the decade. The organisation’s rules mainly govern trade in goods, whereas the global economy is increasingly dominated by services, while rules on e-commerce are either antiquated or practically non-existent. Critics of the organisation also cite its lack of transparency, notably the failure of many members to notify the WTO about government subsidies.
The rise of ‘vaccine nationalism’ is seen as a symptom, rather than the cause of the WTO’s troubles
In a way, the Geneva-based international organisation is a victim of its own success, with rigid decision-making mechanisms from an era when there was consensus on the rules of the game being unsuitable for its expanding membership of 164 countries, argues Craig VanGrasstek, a trade consultant and author of the official history of the organisation. By mid-2021, almost every country in the world had joined the WTO or had applied to join.
Even smaller countries can veto crucial decisions through the organisation’s ‘one country, one vote’ rule and the ‘single undertaking’ principle, according to which nothing is agreed until everything is agreed. Many members have retained their original status as developing countries, which offers them a series of privileges through the so-called ‘special and differential treatment’ provision, although they have long joined the club of advanced economies. Unlike other international or supranational organisations, the WTO is a member-driven behemoth, with little leeway for taking initiatives.
Joe Biden, US President
US and China at loggerheads
Despite its problems, the WTO’s position as an arbitrator of global trade would be safer without an increasingly important obstacle: escalating tension between the US and China. Under the Trump administration, the US slapped tariffs of up to 25 percent on several Chinese products, citing concerns over US trade deficit, currency manipulation and intellectual property theft. Although the new US administration is seen as less protectionist compared to the previous one, some of its policies, such as the ‘Buy American’ initiative, which aims to use government spending to boost US manufacturing, are perceived as tacit continuation of Donald Trump’s insular policies. In a report summarising its trade priorities, published last March, the Biden administration has said that it will use “all available tools” to fight China’s trade practices.
The new government’s attitude towards the WTO has also been ambiguous, although less hostile in rhetoric compared to the previous administration, which even threatened to leave the organisation. In February, the US delegation to the WTO said that US authorities will keep labelling exports coming from Hong Kong as Chinese, due to China’s intervention in the affairs of the Cantonese city. The policy effectively follows the previous administration’s unorthodox practice of imposing tariffs on imports over alleged national security concerns, pushing many countries, including US allies such as Canada, to dispute its legality at the WTO. It has also encouraged other WTO members to cite their own national security concerns in various trade disputes, sparking fears that the international organisation may soon have to wade into areas beyond trade.
Some fear that the temptation of unilateralism may be too strong for the Biden administration to resist, now that its contribution to electoral success has been tested. Over the last decade, the US has signed a series of foreign trade agreements (FTAs) that will increase the share of US imports covered by FTAs from 36.2 percent to 62.5 percent. Some analysts believe that the shift may push the US government to put negotiations over WTO reform on the back burner. “Biden and those under him are internationalists, but not necessarily multilateralists, when it comes to trade,” VanGrasstek says. “They take the WTO into account, but it’s no longer the first thing they think about when they think about trade.”
With China and the US at loggerheads, it’s up to third countries to support the WTO as a neutral arbitrator of the global trade system, says Stephen Woolcock, head of the LSE’s International Trade Policy Unit and former consultant to the European Commission: “What is needed is a strong coalition of other WTO members to support multilateralism, as it is they rather than the US or China that will suffer from a demise of multilateralism.” One such initiative is the Canada-led ‘Ottawa Group,’ which entails a group of WTO members, including the EU, pursuing rules-based reforms that seek to reinvigorate the organisation. Some think that the best way forward is undertaking ‘plurilateral’ negotiations on issues such as e-commerce, which involve smaller numbers of WTO members and focus on specific sectors, making consensus easier.
A dispute over dispute settlement
At the centre of the US-China rivalry is the future of the WTO’s appellate body, a seven-member panel serving as the organisation’s dispute settlement mechanism. In a rare case of bipartisan consensus, Democrats and Republicans view the body as a threat to US sovereignty (see Fig 1), in line with traditional US aversion to international tribunals, such as the Hague-based International Criminal Court. Starting with the Obama administration, a series of US governments have argued that the body’s judges take too long to issue rulings on important trade disputes.
More crucially, US officials have argued that the body often overreaches its mandate and in some cases comes up with its own rules. “In essence, that’s propaganda. The appellate body has made some mistakes, but not the kind of mistakes the US accuses the judges of,” says a source familiar with the operation of the body and the dispute over its future, adding: “It has issued about 600 decisions on complex issues over 25 years. They could not make everybody happy, but by and large, the system was functioning reasonably well.”
The WTO is a member-driven behemoth, with little leeway for taking initiatives
Another reason for US scepticism is increasing concern that the appellate body is failing to tackle China’s unorthodox trade policies. Washington has repeatedly complained that its judges have adopted a narrow definition of what constitutes a ‘public body,’ effectively allowing several Chinese companies to receive government subsidies against WTO rules. “The US ‘destroyed’ the appellate body because it doesn’t like the system as a whole anymore,” said the anonymous source. “They think that WTO rules are outdated, because they don’t allow them to deal effectively with China.”
In a dramatic move that escalated the crisis, the Trump administration did not appoint any nominees to fill up vacancies created by outgoing members, effectively paralysing the body. So far the Biden administration has refused to appoint new members, arguing that the US “continues to have systemic concerns” over the operation of the body.
Some hope that the dispute may be solved as a part of a larger bargain that would entail broader reforms in the structure of the organisation, including the definition of ‘developing countries’ and their right to veto crucial decisions. Bob Lighthizer, US Trade Representative under Trump, has admitted in a testimony in Congress that US objections are a bargaining chip. For its part, the EU Commission published this February a paper supporting WTO reform and recognising the validity of some US concerns, a major U-turn compared to its previous position.
One reason for this shift, according to the anonymous source, is that EU officials may want to lure the Biden administration into a negotiation: “Many people in the EU Commission’s Directorate General for Trade think that the dispute settlement system was just fine, but they let the US score some brownie points to get them to the negotiating table.” In May, the US and the EU agreed to avoid an escalation of their dispute over US steel and aluminium tariffs. In a joint statement, they pledged to work together to “hold countries like China that support trade-distorting policies to account.”
Ngozi Okonjo-Iweala, Director-General of the WTO
A new head for a new era
If there is hope that the WTO will adapt to the needs of the 21st-century economy, it comes from the recent appointment of Nigerian-American economist Ngozi Okonjo-Iweala as Director-General. As the first woman, and the first African citizen, to head the WTO, Okonjo-Iweala rattled the status quo even before she took office this March. With her colourful dressing choices and photogenic smile, she cuts a different figure from her predecessors. “Her appointment represents a recognition that the WTO must belong to all its members and not just to a few dominant countries,” says Professor Woolcock from LSE.
However, her appointment was not free of controversy. Although Okonjo-Iweala’s candidacy was backed by China, the EU and most developing countries, the Trump administration supported the South Korean trade minister Yoo Myung-hee. When the latter withdrew her candidacy in February, the Biden administration rushed to support Okonjo-Iweala. During her campaign to garner support from WTO members, she came under fire for her tenure as finance minister of Nigeria, a country whose economy is plagued by corruption. Her trade credentials have also been questioned, with Robert Lighthizer warning that she has no relevant experience, given that she worked at the World Bank for 25 years.
For her supporters, Okonjo-Iweala is a survivor who thrives in the face of adversity. A member of a local noble family, she survived the bloody Nigerian civil war from 1967 to 1970 and moved to the US to study at Harvard and MIT, becoming one of Africa’s most prominent economists. During her stint as Nigeria’s finance minister, criminals kidnapped her 83-year-old mother, requesting her resignation from the government. She refused to negotiate and her mother soon returned home safe.
Many hope that her negotiating skills and stamina will come in handy for her new role at the WTO. Finding common ground among countries with disparate interests is the main task of the Director-General, but often an uphill battle in an organisation where the ‘one member, one vote’ rule reigns supreme. Some also point to Okonjo-Iweala’s knowledge of the healthcare sector as an advantage in the post-pandemic era, as she has served as board chair at GAVI, a public-private organisation supporting vaccination in the developing world. Since her appointment, she has pledged to seek a compromise over vaccine patents that would allow poorer countries access to modern drugs without undermining R&D investment.
Britain’s vision
If there is one country that fully backs the WTO, warts and all, it is the UK. Crammed between three trade powerhouses, the US, the EU and China, the UK government hopes that the organisation can preside over a rules-based trade regime that would suit its post-Brexit vision for ‘Global Britain.’ The country’s international trade minister, Liz Truss, has urged other developed countries to support the organisation as part of a broader reform of global trade, which she claims is “stuck in the 1990s.”
As the world gradually leaves the pandemic behind, the WTO is confronted with a crisis of larger proportions: climate change
However, the UK has to tread a fine line between building a trade relationship with China and backing the US and other allies in their crusade against China. Australia recently appealed to the WTO against Chinese tariffs on Australian commodities, following a public request of the Australian government for an investigation into the origins of COVID-19. Truss has condemned as “absolutely appalling” China’s persecution of Muslim Uighurs in Xinjiang and has called other G7 countries to “get tough with China,” while the UK aims to join the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP), an 11-country free trade deal China is also considering joining. “The UK should be part of a wider coalition in support of a rules-based multilateral order rather than choose the US or China.
The WTO provides the forum for this,” says Woolcock. Some think that the country’s greatest weapon is its soft power, notably its position as first among equals in the Commonwealth. “Outside the EU, the UK is in a better position to maximise its role as ‘hegemon emeritus,’ mediating relations between the US and the rest of the world,” says VanGrasstek, who teaches a course on trade policy at Harvard Kennedy School and has advised several governments on trade policies.
New challenges ahead
As the world gradually leaves the pandemic behind, the WTO is confronted with a crisis of larger proportions: climate change. The topic has recently come into the spotlight due to regulatory activity on both sides of the Atlantic. In Europe, the European Parliament has called for the European Commission to introduce a ‘carbon border adjustment mechanism’ (CBAM) by 2023. The levy is expected to target polluting industries such as steel and aluminium, which have recently sparked tension between the US and the EU. The tax may be linked to the EU’s emissions trading scheme to make it compatible with WTO rules. The Commission is expected to present a proposal for the final form of the levy in July. On the other side of the Atlantic, the US government is considering its own version of carbon tariffs, while it is expected to pursue stronger enforcement of environmental standards in FTAs.
The definition of what constitutes ‘trade’ has dramatically expanded over the last few decades
Like vaccine patents, carbon taxes underline the need for the WTO to adapt its rules and cooperate with other international organisations, as the definition of what constitutes ‘trade’ has dramatically expanded over the last few decades. “To remain relevant, the WTO needs to tackle the impact of climate change on trade. This means that the negotiations on environmental goods need to be picked up again, and possibly be expanded to environmental services,” says Claudia Schmucker, a trade expert at the German Council on Foreign Relations.
Although the EU has promised that its carbon tariffs will comply with WTO rules, experts expect them to face fierce opposition from the US, India and China. “The WTO could play a mediating role by getting the players at the table, discussing WTO-compatible ways for CBAMs,” Schmucker says. “The last thing you want to do is to invest a lot of time, effort and political capital into creating and implementing a new regime, only to have it challenged in the WTO,” says VanGrasstek. “Then you’ve got a mess.”
Just a few years ago, investment bankers were bullish on emerging markets, which they saw as undervalued and bound to rise. And yet, after experiencing a minor recovery, growth rates in Latin America, the former Soviet Union, the Middle East and Africa are settling back into a state of near-stagnation.
In this regard, Russia is a pioneer, having registered no real growth since 2014. According to an old Soviet saying, agriculture suffers from four problems: spring, summer, autumn and winter. Following the same logic, Russian President Vladimir Putin blames “outside forces” – not least global oil prices – for his country’s doldrums, even though unsound economic policies and Western sanctions are no one’s fault but his own.
It is no accident that there has been an economic divergence in central and eastern Europe. Those countries that have joined the European Union have improved their economic governance, and GDP has begun to converge with western Europe. Between 2014 and 2019, Hungary, Poland, and Romania grew at an annual average rate of 3.9 percent, 4.1 percent and 4.7 percent, respectively.
Overtaken and left behind
Meanwhile, Belarus and Ukraine experienced minimal growth during this period, and Russia’s economy expanded at an average annual rate of just 0.7 percent. Though Russia had a higher per capita GDP (in terms of purchasing power parity) than Croatia, Poland, Romania, and Turkey as recently as 2009, all of these countries have since overtaken it. Russians today are shocked to learn that they are worse off than Romanians and Turks. Among EU member states, only Bulgaria is still poorer than Russia.
With its close proximity to the EU single market, Russia could have had higher growth if it had pursued sound economic policies. Instead, Putin has utterly squandered the country’s abundant human capital through corrupt cronyism and systematic deinstitutionalisation. His politicisation of the courts and law enforcement has eliminated any pretext of rule of law – a prerequisite for private investment and business development.
Apparently, Putin believes the economy is less important than the ability to kill opponents like Boris Nemtsov and Alexei Navalny (who was recently transferred from prison to a hospital, reportedly near death). Transparency International’s Corruption Perception Index illustrates the depth of Putin’s kleptocracy. In 2020, Russia ranked 129th out of 176 countries, whereas Poland ranked 45th and Romania and Hungary were tied in 69th place. None of these central European countries is a bastion of clean governance, of course; but the difference lies in whether a country respects property rights.
Only fools rush in
Lacking secure property rights and being subject to western sanctions, Russia can attract only fools and crooks. Between 2008–13 and 2014–19, average annual inflows of foreign direct investment fell from 3.1 percent of GDP to a paltry 1.4 percent of GDP. In his annual address to the Federal Assembly on April 21, Putin, as usual, promised that “macroeconomic stability and containing inflation will definitely be accomplished.” To be sure, investment banks and the International Monetary Fund look sympathetically on Russia’s conservative macroeconomic policies. Isn’t it wonderful that the country has $573bn in international currency reserves, a federal government debt of only 18 percent of GDP, and a steady current-account surplus?
Dictator behaviour
Actually, macroeconomic stability means little, because it is merely a means to achieve consistent growth; it is not an end in itself. The aim of any government’s economic policy should be to maximise its citizens’ welfare. But Putin’s express purpose is to maximise so-called Russian sovereignty – which is to say, his own dictatorial power.
The investment bankers’ position is somewhat understandable, given their interest is in selling Russian bonds. The question is why the IMF would concur. While the IMF has recently moved away from fiscal conservatism to support more stimulus around the world, the Russian government has done the opposite. Clearly, the IMF needs to figure out what it actually stands for. The ratcheting up of western sanctions is another problem of Putin’s own making.
On April 15, the US government barred financial institutions under its jurisdiction from purchasing Russian ruble-denominated bonds, after having sanctioned Russian foreign-currency Eurobonds in 2019. The Central Bank of Russia insists that these bond issues are tiny, amounting to only around $61bn in a $1.5trn economy. But this ignores the implications of the US policy. Although investment bankers can still buy Russian bonds in secondary markets, they will have to consider the risk that the next round of sanctions will target these purchases, too.
Moreover, while it is normal for a large emerging economy to hold hundreds of billions of US dollars in government bonds, Russia does not have this option. The costs of US sanctions are thus larger than they appear. Russia’s inability to deal in dollars severely restricts its investment opportunities and impedes its growth. Meanwhile, thanks to Putin and his extreme austerity policies, the Russian standard of living has fallen by 11 percent in the last seven years.
How can anyone praise such inhumane policies? While economists generally focus on real (inflation-adjusted) economic growth, what matters to foreign investors is the value of the country’s GDP in US dollars. In Russia’s case, this has slumped by more than one-third – from $2.3trn in 2013 (before sanctions) to $1.5trn in 2020. In current US dollars, Russia’s stock exchange is valued at only 53 percent of its May 2008 peak. What serious investor would bet on such a rapidly shrinking economy?
Performing at less than optimum
How much of Russia’s underperformance since 2014 has been caused by declining oil prices, and how much by western sanctions and the Kremlin’s own anti-growth policies? In a forthcoming Atlantic Council report, Maria Snegovaya and I argue that Russia’s potential growth since 2014 should have been five percent per year, and that roughly half of that – between 2.5 and three percent of GDP per year – was eliminated by western sanctions.
True, Russia is hardly the only emerging economy struggling nowadays. But none owes its current travails to a similar level of self-harm.
