Author: Max Tomlin

BMO Financial Group succeeds with its customer-centric approach

Posted on by Max Tomlin

Over the past few years, customer expectations have changed dramatically. With many industries already successfully operating on demand and immediately providing goods and services to consumers, sectors not operating at this speed appear painfully outdated. Standing out is also difficult: if service is immediate and largely the same between competitors, how can a company appear unique?

In a market where the vast array of choices can be overwhelming, we have found that articulating a compelling story can be the differentiating factor for many people

Serving customers for 200 years and counting, BMO is a highly diversified financial services provider. With total assets of $728bn as of the end of January 2018, it is the eighth-largest bank by assets in North America. With a team of diverse and highly engaged employees, BMO provides a broad range of personal and commercial banking, wealth management and investment banking products and services to more than 12 million customers.

Dev Srinivasan is Head of Canadian Business Banking at BMO Financial Group, serving the small business to mid-market segment. World Finance spoke with him about how the bank is adapting to new customer expectations and how it continues to stand out in such a dynamic market.

How has business banking changed over the last several years?
We’ve built a fantastic business supporting both our clients and the communities in which they run their operations. We are justifiably proud of what we have achieved together with them, but now we are at a turning point and our competition has changed. We are no longer just competing against other banks, and our clients are expecting more in terms of services. Uber, Apple and a host of other companies have changed what people expect from a business, and people are now holding all other industries up to their standard, with banking being no exception.

In a market where the vast array of choices can be overwhelming, having a differentiated value proposition in what can be a commoditised business is key to outperforming competitors. With the support of employees from across our business, we have come together to discuss what makes us different, what defines a great customer experience, and what motivates us to give our all each and every day. The result is a story that tells our clients who we are and what we stand for – things we know they value and expect.

What has BMO focused on in order to stand out?
We believe that choosing a bank is one of the most consequential decisions a business owner can make. We know that the success of the partnerships established between business owners and their banks are vital to the ongoing success of both.

We truly believe that trusted advice is not a commodity, and we refuse to be seen as just lenders. As true business partners, we help our clients manage their challenges and opportunities at every stage, whether they are building, growing, stabilising, expanding or selling a business. We also remain fiercely local; we live, work and make decisions in the communities we serve. We form relationships with our clients thoughtfully. We are great in good periods, and even better when challenging times arise. As a result, we are grateful to see that those who know us, love us.

How does BMO add value to its products and services?
Fundamental to our client relationships is our unique value proposition. Indeed, it’s not just any corporate value proposition: we created this with our clients as well as our employees. Simply put, we are a powerful business partner to our clients. A relationship with us creates better options and outcomes, meaning our clients emerge stronger.

To deliver on our value proposition, our relationship managers need to consistently put themselves in our clients’ shoes. That takes daily inspiration. What inspires us? Our clients, and their unique stories. So, to keep that client focus, we all agreed on five business beliefs that inspire us.

Can you expand on these five beliefs?
Our first belief is that owning a business is an act of courage. We have tremendous respect for the entrepreneur willing to take on the difficulties and challenges that accompany building and sustaining a business. Which brings us to our second belief. Choosing a bank is one of the most consequential decisions a business owner can make. Our business banking teams bring to bear the right resources from all across our bank, always at the right times.

Our third belief is that the relationship managers who act as simple order-takers are short-changing their clients. If we are just providing capital, we are doing them a disservice. We want to do more – we want to make our clients’ businesses better. We believe that all successful businesses need a strong banking team that can challenge their thinking, assumptions and plans. Such a team can help clients identify ideas and obstacles that they may not have yet considered.

Fourth is that clients hate surprises and silence. We know that nothing beats great execution. Indeed, when there are missteps, fixing them and recovering exceptionally well is the key to ongoing success. Continuity, stability and responsiveness are similarly vital.

And finally, we believe that early conversations create better options and outcomes. We work to have ongoing, candid conversations about our clients goals and dreams, which ultimately leads to stronger results.

How has focusing on these beliefs changed BMO?
These beliefs have led to real action and crafted an approach to client experience that all of our business banking employees have taken on board. We know our clients’ industries, businesses and what is important to them. We make sure our objectives are aligned with those of our clients. To help clients meet their objectives, we create a plan together and clearly articulate steps and a time frame for goals to be achieved. We execute our plans with honesty, integrity and transparency so there are no surprises. We follow through on commitments and fix our mistakes. We also revisit these plans to ensure that we are adapting to our clients’ changing needs, and always look for new ways to impress them.

How does BMO cater to businesses across different sectors?
While our beliefs and our approach underpin all our relationships, we also recognise that not everyone can be treated the same. For example, we have put a focus on three growing business segments and have already seen impressive results. These segments benefit from specialised products and advice, meaning a banker needs to have a strong knowledge of the industry to serve a client effectively. When we provide that extra value, companies in those segments reward us with their business.

Technology, for instance, requires significant specialisation that banks typically have not been able to master. This sector in particular requires a solid knowledge of softer assets such as emerging trends and new ways of doing business. Over the past year, our approach to this sector has led to significant inroads for BMO.

What are the sectors that BMO is focusing on?
Technology is one of these areas. It knows no borders, and our bankers, with their strong cross-border capability, understand this. For instance, just recently we financed the expansion of an IT services firm through the acquisition of two complementary companies, one located in Ontario and the other in Washington state.

We have had a lot of success with our differentiated approach in agriculture, where knowledge of the local market and the broader industry is very important. Also, we know that our agriculture clients value local leadership and local decision-making in credit and risk. Knowing our clients and establishing a strong presence in the communities where they do business, including local event sponsorship, is vital to developing that relationship.

We also know that our agriculture clients face many challenges, from weather and transport issues to market forces. We stand with them throughout the business cycle with practical solutions. Just recently we launched a relief programme to assist farmers in Western Canada who were unable to market their grain crops because of a shortage of rail transportation.

Finally, healthcare has become an important sector for us. Given strong fundamentals in the industry, creative, stretchier structures are possible with the right expertise and we are positioned to deliver that expertise to our clients. As an example, pharmacies are looking for specialised products and services given their potential, but unrealised, earnings. BMO recently established a customised financing and banking offer with a branded pharmacy network to make it easier for their banner members to grow their practices.

Hyperloop transport is moving closer to reality

Posted on by Max Tomlin

India has leapfrogged the rest of the world to implement one of the world’s most advanced transport technologies: hyperloop. Earlier this year, Virgin founder Richard Branson signed a framework agreement with the state of Maharashtra to build a hyperloop track connecting the cities of Pune and Mumbai, with the intention of drastically decreasing travel time and traffic congestion.

The country’s rising population and growing economy have pushed up the demand for energy, creating a need for energy-efficient transport systems

The proposed route will link the two cities via the upcoming Navi Mumbai International Airport and, critically, Virgin claims the project could cut the current commute time from approximately three hours by train (2.5 hours by road) to just 25 minutes.

“I believe Virgin Hyperloop One could have the same impact upon India in the 21st century as trains did in the 20th century,” Branson said in a company statement. The move is significant, but India’s transport infrastructure still needs a lot of work in order to support a growing economy and population.

Hyperspeed ahead
The hyperloop – originally the brainchild of serial entrepreneur Elon Musk – allows for ultra-fast travel by shooting transport capsules through low-pressure tubes on magnetically levitated tracks. If successful, the completed Virgin Hyperloop One would represent a major victory for an emergent technology that has never been tested at scale.

In its statement, Virgin said future projects could see the route expand to include the upcoming New Pune International Airport, as well as linking industrial zones in Pune with Jawaharlal Nehru Port in Mumbai.

Construction of the Pune to Mumbai route will be carried out in several phases, with the initial six months devoted to a feasibility study determining the environmental impact, cost and regulatory framework of the project. Upon completion of the study, an operational demonstration track will be constructed within three years, with completion expected to take another five to seven years.

“Mumbai to Pune is one of the busiest and most travelled routes, because Pune is like a satellite town to Mumbai,” said Dr Ruth Kattumuri, Co-Director of the India Observatory at the London School of Economics. “There have been several other projects including a six-lane highway in the last 10 years, and the airports have become more used. This would be a third element.”

The proposal envisions 150 million passenger trips per year, saving customers an estimated 90 million hours of travel. According to Virgin Hyperloop One’s pre-feasibility study, the hyperloop project will also reap $55bn in economic benefits over 30 years, and could reduce greenhouse gas emissions by 150,000 tons annually as a result of the electric powered track and reduced traffic congestion.

In the driver’s seat
India’s transport system is forecast to grow faster than any other infrastructure component in the economy, averaging a predicted annual expansion of 5.9 percent until 2021. This is a result of stronger government investment in transport projects and increased foreign direct investment. Recent policy changes have included assigning regional governments regulatory approval of urban transit projects and encouraging public-private partnerships in a bid to increase capital flow.

“India is at [a] development phase where it has to exponentially increase its investment into multiple sectors, and infrastructure is one of the key sectors,” Kattumuri told World Finance. “Over the last 10 years, when you talk about growth in India, infrastructure is among the top concerns hampering development, so growing its infrastructure is extremely important.”

Speed bumps
Despite large investments into the infrastructure sector, India faces a number of uphill challenges. The country’s rising population and growing economy have pushed up the demand for energy, creating a need for energy-efficient transport systems. Meanwhile, capacity constraints have created bottlenecks in important rail corridors. A successful proof of concept of hyperloop at scale would take pressure off strained rail networks and help improve the overall efficiency of the transport system.

According to Kattumuri, the fact that India’s population is so young – over half the population is under the age of 25 – makes infrastructure investments all the more crucial: “It is a very mobile population because it is a young population, and to be mobile you have to have better infrastructure… India’s young population is one of its biggest advantages, and it has to create different engines of growth in order to meet the aspirations
of its young people.”

The ease of commuting long distances at high speeds could boost job creation by tens of thousands across all sectors in the economy, particularly those concentrated in urban and industrial areas. The hyperloop system also has great potential to expand access to education for rural inhabitants, improving the country’s long-term economic prospects. Furthermore, as super high-speed transport networks catch on, they have the potential to make travel between metropolitan and rural areas almost effortless, providing a significant boost to the number of available labourers and consumers in the economy.

The population of India is set to overtake that of China by 2024, with growth expected to continue until 2061, when it is projected to peak at 1.6 billion. It is imperative the country modernises its transport systems as it works to support an unprecedented population density, which is forecast to reach 564 people per sq km by its peak.
There is a significant amount of work that needs to be done before India can efficiently handle its own growth, but the hyperloop project signals the country’s strong continuing commitment to that end.

Sampath Bank stays perfectly attuned to the modern age

Posted on by Max Tomlin

In what can best be described as modest growth, Sri Lanka’s economy expanded by just over four percent in 2017, amid negative headwinds and notable inflationary pressures. GDP growth for the year was fuelled mainly by the services sector, as the country’s core agriculture sector battled adverse weather and consequently reported a contraction for the second consecutive year. On the external front, the country continued to struggle under the weight of a burgeoning trade gap, as the benefit of low oil prices was offset by increased imports of food and petroleum. This scenario was further exacerbated by the ongoing decline in worker remittances – the country’s largest foreign exchange earner.

Nonetheless, unequivocal positives were also evident as consistently high prices in the global market helped Ceylon Tea regain its spot as the second-highest foreign exchange earner for 2017. The prospects of the country’s apparel sector also showed a marked improvement on the back of the reinstatement of the Generalised Scheme of Preferences trade arrangement, while the lifting of the EU fishing ban earlier in the year added a boost to the local perishable export industry. FDI – led by China – also witnessed a slight increase in 2017. In yet another positive sign, the Sri Lankan rupee stayed relatively stable, depreciating only two percent against the US dollar throughout the year.

Sri Lanka’s banking sector continued to show remarkable resilience and adaptability in response to changing market dynamics

Meanwhile, commendable progress shown by the Sri Lankan Government to tighten fiscal and monetary policy controls enabled the country to secure the third and fourth tranches under the IMF’s Extended Fund Facility (EFF), with the total EFF allocation to Sri Lanka reaching $759.9m as of December 31, 2017.

Sector snapshot
Sri Lanka’s banking sector, which has been on a firm upward growth trajectory for the past few years, continued to show remarkable resilience and adaptability in response to changing market dynamics. Despite challenges faced by certain sectors of the economy, credit extended to the private sector by banks has been on the rise, as was the case in 2017 as well. In parallel, sector-wide assets have also grown. Despite the increase in total assets, however, sector-wide asset quality remained strong, even registering a slight improvement in 2017 over the previous year. On the other hand, sector-wide borrowing declined in the wake of high interest rates.

Nevertheless, the sector remained well capitalised, with a healthy liquidity position being maintained throughout the year. The average statutory liquid assets ratios stayed well above the minimum statutory requirement of 20 percent, while the ratio of liquid assets to total assets stood at 28.3 percent. Meanwhile, new policy directives issued by the governing body, the Central Bank of Sri Lanka, saw all licensed commercial banks begin the journey towards adopting the Basel III regulatory minimum capital standards, with effect from July 1, 2017. The move is aimed at strengthening the capital position of all licensed banks in the country and enabling them to comply with the stringent requirements of the Basel III standards. It is expected that this will in turn increase the capacity and overall stability of the country’s financial system.

Forging ahead
Against this backdrop, Sampath Bank made steady progress in its strategic aim to be a growing force in Sri Lanka’s financial services industry. Operating through an island-wide network of 229 branches and 391 ATMs, over the years Sampath Bank has continued to break new ground through its range of products and services and its multichannel business model, bringing prosperity to generations of Sri Lankans. Employing more than 4,000 people, supporting nearly 2.6 million customers, and paying dividends to more than 17,440 shareholders and many millions in taxes, Sampath Bank remains fully committed to securing and enhancing the financial wellbeing of the people of Sri Lanka.

Marking 30 years in the business, the bank is proactive in its quest to discover opportunities in the face of every challenge. It is this unyielding determination and sense of purpose that allowed Sampath Bank to deliver yet another stellar performance across the board in 2017. The banks’ advances portfolio grew at a cumulative average rate of 22.5 percent – a much faster pace than the industry growth average of 16.1 percent for 2017. For the first time, annual gross loan growth exceeded LKR 100bn ($633m), which was driven by a 26.8 percent increase in corporate lending, mainly to high-growth sectors, while the SME and retail books also grew by 19 percent. Notwithstanding the progress in its credit portfolio, Sampath Bank succeeded in maintaining credit quality: the bank’s non-performing loan ratio was 1.64 percent in 2017, compared with the industry average of 2.5 percent for the same period.

Meanwhile, spearheaded by aggressive deposit mobilisation strategies, the bank’s deposit portfolio kept growing at a rate of 22.1 percent, higher than the industry average of 17.5 percent. As a result, market share too edged up to 8.5 percent as of the end of December 2017, up from 8.2 percent a year prior.

The strong operating performance combined with sustained cost efficiencies produced record results for the year. Profit after tax rose by 32.7 percent year-on-year to surpass LKR 12bn ($76m) for the first time in the bank’s 30-year history. Our balance sheet remains healthy and is supported by a stronger capital base, liquidity levels and asset quality, all of which are well within regulatory requirements. It is evident from these excellent financial results that the bank is on the right track and has the apposite strategy, culture, product suite and geographical footprint to deliver consistent and sustained value to stakeholders.

Quantum leap
Although our banking franchise is stronger than ever, we are nonetheless acutely aware that sustaining our position in the longer term will largely depend on how agile and innovative we are as a bank. We recognise that with changing customer behaviour, the advent of smart devices and the popularity of social media, conventional brick-and-mortar banking has been forever altered. Further, we operate in an increasingly competitive environment, made more so in recent years by the advent of telecommunications companies offering financial solutions. Given these changing dynamics, the bank understands it is vital to align strategies and develop the requisite shifts in behaviour that are necessary to achieve the desired customer outcomes.

Anchored to our vision to be a world-class bank, in 2017 we took a quantum leap to realign our business in face of a changing world. We embraced a three-pronged approach to stay ahead of the curve. The first prong of this strategy is to fuel corporate business growth through sector-specialisation. The second is to raise the standards of consumer banking and reach out to as many individuals and SMEs as possible across Sri Lanka. Finally, we aim to position Sampath Bank as the leading fintech solutions provider in the country. Aiding in this strategy is our new structure, which offers more fluidity, thereby enabling the bank to articulate its value proposition to customers in a more integrated manner. The ensuing changes will create a solid foundation from which we can improve scalability in an ever-changing world.

Stemming from this, widespread changes were made to the bank’s corporate banking model in order to augment advisory capacity and maintain industry leadership in fast-growing sectors of the economy. Meanwhile, sector specialisation was introduced as a means of deepening the penetration to priority sectors such as agriculture, apparel, manufacturing and leisure. In parallel, the operational architecture of our consumer banking branch was revamped with a strong emphasis on channel diversification to grow the SME segment.

Furthermore, to achieve the level of digital sophistication required of a world-class bank, further investments were made to replace the bank’s legacy systems with more versatile core infrastructure. The move forms part of a wide-ranging digital strategy through which Sampath Bank expects to take the lead in reshaping the future of the digital banking landscape in Sri Lanka.

The focus for 2017 was centred on innovating purposefully for the benefit of our customers, prompting efforts to systematically expand digital channels. This also resulted in further integration of physical and electronic distribution channels to facilitate a seamless customer experience across multiple touchpoints. For example, groundbreaking products such as Sampath PAYAPP and Sampath Payeasy were rolled out in early 2017 to give customers greater control and complete freedom to manage their financial matters, even when they are on the move. Judging by the market uptake for these products, it is obvious that modern customers indeed want a banking service that is seamlessly integrated into their everyday lives.

Increasing our contribution to the growth and development of Sri Lanka and its people is one of Sampath Bank’s foremost goals for the future. Crucially, this means adapting the bank’s business model to keep pace with customers and their changing needs and expectations. In setting Sampath Bank apart from its peers, our greatest differentiator will be the quality of our customer value proposition, which will be pivoted on product innovation, competitive pricing and unbeatable customer experience. Therefore, triggering the next growth phase would require the bank to act like a start-up, making it possible to respond and innovate quickly and efficiently in order to deliver simple, fast and effective banking that is relevant to the digital age.

HNA Capital highlights the importance of comprehensive risk management

Posted on by Max Tomlin

For some time now, HNA Capital, which serves as HNA Group’s financial services platform, has been actively developing a layout strategy within China’s Belt and Road Initiative (BRI) framework. Namely, the Beijing-headquartered company has been utilising the advantages of modern financial technology to promote capital financing for the countries and regions involved. To this end, in February, HNA Capital signed a BRI Strategic Cooperation Agreement with China Asia Pacific Assets and Property Rights Exchange (CAPEX), creating a strategic partnership that is focused on project development, investment, financing, equipment supply, engineering construction, operation management and more in the region.

HNA Capital is also taking the lead in an RMB 20bn ($3.1bn) industrial fund to further support infrastructure, industrial development, financial services and hi-tech projects in mainland China, Hong Kong, Macau and Taiwan, as well as other countries in South-East Asia. In light of this mammoth undertaking, which takes place during HNA Group’s 25th anniversary, World Finance spoke with Tang Liang, Chairman of HNA Capital, about the company’s BRI strategy and how it effectively controls risk.

What are the highlights of your participation in the BRI over the past few years?
In recent years, HNA Capital and its subsidiaries have been optimising their layout strategy in the global aircraft leasing industry. To do so, we are strengthening cooperation with countries in the BRI, while promoting the coordinated development of leasing commercial aeroplanes, business jets and general aviation aircraft.

The construction of the BRI is accompanied by a large amount of infrastructure investment and industrial cooperation. Consequently, the demand for aircraft leasing and container leasing has skyrocketed. In order to seize this opportunity, HNA Capital member company Bohai Capital has set up branches in Shanghai’s free-trade zone, Tianjin’s free-trade zone, Qianhai and Hengqin New Area. Bohai Capital has also grown into the world’s second-largest container leasing company following the acquisition of Seaco, the world’s sixth-largest container leasing company, and after obtaining an 80 percent stake in Cronos, the eighth-largest. Furthermore, with the buyout of CIT Group, Bohai Capital has established its position as the third-largest aviation leasing group in the world, and is the only Chinese-funded enterprise among the three largest aircraft leasing giants.

What are HNA Capital’s risk control principles?
Written in our constitution are the ‘three defensive lines’, which include: traditional risk control measures, such as monitoring indicators; due diligence; process management; risk assessment; internal control evaluation; and legal review. Since establishing this foundation, HNA Capital has been continually strengthening its risk control to achieve a comprehensive risk management system, establishing multidimensional risk firewalls and isolation mechanisms, such as investment management.

Meanwhile, we are also introducing new and innovative mechanisms, such as signing risk responsibility commitments with various industry leaders and quantifying the core risks of member companies. In addition, we have set up state-of-the-art digital platforms to provide real-time monitoring of companies, early warning of major risks, analysis of risk trends, and so on.

Confronted with emerging financial risks, how can HNA Capital improve its risk control capabilities?
HNA Capital has integrated the three defensive lines idea into the construction of an information-based risk control system. Initially, this involves real-time docking of business data, monitoring operational status throughout the process and setting up early warning mechanisms. Second, it entails classifying risk types, analysing risk factors and tracking risk disposal, and third, improving risk control effectiveness through internal audit supervision and rectification.

The whole process can be monitored through the full-scale visual risk panorama platform, which can be considered as ‘an eye in the sky’. In addition, financial technology and intelligence is a new driving force in the construction of HNA Capital’s risk control system.

Can you explain how big data and cloud computing technologies are applied to your risk control system?
Specifically, HNA Capital’s risk management and control information system, which is based on HNA’s cloud computing platform, has undergone innovative development. It has evolved into a new intelligent risk control system, covering a multidimensional information data model that is able to perform automated collection and analysis of operational monitoring data and business monitoring. It has completed the real-time monitoring of more than 2,000 business risk indicators, and also identifies, analyses and deals with various risks, such as liquidity, credit and legal risks, and can form a closed-loop risk management process.

What are the defining characteristics of the company’s organisation, function and positioning of risk management?
The main advantages of HNA Capital’s risk control work are embodied in our years of management experience and data accumulation. On the one hand, HNA Capital and all its member companies have fully established a multilevel risk control work system, from its risk management committee to risk control leaders and a dedicated risk control department. There are now more than 100 employees in the risk control system, covering all front, middle and back-office business lines.
As I mentioned before, we also have a sound risk control mechanism, which allows us to holistically implement comprehensive risk management for all of our capital at the corporate level. We have built the risk firewall that controls multidimensional risks and fixed the defects of internal control through a risk responsibility system. We have also adopted an information-based approach towards risk management and control, so as to drastically improve the efficiency and quality of risk control at HNA Capital.

Zenith Bank harnesses digitalisation for the benefit of customers in Ghana

Posted on by Max Tomlin

Digital technologies are dramatically reshaping how banks interact with their customers the world over. In Ghana, digitalisation, coupled with government efforts to create a cash-lite society, is at the core of strategies being formulated and implemented by almost all banks in the country. It has not only provided Ghanaians with more flexible and reliable banking services, but it has also addressed, to a large extent, the issues relating to financial inclusion.

Zenith Bank’s prowess has enabled it to deliver the levels of convenience demanded by its customers, while providing pioneering solutions that are in line with global trends

As one of Ghana’s leading financial institutions, Zenith Bank has been at the forefront of the country’s digital evolution. The bank’s prowess and robust technology have enabled it to deliver the levels of convenience demanded by its domestic customers, while providing pioneering solutions that are in line with current global trends.

Flexible finance
Introducing more digital services into the Ghanaian banking sector may promise many benefits, but there are some citizens who are not yet ready to embrace innovation in all its forms. To combat this, Zenith Bank is careful to always canvass for public opinion before launching new services and is more than willing to help with educational programmes and training schemes to ensure that its new e-banking products are well received.

Henry Oroh, Managing Director and CEO at Zenith Bank, believes his company’s appreciation of public sentiment has helped create a positive outlook towards new technologies. He told World Finance: “Customers appreciate the convenience of e-banking. Although there has been some resistance from customers who would prefer a more traditional face-to-face approach, the benefits of being able to bank anytime and anywhere are such that the majority of customers are now happy to embrace digital solutions.”

In order to achieve customer satisfaction, Zenith invests heavily in developing its human capital and ensures that it recruits only the most talented candidates available. “Our dedicated team of IT professionals work tirelessly to develop customised solutions,” Oroh said. “Our mission is to invest in the best people, technology and the environment. Only then can we truly satisfy our customers. Our position as an innovation leader comes as a result of delivering cutting-edge products, as well as consistent customer service to the local market.”

Digital technologies – smartphones and mobile data in particular – are also helping to improve financial inclusion in Ghana. In addition, the introduction of mobile money services and their interoperability with banks have meant that many more Ghanaians are now able to access banking products and services.

“As a forward-thinking organisation, Zenith Bank has partnered with some telecommunications companies to introduce the mobile money Bank2Wallet service, allowing mobile phone users to conveniently link their traditional bank accounts to their mobile money wallets in order to make payments for goods and services 24 hours a day,” Oroh said. “With this, access to traditional banking products and services no longer seems difficult to the unbanked.”

Zenith Bank has been quick to take advantage of the opportunity provided by mobile phone technology, being among the first Ghanaian banks to roll out a mobile application. Zmobile is available across both the App Store and Google’s Play Store and has received overwhelmingly positive feedback from its users. By enabling individuals to check their account balance, top up their investments, conduct intra and interbank transfers and perform a host of other financial activities, it has delivered the enhanced flexibility that modern-day customers demand.

Cashing out
Until a few years ago, Ghana depended largely on the use of physical cash for almost all financial transactions. Over the years, the proliferation of ATM machines has subtly introduced the populace to the benefits of banking technology and the advantages of storing wealth through methods other than cash notes.

In fact, banks have taken a leading role within Ghana’s cash-lite agenda through the development of innovative e-banking products and services, such as automated cheque issuance, electronic card payments, internet banking platforms and mobile banking apps. The telecommunications industry has also contributed with the introduction of mobile money platforms, which have rapidly become one of the primary ways through which payments are made by the unbanked in Ghana.

With the introduction of the interoperability system by the Ghana Interbank Payment and Settlement Systems, bank accounts have been linked to mobile money accounts to enable users to easily transfer funds from one mobile money platform to another. “The future is looking bright,” Oroh told World Finance. “We believe that in a few years, Ghana will achieve a cash-lite society status.”

Zenith Bank is rightly enthusiastic about the monetary developments taking place in the country, as transitioning to a cash-lite society will bring a number of associated benefits. Primarily, it would represent the next step on the road to formalising Ghana’s financial sector, making it more streamlined and adaptable in the face of changes in monetary policy. The country would also be better placed to create business partnerships and collaborate on a global scale, which would eventually enhance the overall economic growth of Ghana.

“Ghana’s transition towards a cash-lite society can clearly be seen in the increased usage of e-banking products and services,” explained Oroh. “However, a large proportion of the banking public is yet to adapt fully to electronic means of conducting transactions. Zenith Bank is helping these individuals to adopt new digital solutions at their own pace through its personable and well-informed members of staff.”

Furthermore, the new solutions being introduced at Zenith Bank are not only focused on the country’s cash-lite agenda. Ghana’s banking sector must appeal to a broad spectrum of customers and, as such, new services are also being introduced to specifically appeal to high-net-worth individuals.

The bank has added to its portfolio of Mastercard and Visa cards by recently rolling out the Zenith Platinum prepaid card, the first of its kind in the Ghanaian banking industry. This allows affluent customers who are already platinum account holders with the bank, as well as non-Zenith customers, the opportunity to enjoy the benefits of certain products and services, such as Zenith Platinum Banking LoungeKey Access, an exclusive service that offers access to more than 900 airport lounges globally. What’s more, as the country’s financial services sector becomes more developed, these benefits are only likely to become more widespread.

Rewriting the rulebook
As well as dealing with rapidly evolving technology, Ghanaian banks have also had to contend with a shifting regulatory landscape. In September 2017, the central bank of Ghana increased the minimum capital requirement for domestic banks from GHS 120m ($26m) to GHS 400m ($86m), with the aim of creating larger banks capable of handling big-ticket transactions. Oroh told World Finance: “I am proud to say that Zenith Bank is officially the first bank in the country to have met this new directive, as seen clearly in our Q1 2018 unaudited financial report.”

Similarly, the government has issued a new corporate governance directive to further reform the banking sector. The takeover of distressed banks in 2017 was a very big issue in Ghana’s banking industry and many reasons have been attributed to this unfortunate turn of events. Highlighted among the issues was the lack of good and effective corporate governance practices in the affected institutions and in the banking sector generally.

As a result of the new regulatory frameworks being championed by the central bank, financial institutions in Ghana have no choice but to adopt a sound corporate governance culture, or face legal action. Oroh believes that the recent developments “will help build the public’s trust in the industry”.

Zenith Bank is also bolstering support for Ghana’s banking sector by offering assistance to the country’s SMEs. These businesses contribute significantly to Ghana’s economic growth and have become particularly attractive to investors following the government policy of industrialisation, which aims to put a factory in each of the country’s 216 districts in the coming years.

The new minimum capital requirement will also help strengthen ties between Ghana’s SMEs and its banks. When financial institutions are well capitalised, they can increase their support for the private sector, which in turn helps the entire economy. It’s part of the reason why Zenith Bank is so proud of its work with Ghana’s business community.
“Our vision is to be a reference point in the provision of prompt, flawless and innovative banking products and services in the Ghanaian banking industry,” Oroh explained. “Through the right investments in the best people, environment and technology, the bank aims to be the market leader within the next five years by focusing on customer service delivery, financial performance, digital banking and brand repositioning.”

In recent years, the Ghanaian banking industry has changed markedly in order to meet technological developments and regulatory adjustments. For some institutions, these developments have proved too challenging to navigate, but Zenith Bank is demonstrating that it is agile enough to adapt to, and even shape, the industry’s future.

ICBC is well placed to capitalise on an exciting new era for Macau

Posted on by Max Tomlin

At the two sessions of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) last year, the Guangdong-Hong Kong-Macau Greater Bay Area was written into the Chinese Government work report, thereby formally becoming part of the national development strategy. This year, the development plan for the Greater Bay Area will be introduced and implemented, signifying that China’s Guangdong province, the Hong Kong Special Administrative Region (SAR) and the Macau SAR will enter into a new era of collaboration, jointly constructing a world-class bay area.

As part of China, Hong Kong and Macau are supported by the central government, but retain their own free economies

The Macau SAR Government has taken a prominent role in the development of a city cluster in the Greater Bay Area and is actively involved in the central government’s One Belt, One Road initiative (OBOR). Macau aims to make better use of its position as a world centre of tourism and leisure, and as a commercial and trade cooperation service platform between China and Portuguese-speaking countries. This will facilitate the free flow of talent, logistics, capital, information and technologies in the region, and will foster Macau’s economic growth by elevating its role in the country’s overall development.

Unique advantages
The Greater Bay Area, which includes Hong Kong, Macau and nine cities in Guangdong, is an externally facing economy with dense industrial clusters, first-class cities and extensive transport links. All these characteristics meet the requirements for the establishment of another world-class bay area, following in the footsteps of the New York City Bay Area, the San Francisco Bay Area and the Tokyo Bay Area. According to iiMedia Research online public data, in 2016, the Greater Bay Area’s 11 cities had a total population of nearly 67 million, which is greater than the Tokyo Metropolitan Area – the world’s largest city cluster, with a population of 43 million. However, the Greater Bay Area has a combined GDP of $1.38trn, lower than the $1.45trn of Greater New York and $1.86trn of Greater Tokyo, leaving plenty of opportunity for further growth.

The Greater Bay Area has a long coastline, a group of large harbours and an extensive sea area. The economic hinterland is vast, and it is also the meeting point of the Silk Road Economic Belt and the 21st-Century Maritime Silk Road. The shipping and aviation industries are well developed in the Greater Bay Area, which is home to some of the world’s busiest ports and airports. It also benefits from a modern industrial structure, featuring service industries and advanced manufacturing companies. Hong Kong and Macau have already taken a leading role in finance, transportation, trade and tourism. The manufacturing industry is well established and technology has been continuously improving.

The Greater Bay Area is uniquely characterised by China’s ‘one country, two systems’ constitutional principle: as part of China, the Hong Kong and Macau SARs are firmly supported by the central government. At the same time, they also retain their own free economies, an open market, a local currency that is (directly or indirectly) linked to the US dollar, simple clearance at the border crossing, and the use of Chinese and English or Portuguese as official languages.

Centre of the world
China’s OBOR is set to become a global phenomenon, with the Greater Bay Area striving to become its hub of value creation. The area has extensive infrastructure facilities and an advanced supply chain network. In particular, it boasts two free ports (Hong Kong and Macau) and the Guangdong pilot free trade zones (Qianhai, Nansha and Hengqin). The Greater Bay Area aims to build close economic connections with countries along the route, establishing a free trade zone for all economic activities to make itself the most significant hub in the area.

The flexible mechanism of ‘one country, two systems’ facilitates international cooperation and promotes the development of the OBOR. Collectively, the free port, the SARs, the special economic zone and the pilot free trade zones provide huge opportunities to expand regional trade and industry. The 11 cities in the Greater Bay Area will compete against one another, but will also complement each other as they enhance global competitiveness.

Hong Kong is an international financial, transportation and trade centre, while Macau focuses on the coexistence of different cultures and the establishment of an economic and trade cooperation platform. Hong Kong and Macau have traditionally had close relationships with Commonwealth and Portuguese-speaking countries respectively, which has helped both regions to foster dynamic economic communication.

The Macau SAR Government has responded positively to the national strategy for the Greater Bay Area and drafted a preliminary proposal for “the development of a city cluster” last year. It focuses on Macau’s ‘one centre, one platform’ initiative and intensifies the cooperation between Macau and the region’s other cities, speeding up innovation, industry integration and ensuring the Greater Bay Area is unified, open, orderly and competitive.

The development of the Greater Bay Area presents new opportunities for Macau’s tourism industry. By taking a holistic approach, the Macau SAR Government continues to enrich its tourism offerings by increasing efficiencies and promoting innovation. In addition, Macau has proposed action plans to strengthen regional collaboration and exploit its distinctive strengths, including a more convenient customs clearance. Macau will strive to become a world-class tourism city, where people can enjoy international standards of living, work, transportation and entertainment.

The commercial and trade cooperation service platform not only plays an important role in the overall national strategy, but also fosters the sustainable and diversified development of the Macau economy as well. The platform is expected to be hugely influential for the region and beyond, especially for Portuguese-speaking countries. The Sino-Portuguese Economic and Trade Cooperation Forum, founded in 2003, has successfully hosted five ministerial conferences in Macau and has achieved fruitful results thus far. In 2016, the Sino-Portuguese Cooperative Development Fund was officially settled in Macau. At the same time, Macau is accelerating the development of the region’s financial sector, broadening its scope and actively building a Sino-Portuguese financial service platform to promote the sustainable and diversified development of the economy.

Standing out from the crowd
In recent years, ‘characteristic finance’ has become a common phrase in the development strategies of regional financial centres like Beijing, Shanghai, Shenzhen and Hong Kong. Following suit, Macau needs to establish its own financial system by adopting characteristics that stem from the area’s unique position as a service platform for Sino-Portuguese cooperation. This will enable it to exploit its distinctive advantages, while avoiding direct competition with its counterparts.

In the past 10 years, Macau’s economy has achieved rapid growth that has seen the region become one of the richest in the world. However, the area’s overreliance on revenue from the gaming sector stands in opposition to its sustainable development goals, meaning a new propeller of economic growth is required.

Macau has an effective legal administration, a close relationship with Portuguese-speaking countries and huge market potential. It is certainly possible for Macau to develop its finance sector by taking advantage of its unique characteristics, focusing on digital trade, wealth management, equity investment and investment banking. The Macau SAR Government hopes to make use of China’s national strategy, in combination with its own ‘one centre, one platform’ policy, to broaden the scope of its financial industry and create value with regard to asset and wealth management.

Regional financial centres everywhere are pursuing fintech, internet finance and the big data economy, but Macau has unique advantages to draw upon when tapping into these new developments. Although Macau is currently dominated by the service industry, and thus its sensitivity to financial reform remains relatively low, the development of its own financial sector will help the region move towards a more diversified economy.

In response to the national strategy of the Greater Bay Area and Macau’s aim of developing its own financial sector, ICBC Group will strengthen the strategic positioning of Macau as an important global platform. The group will also support ICBC (Macau) in its management of the group assets of Portuguese-speaking countries. In March 2018, the Macau SAR Government and ICBC Group signed a memorandum of cooperation to support the development of Macau’s “characteristic finance” industry. The goal is to embed Macau and the Portuguese-speaking countries within the growth of the OBOR in order to accelerate the development of Macau’s finance sector. This will also promote the role of Macau in renminbi internationalisation and the development of renminbi cross-border investment and business financing.

ICBC (Macau) will take full advantage of ICBC’s brand, technology and resources to boost financial development in the region and support the businesses operating within internet finance, electronic commerce, asset management and wealth management. ICBC (Macau) strives to provide all-round financial services for enterprises, residents and visitors to Macau, to foster the diversified development of the economy and enhance Macau’s international competitiveness and global influence.

A tale of two workshops

Posted on by Max Tomlin

I was recently invited to attend two academic workshops. The first was organised by Rebuilding Macroeconomics, a group set up by the UK’s Economic and Social Research Council (ESRC), in 2017. As the group announced at the time, its intention was to create a network of experts from different disciplines including “psychology, anthropology, sociology, neuroscience, economic history, political science, biology and physics”, whose task it would be to “revolutionise” the field of economics.

This sounded like a very good idea, especially since I had called for just such an intervention by a diverse range of non-economists back in 2010, in my book Economyths. However, when I attended the meeting in a small conference room in London, the occasion wasn’t quite as I had pictured it. For one thing, just about everyone else was an economist.

After I gave my brief presentation, which argued for a genuinely new approach to economics – one that extends a school of thought already building momentum in other areas of the social sciences – the first question was something like: “David, are you saying that we need to change everything that we do, from the ground up?” I wasn’t sure how to respond. Had I come to the wrong event?

The second workshop, titled Quantum Theory and the International, aimed to discuss how ideas from quantum physics might be applied in the social sciences – particularly, but not exclusively, the field of international relations. Chaired by leading political scientist Alexander Wendt, author of Quantum Mind and Social Science, the meeting brought together experts from 11 countries and a variety of disciplines including sociology, political science, anthropology, applied mathematics and physics. In other words, all the people who I thought would be at the other workshop.

The event explored the idea that, while the social sciences were based on a classical Newtonian model of human behaviour, the quantum model was much better suited to social reality. For example, researchers in the field of quantum cognition – which treats human decision-making as a quantum process – argue that theirs is the easiest way to model the cognitive effects studied by behavioural economists.

Let’s try again
For my own talk, as a kind of sociological experiment, I decided to give the same one as at the ESRC workshop, with a few extra slides to explain the economics background. The difference was like night and day. The audience seemed engaged. Even sceptics (and there were a couple) listened to my arguments instead of dismissing them.

The topic, of course, was quantum economics. Readers of this column will know that I have been writing about the quantum properties of money for some time. My presentation went further and argued that the money system as a whole can be viewed as a quantum system in its own right, with its own version of the discreteness, duality, indeterminacy and entanglement that is confronted in quantum physics (see my new book Quantum Economics:The New Science of Money).

To start with the obvious, the quantum revolution in physics began with the discovery that energy is transmitted in discrete chunks, which physicists dubbed ‘quanta’. The same is true with money: when you tap your card at the store, the money doesn’t flow out in a continuous stream, but as a single amount.

A particle’s position is indeterminate and only collapses down to a unique value when measured by an observer. That sounds impossibly abstract, until you consider that the price of something like a house is also fundamentally indeterminate, until it ‘collapses’ to a single value when it is sold to a buyer.

Matter is dualistic, in the sense that something like an electron has the properties of a ‘real’ object, which can be detected, and a ‘virtual’ wave, which is described by mathematics. Monetary objects such as coins or bitcoins are similarly dualistic in the sense that they combine the properties of a ‘real’ owned object and a ‘virtual’ numerical value, which is what leads to their confounding effects on the human mind.

Perhaps the most mysterious aspect of quantum physics is the entanglement that can occur between two particles: a measurement on one affects the outcome of a measurement on the other, even if they are located on opposite sides of the universe. But it seems less bizarre when financial contracts such as loans enforce a similar link between creditor and debtor and can be modelled using the same type of mathematics.

When these properties were observed in the behaviour of subatomic particles, they led to the development of quantum mechanics as we now know it – but exactly the same argument can be applied to say that we need a quantum theory of money. The implications go right to the heart of how we model and think about the economy.

The quantum revolution
Now, it isn’t surprising that such a talk would be more warmly received by a group of renegade quantum-thinkers than by people who still have one foot firmly planted in mainstream economics. Anyone who talks about quantum ideas outside of physics or some other ‘safe space’ can expect a good deal of pushback.

However, it did drive home another point, which is that even 10 years after the economic crisis – and despite a number of well-intentioned programmes – economics doesn’t exactly seem to be in the throes of a revolution, or even a real rethink. Instead, the consensus seems to be that economics just needs to tinker some more with its existing models, and the 2008 crisis was just a bad storm that came out of nowhere. As Paul Krugman wrote in 2018, summing up the findings of another Rebuilding Macroeconomic project: “Neither the financial crisis nor the Great Recession that followed required a rethinking of basic ideas.”

To which the only answer is: what would it take, then? Fortunately, physicists didn’t take the same approach to rebuilding physics 100 years ago. Viva la revolución!

How BMO Financial is evolving to meet the changing needs of its clients

Posted on by Max Tomlin

Wealth enables unique opportunities and advantages, but also complexity, responsibility and, at times, conflict. Given this ever-changing environment, high-net-worth individuals nowadays are seeking more meaningful connections and a highly personalised approach when it comes to their wealth needs. While many are currently diversifying their holdings across multiple financial institutions, this impacts an advisor’s ability to provide a comprehensive wealth solution. Having a team of specialists and professionals instead, however, can give an integrated approach that facilitates a better client experience, as actions are coordinated with all aspects of wealth considered.

A number of industry forces are compelling firms to rethink their traditional, product-centric approach to wealth management

Through Net Promoter Score (NPS) customer satisfaction surveys, it has become clear that clients want more proactive and frequent contact. In the past, clients solely sought out expertise, but now they are increasingly looking for a coach-like individual who can help them make difficult decisions. As such, there is more focus on professionals who have an actual desire to help clients meet their individual goals, while also getting to know them and their families so that they can provide tailored advice. Given the current evolution of the wealth management industry, World Finance spoke with David Heatherly, COO of Private Banking for Canada and Asia at BMO Financial Group, about the impact of these changes and how they benefit both sides of the relationship.

What brought about this shift in the wealth management space?
A number of industry forces have made it imperative for wealth management firms to re-evaluate their value proposition. Such forces, ranging from low client confidence to higher regulatory standards, are compelling firms to rethink their traditional, product-centric approach to wealth management. Additionally, wealth management firms are facing increasing competition from new players, such as robo-advisors.

Expectations in terms of service are also changing: social media and the services and information available online are influencing what clients expect of us. The expectation is that we keep pace with brands like Google or Amazon, which is a very different approach than what we have taken historically. Our ability to differentiate ourselves involves getting to the core of client needs and developing accordingly.

From your experience, what are the most valued advisor competencies?
Advisors still need to be experts in their given area – whether that’s banking, investments or trust. Nonetheless, in light of changing requirements, it’s important that private banking professionals are able to build an emotional connection with clients and their families, so that they can build trust through a truly personalised service.

How are private banking firms evolving to keep atop of these trends?
Private banking firms are bringing together their different lines of business in order to have entire teams deliver advice to clients. In many cases, this also involves having one point of contact for the client to simplify communications; this lead will then bring in other specialists and experts as required to help clients achieve their goals.

What is the top indicator of advisor effectiveness?
NPS customer satisfaction surveys are by far the best measure of advisor effectiveness, as the indicator is based on actual client feedback. What’s more, clients who are willing to refer their friends and family typically have a strong emotional connection with their relationship manager. We coach our professionals on how to create this emotional connection by reducing anxiety through proactive contact and improving confidence in the future through a comprehensive wealth plan. We also teach them how to motivate clients to achieve their goals, particularly by showing them how our services can help.

How is BMO addressing these changes in the market?
BMO Private Banking has been using an integrated team approach for several years now. Our business is built from the traditionally separate disciplines of banking, investment management, estate and trust, and wealth planning. However, our business model is unique in the sense that we are truly integrated – under one profit and loss statement, one set of targets and one leadership team.

Our model is not focused on products, but rather on designing integrated solutions to enable our clients to achieve their personal goals by working with them to develop a comprehensive and flexible wealth plan. Wealth planning is at the heart of everything we do. When we begin our client relationships, we get an in-depth understanding of their goals and priorities relating to family, work, lifestyle and money. We then regularly fine-tune the wealth plan to ensure it accurately reflects their current situation. By understanding what matters most to our clients, we can provide relevant advice and offer creative solutions to help them achieve their goals and dreams, all the while making the unmanageable manageable.

What role does the relationship manager play?
All BMO Private Banking clients have a dedicated team of professionals, coordinated through a single point of contact – the relationship manager.The relationship manager is the main point of contact for the client and takes ownership of the client experience. While the relationship manager has a speciality (be it investment management or banking, for example), they engage with their colleagues when other solutions are required.

What are the benefits of this approach?
This approach provides benefits for both the client and the business. For the client, they have a dedicated team of professionals – with one lead relationship manager – to help them achieve their goals. This team knows the client’s story, they know all of their goals and objectives, and so they can consistently serve the client and their family over time. Essentially, the team works closely with the client to build a comprehensive wealth plan based on what they learn from the client. Together with the client, the team takes action on the wealth plan and regularly revisits it to make sure that the client’s situation is always at the forefront of any strategy. Therefore, we are simultaneously able to save them time, reduce worry and promote confidence in the future.

In terms of the business side of things, this approach enables clients to feel more engaged and, in turn, more loyal. It also provides opportunities to work with the entire family, as well as the ability to continue relationships throughout family and wealth transitions.

How will BMO Private Banking continue evolving in order to meet shifting client expectations and a changing market?
The feedback we’ve received indicates that many clients are looking for a combination of digital tools and professional expertise. More and more individuals are comfortable using these tools to manage simple transactions, but they still need professional advice and support for more complex wealth management requirements. Professionals also play a key role in making sense of how changing market conditions can impact their clients’ wealth and goals.

If we look at the demographics of our current portfolios, we find that they are largely comprised of Baby Boomers, whose needs we have, over time, learned to meet. If we fast-forward a few years, we will be dealing increasingly with the emergent and affluent Generation Y, or Millennials and digital natives, who have very different expectations and needs. This generation is looking for more frequent and smaller bursts of information, and for advisors to use technology to facilitate interactions – for example, a five-minute phone call or brief video conference as opposed to a 30-minute meeting.

Consequently, face-to-face interactions may become less important as multiple mediums become available. This is likely, as Millennials want timely, accurate information from credible sources – and they want it now. It’s more about the answers (and who has the information fastest) versus the location of the source. Consequently, we have to start shifting how we conduct business to adapt to this generation by understanding how we will continue to add value and, in turn, communicate it. We have to think about what this means for us – how we will develop trust remotely and how we develop virtual relationships effectively.

The enduring attraction of volatility trading

Posted on by Max Tomlin

In April of this year, the Chicago Board Options Exchange (CBOE) celebrated the 25th anniversary of its creation, the Volatility Index (VIX). Innovative in its time, the VIX has birthed one of the more unusual groups of financial instruments in a market already saturated with complex derivatives. Namely, through VIX-based derivatives, investors can trade in market volatility.

Volatility trading bets not on the price of the product itself, but on the magnitude of change in the price

The VIX measures the expected level of change on the S&P 500 Index over the following 30 days, based on real-time calculations of the number of options to buy (‘call options’) versus the number of options to sell (‘put options’) on the index. In essence, the VIX measures the extent to which investors expect stock prices to change in the coming month, and as such has been commonly dubbed the ‘fear gauge’ for its perceived status as an indicator of market sentiment.

In normal equity market investments, investors make ‘long’ bets (buying a stock assuming its value will increase) or ‘short’ bets (taking out a form of insurance on a stock assuming its value will decrease). In both of those cases, the investor takes a gamble on the direction the price changes in, either up or down. Their profits and losses are a direct reflection of the actual price of the product relative to when they made the investment.

Volatility trading, however, bets not on the price of the product itself, but on the magnitude of the change in the price. Like regular stocks, traders can bet on whether or not volatility will go up or down through the purchase of corresponding derivatives.

An enticing investment
In 2004, CBOE introduced exchange-traded products (ETPs) on the VIX, beginning with futures. For the first few years of their existence, VIX futures did not see much action, with only very modest gains in daily volume year on year. In 2010, however, the futures started seeing explosive growth. The average daily volume in 2010 stood at 17,469, whereas in the first quarter of 2018 it had risen to over 360,000, with a dramatic spike in February, when daily volumes reached over four million, contributing to this jump (see Fig 1). Since 2006, when they were introduced, VIX options have become even more popular: daily volumes in 2006 averaged 23,500, and have since grown to over 1.06 million in the first quarter of 2018.

Trading volatility can be a way for investors to manage risk and protect their portfolio from changes in market prices

Options have higher trading volumes than futures because they present less risk, as traders are not obliged to execute them. According to Artur Sepp, Senior Quantitive Strategist at Julius Baer: “There is more demand for options than for VIX futures because it is just cheaper. With options, you only lose the premium. If you say right now the VIX is probably around 20, and if you bought [a future] and say tomorrow everything will be fine and it goes to 10, you lose 50 percent.”

Trading volatility can be a way for investors to manage risk and protect their portfolio from changes in market prices. If stock prices dropped suddenly, traders can lose money on regular stocks, but may gain some back through volatility derivatives that give returns when volatility is high. Furthermore, the VIX has a strong inverse correlation to the S&P 500 Index, meaning broad market decline can increase returns on long VIX positions. In the bull market that formed in the aftermath of the financial crisis, steadily rising stocks meant low volatility. As a result, inverse derivatives that bet against volatility being high, such as XIV and SVXY, became even more lucrative than long exposure.

No risk, no reward
Naturally, betting on the degree of price changes is a risky proposition, exacerbated by investors with an improper grasp of the concept before making bets. “I believe the biggest risks in trading volatility derivatives comes down to a lack of understanding. Prominent academics and institutional volatility traders still do not fully understand some of these products, yet some are traded like stocks,” said Sebastian Gehricke, a specialist in volatility trading at the University of Otago. “By this I mean the VIX futures exchange-traded products [ETPs], such as the VXX and XIV. They are traded on stock exchanges just like Apple or General Motors equity, but are actually very complex derivative instruments.”

Betting on the degree of price changes is a risky proposition, exacerbated by investors with an improper grasp of the concept

With the S&P 500 seeing a slowdown in its previously steady climb, inverse volatility ETPs are no longer the safe bet they have been in recent years. Rising interest rates and other market factors have curbed stock prices, increasing volatility and dampening returns for VIX short sellers.

When volatility is low, changes in the S&P 500 can have disproportionate effects on the VIX, meaning relatively small price fluctuations in the equity market can cause dramatic spikes in the volatility index. This is due to the relative confidence in steady prices that investors have during calm market conditions. Rockier prices, however, can shake investor confidence, and the resulting effect on the VIX can be higher than the actual price changes on the S&P 500.

This dynamic was especially consequential on February 5, when the S&P 500 saw a sudden drop of 114 points. While this only represented a 4.1 percent decrease in the index, it caused the VIX to more than double in what was its biggest ever spike, ravaging the short bets (see Fig 2). This led to the inverse XIV ETP being discontinued.

Looking forward
The prevailing view is that rising interest rates will slow down the bull market that has been raging for the better part of a decade, and increase volatility as a consequence. This does not necessarily mean the market will become more risky, however, because people will have a better understanding of how it works. Gehricke noted: “I think the risks in these products will decrease somewhat in the future as their transparency and understanding increases with more research and regulatory action. Especially the VIX futures ETP market will change to cater to investor demand of a more understandable product. Overall though I believe the risks will stay much the same – we will just understand them better.”

Despite how lucrative VIX ETPs can be, and how effective they can be at managing risk, they differ from regular stocks in that they are purely trading instruments, not long-term investments. Volatility in capital markets cannot be accurately predicted over long periods of time, though it can, to an extent, be predicted in the short term through statistical models.

Future market conditions will not be the same as they have been in the recent past. The booming bull market that has been producing somewhat predictable VIX levels has a limited lifespan. Rising interest rates may ruin the prospects for inverse volatility derivatives, but could also make long positions more attractive as volatility increases.

Fondex simplifies copy and algorithmic trading for its growing customer base

Posted on by Max Tomlin

Today, traders have access to advanced platforms where they can trade using the method that best suits their level of knowledge and trading goals. Traders can choose to do so manually, copy trade or use bots to automate their work.

Each approach fits a different trader profile, and while one can be effective for some, it may not be for others. Manual traders make their own decisions about when to enter and exit trades. They do so by evaluating market sentiment using technical analysis on market data, as well as fundamental analysis of various economic factors.

Manual trading requires traders to know the basics, while copy trading requires no trading knowledge. Algorithmic trading can be for advanced or novice traders

Copy investors copy strategies of more experienced traders. There are numerous strategies to copy, with different returns and risk profiles. Strategy providers charge fees and investors benefit from the strategy’s good performance. Conversely, automated trading is performed by computer algorithms that trade without human intervention and can be configured to trade any strategy and with varying risk management rules.

There is no definitive ‘best method’, as such: manual trading requires traders to know the basics, while copy trading requires no trading knowledge. Algorithmic trading can either be for advanced or novice traders depending on whether they build their own algorithms or not. World Finance spoke to Alex Katsaros, CEO at Fondex, about the company’s philosophy, which prioritises helping traders make informed decisions, regardless of which trading method they use.

How does copy trading work?
When the strategy provider enters a trade, the trading server executes the same trade for each one of the investors who are copying the provider’s strategy. As soon as the strategy provider closes the trade, the server closes the copied trade for each of the investors. This ensures that the investors copying the strategy get the same results as the strategy provider.

At Fondex, the copy trading functionality is integrated within our main platform, Fondex cTrader. To copy a strategy, an investor simply has to open an account, select one of the strategies, deposit the amount they wish to invest, then start copying.

What are the benefits of copy trading over manual trading?
Copy trading doesn’t require any knowledge of market analysis, and it is a good solution for beginners. The investor knows the performance, risk profile and drawdown of a strategy before choosing to copy it. More than one strategy can be copied, further limiting risk, as opposed to relying on just one strategy with manual trading.

Copy trading isn’t as time-consuming and does not require any chart-plotting or order windows. Naturally, copy trading is recommended to traders who don’t feel confident enough or don’t have the time to make their own trading decisions. It should be pointed out that copy and manual trading can be combined.

How does algorithmic trading work?
A trading algorithm is a set of rules that is applied to sets of live and historical data, in order to generate and execute trading decisions on when to enter and exit the market. For example, a trend trading strategy could be automated by using an algorithm that applies and compares moving average indicators with market data. Based on the results from these comparisons, the algorithm would calculate the order size and then enter and exit trades.

The possibilities are endless. Traders can create algorithms with varying degrees of complexity. They can automate only a part of their trading strategy so as to avoid monitoring a chart, or they can create complex algorithms that read multiple markets and time frames, use multiple indicators, and employ sophisticated risk management systems that even take into account calendar events and news.

What are the benefits of algorithmic trading?
Algorithmic trading removes the adverse effects of psychology and stress, making sure that trading decisions are taken based on the analysis of data and not the emotional state of the trader. It’s less time consuming because traders have to focus on the general strategy of their algorithms instead of monitoring every individual trade. Algorithms can trade 24 hours a day, thus identifying more opportunities than a human trader ever could.

The performance of an algorithm can be tested and refined before it’s enabled for live trading using processes called ‘backtesting’ and ‘optimisation’. The algorithm is applied to historical market data, before thousands of combinations of different parameters are applied to arrive at the optimal result.

What challenges do copy and algorithmic traders face at present?
The main challenge that copy traders face is choosing which strategy to copy. Profitability alone isn’t always a sufficient deciding factor, because strategy providers might not be able to reproduce their past performance if market conditions change drastically.

Similarly, in automated trading there are a large number of algorithms that traders can buy or get for free. For that reason, it may be challenging to identify the right one. In addition, since market conditions constantly change, a bot that works well today may not have the same effectiveness in the future. Traders must have the ability to evolve and optimise their robots by adjusting them to current market conditions. Lastly, traders that want to create their own algorithms may find the process challenging.

How can these challenges be overcome?
Investors who choose copy trading should pay attention to the strategy provider’s description and try to evaluate not only its performance, but also the risk management statistics, such as its equity dropdown.

Algorithmic traders should pick their robots carefully, avoiding questionable providers promising unrealistic returns. When acquiring robots, they can choose to invest some time understanding the strategy built into the trading algorithm of their robot, and whether it suits their risk profile. For traders who have no programming knowledge, it’s easy to find programmers on the internet who will write robots for a small fee.

What sets Fondex apart from others in the space?
At Fondex, we value advanced technology and offer our clients cTrader, an award-winning DMA trading platform that features sharp trade execution. Our clients can perform manual, copy and algorithmic trading on any device. We also offer a diverse range of markets with thousands of instruments, from forex to shares, indices, metals, energies and ETFs.

We value user experience, making it easy to open an account using only an email address. We also educate traders through our learning centre, offering daily technical analysis and actionable signals from reliable third-party vendors. We protect our clients by keeping their funds segregated from company funds, depositing them at top-tier banks. We are also proud of our in-platform chat service, where users can enjoy 24-hour support.

Could you tell us about Fondex cTrader Copy and Fondex cTrader Automate?
Fondex cTrader Copy is a copy trading functionality integrated within our trading platform, cTrader. Both beginners and experienced traders can use it, either by becoming signal providers that charge fees, or investors that copy their selected strategies. The trader is always in full control and can start or stop copying a strategy at any time.
Fondex cTrader Automate is an algorithmic trading platform built into cTrader where traders can create trading ‘cBots’ or custom indicators in the inbuilt code editor. cBots are plug-and-play, and traders can run and install them within minutes.

With cTrader Automate, we provide free access across all the data needed for robot development. Backtesting and optimisation functionality is included in the package to fine-tune algorithms before live trading begins. With cTrader Automate, traders can combine any indicator with any risk management rules, do intermarket analysis or multiple time frame trading – the possibilities are endless.

Do you think copy trading and algorithmic trading will overtake manual trading?
Algorithmic trading has already overtaken manual trading in major financial industries. For instance, it’s estimated that 90 percent of the volume in public equities is traded algorithmically. In the retail space, the differences between algorithmic and manual trading are not that staggering, the main reason being that retail traders didn’t have access to the expertise or technology that professional investors or funds did.

Today we offer platforms, fast execution engines and APIs that can be used easily, even by novice traders. We help them collaborate in networks like cTDN, where hundreds of community-created robots are provided for free. Copy trading, even though relatively new, is already preferred as an easy way to get into the market. There is a very good chance that algorithmic and copy trading will overtake manual trading in the years to come.

What are your company’s plans for the future?
We envision Fondex to be a leading investment firm, catering to the broadest possible spectrum of clients. We already are a multiasset brokerage offering thousands of markets that can be traded manually, algorithmically or via copy trading. We’re focusing on expanding to different regions, such as South America and Asia.

Our future plans include incorporating more financial products in order to cater to the needs of an even wider clientele. Ultimately, we aim for Fondex to emerge as the go-to financial firm for every retail, professional, or institutional investor.

We believe that our values of transparency, integrity, quality and innovative technology, combined with our excellent support, will continuously increase our customers’ satisfaction and provide them with an exceptional trading experience.

Top 8 assumptions when it comes to sanctions

Posted on by Max Tomlin

Sanctions have always been an area of constant evolution, but recent years have been positively head-spinning. From the passage of the Joint Comprehensive Plan of Action in 2016 and the uncertainties surrounding its future, the Countering America’s Adversaries through Sanctions Act in 2017, the loosening (and then tightening again) of sanctions against Cuba, and the uncertainty of where we are heading with Russia and North Korea, the world of sanctions has never been more complex.

Regardless of where they are located, US and EU citizens, as well as permanent residents, must comply with their country’s sanctions

With all these changes, it is not surprising that businesses have a tough time keeping up. Here are some of the common misconceptions that can trip businesses up.

1- Restrictions only apply to countries targeted by US/EU sanctions
While it is understandable that comprehensive sanctions – which block most trade with specific countries like Iran or North Korea – get all the attention, there are other sanctions regimes to consider. These may stop you dealing with entities or individuals regardless of their location, and can be located in virtually any country including the US, the UK and others that most tend to think of as ‘friendly’.

Therefore, it is hugely important to check whether certain countries or entities are under sanctions. For example, the UK is currently applying sanctions against entities in countries such as Burma, Tunisia and Venezuela – countries that many would not usually consider to be an issue.

2- My company isn’t in the US or the EU, so I don’t need to worry about sanctions
Sanctions may still apply to non-US branches of a US company and, in some situations, subsidiaries of those companies. The US, with its broad extraterritorial reach, may also impose what are known as ‘secondary sanctions’ on non-US persons/entities with no known nexus to the US, such as those that it has applied to Iran this year.

EU sanctions generally still apply to non-EU branches of companies incorporated in the EU, although the EU tends not to impose ‘secondary sanctions’ on non-EU persons and entities.

3- Restrictions don’t apply to me, I’m abroad
Regardless of where they are located, US and EU citizens, as well as permanent residents, must comply with their country’s sanctions. For example, a German national who obtained US permanent residency but then decided to work in Dubai is still required to comply with US sanctions. Consequently, it is necessary to understand which sanctions regimes are applicable to you and your business.

4- It’s fine to use US dollars for my transaction – everyone does it
Virtually all US dollar transactions will transit through the US banking system. As a result of US financial institutions being ‘US persons’, they are required to comply with US sanctions; this may require them to reject or block your transaction. This means that using US dollars for your transactions brings the entire field of US sanctions into play. You should, therefore, consider carefully whether the security and reputation of trading in US dollars are worth the restrictions.

5- US and EU sanctions impose the same restrictions
At first blush, some US and EU sanctions programmes appear quite similar – the sectoral sanctions on the Russian Federation are a good example – but they often have different requirements and can also be interpreted differently. An example of these subtle but complex differences can be found in Directive 4 of the Sectoral Sanctions. Under the US sanctions, Directive 4 now extends to prohibit the export of certain items to deepwater, arctic offshore or shale projects that have the potential to produce oil anywhere in the world.

Conversely, the EU sanctions under Article 3 of Council Regulation (EU) No. 833/2014 (as amended) only prohibit the export of technologies destined for deep water, arctic oil and shale oil projects in Russia, but does not specify exact entities. Therefore, it is essential that companies remain sensitive to even the slightest difference between the two sanctions regimes.

6- I’ve screened the names of my counterparties, so I’m in the clear
Just because an entity is not specifically named on a sanctions watchlist, it does not mean that all sanctions concerns are moot. If an entity is owned 50 percent or more by one or more Specially Designated Nationals (SDN), that company itself is also deemed to be an SDN under the Office of Foreign Assets Control’s 50 percent rule.

The EU imposes a similar 50 percent rule in relation to asset freeze and travel ban targets, and also with respect to sectoral sanctions. Thus, European companies should also take caution in assessing the ultimate beneficial ownership in transactions.

7- The purchasing company isn’t liable if the target company has sanctions issues following an acquisition
After an acquisition, a purchasing company becomes strictly liable for any sanctions violations of its target company. Therefore, carefully assessing sanctions risks during the due diligence phase of the M&A process is critical – your acquisitions could open you up to major issues if you’re not careful.

8- My transaction is completely legal
In some cases, it doesn’t matter what the law says – the bank may simply refuse to process your transaction. In certain circumstances, banks may impose Know Your Customer screening requirements that restrict certain transactions on the basis of the compliance risk posed by an involved party. We also routinely see banks refuse to process transactions involving countries like Syria, regardless of the currency and the legality of the transaction.

These points should illustrate that the scenarios in which sanctions apply may not always be obvious. However, there are a few additional tips that we can leave you with: always identify the applicable sanction regime(s); stay up to date on the current sanctions; a transaction that was legal yesterday may not be legal today; screen all persons and businesses against the current relevant sanctions list; and one should not assume that the transaction is legal just because it does not involve a sanctioned activity.

The case for increasing Peru’s private pension system investment limit

Posted on by Max Tomlin

Since its creation in 1993, the Peruvian private pension system (PPS) has gained importance at a national level. In 2017, all the investment companies within the PPS, which are otherwise known as Administradoras de Fondo de Pensiones (AFP), managed a total of approximately PEN 140bn ($43bn) in assets. This figure represents 20 percent of Peru’s GDP and 40 percent of savings in the financial sector. It’s a substantial increase from recent times; in 2000, for example, the PPS managed around PEN 40bn ($12bn), or five percent of GDP.

The elevation of the limit to foreign investments has not only diversified risk, but has also allowed the PPS to attain higher returns

Given its importance, the PPS is subject to strict regulations and limits, which are aimed at mitigating agency problems and controlling risk, both at the systemic (macroeconomic) and idiosyncratic (microeconomic) levels. Specifically, the regulation imposes limits based on asset class, economic sector, group or entity, and by issuance, among other variables. In addition, foreign investments by the PPS are constrained by the ‘operative’ limit fixed by the Central Reserve Bank of Peru, with a maximum given by the ‘legal limit’ established by Congress. Nowadays, the operative limit is 48 percent, while the legal limit is 50 percent. This situation implies that the central bank has a narrow margin before the operative limit hits its legal maximum.

At Prima AFP, we believe that increasing the legal limit for foreign investments will improve both the degree of diversification and the long-term returns of the PPS. At the same time, such reform will give more degrees of freedom to the central bank, thereby enabling it to adjust Peru’s international investment position, which in turn will enhance its financial stability. Finally, it is worthwhile to mention that the elevation of the legal limit does not jeopardise the supply of local funding, or the development of capital
markets in Peru.

Diversifying risk
One of the main benefits of increasing the limit to foreign investments is the gains that can be achieved from the diversification of risk. Almost 20 years ago, the PPS’ limit to foreign investments was around 10 percent, and so it mainly held local assets. In such a situation, the diversification of risk was accomplished by a set of limits (otherwise known as ‘ceilings’) on asset classes, economic sectors and individual entities.

As those limits were reached, the PPS portfolio approached the composition of the market portfolio. Under these circumstances, if the economic situation in Peru had deteriorated, then the PPS’ returns would have deteriorated as well. Therefore, the only way to diversify that risk was through the elevation of the limit to foreign investments. In other words, thanks to the increase of the limit, the PPS’ portfolio acquired exposure to factors that differ from those affecting the Peruvian economy.

Nonetheless, given the size of the Peruvian economy at the global level, a 50 percent limit still exposes the PPS to significant risk. This means that the potential gains from diversification, although lower than in the past, are still substantial. Three types of risks are diversifiable: first, risks related to fluctuations in the international prices of minerals (Peru’s main export); second, risks caused by domestic economic and political conditions, which includes issues such as corruption and political instability; and third, risks caused by natural phenomena, such as the El Niño-Southern Oscillation and earthquakes. Peru’s geographic location exposes the country to significant disaster risks, which can have severe and persistent economic and social effects.

Raising the bar
In the past, the elevation of the limit to foreign investments has not only diversified risk, but has also allowed the PPS to attain higher returns. Given its increasing size (as explained by a relatively young population and a growing economy), the demand for financial assets by the PPS has outpaced the local supply.

This situation, combined with the aforementioned regulatory limits and relatively illiquid local capital markets, can deteriorate the long-term returns of the PPS. For instance, in 2000, when the operative limit was only 7.5 percent, the percentage of PPS funds invested in local liquid and safe assets (such as deposits and central bank certificates) was around 25 percent. A similar situation occurred in 2013, when those assets represented around 10 percent of the PPS’ funds and the operative limit was 34 percent. If the limit to foreign investments were not elevated, a substantial share of the PPS’ funds would have been trapped in assets with low long-term returns. Unfortunately, even at the current limit of 50 percent, it is not possible to rule out such an outcome in the future.

Increasing the legal limit provides additional tools to mitigate monetary and financial instability. Given the limited depth of Peruvian capital markets, foreign capital flows can exacerbate the fluctuations both of Peru’s foreign exchange rate and of other financial assets. In response, the central bank has tended to elevate its operative limit in moments of abundant foreign capital inflows.

As such, the central bank has eased the extreme volatility of demand for local securities and, hence, it has avoided their overvaluation. Therefore, the elevation of the legal limit to foreign investment gives the central bank the option to lean against the wind of capital inflows, without using its international reserves. If the legal limit is not increased, the international reserves management of the central bank will bear the burden of foreign capital inflows, which in turn could increase the fiscal cost associated with their sterilisation.

Outweighing the risks
The elevation of the limit to foreign investment will neither limit the local supply of funding nor endanger the development of Peruvian capital markets. First, given its financial integration into the rest of the world, the Peruvian economy has access to foreign financing sources that can substitute local ones.

Second, the external limit is a ceiling, not a floor, to foreign investments, and thus does not restrict the repatriation of funds by the AFPs. In fact, in periods of financial turmoil, during which non-residents suddenly and unexpectedly withdrew their funds from local markets, PPS managers (together with other institutional investors) increased their appetite for local securities. For example, as a result of the volatility in international bond markets in 2013, the participation of non-residents in the holdings of Peruvian government bonds went from 70 percent to 57 percent in just one year.

Third, for reasons already explained, the previous increments of the operative limit have not threatened the capacity of the PPS to invest locally. This includes investments into projects that are a priority for Peru’s ongoing economic development, such as transportation infrastructure. Finally, international evidence indicates that the policies aimed at developing a deep and efficient capital market have nothing to do with keeping institutional investors captive locally.

The operational limit to foreign investment by the PPS has now come close to its legal maximum. This means that the investment opportunities for the Peruvian PPS will soon be constrained. As a consequence, the risk-adjusted returns of the PPS will be impaired. Moreover, the central bank will lose an additional tool with which it can lean against foreign capital inflows. Given these factors, it is therefore advisable to increase the legal limit. It is worth noting that doing so will not jeopardise either the local supply of funding or the development of capital markers, as long as the central bank progressively adapts its operative limit to the new legal maximum. Politically, it is clear that the key player in this important reform is the 130-member Congress of the Republic of Peru. With its support, the PPS can keep developing – to the benefit of Peru’s growing economy, as well as its investors, both near and far.

Embracing the march of digitalisation in Turkey’s burgeoning banking sector

Posted on by Max Tomlin

Last year was a period of recovery in global macroeconomic indicators. Positive trends in the world’s growth and inflation outlook supported sentiment towards emerging market economies – indeed, funds flowing into emerging countries exceeded $200bn. Turkey stood out among these economies, particularly given its strong GDP growth, which saw it attract a considerable volume of foreign fund flows.

Customers’ needs and expectations are continuously evolving and reshaping in harmony with technological advancements

Turkey’s GDP growth reached 7.4 percent at year-end 2017, compared with 3.2 percent in 2016. However, this robust domestic demand repressed inflation. Together with the currency depreciation, headline inflation rose to 11.9 percent in the same year. As a response to inflationary pressure and volatility in the Turkish lira (TRY), the Central Bank of the Republic of Turkey (CBRT) maintained its tight stance, with average funding costs increasing by around 450bps in 2017. Despite the rise in interest rates, revitalisation in economic activity and active balance sheet management supported the banking fundamentals, with the sector delivering better results than expected.

Despite the outstanding performance of 2017, Turkish banks still have significant room for growth. Although penetration rates for banking products have increased significantly since 2002, they are still low compared with figures in the eurozone. More importantly, the unbanked population is quite high in Turkey; more than 40 percent of the adult population do not have an account with a financial institution.

Strategic priorities
In line with the aims of Banco Bilbao Vizcaya Argentaria (BBVA), Garanti’s majority shareholder, the bank will continue to focus on customer satisfaction. Garanti will bring a new age of opportunities to its customers by offering them the best banking solutions.

7.4%

Turkey’s GDP growth at the end of 2017

3.2%

Turkey’s GDP growth at the end of 2016

Customer experience is a priority for Garanti. This is even more important in today’s ever-changing environment, which is accelerated by technology. Boundaries between industries have already blurred, and digital business models create the new norms for all business areas. Solutions that delight customers easily become the standard not for a specific category, but for all. At Garanti, therefore, we see the customer experience as the most important element for strengthening our competitiveness and differentiating us in our industry, as well as from other markets.

On that note, digitalisation is one of the global trends that deeply influences every part of life. Digital transformation is driven by developments in many different areas, from the Internet of Things and cloud technology to big data and artificial intelligence. As internet access and smartphone usage become far more widespread, customers are turning away from traditional methods and changing their preferences in favour of more simple, useful and timesaving channels that they can access anywhere. Therefore, it is now more important than ever to deliver a customer experience where customised solutions are offered and, indeed, go a few steps beyond simply meeting customer expectations.

Our new branch service model, which has been recently launched, represents a new era in the Turkish banking sector and reflects digitalisation in its branches. With the aim of creating a seamless, omni channel experience to ensuring similar customer experience across all channels, Garanti started to approve its products and services digitally in branch processes. With a universal banker that provides both cash transactions as well as advice from a single point of contact in the lobby, accompanied by digital screens for customer use, Garanti enables the best service and customer experience.

A leading position
In 2017, Garanti welcomed 73 million customers in its 948 branches, which are spread throughout Turkey, offering them a wide range of products and services to meet their financial needs. There is nothing coincidental about the fact that we have ranked number one in the net promoter score among peers for two consecutive years.

We continue to maintain our leading position among private banks in consumer lending. With its effective delivery channels and successful relationship banking, Garanti’s market share in retail lending among private banks increased further in 2017.

While supporting its customers in a growing economy with a young population, Garanti secured a 19 percent annual growth rate in consumer General Purpose Loans (GPLs). Noteworthy was the significant increase in digital sales within total GPL sales: at the end of the year, the ratio climbed to 78 percent. Mortgage Expert Garanti, meanwhile, sustained its leadership in mortgages among private banks with an annual growth of 10 percent.

As a pioneer in digital transformation for more than 20 years, we have now reached a point where we can bring banking services to our customers – wherever they are located – and serve Turkey’s largest digital customer base with close to six million active customers.

In our actions, we are guided by the principles of trust, integrity, accountability and transparency towards all of our stakeholders. Furthermore, our efforts in supporting financial literacy, health and inclusion have touched the lives of the almost 810,000 customers who have started using our savings products.

We have a solid and long-term strategy built on a combination of technology and human factors, which are the key determinants of our age. We execute our customer experience strategy with the aim of making our customers’ lives easier, looking after their financial wellbeing, assisting them in making conscious financial decisions, helping them to grow their business in a sustainable manner, and providing access to financial services for everyone.

Garanti certainly finds itself in a commanding position, a position it continues to strengthen, which in turn benefits its customers, both big and small.

Chinese investment in Pakistan’s infrastructure drives real estate growth

Posted on by Max Tomlin

The Pakistani property market has experienced growing interest in recent years, largely due to close international ties between China and Pakistan. In 2013, Chinese President Xi Jinping announced the China-Pakistan Economic Corridor (CPEC), a $62bn project to develop Pakistani infrastructure and energy. With better access to cities across Pakistan, investors are seeing more opportunities to build on the land near these new developments. CPEC projects include the $2.8bn Peshawar-Karachi Motorway, set to open in August 2019, and the East Bay Expressway in Gwadar Port in the south, which is due to be completed later this year. Both will dramatically help to facilitate real estate developments on previously barren land.

Real estate has become an attractive option for investors: numerous housing schemes are launched with the promise of 10 to 40 percent returns

Rather than building in megacities like Karachi, investors are taking their money to more peripheral locations in order to create urban clusters on formerly agricultural ground, a move that is known as ‘peri-urbanisation’. “The landscape has visibly changed with the proliferation of housing societies and gated housing enclaves moving along highways towards secondary cities,” according to Anjum Altaf of the Lahore University of Management Sciences. As a consequence, investment in residential property increased from five to seven percent between 2015 and 2016.

Luxury appetites
Pakistan’s growing middle class is a major driving force in the rising popularity of these gated housing communities. Luxury development projects, carried out by companies like Bahria Town, DHA City and the Fazaia Housing Scheme, for instance, are some of the most sought after – by those who can afford them.

The rising number of luxury developments, however, is not solving the housing gap currently bedevilling Pakistan. With a population of almost 200 million people, Pakistan is suffering a shortage of 12 million houses. Karachi, with its behemothian population of 16.6 million, has an annual shortage of 300,000 houses. “It’s not about the catering to actual demand or housing shortages. It’s much more about the tastes of richer Pakistanis,” Aisha Ahmad, a research student from the University of Oxford, told World Finance.

Lucrative real estate
Real estate has become an attractive option for investors: numerous housing schemes are launched with the promise of 10 to 40 percent returns. Meanwhile, FDI has also been made easier as a result of measures introduced by the government in 2013. These include a new open entry system, which waivers pre-screening and government permission for investment into real estate. Furthermore, investors are no longer limited on the transfer of ownership or entitlement to lease land unless they breach federal or
provincial regulations.

These measures have encouraged foreign investors, and Pakistani expats in particular, to pour money into the housing sector. At present, much of this FDI comes from Egypt. Serving as an example of this is a new $2bn real estate development just outside Islamabad – the first of its kind from Egyptian billionaire Naguib Sawiris. Once finished, the complex will cater to every need of its occupants, providing everything from luxury housing units and schools to hospitals. “That’s what every Pakistani housing scheme coming from FDI looks like. They all tout the same thing: the American dream for Pakistani citizens,” Ahmad explained.

Rocketing prices
In the past six years, average house prices in Pakistan have more than doubled. This exponential rise can be linked to file trading – the documentation of unplotted barren land that does not give ownership rights. According to Ahmad: “Most real estate agents and property dealers are not selling people homes – they deal with each other. They sell each other files, and they’ll buy up an entire block in a housing scheme that’s yet to be announced or even developed on. So when investors come in, prices are already pretty high.”

Consequently, foreign investors remain keen on Pakistan’s real estate sector. According to data from Business Recorder, FDI in Pakistan increased by 132 percent to $340.8m in February, compared with $146.7m 12 months prior. The largest segment of FDI – $86m, to be exact – was pumped into the construction sector, which is hardly surprising given the attractive returns on investment.

Thanks to Chinese funding in roads and motorways, investors now have access to untapped plots of land upon which residential property can be built. This trend seems set to continue in the near future, thereby facilitating the continued growth of Pakistan’s burgeoning real estate sector.