Author: World Finance

Myanmar’s unbanked population are a “major priority” for KBZ Bank

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The final trade restrictions on Myanmar were lifted by the outgoing US President’s government in October 2016, marking the final step in the years-long rehabilitation for the previously isolated country. Nyo Myint, Senior Managing Director of KBZ Group, explains what this signals for the country’s ecomomy and industry, and outlines some challenges the country still faces. Building trust in Myanmar’s banks, he explains, means expanding their physical branch networks, as well as investing in mobile banking and fintech. Plus there is still work to do in disaster recovery and other corporate social responsibility initiatives – and an ongoing human capital challenge.

World Finance: The final trade restrictions on Myanmar were lifted by the outgoing US President’s government in October 2016, marking the final step in the years-long rehabilitation for the previously isolated country. Nyo Myint, Senior Managing Director of KBZ Group, joins me now.

What does this last change signal for Myanmar’s economy and industry?

Nyo Myint: It’s definitely great news for our economy. Since the country started opening in 2010, we have seen increased foreign investment flows from Asia as well the EU, whereas US companies and banks have remained cautious. But the ending of the remaining sanctions has cleared the way for them to invest and trade more with Myanmar and for Myanmar companies to do business with US companies.

World Finance: KBZ Bank controls more than 40 percent of the retail and commercial banking space in Myanmar, so which industries are growing and attracting foreign investment?

Nyo Myint: Myanmar is still an untapped economy, so there are abundant opportunities for investors in multiple sectors.

Myanmar has a population of about 51 million, with the majority aged under 30. And labour costs are still competitive. Many manufacturing companies have shifted their operations from China and Vietnam into Myanmar.

The food and beverage industry has also taken off in the last few years. And Myanmar’s tourism sector is also very attractive. The number of inbound tourists grew 20 percent in the past years. There are a lot of opportunities for the opening of hotels and many other services related to the tourism sector.

World Finance: Now on the retail side, how much work needs to be done do to reach the currently unbanked population?

Nyo Myint: KBZ Bank holds very much holds reaching our unbanked population a major priority. We have already opened more than 400 new brick and mortar branches in the last four years, and have been able to reach towns and cities where no previous banking services were available.

Physical brick and mortar branch expansion is very much needed to develop trust in the banking sector.

KBZ is also focusing on the expanded payment systems such as various cards through ATM and point of sale. We are also now in the process of partnering with a big telco company to launch a mobile money platform, to reach more customers and to provide services to unbanked populations.

World Finance: You’re also reaching out to aid the Myanma with your Brighter Future Foundation – what kinds of work are you doing?

Nyo Myint: The foundation focuses on five areas of social commitment: Disaster Relief and Recovery Assistance, Women, Environment, Education, and Community and Culture.

The notable projects are one water project, where a large number of tube wells have been drilled to supply water in the drought area; and disaster relief and recovery efforts throughout the country.

The total contributions for all of our initiatives has reached more than $110m.

World Finance: You’ve previously talked about the human resources challenge that Myanmar’s banks are facing – how is that developing?

Nyo Myint: There are still challenges in human resources. We address this by strengthening our own internal staff development programmes: we have two dedicated training facilities to provide in-depth training to our new recruits, and develop existing staff.

We have also partnered with multiple universities in Yangon for an internship programme that provides final year students practical experience in banking before they complete their studies.

We are always on the lookout for top international talents and Myanmar citizens living abroad to come back and join KBZ to make a contribution back to their motherland.

World Finance: Projected growth for Myanmar is eight to 10 percent for the next five years – so what are your personal hopes for the country?

Nyo Myint: I believe we can make a leapfrog success in national development.

The NLD party led by Daw Aung San Suu Kyi had achieved a landslide victory in the previous general election. That means the government has the full trust from the majority of the people. And the peace agreement is now well undergoing.

As for me, I believe we can regain our preeminence in the region, and be a leading light once again.

World Finance: Nyo Myint, thank you.

Nyo Myint: Thank you.

Jean-Marc Torre: How Bank of the West simplifies international banking

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2016 hasn’t exactly been the best year for easing the uncertainties that have plagued international financial markets for most of the last decade. A reliable international banking partner can relieve some of that complexity; Commercial Banking Group Head Jean-Marc Torre explains how Bank of the West does it. It requires more work to make business processes simple, he says – it’s harder than ever before to adopt a global strategy that doesn’t accommodate regional and local varianes. He explains how Bank of the West facilitates the kind of close client relationship needed to understand a business’s needs and translate that into a strategy – and then implement that strategy in an effective and efficient way.

World Finance: 2016 hasn’t exactly been the best year for easing the uncertainties that have plagued international financial markets for most of the last decade. A reliable international banking partner can relieve some of that complexity; joining me is Jean-Marc Torre from Bank of the West.

What are the challenges that you see businesses wrestling with today?

Jean-Marc Torre: Well they have a lot of challenges. They probably have today, more challenges than they’ve had, probably in the last 20 years.

The change in the geopolitical, political, regulatory, technology… I mean there’s now a level of various dimensions, that creates a level of complexity for businesses.

How it translates depends really on what you want to do, what your strategy is, and where you are. You have to have a global, regional, and local view: to really understand what you can simplify over the various levels. And the idea that you could be global, meaning, dealing everywhere the same way. I don’t know if it’s ever been possible, but it’s clearly less possible than ever before.

World Finance: So how can a reliable international banking partner help smooth out some of these complexities?

Jean-Marc Torre: It requires more work to make it simple. Companies need to have a trusted partner that knows you, knows how you’re organised, and helps support the strategy and the execution of the company worldwide.

This requires a strong suite of products – of course the cash pooling and international transaction and treasury services – but it also requires intelligence. And intelligence given in the various countries, to provide the proper implementation of those great products. But also the support of bankers on the ground that will allow you to think globally and act locally, and to find the best solution that is available in every market, in conjunction with your overall global strategy.

World Finance: How do you have those conversations, then? How is Bank of the West set up to facilitate that kind of close client relationship you need in order to understand the business and translate that into a strategy for them?

Jean-Marc Torre: That’s a great question, because it’s the dialogue between the various bankers, with the various levels of responsibilities on the company’s side, which is… you have a regional treasurer talking to a banker that will be able to actually know and coordinate regionally the various bankers on the ground, with the various companies and treasurers that the regional treasurer will deal with.

We have a setup we call OneBank, which is a network of bankers and products that allow a company headquartered anywhere in the world to be supported in their operations, both regionally and locally.

To give you an example: banks talk about international treasury services products they have to support their customers internationally. Of course we have those – it’s critical to have a seamless, competitive product, to allow companies to monitor and transact – monitor their balances and execute their transactions internationally.

But beyond that, you may want to set up a regional treasury in Europe, when you are a US company. How do you do that? You have to deal with the various treasurers and treasuries of your various businesses. You need a bank that has got bankers and treasury services consultants that go at every level of your company to advise and to implement. Because many times it’s in the implementation that the details come up.

So to some extent, you allow as much as possible a mirroring of skills and knowledge with the skills and knowledge and responsibility level on the company side.

World Finance: Of course businesses need to innovate in order to thrive in new markets; how do your San Francisco connections help businesses on their digital transformation journey?

Jean-Marc Torre: We’re probably better placed than most, because yes, we are headquartered in San Francisco. So we are part of the ecosystem.

We are part of an open innovation approach, where we bring start-ups, or innovations that we trial with our customers.

Giving an example: for a long time, banks were how you could have the quickest execution on your foreign exchange transactions. Now there are some innovations that come in to: what kind of hedging do you want? And you have some innovative software put into the systems of the customer to identify and manage on a daily basis your foreign exchange exposure – and then immediately get the hedge that is needed. Or, as soon as it is identified by the system, depending on the rules the company decides.

We’re going into an end-to-end, in a way which is very automated. In a way where you need less day-to-day human intervention, and you’re going to humans where they are actually the best which is to define the strategy, to define really what you want, and then you lend the execution to be precise and to be immediate.

World Finance: Jean-Marc, thank you.

Jean-Marc Torre: Thank you Paul.

 

Afschrift Law Firm: Preparing for the automatic exchange of tax information

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Belgium’s new tax regularisation regime has come into force, offering a permanent programme for voluntary disclosure – available once, and once only, for Belgian tax residents. This is in response to the EU directive on the automatic exchange of information for tax purposes, Jonathan Chazkal explains: better to come clean now and pay a moderate penalty, than risk a more punishing prosecution later. If you’re starting here, you should go back and watch the first half of our conversation with Jonathan, which covers the costs and benefits of the regularisation programme, as well as how to apply.

World Finance: I’m with Jonathan Chazkal from Afschrift Law Firm; we’re talking about Belgium’s new tax regularisation regime.

This is in response to the EU directive on the exchange of information.

Jonathan Chazkal: Exactly. On January 1, 2016, and on January 1, 2017, pictures were taken by the financial institutions of the member countries of the OECD about the accounts and assets of all foreign residents. And the financial institutions will now communicate that information to their authorities. And knowing that the authorities will then start exchanging that information in September 2017 and maybe already in September 2016, Belgian residents know their name will be communicated automatically to the Belgian tax authorities regarding all the accounts that they have abroad.

So if a Belgian resident has already come forward and declared all his assets abroad, when his name will be communicated the local tax authority will know that that Belgian resident has already declared these assets, and therefore will not be subject to any penalties or prosecutions.

World Finance: How detailed is the information that’s being exchanged?

Jonathan Chazkal: Very detailed. The name, the tax identification number, the address, the end year balances, the interest, the dividends of any foreign resident will be communicated to his country.

We are talking about physical persons, but also the economic beneficiaries of every passive, non-financial entity will be communicated as well.

World Finance: So what are the key dates that people need to be aware of?

Jonathan Chazkal: So you have the early adaptor countries, which are the EU countries and other countries like Lichtenstein. They have taken pictures of the assets of their foreign residents on the 1st January 2016, and they will communicate that information in September 2017.

Then you have a second group of countries like Dubai, Israel, and Switzerland. They have taken pictures of the assets of their foreign residents on January 1, 2017; these authorities will communicate with each other from September 2018 and on.

World Finance: And there are potentially negative consequences as a result of this exchange of information; how can those consequences be limited?

Jonathan Chazkal: First if you are an economic beneficiary of an entity, you could make sure that it’s not a passive non-financial entity, but an active one. And then you would not be subject to an automatic exchange.

The second would be to change its tax residence. But then you obviously have to go live in that other country.

Finally, the only good solution would be to file for a tax regularisation procedure at that special office in Brussels, that still allows you one more time during your lifetime to come forward, to come clean, and to pay – maybe high penalties – today, but it will always be much lower than if you get caught in September 2018.

World Finance: Jonathan, thank you very much.

Jonathan Chazkal: Thank you.

Belgium offers final tax amnesty before automatic exchange of information

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Belgium’s new tax regularisation regime has come into force, offering a permanent programme for voluntary disclosure – available once, and once only, for Belgian tax residents. Jonathan Chazkal, partner of Afschrift Law Firm, explains the costs and benefits of the new scheme, which taxes are covered, and how to file for regularisation. Please click through to watch the second half of our conversation with Jonathan, where he explains how much information is being exchanged, and the key dates that people should be aware of.

World Finance: Belgium’s new tax regularisation regime has come into force, offering a permanent programme for voluntary disclosure. Joining me is Jonathan Chazkal from Afschrift Law Firm.

Belgium has previously offered temporary amnesties; what’s the story behind this new law?

Jonathan Chazkal: Previous laws in Belgium offered tax regularisations, but they were always limited in time. This new law, which has come into effect on August 1, 2016, will remain forever.

As a consequence, Belgium tax residents only have one chance during their lifetime to apply that law. The exchange of information regarding tax matters between all countries will come into effect in a short period of time: Belgium has thought about a solution for those Belgian residents to come clean, find a solution to their accounts and assets that are still hidden abroad.

World Finance: So what are the costs and what are the benefits?

Jonathan Chazkal: The costs are quite high. For incomes like interest and dividends, professional incomes, you will have to pay the legal rates, with a penalty of 20 percent.

The period that you have to regularise is seven years; the main issue of the new law is, however, that you will have to pay 36 percent on the capital that existed seven years ago. If you want to avoid to pay, you will have to prove that capital already has been taxed, either in Belgium or abroad. And that the capital does not find its origins in any inheritance – because any inheritance tax would be due, and that law is not applicable.

The benefit is that it will give you a certificate that will state that you have a civil and a criminal immunity. And that certificate will avoid to the tax resident issues and problems they could face if they do not regularise today.

The costs might be high, but the automatic exchange of information regarding tax matters will come into effect less than a year and a half from now. Then the local authorities, the public prosecutor, could prosecute you for these accounts that you did not regularise; and then the penalties would be much higher.

World Finance: Is something being done to address the inheritance tax gap?

Jonathan Chazkal: Yes. The federal government reached agreements with all the regional authorities in order to allow Belgian tax residents that still want to regularise inheritance tax, for instance, to meet their regional authorities, and then they could file for such a demand.

World Finance: What’s the procedure?

Jonathan Chazkal: So any Belgian tax resident is eligible to file a tax regularisation. A special office is established in Brussels where you can file these demands.

However, some exclusions are to be taken into consideration. This law is only applicable for federal taxes: income tax, professional income, VAT.

Second of all, if you are aware of any judicial or tax investigation against yourself, you cannot apply.

Finally, if the funds that are subject to the tax regularisation find their origin in a non-tax infraction, you will be excluded to file such a tax regularisation at that special office in Brussels.

For more on the automatic exchange of information, please click through to our next video. And please subscribe for more insights from World Finance.

Accuity on de-risking, financial inclusion and compliance culture

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Financial inclusion is at the top of the agenda for emerging economies, but banks in the west are actively disconnecting from some of these regions – putting further development at risk. Tom Golding, from financial crime compliance experts Accuity, explains the additional costs of complying with increasingly complex regulations, particularly around money laundering and terrorist financing, have made providing services to certain countries unprofitable. He delves into the level of detailed understanding required for even a simple trade finance deal, and outlines how regional banks can prove a strong compliance culture to multinational partners.

World Finance: Financial inclusion is at the top of the agenda for emerging economies; but banks in the west are actively disconnecting from some of these regions, putting further development at risk. Joining me is Tom Golding from financial crime compliance experts Accuity.

This de-risking is an unintended consequence of some very important regulations around money laundering and terrorism financing; what’s gone wrong?

Tom Golding: Well I think it would be unfair to say de-risking decisions were based solely on those regulations you mentioned. I think there are many factors that come into play – why banks would make certain decisions to remove either products or whole services from regions.

But the top two are going to be around commercial viability – are they doing good business within that region? And the second side really is their risk appetite, of conducting that type of business within that region. But if we look at the actual commercial viability – clearly the cost of complying with international regulations does have an impact on that.

Certain jurisdictions, certain products, the actual obligations are heavier, and therefore the cost of actually complying is going to be much larger, reducing that profitability side.

World Finance: Give me a sense of those costs; what is the weight of responsibility on compliance officers’ shoulders at the moment?

Tom Golding: Well compliance officers sit in a very challenging position. They’ve got to do two things: they’ve got to protect the reputation of their bank, but they’ve also got to make sure that good business is still being done.

Regulation itself is changing, and there’s an extra level of detail they’re going to have to adhere to, around things like know your customer. So, if I’m looking at trade finance for example, I might be underwriting a financial transaction that’s looking at export of vehicles into a certain region. I’ve got to understand all of the regulatory obligations that adhere to that type of activity. Such as dual-use goods, where goods are used either for civilian or military purposes. Or are they open to export controls. Are any of the parties behind that sanctioned or heightened risk. Do I know the counter-parties behind that trade? You know – that’s just one example.

If I’m doing a high volume of that, I’ve got to be able to understand all of that information to be able to feel confident that is a trade I’m underwriting that actually represents good business, and doesn’t harm the reputation of the bank.

World Finance: This de-risking; what actually is the effect on the ground for businesses and for people?

Tom Golding: So, if you’re a regional bank within a country that’s wanting to be able to offer to its clients things such as microfinancing or products that are all about financial inclusion, then that bank also has to have access to the international financial banking systems.

You know, we need that fast efficient financial services to conduct that activity. And if we pull back from some of those, then it’s going to be harder for people to get access to those products, and therefore they’ve got to be able to demonstrate that they’ve got those effective controls in place. That actually the due diligence they’re conducting on their own clients is a standard that’s recognised by other banks in that chain.

Because if it’s not, people won’t have that trust and confidence, and therefore they will start to pull back and say, my risk is too high, I don’t think this is business I want to do, and therefore I’ll look somewhere else.

World Finance: What’s the solution? How can regional banks demonstrate the high levels of compliance necessary?

Tom Golding: Many different ways. One very big area which is harder to prove is around the culture: have you got the right compliance culture in place? So that’s looking at the maturity of your compliance function, the size of your function. Looking at your policies, what regulations are you following, how have you updated those?

I’m also going to be looking at the systems and controls you actually have in place. It’s about access to good, automated systems that are looking at things like screening of every transaction, looking at heightened risk individuals. Looking for risk, so you’re not passing on that risk.

If you’ve got a very manual operation, not only are you going to introduce human error, but also there are individuals that might be compromising your operation. So again, as a bank looking to do a correspondent relationship with you, I’m going to make a risk assessment on all of those factors to say, actually this bank has got those in place, got a good culture. I think the risk is lower from that.

We’ve worked with clients in both Angola and Myanmar who are trying to say, ‘We understand!’ A bank has to get that confidence, and therefore we have got to demonstrate that through things like the systems, our approach, our policies in place. And really effective regime that verifies and validates that what I’m passing through to the other banks is something they can use, and they can do their own due diligence on.

We’ve moved past the kind of, tick-box compliance, and that area of culture and understanding. That kind of spirit of what we’re trying to achieve is very important.

World Finance: Tom, thank you.

Tom Golding: Thanks very much for having me.

People’s Bank lights the digital banking torch for Sri Lanka

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Sri Lanka’s People’s Bank has been a key partner in the country’s post-independence journey. But being a bank for the people comes with its challenges. Today’s people are millenials: that means digital, and it means mobile. The bank has taken on the challenge of carrying Sri Lanka’s digital banking torch, with a goal of becoming the most digitalised bank in the country. CEO and MD N Vasantha Kumar, and Deputy General Manager of Banking Support Services B M Premanath explain the roadmap for the strategy, and how changing attitudes – both of staff as well as customers – is the biggest challenge. They also explain the efficiencies and environmental sustainability that going digital will bring, as well as the opportunity to capitalise on the growing foreign direct investment in Sri Lanka’s infrastructure development.

World Finance:  Sri Lanka’s People’s Bank has been a key partner in the country’s post-independence journey. But being a bank for the people comes with its challenges. Today’s people are millenials. That means digital, and it means mobile. Joining me are N Vasantha Kumar and B M Premanath.

You’re working to become the most digitalised bank in Sri Lanka; what’s the current state of the market?

N Vasantha Kumar: At the moment, four million people are using internet banking, and internet banking users are growing annually. But still payments, things like that, are not taking place through internet banking. Very few – about 10 percent, I’d say.

Other banks also, in little areas they’re digital, but we can’t say they’re completely digitalised banks. So certain providers maybe they have internet banking, mobile phone banking, things like that. But that is the reason we at People’s Bank want to have the entire thing digitalised. As a state bank I think it’s our duty and our responsibility to take this into the market.

World Finance: What’s your roadmap for driving this strategy forward?

N Vasantha Kumar: Our roadmap is first changing the mindset of our staff, then the customers. Of course, this is a real challenge. One thing is, our people are used to the brick-and-mortar type of banking. They like to come to the bank to do their transactions. To change that concept, it’s a bit of a difficult thing. And bank staff also, it’s a big leap forward from normal banking.

So we’ve already started changing their attitudes. Then the procedures and the manuals need to be changed.

For younger customers – the up and coming, young generation – I think it will be very easy. But as a state-owned bank, we have a branch network covering the entire country. So in rural areas, for those people it’s much easier to come to a branch and do their transactions. That’s very important for them. So changing their mindset will be the real difficulty.

The roadmap is starting. Already we have started the introduction, the installation of digital banking, will take place early next year. At least five branches will be digitalised.

World Finance: Digitalisation is also going to improve your environmental sustainability, which is increasingly important to you. Tell me about some of the projects you have there.

N Vasantha Kumar: As a state bank, we have a responsibility to the national development programmes. So at this moment, we have embarked on an ambitious programme of green banking. That means to paperless banking and environmentally-friendly, reducing carbon usage. So we have already started Green Pulse and Green Banking.

Green Pulse: we have started sending e-statements. Making minimal usage of paper.

Other environmental things in Green Banking are our buildings. Green Banking takes solar power energy – those types of things we are doing in the Green Bank building concept.

Premanath, where did the new building, where we were going to start the first building of Green Banking?

B M Premanath: We are planning to start that in the Tafta Plant.

N Vasantha Kumar: The Tafta Building. That is our regional office and branch located up north. That is the first building accorded the Green Bank concept.

World Finance: And the digitalisation strategy is also going to position People’s Bank as the go-to bank for international investors?

N Vasantha Kumar: Yes – the government wants to attract more foreign investment, to develop the country. Especially in infrastructure development, IT hubs, tourism. And the government has announced the Colombo Megapolis – they want to make the entire Colombo district one mega city, having an IT hub, a maritime hub, an aviation hub, and also the financial city there.

So the People’s Bank has the largest branch network and is one of the largest state banks, we’ll have a major role to the play in the government’s developments.

Once the market is improving, and as the government ought to have a new financial centre, so in that case People’s Bank will be an active partner. So the entire international banks are mostly digital, so it’ll be a good opportunity to take the lead.

World Finance: Kumar, Premanath, thank you very much.

N Vasantha Kumar: Thank you.

HSBC Retirement Monitor helps bridge Hong Kong’s protection gap

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Hong Kong’s mortality protection gap is now more than $500bn, according to reinsurer Swiss Re. How can this gap be closed? The issue isn’t just life cover, explains HSBC Insurance’s Candy Yuen. It’s also about coverage for critical illness, and making sure you don’t outlive your retirement savings. It requires thinking about protection in a holistic manner. She discusses the latest research HSBC has conducted on this issue in Asia, and the online tool the company has launched to help people save more. Based on real retirees’ spending patterns and your personal expectations, the HSBC Retirement Monitor can help Hong Kongers understand how much they need to be saving – and how soon they need to start.

World Finance: Hong Kong’s mortality protection gap is now more than $500bn, according to reinsurer Swiss Re. How can this gap be closed? Joining me is Candy Yuen from HSBC Insurance Hong Kong.

Candy, it’s a big question, but what can be done?

Candy Yuen: Yes indeed. The mortality gap in Hong Kong per working person with dependents is ranked the second highest in Asia.

According to our own study, more than three in five people with self-paid cover do not know the actual pay-out from the policies, or they don’t think that it’s enough.

The coverage is not only about protecting your loved ones when you die; we also need to consider coverage for critical illness, or outliving your savings at retirement. So we also have to think about protection in a holistic manner.

At HSBC, we’re committed to address this mortality gap issue, by creating the awareness and also offering the right products. We launched the HSBC Retirement Monitor last year, to help people plan for retirement, and we also launched, for example, a comprehensive critical illness plan, and a term online product – what we call the HSBC Term Protector. A very simple term online that you can buy within five minutes, without any need for medical underwriting.

World Finance: As you say, you have launched this retirement planning tool – an award winning retirement planning tool – tell me more; how does it work?

Candy Yuen: So it’s basically to answer the fundamental question: how much do I need, when I retire in Hong Kong? And we try to give how much you need for basic retirement life, comfortable, and affluent retirement life. Based on real data, statistics, and analytics on retirees’ consumption behaviours.

So a single person retiring needs about $3,000 per month, as their expenditure for a comfortable retirement. So: think about that. The average woman’s life expectancy is about 86 years. So if you want to retire at 60 years old, you have 26 years needing $3,000 per month: even if you exclude inflation you’re talking about a million US dollars that you have to plan.

When you start having these conversations, then you start to understand: wow, you know, I do need to start planning, perhaps now in my 30s, rather than in my 50s.

So having this awareness, to start planning – or at least having the conversation earlier – definitely helps.

World Finance: But is consumer behaviour changing? Are people saving more?

Candy Yuen: I think people start to at least be aware that this is a problem, or a challenge that they can’t just hide from. Because people in Hong Kong do care deeply about savings for retirement. The last thing they want is to create a financial burden for their kids or their loved ones.

However, not every one of us knows exactly how to prepare for retirement, and exactly how much we need to save for retirement and starting from when. So those are the questions that people are struggling with.

Because you either start saving earlier, and more disciplined. Or you have to adjust your realistic assumption, what kind of retirement lifestyle you’ll be having.

World Finance: What particular challenges do you face understanding and communicating with modern consumers?

Candy Yuen: Nowadays I think digital becomes an integral part of our daily lives. Absolute relevance is the only entry point. Because if you think about it, how many irrelevant messages do you get every day?

So, getting a better understanding in terms of how people behave, and how people think. What clicks with them. It’s absolutely critical.

At HSBC we invest heavily in customer analytics, big data, customer insight. We regularly commission a study on understanding online behaviours of our target segments, and also the broader market segments as well.

Because through this we can actually develop products that are most relevant, and also create and add value to our customers. And in this way we aim to develop the right products, and provide them at the right time, and via the right channel, as well. Because nowadays with digital technology advancement we have new media, new platforms to interact with our customers. And so that’s why we are crazy and passionate about this customer-centricity approach. Because only then we can win the hearts and the minds of our customers.

World Finance: Candy; thank you.

Candy Yuen: Thank you.

Alistithmar Capital: Saudi Arabia’s Tadawul needs more product diversity

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Saudi Arabia’s Vision 2030 is its deputy crown prince’s $2tr project to create a post-carbon future for the kingdom. Creating the largest sovereign wealth fund the world has seen, it’s a dramatic shift that has been welcomed by politicians and business people around the world. Hesham Abou Jamee and Mazen Al-Sudairi from investment company Alistithmar Capital discuss its impact. The renewed focus on education will help Saudi Arabia’s youth become the human capital designed to drive the oil-dependent kingdom’s economy forward. Reforms in land and investment regulation will unleash potential in religious tourism and real estate. And the ongoing shake-up in the Tadawul exchange will enhance business opportunities even further.

World Finance: Saudi Arabia’s Vision 2030 is its deputy crown prince’s $2tr project to create a post-carbon future for the kingdom. Creating the largest sovereign wealth fund the world has seen, it’s a dramatic shift that has been welcomed by politicians and business people around the world. With me to discuss its impact: Hesham Abou Jamee and Mazen Al-Sudairi of Alistithmar Capital.

Hesham: what are the highlights of Vision 2030? What are you most excited about?

Hesham Abou Jamee: 2030 focuses on education: how to have one of the best education systems in the world. We aim also to have five of our universities within the best 200 universities in the world.

Fifty percent of our population is below 25 years. By educating these people we can have a good future, and we can reach the 2030 goals.

Mazen Al-Sudairi: I totally agree with Hesham that human capital is the most important driver in our economy. For that the reforms create the basis of perpetual growth, which is the most important thing: education, enhancing transportation, infrastructure, communication to create an ICT economy. And regulation: we saw so many reforms last year.

The last thing is the R&D in Saudi Arabia. The weight of R&D is too low in Saudi Arabia, compared to GDP; and we hope to see Saudi Arabia as a big competitor to Korea after 10 years, to reach four percent investment to GDP.

World Finance: Naturally this is a long-term plan, but we’re already seeing some dramatic changes. So what are the sectors that are going to be benefiting in the next few years?

Mazen Al-Sudairi: Food and agriculture – it’s related to the population growth. The trade quality in Saudi Arabia is going to be enhanced, with the FDI that’s going to come, we’re going to see the creation of jobs, and we’re going to see new products and new markets.

For example, the land reforms that happened, to the investment in the holy cities. Those are going to drive so many sectors: for example the real estate sectors, the cement sector, the healthcare sector.

Banking is always banking: people are going to borrow and they’re going to deposit. And in Saudi Arabia we have one of the most solvent banking and monetary systems. So we could say the majority of sectors are going to benefit from the reforms. Some of them are going be in the mid-term, some of them are going to be in the long-term.

World Finance: The Saudi stock market has been responding positively to all of this news, but to really achieve its full potential, do some reforms need to be made there?

Mazen Al-Sudairi: Lately we have adapted to so many reforms in the Tadawul system, and this year they have accepted so many new products. But we believe that instead of equity assets, we need to attract many other products. For example, ETFs, REITs, riyal-denominated bonds. That’s going to attract so many investments to us.

Even related to the market cap. We have only one market. In so many emerging economies there is a market for small-cap, middle-cap. I think we need this step too.

These steps and reforms are going to enhance our stock market.

World Finance: So how does Alistithmar Capital translate that potential into returns for your investors?

Hesham Abou Jamee: Alistithmar Capital is an investment company owned 100 percent by the Saudi Investment Bank. Our market share currently is about 10 percent, and we rank number four between our competitors.

In brokerage we have a state of the art platform called Istithmarcom, which is one of the best platforms in the kingdom for local and international brokerage. We invest a lot on our platform. Actually, we spent a lot in the last few years in IT; but now we get the results.

In asset management we have very good, talented staff – most of them Saudi – with a high level of education and a high level of certification, like CFA.

In corporate finance we have a young team, but within two years we’ve had a lot of success in this field.

World Finance: You have been enjoying successes significantly above local benchmarks, so, what are your targets and what’s your strategy?

Hesham Abou Jamee: In asset management we have talented staff. That’s why we have achieved over the benchmark for the last two or three years. And our rank is number one or number two of all of our funds.

We created two real estate funds last year, and also two mutual funds. Both real estate and equity were the best funds in the kingdom.

In corporate finance we are trying to benefit now from SMEs and family companies. We have four or five companies between family and SMEs to be listed in 2017, with the new market.

World Finance: So how else is Alistithmar Capital differentiating itself from your competitors?

Hesham Abou Jamee: We don’t have any wall between us and our customers. We have good services. Most of our customers are high net-worth institutions. They find it easy to reach us; all our division heads, even me.

This year was a challenging year, because of the economic situation. But we have one of the best divisions in the kingdom, in asset management, in brokerage, in advisory, in corporate finance.

We try to be the best; we have to be creative in the market. And we hope that we will succeed in the future.

World Finance: Hesham, Mazen, thank you both very much.

Hesham Abou Jamee: Thank you Paul.

Mazen Al-Sudairi: Thank you.

Ercüment Erdem: How to invest in Turkey’s $100bn PPP projects

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Turkey’s infrastructure renewal continues apace, despite 2016’s political upheaval. In 2015 the Turkish government invested $30bn in construction, with the total value of projects scheduled through to 2023 worth over $100bn. Project finance expert Professor Dr H Ercüment Erdem, founder and senior partner of Erdem & Erdem Law Office, outlines the most exciting projects happening in Turkey right now, including the New Istanbul Airport, scheduled to begin operation in 2017. He outlines the laws governing PPP projects in Turkey, and explains how partnerships are typically structured; and identifies the key risks and considerations for international investors who want to engage in the country’s development.

World Finance: Turkey’s infrastructure renewal continues apace, despite 2016’s political upheaval. In 2015 the Turkish government invested $30bn in construction, with the total value of projects scheduled through to 2023 worth over $100bn. Joining me is project finance expert Professor Dr Ercüment Erdem.

What are some of the most interesting projects happening in Turkey at the moment?

Professor Dr Ercüment Erdem: We have many interesting projects, but let me give you only three examples.

The first one is Yavuz Sultan Selim Bridge. It’s a very new bridge, the third bridge on the Bosphorus, and it’s part of the Northern Marmara motorway project.

The second one is the New Istanbul Airport. It will be one of the major airports in Turkey; we expect it to be in operation in 2017, probably.

My third example is Osman Gazi Bridge. This crosses Ismit Bay, and it’s part of the Izmir-Istanbul motorway project. It reduces more than 50 percent the distance between Istanbul and Izmir. It’s been in operation since 2016, and it cost $1.1bn – it was a major project for Turkey.

World Finance: What are the laws governing PPP projects in Turkey?

Professor Dr Ercüment Erdem: We have two sets of rules. The first one is the PPP law; we call it the PPP law, but in fact it’s a law with respect to healthcare facilities. PPP projects are very important for Turkey, in particular for healthcare facilities. So, this is the first time that we have mentioned PPP projects in the law.

The second is the public tender law. It’s a general law, but it provides some guidance for the public tender, and organises how they have to be structured – with confidentiality, reliability, and many other main principles.

World Finance: How are these projects typically structured?

Professor Dr Ercüment Erdem: These projects are typically structured as joint ventures, in the form of joint stock companies.

We have long-standing experience with BOT projects in Turkey, since we have a particular law for that respect, enacted in 1994. This law provides some guidance, some general guidance, for BOT projects, and some variants to BOT projects: like Build-Operate, or Build-Lease-Transfer models.

And what we are doing in practice, in Turkey, is: we are using the model contract prepared by international institutions such as FIDIC or ICC.

World Finance: What unique risks do foreign companies need to be aware of when they’re looking to invest in Turkey?

Professor Dr Ercüment Erdem: Whatever risks are equivalently valid for foreign investors and Turkish investors. And foreign investment is a top priority for the Turkish government. But I would like to draw the attention of investors mainly to three points.

The first one is the management risk: how you manage the contract obligations and the project. There might be some failure for obtaining permits, environmental risk, and many other.

The second one is the legal risk, or the limitation of liabilities; in particular force majeure, step-in rights, or public order issues.

The third risk is the enforceability of security. As you may know, we are taking many securities for project finance, and these securities should be easily enforceable. So this is an important point as well.

World Finance: Finally, what’s the most important thing for businesses to be aware of, if they want to engage with Turkey’s development plans?

Professor Dr Ercüment Erdem: They have to understand the opportunity, and they have to evaluate the risk. Opportunity and risk go together, so they have to be prepared, and your legal, financial, and tax advisers have to have a strong background for project financing and in PPP projects.

And they have to be ready for the worst case scenario: the non-performance of the contract. So we may need a reliable, user-friendly, and easily implemented dispute resolution mechanism. For that respect I strong suggest to use international arbitration.

World Finance: Ercüment, thank you.

Professor Dr Ercüment Erdem: Thank you.

Mashreq Bank: Mobile is enabling completely new capabilities in banking

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The UAE’s smartphone penetration is among the highest in the world, and financial service providers have rapidly capitalised on this platform to differentiate their offering. Subroto Som, Head of Retail Banking Group for Mashreq Bank, explains how competitive and advanced the UAE’s banking industry is in terms of technology offering. The paradigm of mobile banking has shifted from replicating existing banking functions, he explains, to enabling brand new capabilities. For Mashreq, driving these innovations is a team of engineers, designers, data scientists and business analysts, all focused on easing customer pain points. Finally he suggests that traditional banks collaborating with new fintech players could drive even better customer experience and improve financial inclusion.

World Finance: The UAE’s smartphone penetration is among the highest in the world, and financial service providers have rapidly capitalised on this platform to differentiate their offering. Subroto Som from the UAE’s Mashreq Bank joins me now.

How competitive is the UAE’s banking sector in terms of technology offering?

Subroto Som: Very competitive is how I’ll start! There are over 50 banks which operate in the UAE, out of which over 36 work in the retail space. This is across 3.5 million consumers, and about 12 million cards.

Of the 36 retail banks that operate there, almost 25 of them offer an online platform, and about 16 of them offer an online and mobile platform.

In the UAE, even today more than 75 percent of transactions happen through cash. So as you will see, there is a huge opportunity going forward. There is new development coming into customers’ hands almost every day, and that makes it very exciting.

World Finance: How advanced is this technological offering, then? And talk to me about your app, Snapp Mobile: what’s new there?

Subroto Som: Technologically, not all the platforms are equally capable, from a customer’s perspective. Three or four of them are quite advanced, and Mashreq is one of the leading ones.

Snapp is very intuitive, trendy, and customer-centric. The app integrates the mobile banking for banking, for cards, for rewards platform, for various information that the bank sends to the customer in form of notifications.

It’s been continuously evolved over time: we integrated with Siri to give simple instructions to remit money on voice recognition. If you have lost your card, you want to immediately block it, and if you can’t find it, you will actually ask for a replacement, and if you find it you will unblock the card. You may want to restrict the maximum size of a transaction on a card, the number of transactions in a day, your supplementary card holders – who can spend how much at a time. All of this is possible through Snapp.

We have gone beyond what is possible in banking, that you offer on mobile.

World Finance: And how about with corporates and SMEs? How are businesses going mobile?

Subroto Som: We have a dedicated app, Mashreq Edge, for our larger corporates which operate out of multiple countries. It has very sophisticated controls about authorisation, tokenisation, and verification for transactions.

We also have an extension of Snapp – what we call SnappBiz – which is targeted at small business entrepreneurs. You can initiate a transaction on the online platform, and you can complete it on the mobile platform. It also allows one particular transaction to be completed by two or three different people, because in many cases companies need multiple levels of authorisation. It allows you to track where the transaction is.

This SnappBiz has just been launched – we are the first bank to launch a specific, SME-based mobile banking application in the market. I do see this to be a big driver of transactions for SMEs.

World Finance: Talk me through the learning curve of producing these apps; what’s been the process there?

Subroto Som: The biggest thing is, we have a team – not comprised of bankers – these are engineers, analysts, designers, a set of data scientists and business analysts who actually review all the transactions that are taking place in our network. Whose focus is: customer convenience, customer pain points, and how to find a solution better.

We work with this team, along with our technology partners. We have a team dedicated in Bangalore. We have vendors in London and Milan with which we work. And I think it is that very close teamwork that makes a difference. Because we are able to respond quickly, we are able to make changes quickly, we are able to bring things very quickly. And that I think is the key to the development.

World Finance: Finally, what do you see as the next step in digital banking?

Subroto Som: Mobile banking was about: what you did in normal banking, you brought to the mobile. You will now have capabilities in mobile and digital banking that do not exist in normal banking.

Second, we have seen and heard a lot of fintech come into the space, bringing enormous value to the customer and experience. And I feel in the next phase, fintechs and banks will work closely, to reduce pain points and bring better customer experience.

Third, what digital and mobile and banking is bringing, will actually improve financial inclusion to a large extent.

I’m excited about the opportunities. And while it brings new competition, it also creates opportunity to address consumer needs in a very different way. So good times are ahead of us.

World Finance: Som, thank you very much.

Subroto Som: Thank you very much; nice talking to you.

Kazkom Life: How developed is Kazakhstan’s life insurance industry?

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It’s the size of Europe and rich in natural resources, but Kazakhstan’s economy has been suffering since the downturn in oil prices. Still, its financial services industries have been evolving, after recovering from the 2008 crisis. Abylai Jakishev, advisor to the chairman of the board of directors for Kazkom Life, explains the current state of the country’s life insurance sector, what reforms are needed to grow its nine percent penetration rate, and what changes we can expect in the next two years.

World Finance: It’s the size of Europe and rich in natural resources, but Kazakhstan’s economy has been suffering since the downturn in oil prices. Still, its financial services industries have been evolving, after recovering from the 2008 crisis. Joining me is Abylai Jakishev from insurer Kazkom Life.

Abylai; how developed is Kazakhstan’s life insurance industry?

Abylai Jakishev: Life insurance industry in Kazakhstan has been actively developing in the last 10 years. It’s only nine percent of the population in Kazakhstan who are covered by insurance; the main part of the insured are borrowers or financial institutions. And as the adjustment of the national currency in 2015, it has been issued new insurance products for customers, that are bound to the national currency.

One of the major events which took place in 2015 was the merger of two big companies: BTA Life and Kazkommerts Life. The company takes first place in insurance reserves, the second place for assets. We’re also leading in cumulative insurance – it has signed more than 30,000 insurance agreements.

World Finance: Nine percent penetration is quite low; are there reforms needed in order to expand insurance through Kazakhstan?

Abylai Jakishev: Yes, it is very necessary to develop online insurance. It will help us to clear the path to our clients, by selling new products online via internet, mobile applications, and other services. As well as leaving the insurance agents on the side.

It is very important to create insurance products that are more affordable, and more understandable for customers. We also started contacting foreign brokers as well as foreign markets for future cooperation.

World Finance: What can we expect in the next year or two: any foreign entrants coming into Kazakhstan? And what is Kazkom Life doing?

Abylai Jakishev: There are only seven participants in the life insurance market today, and we do not anticipate any change in the number of players in the market.

With the arrival of a new major shareholder, Kazkommerts Life has changed its strategy. We are improving on the quality of our customer service at the moment, and willing to get more audience and clients on the market.

World Finance: Abylai, thank you very much.

Abylai Jakishev: Thank you.

QBE Insurance research reveals uninsured risks of Singapore’s SMEs

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Recent research has revealed Singapore’s SMEs – the engine of its economy – are exposed to worrying levels of business risk. The findings, published by QBE Insurance Singapore, reveal that one in seven SMEs have no insurance at all, and a large part of the remainder are underinsured. The insurer’s CEO, Karl Hamann, explains why so many SMEs don’t consider insurance a priority, and describes how QBE works with its agents and customers to understand each business’s unique needs and offer tailored insurance to match. He also reveals a big risk to business that many companies don’t think of addressing: losing talent and the costs of replacing it.

World Finance: Recent research has revealed Singapore’s SMEs – the engine of its economy – are exposed to worrying levels of business risk. Joining me is Karl Hamann, CEO of QBE Insurance Singapore.

Your research found that some businesses don’t see insurance as being vital – or in fact, realise that insurance can be tailored to meet their individual needs – how can this be changed?

Karl Hamann: Our research did indicate that one in seven SMEs in Singapore are uninsured; and a larger part of the six in seven are underinsured. So that’s quite concerning.

The SMEs are really thinking about what their costs of raw materials are today, how much they’re making today, and therefore the profit that they’re making today. So if they were to sit there and think about how they can ensure that they pass this down to the next generation, then I think the decision process might be a little bit different.

World Finance: Why do you think businesses resist the idea of buying insurance?

Karl Hamann: There’s really a lack of understanding around insurance. So it’s all around trying to put out more knowledge around insurance.

One of the ways we try to do it is talk about real life experiences. And one that really humbled me earlier this year was an insured that we had recently written. So, they had a fire at their facility, and a $7m loss. And at QBE we feel that our purpose is really around allowing customers to fulfil their ambitions. So having insurance protection in place was really allowing this person to get back into business, and we’re now helping them do that.

So it’s making sure that we have the products and the discussions, to ensure that they can live their ambitions in life.

World Finance: When we talk about tailoring insurance to individual business needs, what kind of unique needs are you identifying?

Karl Hamann: When people think of insurance they just think of the common types of insurance, like that an SME might buy. But there’s so many other types of risks. We want to have a holistic discussion with the SME owner. And when we talk to an individual, they might not see the risks that other SMEs see that they face.

In Singapore we do a lot of trade credit insurance. So that’s really insuring your trade receivables. So if you’ve got key customers, it could be a big part of your turnover that would be impacted if they were to fall over.

One of the top risks that SMEs saw in Singapore was around the loss of talent. And obviously that has a significant cost, doesn’t it. Because if you lose someone, it’s not just the hiring process: there’s also the retraining, the intellectual knowledge that they’ve built up. So it takes someone that’s coming on board at least six months to be fully operational.

And emerging risk is around cyber, so QBE’s developing products around cyber risk as well.

World Finance: So how can businesses insure themselves against these new, emerging kinds of risks?

Karl Hamann: Everyone’s heard of risk management, but they might not necessarily know what that means. It’s making a conscious decision around three areas: whether you accept the risk, whether you mitigate the risk, or whether you transfer the risk.

So what I mean by accept. You might see something in your business that happens every day, it’s very low cost, so it just becomes part of your operational cost.

When you mitigate, you might change procedures, you might change processes, or you might feel that a piece of machinery is old and has a high risk of breaking down, so you’ll replace it.

And then the third aspect is, you transfer that risk to an insurance company. And I think that’s what is lacking. So we spend a lot of time with our agents, training them on our products, but then also encourage them to sit more with their clients, to really understand their business. Because every business is unique.

So you can’t pick up a product off the shelf and give it to an SME, because every SME is different. And SMEs in Singapore play a huge role in the economy, so it’s very important that they understand the risks in their business, to ensure that the economy continues to thrive.

World Finance: Karl, thank you.

Karl Hamann: Thank you, Paul.

ASEAN integration offers growth opportunities to insurers, says Viriyah

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The integration of the ASEAN Economic Community is naturally going to shake up Asia’s financial service providers. What changes can we expect in the insurance sector as the countries come closer together? Actuarial Analyst Arthapas Cheuasangpan says that far from consolidation in the insurance industry, the opportunities will see new businesses emerge. He gives an overview of the competition in the ASEAN countries, with Thailand’s non-life premiums worth $8.4bn. Nittaya Dockchan, Deputy Managing Director of The Viriyah Insurance, explains how the company will be working with international partners to deliver cross-border services, and Viriyah’s plans to expand into Thailand’s health and personal accident insurance sectors.

World Finance: The integration of the ASEAN Economic Community is naturally going to shake up Asia’s financial service providers; joining me to discuss the insurance sector are Arthapas Cheuasangpan and Nittaya Dockchan from Thailand’s The Viriyah Insurance.

Arthapas, what changes can we expect in the insurance sector as the ASEAN nations come closer together?

Arthapas Cheuasangpan: The idea behind ASEAN is to create a strong, competitive economy, which benefits all 10 member states. There are many benefits: the free flow of goods and services. An international firm can set up offices throughout the ASEAN countries. Banks will find it easier to provide loans and capital to overseas companies. Lastly, the free movement of eight key professions, who will be able to move freely throughout the ASEAN countries.

Overall, the stronger economy will ensure that consumer demand for insurance products increases, and in turn it will also lead to the creation of new insurance companies and the expansion of existing insurance companies.

At the moment though, there are examples where countries use different systems, or have different legislation, which makes it difficult for consumers and companies to do business across the region. In order to liberalise the interest market, the AEC will aim to standardise the financial framework; and these changes fall under the AEC Blueprint 2025.

World Finance: How does Thailand’s non-life insurance sector compare with that of your neighbours’?

Arthapas Cheuasangpan: Competition is high in the ASEAN. Indonesia has 29 companies, compared to Thailand which has 63. While Myanmar has the least, with three companies.

Within the region, Singapore has the most non-life insurance premiums, of $11.5bn, followed by Thailand, which has $8.4bn. Thailand actually has the highest penetration ratio compared to the ASEAN region, at 2.2 percent. The ratio in Thailand is even higher than in China and Hong Kong.

At the other end of the scale, Brunei, Cambodia, Laos and Myanmar each have non-life insurance premiums under $1bn.

World Finance: Nittaya; Viriyah has established itself as the leading, most trusted name in motor insurance in Thailand; so how are you going to be working to establish that same brand overseas?

Nittaya Dockchan: Initially we will develop partnerships with local trade partners. And through these channels we will assist our partners on technical issues, and on how to improve our claim service efficiency.

Up to now, the company has cooperated with Allianz General Laos to offer cross-border insurance to customers crossing the border into Laos by motor vehicle. And this cooperative approach will be extended to other border countries such as Cambodia, Myanmar and Malaysia.

The company has extended the third-party liability to other Asian countries where we have a large number of cross-border cargo transporter customers. And according to our customer opinion survey, most of them found this service very useful, and it can enhance their business.

World Finance: Thailand’s health and personal accident insurance sectors have been growing at double-digit rates for recent years; how are you going to be expanding into these areas?

Nittaya Dockchan: We will apply the business model of motor insurance by emphasising our leadership in claims service.

The company has been able to use the knowledge and technology expertise, but most of all, the cooperation from our business partners, to develop a top quality claim service to respond to our customer needs with the highest efficiency. And with Thailand on the verge of becoming an ageing society, people are realising the fact that they need to prepare and look at appropriate insurance plans. And the company takes this opportunity by joining forces with high-profile major business partners that already have a comprehensive health service network in Thailand and other Asian countries. One of these business partners is the Bangkok Hospital Group. And we are now in the process of preparing the necessary things before launching this project in this fourth quarter.

Meanwhile we are also getting ready to provide top-up services without the health insurance scheme, under the public welfare systems, such as the social security system, the universal healthcare system.

World Finance: Nittaya, Arthapas: thank you both so much.

Arthapas Cheuasangpan, Nittaya Dockchan: Thank you.

PetroRio: Small indie oil firms will profit most from Petrobras sell-off

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How do you retain profitability when your primary commodity halves in value? That’s been the challenge for oil and gas players over the last few years. Nelson Tanure and Renato Jerusalmi from independent oil producer PetroRio discuss its strategy for success. In 2015 the firm sold off its exploratory assets to focus on oil development and production – a lower risk strategy for a small oil player. Now unleveraged and with strong cashflow from the Polvo field, the business is looking to expand through acquisitions – including from the scandal-plagued Petrobras.

World Finance: How do you retain profitability when your primary commodity halves in value? That’s been the challenge for oil and gas players over the last few years; here to explain PetroRio’s strategy for success: Nelson Tanure and Renato Jerusalmi.

Nelson, 2015 obviously a very challenging year across the industry, but you had a highly profitable one. So how did you cut costs and turn the company around?

Nelson Tanure: We went through the same struggles as everybody else. But part of the reason why we had a good year was that in actual fact it began in the second semester of 2014. We needed to be profitable with oil prices below $45, and in fact it wound up even surpassing this low.

But we were able to lower costs significantly to put in a variable component in relation to the oil price. So if oil went up so did the supplier cost. But oil going down, they shared the burden together with ourselves.

So the focus was very much on profitability. And above everything else, the reason why we had a good year was essentially people. We had very creative, very dedicated people who searched for returns and who searched for doing things the right way.

So we come out of the year with a bigger cash position than we went in. We preserved our balance sheet. And from a strategic point of view, looking at our assets, we increased our position in a profitable, producing asset, which is Polvo. And we divested out of the non-core exploration assets. So it was a good year for us.

World Finance: Indeed it was a transformative year for PetroRio, changing from an exploration company to a producing and developing one. What was the motivation behind that shift?

Renato Jerusalmi: First it was survival mode. Because we changed from a poor exploration company that was spending a lot of CapEx in Solimoes, to a development and production company that bought a producing field from BP, which was Polvo.

The second part of it was, this strategy fits much better for a small company in which you have a lower risk strategy of buying producing assets with cashflows, than having much higher risk of spending CapEx in exploration. So it fits well with our strategy. It really has three pillars.

The first one is operational – we want to replicate what we did in Polvo. We want to reduce OpEx, and really focus on reservoir management to increase reserves in small fields – that are considered small for the majors, but are quite a considerable size for us.

The second part is leverage. As you know we’re highly unleveraged, so we have a lot of leverage room.

And finally we have a very strong capital discipline, so we only want to do creative deals. So I think we’re a lean company: we cut costs, we cut OpEx really well. We have much better operations to generate value for our shareholders.

World Finance: Looking at the oil and gas industry in Brazil, how are things going to be changing in the next year or two? In the wake of the Petrobras scandal.

Nelson Tanure: The company’s facing a lot of pressure. Together with the fact that we’re getting to the point where the major oil companies – many of their fields are reaching their midpoint, where they’re becoming a bit mature. So that’s generally when a major will look to divest. And for an independent company such as ourselves, this is the perfect timing. Because from a balance sheet perspective, in cash; and from an operational point of view; we are the ideal company to be able to buy these assets.

So we expect to keep on an upwards trend, and ideally be able to make some very creative acquisitions.

World Finance: How are you going to be funding that?

Renato Jerusalmi: We’re looking at first leveraging the company in a responsible manner. The company is highly unleveraged, so now with net cash at around $130m. Also, because we’re buying producing assets, those assets have cashflows. So we’re also going to leverage those assets.

Then the second step, I think after the leverage, will be looking at some partnerships on an asset level. And finally, if we keep finding creative opportunities, we can always think about new equity. We’re listed on BOVESPA, we’re listed on TSX. So I think we have a good capital base to raise equity if we would like to.

World Finance: Aside from acquisitions, your current asset, the Polvo field. What are the growth prospects there?

Nelson Tanure: Polvo is a field that produces around 9,000 barrels of oil per day. And part of the reason why we like the field so much is that it has a characteristic that we always look for. So besides steady production there are upside opportunities. And in Polvo specifically, we just underwent a very successful workover campaign, where we increased production. And we’ve also identified further prospects for eventual drilling.

We’re looking at drilling in the first semester of 2017, if all things work out well. And we should see a nice improvement in production.

Renato Jerusalmi: When we did the redevelopment programme, which was the first semester of this year, we found a new reservoir. We proved a new reservoir – which was new sandstones. This generated a new prospect to us. So that’s one of the examples that we can generate value within the producing fields. And as you know, in oil and gas, most producing assets have some exploration upsides. So most of the acquisitions we’re looking at have some exploration upsides.

So it’s not our core, but of course we’re going to look at organic growth and some creative exploration upsides.

World Finance: Renato, Nelson, thank you.

Nelson Tanure: Our pleasure, thank you.

Renato Jerusalmi: Thank you.

How Philippines’ Standard Insurance prepares for cyclone season

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Typhoon Meranti is just the latest tropical cyclone to wreak havoc around Southeast Asia, as Pacific typhoon seasons seem to grow year on year in intensity. How is the insurance industry coping? John B Echauz and Patricia Echauz-Chilip from Philippines’ Standard Insurance explain that with 14-20 typhoons each year, they’re very familiar with insuring against natural catastrophes. 1,200 people all over the Philippines ensure the company is available to offer a quick and compassionate response, while excellent risk mapping and the best reinsurance facility in the country ensure Standard Insurance’s success.

World Finance: Typhoon Meranti is just the latest tropical cyclone to wreak havoc around Southeast Asia, as Pacific typhoon seasons seem to grow year on year in intensity. How is the insurance industry coping? John B Echauz and Patricia Echauz-Chilip from Philippines’ Standard Insurance join me now.

Patricia: how is the insurance industry generally coping with these increasing catastrophes?

Patricia Echauz-Chilip: Do you know, in the Philippines we have about 14-20 typhoons a year. And then the archipelago sits on a web of faults. So we’re really familiar with nat-cat.

I think the industry, and the clients, are getting smarter every year. We learn with every single event. Every year we review the risks together with our clients, and we provide more cover if they need it.

They’re also very proactive already, about protecting their assets. They retrofit their structures, they rebuild on higher ground. And sometimes it’s as simple as parking your car out of the way of the flood.

World Finance: A lot of the time speaking with insurance providers, people are talking about client education. But it seems very general, just about the benefits of insurance. Whereas you’re actually really reaching out to be specific about how to mitigate risk.

Patricia Echauz-Chilip: Yeah – there’s a sense of urgency, because maybe for other places it’s one in every four hundred years. For us, for typhoons it’s every year.

We have about 1,200 people all over the Philippines, so we’re physically there to help process the whole thing. Sometimes people have lost their businesses, their homes, even members of their family. And we kind of hold their hands through the process of how to go about their insurance, and how we can help them. We think of ourselves as a part of the community, and we’re happy to help in any way.

John B Echauz: Today, thanks to GPS, thanks to the internet, thanks to good hazard maps, thanks to geodetic engineers, thanks to political will: we are able to map our risks very, very carefully. We can tell if this street is prone to flooding, while this street next to it is not. We can tell if this property is prone to ground shaking or ground rupturing, or if it is not. That makes all the difference.

So our book, actually, is managed at a very detailed level. Once we’re happy with the risk that we have, the book that we have, we make sure we have the right reinsurance for it. We believe we have the best reinsurance facility in the country, thanks to our reinsurance team, led by our group chairman, our father, who’s done a very good job protecting our book. We have the most reinsurance capacity vis-a-vis our property book, which also supports and protects our motor book.

World Finance: You’ve always been an innovative insurer; how are you keeping ahead of client expectations in terms of technology and service?

John B Echauz: There are many, many things going on. For example, we have our own core IT system, which is first class, it’s fantastic. We have our own catastrophe monitoring system. We have our own digital platform to serve customers, intermediaries, and our associates.

We have our own vehicle recycling facilities. We have good learning and development for all our associates. We have to make sure that as they age their future is with us. We have our own BPO facility that helps us serve our international markets. Of course our reinsurance facility, which is fantastic. All of these things we put together, to help us achieve that single objective: being able to produce a product that works and is affordable to the public.

World Finance: Obviously technology is transforming all industries; what kinds of new needs for insurance are you seeing come out?

Patricia Echauz-Chilip: Everybody’s travelling all the time, so we have a growing travel insurance book. We’re studying technology: how to cover things like Uber and Grabb. It’s not traditionally insured, so: how do you do that? So things like this.

We’ve always been a traditional motorcar insurer, but now we also do construction, because the Philippines is in the middle of a boom.

John B Echauz: We also have to be very thoughtful about how we chop up the markets. And each market has a particular way of working and thinking. For example, millenials. We’re only learning now how to work with them, because they think very differently! They don’t want to speak with anyone. They want things very simple. They have no patience for you if you can’t do a good job.

Patricia Echauz-Chilip: And they don’t aspire to own a car or own a home! So that’s a traditional thing that we insure, so it’s all experiential for them. We have to be able to figure out how to address them.

World Finance: Let’s talk about the international market; what’s Standard Insurance’s strategy there?

John B Echauz: They say that there is ASEAN integration. For those of you who are not from Southeast Asia, it’s just one region: Southeast Asia! Actually these countries have very little in common. The average Filipino will know almost nothing about the average Thai, Malaysian, Indonesian or Vietnamese person. They might be nearest to us, but culturally they are so different.

We are closer to the US in terms of thinking and ways of doing things. And in terms of international expansion we can do two things. One we do today already: we have our BPO business. We provide support services to insurers all over the world. And the second thing is, all of these things we’ve put together has given us a good platform. We actually have enough to go to the US and put up a small, low-cost operator, supported by our entire Philippine operations.

So I think there is potential to go out. But whatever happens we’ll maintain our culture. Our culture is very precious to us; our culture of compassion, loyalty, and fighting spirit. We think a certain way, and our group chairman, our father, said that, “When times are difficult, you can walk slower. When times are easy, you walk faster. But what’s important is that you never stop. Because after a certain time, you’ll find yourself some place good. And that the journey was worthwhile.”

That’s gotten us this far, and we think it’ll take us to the next step.

World Finance: Patricia, John, thank you so much.

John B Echauz, Patricia Echauz-Chilip: Thank you so much, Paul.