Author: World Finance

Qatar Solar Technologies lays foundation for MENA’s solar strategy

Posted on by World Finance

Climate change and renewable energy are high on the international agenda. The Middle East – the core of the planet’s sunbelt – is already engaging with this energy transformation, diversifying into solar. Helping meet this demand is Qatar Solar Technologies; at its helm, chairman and CEO Dr Khalid K Al Hajri. He talks about the expectations of the solar industry – contributing 26 percent of the world’s energy – and how Qatar Solar Technologies’ partnerships with Centrotherm and Solar World will help the company build 6.5 GW worth of photovoltaic solar facilities.

World Finance: Climate change and renewable energy are high on the international agenda. The Middle East– the core of the planet’s sunbelt– is already engaging with this energy transformation, diversifying into solar. Helping meet this demand is Qatar Solar Technologies. Its Chairman and CEO Dr Khalid K Al Hajri joins me now.

Dr Al Hajri, what is the future of the solar energy industry?

Dr Khalid K Al Hajri: There is a projection that by 2040, 60 percent of the world’s energy needs will be met by renewable sources. 26 percent of that will be from solar.

The price of the solar industry is coming down. In fact, the price today, if you compare it per megawatt used by cars, it’s around $122/MW using solar, and $118/MW with gas. So you can see the gap is coming down.

Last year, 2015, was the first time when investment in renewables and in solar went up, while investment in oil and gas came down. So that’s how solar will help overcome some of these challenges of climate change.

Qatar Solar Technologies will be laying the foundation for the solar industry development across the MENA region.

World Finance: You’ve made significant investments in the photovoltaic businesses Centrotherm and Solar World. How does that position QSTech across the photovoltaic value chain?

Dr Khalid K Al Hajri: One of our visions is to be a globally leading integrated company. Getting involved in Solar World, which is the major producer of panels in Europe and the US; and also Centrotherm, which is a general combined technology provider with 95 percent of the polysilicon marketshare worldwide, and in semiconductors they have 45 percent of the market.

So with the three of us working together on research and development, benefiting from each of ours’ experience, know-how and knowledge: that also will be a huge force through the use of Qatar’s Science and Technology Park, and the Qatar Foundation.

We think this will bring about a lot of improvements in the solar industry across the globe. And mainly we’ll start in the MENA region.

World Finance: You’ve been building your own polysilicon production plant – the first of its kind in the Middle East – tell me about that.

Dr Khalid K Al Hajri: We have 1.2 million square metres. One of our visions is to be a globally integrated leading organisation in the solar industry. And that land will accumulate around 6.5 GW facilities, from polysilicon up to panel production.

We’re adopting a fairly strategic approach. We’re building a polysilicon plant, and by the end of this year it will be producing 8,000 tonnes. That gives you around 1.3 GW.

And what we’re doing there is, we are laying the foundation for solar industry development in the MENA region.

World Finance: So that puts you in a really good position – especially with the recent Paris agreements actually coming into force, to drive forward the solar industry.

Dr Khalid K Al Hajri: Absolutely. Because this is the first time, after COP21 in Paris, that the governments have made a real commitment. And now, whether they resist the future or go along with it: there is no other option. And we  will be playing a major part in promoting the government to achieve their goals as set there.

World Finance: So what are they key challenges that are facing solar players?

Dr Khalid K Al Hajri: In the solar industry there are two challenges we have to overcome. One, to bring the price down. Two, the storage. And that will come through research and development, and dealing with Solar World, Centrotherm, Qatar Solar Technologies through Qatar Science and Technology Parks and the Qatar Foundation, that really will make the platform for positive contribution among this consortium for overcoming these challenges. And this is not only for the consortium – we’ll make it available for the rest of the solar industry key players.

Actually, there is another, third challenge. And that’s the fragmentation of the industry. The solar industry so far has been very fragmented. And we need to work on this, to make it one group, to exchange information between all the producers and key players in the solar industry to make it more competitive against other sources of energy.

World Finance: Finally then, what does the future hold for QSTech?

Dr Khalid K Al Hajri: The future – we would like to be a globally integrated company, worldwide. We have already started with our consortium with Solar World and Centrotherm.

Two: we would like to work together for research and development, and working simultaneously as we are building our plant, and building our name globally.

Thirdly, we will support the government in achieving the goal set based on COP21.

World Finance: Dr Al Hajri, thank you very much.

Dr Khalid K Al Hajri: I appreciate it so much, thank you.

 

Haitong Bank’s New China Index: lifting the lid on Chinese investment

Posted on by World Finance

China and Europe trade well over €1bn every day, according to EC statistics. Haitong Bank – the product of the acquisition of Portugal’s BESI by China’s Haitong Securities – offers Europe and China a platform for even greater trade and investment. The bank’s CEO, José Maria Ricciardi, explains why it has launched a New China Index, to track the transformation of China’s economy from one dependent on manufacturing and heavy industry, to a more service-driven, technological one. He also highlights the key sectors that China is investing in overseas, including €21bn into Europe last year. And he suggests that the potential for Chinese capital renewing Europe’s ageing infrastructure could be enormous.

World Finance: China and Europe trade well over €1bn every day, according to EC statistics. Haitong Bank – the product of the acquisition of Portugal’s BESI by China’s Haitong Securities, offers Europe and China a platform for even greater trade and investment. The bank’s CEO, José Maria Ricciardi, joins me now.

José let’s start with the toughest question: trust. Because there is this long-standing, historical mistrust of China because of government intervention, issues with intellectual property rights. So how would you describe Europe’s relationship with China today?

José Maria Ricciardi: In the past we could understand that. But China has made an enormous effort to become a much better regulated economy, and is making an enormous fight against corruption.

Lack of transparency, a certain opacity: this is no more the reality.

World Finance: Haitong has created the New China Index; tell me about this, why have you created it and what does it track?

José Maria Ricciardi: It’s a very good indicator for western investors, to see exactly the sectors and the activities where they can invest in China.

The Chinese economy is changing from this traditional, heavy, manufacturing industry with pollution; for a service, technological economy. And this New China Index looks to reflect the new reality of the Chinese economy: namely, consumer spending, travel volumes, online and mobile usage, shadow banking. All these new realities that in China are becoming more and more important in their economy, and are sustaining a certain level of growth

Giving you an example: in 2015, the country that was most important in luxury consuming goods was China. And this shows that the main brands of the western world have understood this change in the behaviour of the Chinese consumers, and they’ve invested in a very considerable way in their economy.

So, we really think and believe that this index is going to be an enormous opportunity for all investors to see how the growth is going to go on such an important economy in a very, very fast pace.

 

World Finance: And money is moving the other way as well; China is investing all over the world. Last year it invested €21bn into Europe. What kinds of sectors is China exploring?

José Maria Ricciardi: They are exploring many sectors that are related to technology issues. Also in the food sector, because for them it’s very important to enhance their food production.

They are also investing in the financial sector. For them it’s very important because a presence in the financial sector in the western world assists the investments of their companies in the western world.

Fintech is going to be very important for them. It’s such a big population, so everything related to this new online, new electronic world of finance.

World Finance: And how does Haitong Bank fit into this, as a platform of trade between the two regions?

José Maria Ricciardi: Haitong Group is the second largest investment bank in China, and it’s the leading investment bank in Hong Kong, and has a growing presence in what we normally call southeast Asia; so in Singapore, Tokyo and other places.

But it wants to become a global bank. To assist and to advise its clients. And so for Haitong Bank, this is a huge opportunity to be of the first movers, one of the players in this movement. Not only, if I may say, in the M&A traditional activities, but also in capital markets, from DCM to ECM activities. And even later on, for FICC and cash equity activities. In Europe, and also in the US, and also as I said in certain very important emerging markets. But also the other way around; our western clients.

World Finance: Finally, what advice would you give to European investors looking to explore China, and vice versa?

José Maria Ricciardi: Europe is the most important trading partner of China. They have established a strategy that says ‘One Belt, One Road.’ They want to become closer to Europe. Europe lacks capital. Europe lacks long-term finance for infrastructure investments.

If we are clever with the way we deal with China, if we overcome our cultural differences in a pragmatic way; for Europe, this is going to be very important.

And I hope that Haitong Bank will also be a part of this new, enormous cross-border flow of deals between the main economy in the east, and the most important economic block of the world; which is the European one.

World Finance: José, thank you very much.

José Maria Ricciardi: Thank you very much.

How anthropology can benefit customer service in the pension industry

Posted on by World Finance

Knowing your customer is not just a compliance issue; for pension providers it’s about understanding savers’ lives – sometimes even better than they understand themselves. John Glottrup of Danica Pension walks World Finance through its ingenious method of using anthropology and ethnography to provide tailor-made financial products. By focusing on the events that can transform consumers’ lives, he explains, pension providers can craft concepts, service models, and advisory events, that better serve customer needs. And he introduces the simplest consumer interface that Danica has developed, that is helping consumers realise they actually need to take action to secure their financial future.

World Finance: Know your customer. It’s not just a compliance issue: for pension providers it’s about understanding savers’ lives, sometimes even better than they understand themselves. Danica Pension has found an ingenious path to these insights; joining me is executive VP John Glottrup.

John, you’re working with a team of anthropologists to gain insight into the lives of your consumers. So tell me about that collaboration, and what insights it’s brought you.

John Glottrup: We work with a company called Red Associates: very insightful, very skilled. They work with some of the best brands in the world. And what they do is, they leverage a range of techniques such as ethnography and anthropology, which is about more in-depth studies of what really goes on when consumers make decisions.

So, we can ask a consumer what’s most important for them when they pick out an insurance policy, and people will give us the standard answers. It’s the cost, the expected return, the service, that people are friendly, and all of that. And not to say that these factors are not important, but when we pose the second line of questioning – what did you pay in costs last year, what was your return, when was the last time you actually used our service? – people will go blank. They will have no answer.

If you don’t understand, and you can’t remember, these things simply cannot be the reason why you decided to go in one or another direction.

What the anthropologists came back to us and said was actually, what makes sense is to understand what goes on in peoples’ lives.

World Finance: So how have you changed, based on the understanding you’ve gained from these insights?

John Glottrup: So what we’re doing now is basically concentrating our efforts – not to say that segments are not important – but we are more focusing on life events. What is it that’s happening in the lives of our consumers? Because that is where we need to be, at the right points in time, with the right services and the right products.

Let me give you just one example. Around the age of 55, something starts to happen. We see it very clearly in our data: activity picks up. People engage with us, they ask questions, they will ask for quotations on changes to their policies or their services. And we also see a lot of churn.

We had the anthropologists take a closer look, and what they came back with was that at 55, it’s just a symptom of something else going on. Because on average at 55, you become independent from your kids, so to speak. Kids leave the house, or they graduate from college. So you’ve got plenty of time, and potentially some more financial legroom. And you start wondering: so, how am I doing with my pension? Have I been saving enough? Should I be saving more? What’s going to happen for the next years of my life?

That’s the very narrow financial view. But the anthropologists uncovered that actually a lot more is going on. Because people start thinking about, should I buy a new house? Should I go back to college? Should I buy this flat in southern Europe to enjoy life a bit more? And once you understand that, it becomes a lot easier to actually craft a concept, a service model, and then an advisory event, that caters for what really goes on in the mind of the consumer.

World Finance: So how does it change the conversations that you have?

John Glottrup: As opposed to having a very product-centric conversation around the right insurance coverage, the right amount of savings, and the right life insurance, then it became more a conversation around: how am I doing with my finances in general?

So, do I have the financial situation that I want to be in? How would that look 10 years or 15 years out? Should I be saving more, or should I be saving less and spending more? So we’ve done this digital pension check, and we’ve done a completely new consumer interface.

What it is, is a traffic light: red, yellow or green. Very simple. How are you doing? Are you okay against what would be our professional recommendation? And if we put that tool in front of the consumers, what we uncover is that more than half of consumers will receive at least one red light. At least one. Which just tells us, we haven’t done the job. We have by no means met the target of actually making our consumers financially confident, and ensuring that they can use the pension for what it should be used for.

So it becomes a broader conversation which is not just about pensions, but is also about other sums of money, which is about all your financial assets, and your entire life situation.

I hate the word holistic, but in the absence of something better, that is actually the word. It becomes more of a package.

World Finance: The insights you’re getting really seem to have applications across the board, for peoples’ entire financial lives. So, you’re a subsidiary of Danskebank; is this insight informing its whole service?

John Glottrup: Absolutely – and when I say I hate the word holistic, it is just because it is a somewhat overused phrase. I don’t think that many financial institutions can claim that, you know, we’ve actually been able to deliver that kind of service.

What we are doing in collaboration with Danskebank is actually, enriching the picture. So, moving from a product-centric lens that is all about pension; to a broader perspective on your entire financial situation. And we have a vision in the group that actually, what we want to provide is financial confidence. In order to do that, we have to be trusted. And trust is something that you earn.

So, we need to enlighten and inform and help our consumers in managing their financial situations – not just on a pension, but on the entire financial situation. And that’s the only way we can build trust. That we do that in a reliable, and credible way.

World Finance: John, thank you very much.

John Glottrup: Thank you.

BVI drives forward with financial services diversification programme

Posted on by World Finance

The new rules around beneficial ownership are just the latest in a number of international initiatives around tax and transparency. How are they changing the landscape for offshore financial centres? Lorna Smith, Interim Director of BVI Finance, explains how the British Virgin Islands is engaging with the latest demands for transparency and staying in touch with international industry. She also explains the BVI Forward campaign: designed to strengthen and expand the financial centre’s services, both by engaging with and educating British Virgin Islanders, and developing the islands’ capacity as a data centre and arbitration hub.

World Finance: The new rules around beneficial ownership are just the latest in a number of international initiatives around tax and transparency. How are they changing the landscape for offshore financial centres? Joining me is Lorna Smith, Interim Director of BVI Finance.

Lorna, tell me how these different initiatives might impact international financial centres like the BVI.

Lorna Smith: All international finance centres are evolving, and it is very important that the British Virgin Islands stays in step with the new developments.

The new standards are all about transparency, and the British Virgin Islands therefore is adhering to these very high standards of transparency.

We have been an early adopter for the common reporting standards, we have signed on to the Foreign Accounts Tax Compliance Act. We are a member – one of about 90 members – of the Multilateral Convention on Taxation.

World Finance: As you say, you’re very involved in all these conversations, so how are you engaging with the different stakeholders around these programmes?

Lorna Smith: The OECD Global Forum really gained momentum in 2009, and the British Virgin Islands was at the table at that time.

We have been a member of the steering committee, and that is very important for us. I’ve been attending a Commonwealth Secretariat meeting, because the Commonwealth Secretariat is very concerned about IFCs, and making sure that they are treated fairly. And at the Commonwealth Ministers of Finance meeting that is supposed to take place in October, the subject of IFCs will be on the agenda. So that is a part of our engagement.

World Finance: So that’s part of your outreach, how you’re engaging internationally. But back home, how are you reviewing your legislation to make sure that the BVI is keeping up – and indeed, keeping in front of – the changing international landscape?

Lorna Smith: The British Virgin Islands prides itself on being always ahead of the curve; especially in terms of our legislation, in terms of our regulations.

We stay in touch with the international standards setters, and as a result of that, our legislation is amended as required.

We have recently made it a requirement that the ultimate beneficial ownership of companies be brought onshore. And in terms of the industry there is such a thing as product legislation, to make you competitive, to make you attractive. And we stay in touch with the industry – because as I always say, without an industry, you don’t have financial services.

World Finance: So, part of the way that you’re evolving is through the campaign BVI Forward: tell me about this, what is it trying to achieve?

Lorna Smith: The BVI Forward campaign is central to the evolution that I mentioned when we started out.

The campaign is intended to strengthen our financial services even more, to make them more sustainable. We for instance have begun to engage the population – I mean, very often, people hear about financial services, and it’s a big mystery. So it’s important that they understand how financial services contribute to their livelihood, and how important it is for the continued prosperity of the British Virgin Islands.

We have to build the capability of British Virgin Islanders, and we have therefore established a financial services institute, to make sure that British Virgin Islanders develop the capability for financial services.

One important tenet of it is the diversification of our financial services. We have about 450,000 active companies; we are the third largest in the world. But we would like to add value to the financial services that we offer.

For instance, establishing the BVI as a leading data centre. We have established BVI as an arbitration centre. We will have to improve our infrastructure. We need state of the art telecommunications. So all these things we are working on, to make the British Virgin Islands – as I said before – more sustainable. And that is what the BVI Forward campaign is about.

World Finance: So overall, how is the BVI growing and building on its position as a renowned international financial centre?

Lorna Smith: We’ve done a number of things. I mentioned the arbitration centre. We have one of the most highly respected commercial courts – opened in 2009 as part of the OECS Supreme Court system.

You would imagine that with 450,000 companies, a lot of litigation would be involved. People want swift justice, and that is what they can get in the British Virgin Islands.

We have engaged a firm to carry out a study of the value, or the contribution, that the British Virgin Islands makes to global financial services. That should be finished by the end of this year. Because I go back to the issue of substance, and proving that there is more to the British Virgin Islands and its offerings, than simply incorporations.

That’s just a couple of areas that we are developing.

World Finance: Lorna, thank you very much.

Lorna Smith: My pleasure.

A golden visa to Europe: Investing in Portugal’s real estate

Posted on by World Finance

The Golden Visa, offering access to Europe for investors and their families, has cropped up in a number of EU states over the last few years. Portugal’s scheme stands out in particular. Tiago Camara and David Machado from PT Golden Visa explain the simplest route: investing €280,000 in Portuguese real estate. Most investors aren’t seeking to move, they explain, but simply securing a passport to freedom for their future generations. Portuguese real estate is a thriving market, and investing not only offers the potential for significant returns, but guarantees Portuguese citizenship after six years.

World Finance: The Golden Visa, offering access to Europe for investors and their families, has cropped up in a number of EU states over the last few years. Portugal’s scheme stands out in particular. Here to explain why: Tiago Camara and David Machado from PT Golden Visa.

Tiago, talk to me about the different ways that investors can participate in this scheme.

Tiago Camara: It’s very simple for investors to participate and to apply to this programme. They just have to come to Portugal, and invest €280,000 in real estate in Portugal, and they’re ready to apply.

World Finance: What kind of investors are exploring this?

Tiago Camara: Our investors normally are regular individuals who are in a comfortable financial situation: looking for the comfort of their future generations, but not looking to relocate at the moment. They’re just looking for a path to freedom; an opportunity for them to relocate if they need to. And our programme allows them to have this access.

In our programme we have the capacity of giving them the opportunity of living, working, and studying, in any country in the Schengen area. After six years they are ready to apply for citizenship and get a Portuguese passport.

World Finance: There are other golden visas available, so how competitive is Portugal’s?

Tiago Camara: The Portuguese authorities managed to launch a very simple and attractive programme, compared to others. I do think – and I defend – that it’s the best one in the market.

First of all, it doesn’t require investors to live in Portugal. They just have to be there for seven days, spend some vacations in a beautiful country like ours, and the requirement is done.

The second one is the real estate market. The real estate market is booming, providing investors high levels of return on their investments, so that’s another good reason for them to invest in our country.

The third reason – and for me, one of the most important – our programme has no grey areas. If you invest, you get. So there’s no discrimination on nationalities, no discrimination on religions. There’s no evaluation of investors’ profiles through interviews. If you invest, you get the residence permits.

Last but not least, Portugal is a very safe country – politically and economically very stable. You can speak English throughout the country. And it’s a country that has been awarded for the last years as the best tourist destination in all of Europe.

World Finance: So David, tell me more about Portugal’s real estate market.

David Machado: The market now is booming, mainly for four reasons. One of the reasons is there’s a lot of foreign investors coming for the golden visa programme. The second reason is because we have an unusual residence programme, with tax benefits that is making Europeans relocate to Portugal.

The third reason is mostly because the Portuguese are moving their money out of the banks to invest in properties to rent out and get high yields. And the fourth reason, basically, is because developers are still in post-trauma, after the experiences since 2008, when the market was not so easy, and still not developing.

So these four reasons combined mean that there is a very high demand for the real estate market, and very little supply. So we’ve seen prices going up very, very fast.

World Finance: So give me some examples of the real estate opportunities available, and the returns that investors are receiving.

David Machado: These days, the picture is very clear. There are very few times in business where you can see the future in such a clear way.

If you are an individual real estate investor, we recommend to buy residential properties. The reason is, you can put these properties on the short-term market, and get very high yields.

If you are an international real estate fund, you want to go for bigger projects that you can develop, you can refurbish, or you can even do a property trading system. The market is so fast these days, if you trade three times a year, you generate returns over 30 percent.

World Finance: So if viewers want to know more, they have questions: what do they do?

David Machado: So it’s very easy. You can go to www.ptgoldenvisa.com. You either email us or call us. We will guide you through the whole process. We will prepare the real estate tour with the best real estate investment opportunities, and at the same time you will be guaranteed to get your golden visa.

How Commerzbank helps businesses expand internationally

Posted on by World Finance

The World Trade Organization predicts that world trade will grow just 2.8 percent this year; 3.6 percent for 2017. Getting back to pre-crisis levels of growth requires banks specialising in international trade to be efficient, client-focused, and future-proof. Commerzbank’s Roland Boehm argues that 150 years of supporting German industry and European trade means his company meets these standards. He describes how the bank’s structure and network facilitates its client-centric approach, explaining how it works with European clients exploring overseas, and international clients with an interest in Europe. He also introduces the latest addition to Commerzbank’s international family: a subsidiary opening in Sao Paulo, Brazil.

World Finance: The World Trade Organisation is predicting world trade will grow just 2.8 percent this year; 3.6 percent for 2017. Facilitating a return to pre-crisis levels of growth means banks specialising in international trade must be efficient, client-focused, and future-proof. Does Commerzbank meet these standards? Joining me is Roland Boehm.

Roland, Commerzbank’s been at the heart of Germany’s industry for 150 years, you’re now at the heart of Europe’s trade. Talk me through your international expansion.

Roland Boehm: World trade is something we’ve been focusing on for most of the bank’s history, as a leading German financial institution with over 100,000 corporate clients in Germany, and an extensive branch network with 70 sites in over 50 countries. Trade is something that we do, and it’s something that’s really ingrained in our DNA.

Besides our private client network, we offer very actively client-centric investment banking services. But the heart of the network really is the corporate banking that we do – for German companies, obviously, and European companies that go into the world, and for major corporates that go and look to Europe for their banking services.

World Finance: So, following your clients overseas, building positive client relationships; how does Commerzbank’s structure facilitate that?

Roland Boehm: Well, I think a lot of banks talk about being client-centric; it’s actually a lot harder than it would appear. And we’ve put a lot of work into designing processes and structures that really work to ensure seamless communication with our clients over the geographies that we cover.

We’ve got a lead relationship manager, wherever the client is located. And they’re the facilitator for the client into the network. It means that in all major questions the client has one central person to talk to, whose job it is to facilitate the client request in an efficient, effective manner, throughout the network, wherever that may be. Feed the answer back, and to make sure that the client has the competent people to talk to locally, wherever he desires them.

You need to design process around being relatively simple and open. So that communication is facilitated, so that people know who to reach. That you’ve removed barriers to doing business, there’s no discussion about internal revenue sharing and other things. And that means you can focus your energy, your time, and the components of your product offering on your clients, and how you can help them solve their issues.

The interface is there; the process is quick and efficient. It sounds easy, but it’s a lot harder to do sometimes than you may imagine.

World Finance: So talk to me about the network then: you have an international network of subsidiaries, branches, offices, correspondence banks. How wide is it, and what can you achieve with it?

Roland Boehm: We’re very excited about the fact that we as a bank built around trade are able to cover about 85 percent of world trade. And just to throw some figures out at you, Commerzbank processes around one third of German foreign trade – so one third of German exports go through Commerzbank. About 17 percent of eurozone exports. And that makes us really a trade powerhouse. And that’s something that internationally oriented clients – particularly in a world that continues to globalise – really value.

World Finance: What does that help your customers achieve; can you give me some examples?

Roland Boehm: Happily: let’s follow an Asian client looking to invest in Europe. We’re not only assisting the client in the capital markets activity, tying down the investment. But there’s a lot of nuts and bolts work involved in bringing the local expertise to the client, and helping them facilitate and tie that down, so that they can seamlessly operate between the jurisdictions that they’re in.

So I think, tracking international clients into Europe is one part of that. The other example, where a German client or a European client invests in another country: we’re very much available with the expertise both locally, to ensure that tying that down is possible and seamlessly works after they’ve arrived; and but also in getting them there, and making sure that the acquisition – or whatever it is that they require to tie that down – is handled competently.

World Finance: Talk me through your digital strategy, because this really is key to keeping corporates efficient.

Roland Boehm: Absolutely, and we’re seeing transformative processes everywhere.

Digital is something that the bank is really closely tied to, and two of our largest subsidiaries – that’s Comdirect in Germany and mBank in Poland – are really innovation hubs. Not only in their countries, but for the industry as a whole.

Getting digital right means largely focusing on having the right kind of end-to-end processes. So, really finding solutions that help make clients’ business easier as we move into the digital world. But there’s another leg to it, which I’m also relatively excited about. We of course see a lot of the business that our clients do, so I think we very much see what’s happening in the digital space overall. And advising clients, I think, in managing processes that are attached to industry 4.0, is also a value-added service that we can do.

I think the bank is also very actively engaged in the fintech space, looking to invest in the technologies of the future, see where banking goes. We want to be an active part of that.

World Finance: So to the future then: any new plans for products or expansions you can tell us about?

Roland Boehm: Well you’ve certainly hit us at exactly the right period of time. We’ve just very recently – in fact a couple of days ago – opened our newest subsidiary, the newest member of the international family, in Sao Paulo, in Brazil.

Sao Paulo is one of the most important destinations for German capital outside of Europe, and also the gateway to Latin America. And we are very excited, and very very pleased, to be opening a major subsidiary with around 50 people to support our clients going to Brazil; but also Brazilian and Latin American clients looking to go to Europe.

As I said, regardless of the figures of world trade, globalisation continues. The world is becoming more interconnected. And we’re very excited to be an active part in that.

World Finance: Roland, thank you very much.

Roland Boehm: It’s been a real pleasure Paul, thank you.

 

Dominican Republic growth forecast from Banco Popular

Posted on by World Finance

The Dominican Republic’s economy is set to expand by around six percent this year as construction and tourism continue to bolster one of the fastest-growing countries in the region. Luis Espinola, Executive Vice-President of International Business and Private Banking from Banco Popular Dominicano, brings us his forecast. The Dominican Republic’s banking sector is among the strongest in the Latin American region, and it’s helping local SMEs thrive, with the DR seeing huge inflows from tourism, exports, and foreign investments.

World Finance: The Dominican Republic’s economy is set to expand by around six percent this year as construction and tourism continue to bolster one of the fastest-growing countries in the region. With me to discuss how this translates into the banking sector is Luis Espinola, VP Executive of International Business and Private Banking from Banco Popular Dominicano.

Luis, the Dominicans’ economy is flourishing, and last year you also reported strong growth – what are the main driving forces behind this?

Luis Espinola: The Dominican economy grew seven percent in GDP last year, led by construction – especially in affordable housing, hotels, schools, and other infrastructure – as well as the financial services and trade sectors.

This growth was achieved through a low inflation scenario of 2.3 percent and a very stable exchange rate.

At the same time we had tremendous inflows from tourism, free trade zone exports, remittances, and foreign investments.

World Finance: Banks in the Dominican Republic are among the strongest within Latin America, with 15.08 percent of solvency, according to a recent report from FELABAN. How do you think this goal has been accomplished?

Luis Espinola: For the last 12 years we’ve been under a new and modern monetary and financial law. And supervision since then has shifted, if you will, from a more compliance-based supervision that it was before, to a more risk-based supervision under international guidelines set by the Basel committee. This – in addition to new competitors that we have in our marketplace – has strengthened the banks’ willingness to continue to increase capital, and thus not only maintain their market share, but also their competitiveness.

World Finance: SMEs are said to be driving the economy – how does the banking sector facilitate them?

Luis Espinola: We have offered our SMEs a unique platform which we call Impulsa, or Impulsa Popular. Through which we not only customise their products and service needs, but also offer them training workshops in important areas for them, such as accounting, finance, marketing, and export facilitation.

At the same time, we offer them multiple capabilities such as the Paypal exclusive partnership we have, which permits our SMEs to grow their e-commerce sales.

We continue to partner with SMEs to open what we call bank sub-agents in their locations throughout our country, and thus facilitating financial inclusion in communities where we don’t have a typical branch, located with SME partners.

World Finance: Of course worldwide the banking sector is undergoing a digital revolution – how are you responding?

Luis Espinola: We have enhanced our mobile and internet capabilities. Our website now – we’re very proud of this – is the leader in financial services, in terms of monthly visits: we have more than 3.5 million. And just last year alone, our customers transacted more than 13 million transactions.

Recently we have launched a new version of our app, which makes the process for our customers more seamless, and permits our customers to review all the products and services options available to them, compare, and request – do their applications online, and receive immediate responses.

We provide digital wallets through which not only our customers, but unbanked customers, can do different transactions through their mobile cellphones, under pre-paid accounts. And this also has the advantage of enhancing financial inclusion.

World Finance: And in terms of challenges moving forwards? What does the banking sector face, and how are you overcoming these?

Luis Espinola: As our customers’ needs change – for example, millennials and generation Y – so does the bank. And all of us have to adapt quickly, and be able to respond to those needs accordingly.

Another critical challenge is availability. In our world today, customers demand and expect availability 24/7 through all our different channels.

And finally, but no less important: efficiency. We have to be able to continue to produce low cost services in a very automatic manner.

World Finance: Well finally, what’s your strategy for future growth?

Luis Espinola: I think that our chairman and CEO Mr Manuel Yeong better summarised our future strategy with the phrase “Innovation for inclusion.” We will continue to lead the digital transformation for present and future customers, while at the same time continue our focus on the dynamic segments of our marketplace: tourism, corporate businesses, small and medium enterprises, and retail and private customers.

Gebze-Orhangazi-Izmir motorway to yield extra $500m per year for Turkey

Posted on by World Finance

€315bn have been injected into Turkey through huge infrastructure projects. One vital development on Turkey’s transportation map is the Gebze-Orhangazi-Izmir motorway. The project’s concessionaire company is Otoyol; World Finance interviews its Assistant Managing Director (Finance), Murat Kosal. Murat explains the route the motorway takes – connecting the important industries of Gebze, Bursa, Istanbul and Izmir – and shows the construction of the Osmangazi bridge, the newly opened suspension bridge crossing the Izmit Bay. He also talks about the creative approach to financing and phasing the project that Otoyol adopted, and outlines the economic benefits that Turkey will enjoy once the project has been completed.

World Finance: €315bn have been injected into Turkey through huge infrastructure projects. One vital development on Turkey’s transportation map: the Gebze-Orhangazi-Izmir motorway.

Talk me through the project; break it down into sections for me.

Murat Kosal: My pleasure, Paul. We start in the north, at Gebze, an industrial town on the outskirts of Istanbul; and end at Izmir. Our project connects to the existing Ankara-Istanbul motorway, so we’re able to connect Istanbul to Izmir via Gebze.

From Gebze, we go south. After four kilometres, we cross Izmit Bay. The Izmit Bay is a heavily congested bay, and one of the most industrialised sections in Turkey.

We continue our travels along the motorway. We pass Gemlik. We pass through the Samanlı tunnel. The Samanlı tunnel is currently in operation, and it’s the longest motorway tunnel right now in Turkey. The total length is seven kilometres, including both tubes.

Once we get to Bursa, our motorway is connected into the existing Bursa ringroad, and we travel about 20 kilometres to the newly constructed motorway from Bursa, and travel another 300km, passing important regional towns Balıkesir and Manisa, and ending in Izmir after 300km.

World Finance: Now we have to talk more about the recently named Osman Gazi bridge, the suspension bridge crossing the Izmit Bay: because it really is the crowning jewel to this project.

Murat Kosal: Absolutely. With a main span of 1,550m, it’s currently the fourth-longest bridge in the world, second in Europe, and the longest bridge in Turkey.

This is one of the safest bridges built to-date: both seismic design and wind design was heavily tested: in Canada, for the piers; Copenhagen, Denmark, for the decking; and Milano, Italy, for seismic and wind activities for the overall project.

We also have very extensive sensors all over the bridge, measuring up to nine different points, from displacement to wear-and-tear of the asphalt.

We’re very proud of the bridge, and hopefully we’ll be opening the bridge in June 2016.

Bursa is one of the industrial behemoths of Turkey. Connecting Bursa and Istanbul – and then connecting Izmir and Istanbul – will decrease the traffic congestion, increase the efficiency of the highway and motorway system. The saving that’s expected will be in the tune of $5-600m every year. 10-15,000 additional jobs created from the automotive, textile and tourism industries. And the revenue the additional economy generated will be around $5-600m a year.

World Finance: And indeed, because of those benefits, this project has been on the Turkish government’s books since 1994: they’ve tried to get it off the ground twice since then. What changed to make the third time lucky?

Murat Kosal: I think there’s two main reasons why we were able to successfully implement this project. The first is that the BOT legal framework in Turkey has been greatly enhanced by the current government. Incentives that are provided by the government increased the bankability of projects such as ours.

The second reason I would say is that the stars sort of aligned just right for our project. We had a core group of dedicated investors that were willing to provide the equity. Our investors are also very highly specialised in construction, so we had that expertise under our belt as well.

Next to this we also have very strong government support, and a commercial banking sector that’s willing to bankroll the project.

World Finance: Now you mentioned the stars aligning for you, but you did have some trouble finding lenders back in 2010, in the aftermath of various US and European crises.

Murat Kosal: Our problem really wasn’t finding the lenders; it was trying to get a diverse group of lenders to agree on a common framework to provide us with debt. Once we understood that this path wasn’t the path that we would be able to successfully complete, we went into a phasing model, in which different segments of the project have different completion dates.

So, we have early generation from the segments that are operational earlier on, and we’re able to plough the revenue that’s generated early on from these lenders into the construction costs of the segments that are still ongoing.

With this less investment cost, and with the shorter construction periods, shorter grace periods of the loan, of the phasing model, we were able to limit the lending group from the 21 group into the eight, more homogenous Turkish lending institutions.

World Finance: So what lessons would you say you’ve learned along the way?

Murat Kosal: I think you need to be a little bit creative with your solutions. One way that we got creative in our project was that prior to the 2013 first financial close of this project, the investors of the concession company put into the company $600m worth of equity. What did this do? It provided an anchor for the project, and it gave confidence to the lending group as well, that the investors were willing to put their money where their mouths were. It also allowed us to continue construction works early on, and to have our first segment operational in 2016.

With this early operational segment, we’re able to generate revenue early on, and this early generated revenue is also supporting our overall model.

This may not be a solution for all investors, but it definitely was a solution in our case.

World Finance: Murat, thank you very much; good luck with the rest of the construction.

Murat Kosal: Thank you, thank you.

All change for Brunei’s banks: the local view on HSBC and Bank of China

Posted on by World Finance

Big changes are on the horizon for Brunei’s financial sector. HSBC is winding down its operations, the Bank of China has obtained a licence to operate, and regulatory foundations for Brunei’s first stock market are expected to be complete sometime in 2017. Pierre Imhof, CEO of Brunei’s Baiduri Bank, explains what these changes mean for the country’s banking sector. He also discusses Brunei’s national vision – the Wawasan 2035 – in terms of expanding financial services’ contribution to GDP to up to eight percent, and what the sector must do to support SMEs in diversifying Brunei’s economy.

World Finance: Big changes are on the horizon for Brunei’s financial sector. HSBC is winding down its operations; the Bank of China has obtained a licence to operate there. And regulatory foundations for Brunei’s first stock market are expected to be complete sometime next year. Joining me is Pierre Imhof from Brunei’s Baiduri Bank.

First Pierre: HSBC is moving away, the Bank of China is coming into Brunei. How is that going to affect the banking sector?

Pierre Imhof: I think it will change it in a positive way. As in many other countries in the ASEAN, the local banks have grown, have developed. I believe that with the departure of HSBC from Brunei, Baiduri Bank may appear as the bank of choice for its clients.

Bank of China coming? I think it’s a good thing, and good for the image of the country, that a foreign bank is showing interest in the Brunei financial market. It needs to learn the culture, the habits, the environment. And that doesn’t come overnight. So I’m sure the Bank of China will go through this learning curve.

World Finance: You mentioned Brunei being a member of the ASEAN community – what is that doing for Brunei’s growth?

Pierre Imhof: The members of the ASEAN are moving towards a single market, in terms of circulation of goods and services. Probably at a later stage of capital and labour. So there is this trend to better and better integration in the ASEAN – and this will definitely benefit Brunei, and will benefit Baiduri Bank Group.

World Finance: Brunei’s national vision – the Wawasan 2035 – has the financial services sector increasing its contribution to GDP up to five, even up to eight percent. How is that going to be achievable, and how do banks like Baiduri Bank actually fit into this?

Pierre Imhof: It’s an ambitious target, but we are there to take up ambitious targets, and try to achieve such goals.

With the aim of the government to promote and support SMEs, banks in general and Baiduri Bank in particular have accumulated excess of liquidity. And this excess of liquidity may be injected in the domestic economy to provide the right financing to SMEs. And we can also take advantage of a wider range of banking or financial services which will be available in the country soon.

World Finance: Indeed. So moving on to the stock exchange, then. What is a realistic timeframe for the stock exchange to launch?

Pierre Imhof: From what I read, what I hear, it is a project which is taken very seriously by the authorities and by the regulator. My understanding is that within a couple of years, the stock exchange will be launched and ready to operate.

And for Baiduri Bank, it’s a very good move. We are very much supporting this expanding of financial businesses in Brunei, and this opening of capital markets. We are the first in Brunei to offer an online trading platform to our customers. So our clients are now able to access a number of stock exchanges in the region – Singapore, Kuala Lumpur, Hong Kong, and now the US – and trade online on these markets.

World Finance: What does the stock exchange represent then – not in terms of the actual practicality, but more the governance, the regulations that are in place, and I suppose related to what you were saying about the Bank of China, the interest that the international market is showing in the local economy?

Pierre Imhof: Definitely in a country like Brunei – a small environment, it’s a small economy, the banks know the market well – there might be a tendency not to be fully in line with the highest standards, in terms of accounting, financial structures, and so on.

For me, having a stock exchange will definitely increase transparency and good governance in companies which are listed. And this will have a kind of domino effect for all other companies. And this level of transparency and governance will in the long-term help the country to develop even further its economy, and to be more visible, with an excellent image, abroad.

World Finance: More international money coming into Brunei, then. How can banks like Baiduri Bank make sure that actually trickles down into the local economy?

Pierre Imhof: Brunei needs to diversify. That has been set as an absolute priority by the authorities. One aspect of diversification is to attract foreign direct investment; the other side, as you rightly mention, is that this should benefit the people of Brunei. This should benefit the companies and the SMEs.

Just recently, at the beginning of this year, the government created a new body called DARE, to promote and support local companies and especially SMEs. So we definitely want to develop our activities in cooperation with this entity, in supporting SMEs, and in transferring to the local population whether they are individuals or companies, the benefit of this diversification.

World Finance: Pierre Imhof, thank you very much.

Pierre Imhof: You’re welcome, thank you.

How can banks use social media to get more customers?

Posted on by World Finance

Social media is a vitally important part of developing brand awareness and growing your customer base. But in an extremely fast-moving marketplace, it’s never been so important for businesses to constantly review, update, and improve their strategies, to ensure social media activity is actually contributing to business targets. This is something that Portugal’s ActivoBank knows a lot about. On Facebook, the bank set a target of growing an audience of 100,000 fans – it’s now well on the way to 150,000. But how did the bank start conversations with all of these people? And how has it been converting followers on social media into real banking customers? Luis Magro, Marketing Director for ActivoBank, discusses the process.

World Finance: What is your social media strategy? You know you need one, but how do you make sure it’s linked with your business objectives? How do you review it, update it, improve it? In line with the extremely fast-moving marketplace?

Portugal’s ActivoBank has been leading the digital banking conversation in that country; its marketing director Luis Magro joins me now.

Luis, let’s start with your Facebook target of 100,000 fans. You’ve actually surpassed this really quickly – you’re well on your way to 150,000. Why did you set this target for yourself? What business objective did it align with?

Luis Magro: Social media continues to play a very important role in our digital strategy. More than 50 percent of the Portuguese population is already on Facebook, and probably every one of our potential market is already on Facebook.

We already have more fans on Facebook than we have customers – we have 30 percent more. What we are doing is, we are building our friend base, but at the same time converting them to customers.

We estimate that our market is about 700,000 people, so what’s important is that we continue growing until we reach that 700,000, but that we keep pulling them into our customer base.

World Finance: Tell me about how you actually achieve that, then. How do you start the conversation, get Facebook users to become fans, and then as you say convert them from fans into actual customers?

Luis Magro: It’s not easy! Because we have to make nice posts about our products, about our services, and wait for people to interact with us.

This wasn’t enough. We have very good engagement rates, but we were not converting enough friends into customers. What we decided was to launch a virtual branch.

In this virtual branch, our friends can chat with our commercial team. They can access a lot of information of our products and services, and they can even start the process of opening an account. Facebook for us is a very big source of new customers.

World Finance: What lessons did you learn from your fans, and then your customers? And how did you make sure that those lessons were actually carried through to the team members driving the campaign?

Luis Magro: In Facebook, everything happens very fast. So your social media team is of very big importance. They all have the same knowledge, they all have to learn at the same time, they all have to participate in all the decisions. They all have to know what’s happening right now.

This is not a one-man show. This is a team that decides what is best right now, to answer – for example – a comment on our wall. So if you treat everything as a team, you will be consistent along the way.

World Finance: Tell me more about the content that you’re using to engage potential customers. Because you’re active not just on Facebook, you’re across all the main social media sites. So the content you’re putting on Instagram versus Youtube versus – well, Twitter or Facebook – has got to be quite different.

Luis Magro: Yes it’s different – and we have to adapt to each platform.

I was telling you about our virtual branch on Facebook; but recently we launched a virtual branch on Youtube. Completely different: it’s video-based. We have a lot of menus where you can navigate the content so you can choose what you want to see. You can even choose to open an account – you’ll be redirected to our website to start opening an account.

So it’s a virtual branch also, but done in a very different way. And with the same objective, which is acquire new customers. But the content is completely different.

World Finance: Going from converting fans into customers then – a lot of social media interactions from existing customers tend to be complaints. How does your team turn those complaints into a more positive experience?

Luis Magro: A complaint for us is an opportunity to change something that went wrong in the past.

What we see is that when we are afraid of people complaining, it’s because something about our products and services are not going well. So the problem is not the complaint – the problem is the product or the service.

If you have a good service, you won’t get complaints. And this is where ActivoBank has been very good in the past, because we are growing at a very fast pace, because of all our customers recommending ActivoBank to their family and to their friends. And this only happens if we have this preoccupation of having everybody happy.

World Finance: I said in the introduction that ActivoBank is leading the digital conversation in Portugal – and in fact it’s because of you that the Portuguese central bank doesn’t require physical signatures for opening an account. What do you expect the next digital innovation is going to be in the banking sector?

Luis Magro: Without having innovated yet, it’s a bit early to say what we are going to do! But for example, people opening accounts without even having to go to the branch. For example, we would like to see people from their homes, opening their account with a video conference. We could get facial verification comparing the video with a photo id. And a digital signature at the end, and the account would be open.

There’s a lot of stuff coming to the market – but rules and regulations are heavy, and sometimes it’s very difficult to bring these new ideas to our customers.

World Finance: Luis, thank you.

Luis Magro: Thank you.

Maamba Collieries coal-fired power plant to solve Zambia’s energy crisis

Posted on by World Finance

Zambia is nearly completely reliant on hydropower: 96 percent of its energy is fuelled by the Zambezi river. But climate change is affecting capacity, and long power cuts are now a daily occurrence. One solution: coal. Ashwin Devineni and PJV Sarma from Nava Bharat Projects discuss the Maamba Collieries project. Set to add 300MW to Zambia’s energy grid, it’s an extremely important initiative for Zambia’s businesses that depend on reliable energy. It also represents a landmark project finance deal in sub-Saharan Africa – one that can be replicated now the model has been established with a strong sponsor.

World Finance: Zambia is nearly completely reliant on hydropower: 96 percent of its energy is fuelled by the Zambezi river. But climate change is affecting capacity, and long power cuts are now a daily occurrence. One solution: coal. Ashwin Devineni and PJV Sarma join me now.

Ashwin, let’s start with the Maamba Collieries project. 300 MW of extra power about to be going into the country; this must be extremely important for Zambia’s businesses.

Ashwin Devineni: What Maamba Collieries entails is a large coal mine, spanning 79 sq km; and more importantly, a 300 MW coal-fired power plant, which is almost ready. It should be commissioned in June-July 2016. With the potential of expanding the capacity to about 600-900 MW.

Maamba Collieries is 65 percent owned by Nava Bharat Singapore, and 35 percent owned by the government investment holding company.

What Maamba brings to the table is good, reliable, baseload power. And the government is extremely eager for us to come online, so that we can fight the current load-shedding crisis. And also help a lot of the copper industries, and other industries which Zambia is heavily dependent on, to actually start producing at the levels that they were producing when power was available throughout the day.

World Finance: So how has the government been supporting the project?

Ashwin Devineni: The government has been extremely supportive. Firstly, because they do own a significant stake – a 35 percent stake – in the company. And more importantly, today Zambia is heavily dependent on hydro-electric power. Almost upwards of 95 percent. And they are facing the brunt of going all hydro, because the last few years they’ve had bad rains. And as we speak they’re facing about 10-11 hours of load shedding on a daily basis.

World Finance: PJV, talk me through the finances. What’s Nava Bharat’s involvement?

PJV Sarma: As you know, Nava Bharat Singapore is a 100 percent subsidiary Nava Bharat Ventures – the principal holding company, which is very strong financially and technically. The strength of the project lies partly behind the strength of the financial and technical strength of Nava Bharat Group.

This has been one of the main reasons why the Chinese banks – they are predominantly Chinese banks, and Sinosure – put their strength behind the project, to go ahead with that. That is actually the uniqueness of this project now: the strength of the sponsors.

About 70 percent of the total cost of the project, coming to almost $600m, is funded by a group of international banks. Half of it’s coming from China – two big banks, and there are three developmental financial institutions, and two European South African banks.

So this is unique in the sense that it’s the first IPP project coming in sub-Saharan Africa which is getting finance from international banks – especially from Chinese – on a purely project finance basis. Which is a non-recourse finance basis, without recourse to the sponsor. Which is very, very unique.

World Finance: As you say, a real unique international collaboration; a milestone for project finance in the region. Do you think that now that you’ve established the model it can be replicated? In Zambia, or across the region?

PJV Sarma: It can be replicated, but you know – as I told you, there are certain things you really need to take care of that.

One of the reasons why this project could be financed on a purely project finance basis is the strength of the sponsors: financial, and technical. And the robustness of the project documents. You know, the project documents have to be very, very strong. With proper legal arrangements. You need to have it.

Once you have it, I don’t see any reason why it can’t be duplicated in other parts of Africa.

World Finance: So what happens next? For the Maamba Collieries project, and for your other work across Africa and the region?

Ashwin Devineni: We’re really excited we are about to commission the plant in June-July, which is a month from now. And we’re also excited about expanding the existing capacity of 300 MW to possibly 600 or 900 MW. Because we see a huge power crisis in the southern African region, and also the eastern African region. And the uniqueness of setting up a power plant in Zambia is, although you’re generating power in Zambia, the power can be exported and utilised by all the neighbouring countries, aside from Zambia.

We look at Africa as a continent that’s developing at a very, very rapid pace. And we want to play a major role in improving its infrastructure. And therefore, I think, for us we do plan on expanding in the power sector and the agricultural sector, where we have significant experience in India and different parts of Africa.

World Finance: Ashwin, PJV, thank you.

Ashwin Devineni and PJV Sarma: Thank you very much, Paul.

Is robo-advice the future of wealth management?

Posted on by World Finance

Robotification has transformed manufacturing, logistics, and grocery shopping. But is it going to transform investment services? Paul Stratford and Sarah Clarricoats from EY explain how automated financial advisors could make wealth management accessible to the mass market – provided that asset managers overcome four key challenges.

World Finance: Paul – robo-advice. Your working definition is an automated financial advisor, using algorithms to determine and understand client needs, making portfolio management recommendations, with minimal human intervention. Perhaps you could start by just putting that into slightly more practical terms for me.

Paul Stratford: The analogy for robo-advice is a bit like the use of dating sites. So on a dating site it will ask you a number of questions; you answer them, and it then makes some selections and identifies some matches for you. So I think it’s slightly analogous with robo-advice, in that you will be answering questions online about your financial arrangements. It’s going to work out what is important for you, and then make the appropriate selection as far as portfolio and investments are concerned.

Sarah Clarricoats: So, robo-advice is much broader than that. I think what we’ve typically seen in the UK is like simplified discretionary fund management. So, customer-friendly online options that are cost-efficiency and really focused at the mass market. But there are more sophisticated solutions to come, and that we’ve seen in other markets.

So, if you imagine an online solution that aggregates your financial data across your savings, your investments, your pensions; even your partner’s financial status. And then uses an algorithm to create holistic advice based on all of your financial position, and based on your goals and ambitions, your tax status, your investments. I think that’s potential what robo-advice is the future for.

Paul Stratford:…is heading towards. Completely agree, yeah.

World Finance: Okay, so – robotification across industries is largely about reducing costs. How is this going to change the wealth management industry?

Paul Stratford: Robo-advice, essentially being online, reduces some of the human costs out of it. And from a price competitive perspective, that then means it’s targeting a lower price point.

Now, the interesting comparison is that face-to-face advice is expensive. And it’s actually at a price point that the mass market and mass affluent are unwilling to pay for. So actually, that then means robo-advice is incredibly viable, because there’s a market out there that isn’t being serviced at the moment. And this provides them with an opportunity to gain access to financial advice.

Sarah Clarricoats: Exactly. So, the cost efficiency of robo could increase assets under management overall. And that’s why we see, you know, traditional wealth managers, or even the big retail banks, looking to build simplified automated wealth solutions or robo-advisors to capitalise on their existing client base, and move into a younger generation of investors.

World Finance: Like you say we are seeing a lot of people moving to capitalise on this. What is going to be a measured path to success?

Paul Stratford: Well, I think we see four key challenges.

So, the first one of those is for existing providers, there’s potentially a conflict with their existing advisor-led value network. They need to be seriously thinking about, if they’re going to enter this new area, what are the cannibalisation opportunities, and how do they avoid it?

Secondly, they then need to be thinking, what’s the right service model for each client segment? Because robo-advice is hugely valuable, but it doesn’t necessarily mean it’s the panacea for every single client segment.

The third point is around the pace of innovation. So at the moment you need to be thinking about the speed to market. If you kick off a project and it takes five years, inevitably the market’s going to have moved on, so you need to be sharp and focused.

And then finally, a key part of thinking about how to be successful on implementing robo-advice, is getting the business case right. Because there will be pressures to bring prices down. And consequently, you need to have a thoroughly well-thought out value proposition. And it needs to be sufficiently robust that you’ve built in efficiencies, and you can adapt your pricing strategy if there is pricing competition, and you need to lower costs.

Blockchain: Complex challenges on the path to fintech transformation

Posted on by World Finance

Blockchain is the innovation at the centre of the bitcoin phenomenon – a technology that can foster trust between completely anonymous transactors. Paul Stratford and Sarah Clarricoats from EY discuss how blockchain could be used in wealth management, its potential to change the industry, and the three challenges that need to be overcome for blockchain to really go mainstream.

World Finance: Sarah. Blockchain of course most famous because of bitcoin, but aside from that, what other uses for it are there?

Sarah Clarricoats: So what Blockchain does is, it says: this is the single source of the truth across the market. So, anywhere where you need to share data between multiple parties in a trusted way could be a good use case.

So, if you think about it being used for securities issuance and to record trades, it means that everybody is looking at the same version of that security data, or that trade data. So, it’s cutting out any existing processes to check back that data, or reconcile that data. And that’s how the cost efficiencies come out: because you don’t need that duplication of effort, with everyone checking back to the data.

For wealth and asset management we’ve seen interest in sharing KYC data, or in fund transfer agency. And anywhere that the use of a blockchain could cut out data confirmations or reconciliations could have a good cost efficiency for asset wealth managers.

Paul Stratford: It’s probably worth recognising that there’s something like over £1bn that’s been invested in blockchain technologies, so the financial services industry is definitely taking this seriously.

World Finance: So what does that mean for operating models for asset wealth managers?

Sarah Clarricoats: So if blockchain starts to be used in capital markets in any meaningful way, asset wealth managers will want to participate. Post-trade confirmation and settlement processes are likely to be very different on a blockchain. So actually what we’ll see in the short-term is more exception and manual processes.

In a utopian view, where all portfolio assets are recorded on a blockchain, we could see significant cost efficiencies.

Paul Stratford: Yeah – I think we feel the transformational nature of blockchain is such that not all the use cases have come to the surface yet. And so it may be a number of years before the real killer application that affects asset managers gets developed.

World Finance: What is the timeframe then: when are we actually going to see these innovations come to market; what might be the next evolution?

Sarah Clarricoats: Yeah, so… blockchain is the most talked-about topic in technology at the moment. But in reality, the challenges that need to be overcome are very complex. And it’s difficult to predict where and how it will land.

Firstly the technology: when will it really be ready for financial services. Secondly the regulation: will blockchain solutions fit into the construct and the language of the existing law? And commercial: is the market really incentivised to implement and embed blockchain into the existing market infrastructure? None of these challenges are small.

Even if you look at the regulatory challenges, there’s so many different levels to that. So if you look at EMIR, for example: things like timely confirmations and daily reconciliations; they’re very prescriptive, the language of the law. Which might not actually fit into blockchain solutions.

You’ve got legal questions around, is a contractor still on the blockchain? Can I hold that up in court? Or even, is the data that I store on a blockchain: how does that fit into data protection regulation? Can I delete data from a blockchain?

Paul Stratford: I was going to say, another practical example. One of the early identified use cases was sharing of Know Your Customer information. And on paper, it looks like a great idea. In practice there are rules around data in different jurisdictions, and they actually conflict with the use case in terms of privacy laws and what can get stored, and whether it can be removed or not. And then you go into a bit of a legal minefield.

Sarah Clarricoats: And actually I think what you’ll see in the next three to five years is, you will see blockchain applications in real life use. But they’ll be much smaller: like remittances or trade finance. I think those solutions are very close to being live. But that whole-scale change of cap-markets: replacing market infrastructure with blockchain might never happen. Or it could happen, but it could be very slow.

Tax in Argentina: GNP Group on reducing fiscal pressure

Posted on by World Finance

The tax burden in Latin American countries has been on the rise since 2002. In Argentina, that marks the end of the country’s great depression, when a focus on improving tax collection helped the government spend its way back to growth. Nearly 15 years later, is it time for a review? Juan Elias Perez Bay, Partner of GNP Group, outlines the four main taxes that are putting pressure on businesses. But, he explains, the system’s complexity also presents opportunities for businesses to save.

World Finance: The tax burden in Latin American countries has been on the rise since 2002. Now, in Argentina, that marks the end of the country’s great depression, when a focus on improving tax collection helped the government spend its way back to growth. Nearly 15 years later, is it time for a review? Juan Elias Perez Bay from GNP Group joins me down the line.

Juan, talk me through Argentina’s growth story over the last decade, and how the tax landscape has changed.

Juan Elias Perez Bay: Well Paul, Argentina’s GDP has grown about 10 times over the last 12 years, while national public spending has grown 20 times in the same period. Naturally, this has had a strong impact on fiscal pressure, since tax collection precisely grew 20 times in the same period, in order to finance the growth of this public spending.

World Finance: Now, all Latin American countries have expanded their tax collection in recent years; what makes it particularly difficult in Argentina?

Juan Elias Perez Bay: Well, today’s fiscal pressure in Argentina exceeds 40 percent of GDP, measured by government indicators. About 10 years ago, fiscal pressure was approximately 20-25 percent of GDP. This situation puts Argentina at a clear disadvantageous situation in terms of competitiveness regarding its neighbouring countries.

If we consider Latin America, Argentina is today the country with the highest fiscal pressure: even higher than Brazil, with its complex fiscal system. And considering it has been historically the one with the largest fiscal pressure of the region.

This is the reason why the tax area in Argentina has taken on significant importance over the last years.

World Finance: So, talk me through the complexity. Which taxes have increased, and what makes them difficult for businesses to reconcile?

Juan Elias Perez Bay: The system is Argentina is based on four taxes, according to its participation in complete tax collection. VAT, income tax, tax on bank debits and credits, and export duties.

VAT increased due to GDP’s increase, and due to technical improvements in tax wealth systems and inspection processes, which contributed to reducing the informal economy in Argentina.

Income tax increased because of annual inflation of about 30 percent, in a country without any inflation accounting adjustment. So the result is the taxation of fictitious profits, as there is no adjustment for inflation in accounting statements.

The last two taxes: tax on bank debits and credits, and export duties, are relatively new taxes created in 2002. They have no joint participation with provinces; its growth is related to local GDP increase, and the increase of agro-industrial exports during the last 10 years in our country.

World Finance: Are there currently discussions to review some of these taxes? What might happen, and what’s the timeline?

Juan Elias Perez Bay: We have no certain idea about the timeline, but they surely have to be discussed and modified, of course. But, we clearly think that a discussion has to take place regarding taxes. We also think that when possible investment arrives in Argentina, the fiscal factor has to be considered as the one to keep an eye on.

Argentina right now is the country with the biggest fiscal pressure of the region. As the tax system is complex, with a good fiscal strategy (within legality, of course), it is possible to reduce the impact in a large part.

World Finance: So tell me about what can be achieved in reducing the impact of that taxation for businesses.

Juan Elias Perez Bay: Our philosophy consists of having the focus on fiscal strategy, taking into account that the economic conditions in Argentina has taken the tax matter to be really important.

We provide to our clients a team of highly trained businessmen dedicated to fiscal consultancy. And we find that our fiscal legislation has enough complexity to allow us to make fiscal management models that generate fiscal savings or tax delays – which considering an annual inflation of about 30 percent – which will cause important financial fiscal savings to companies, and in this way get important economic benefits.

 

Don’t treat Turkey as any other emerging market – Zurich Turkey

Posted on by World Finance

This year is seeing emerging high-growth economies such as Turkey struggling with a number of issues: comparatively lower economic growth, high inflation, depreciating currencies, and uncertain geopolitics. But there are certain sectors bucking the trend. Zurich Turkey CEO Yılmaz Yıldız discusses how Turkey is outperforming other emerging market economies, the importance of achieving equality in the insurance sector, and how the company has bucked trends to maximise profits in non-life insurance.

World Finance: 2016 is seeing emerging high-growth economies such as Turkey struggling with a number of issues: comparatively lower economic growth, high inflation, depreciating currencies, and uncertain geopolitics. But there are certain sectors bucking the trend. With me to discuss is Yılmaz Yıldız, CEO of Zurich Turkey.

Yılmaz, uncertainty is plaguing most economies, developed and developing. How is Turkey responding?

Yılmaz Yıldız: The growth rate is around three or four percent. During a time of turmoil now, three or four percent is a pretty decent growth rate. Debt to GDP is around 35 percent of GDP, which is the best in Europe and one of the best in emerging markets. Budget deficit is around 1.5 percent of GDP. The low indebtedness actually reduces volatility and uncertainties that may come.

There has been the mistake of putting all these countries – emerging countries – into one bucket, and assuming that they all have the same characteristics. But what’s happening in commodity importing countries, when the commodities prices go down, these countries benefit. And Turkey is one of those. And according to the latest statistics, Turkey will benefit at least $25-30bn dollars from the reduction in oil and gas only.

And if you add a strong banking sector to that, and good infrastructure: I’m quite optimistic.

World Finance: And the insurance sector? How does that fit into this?

Yılmaz Yıldız: The insurance sector is very much related to what happens in the financial sector. Since the GDP growth rate decreased from six, seven percent, down to three, four percent, we see a similar trend in the insurance sector. In the insurance sector we have three big segments. One is property and casualty: historical growth rates have been 20-25 percent, now it’s down to 10-15 percent. The life business is related to the bank loan business – it is sold with retail loans, and what happens on the retail loan volumes has a direct impact. So again, the growth rates from 35-40 percent are down to 10-15 percent.

Private pension side has been growing quite substantially, and there the growth rates are still 25-30 percent, pretty strong growth – supported by government incentives in terms of tax breaks.

World Finance: Now non-life general insurance in Turkey – especially global players – is suffering from a lack of technical profitability. But Zurich Turkey is bucking this trend. Why?

Yılmaz Yıldız: For us we define success – or our targets – in three main areas.

One is the financial results: we have to deliver what our shareholder asks us to deliver.

The second part is customer satisfaction. And what we mean by customers are one, the end users, the end customer; second, our distribution partners; and third, our internal customers, our employees.

And the third part is the risk and compliance environment.

For the past three years we’ve been growing roughly 15 percent more than the market. Being also one of the most profitable.

First of all we have the right segment mix. The more profitable parts of the business come from personal lines, and certain niches of commercial lines. So that’s where we focus. Secondly, the most lucrative part of the distribution channels are the bank distribution. So we increase our bank distribution share to 75 percent of our total business.

And thirdly you need to have the right product mix. And while doing all that, you have to make sure that you do it in a productive way. And if you look at the past three years again, our top line increased by 70 percent, while our headcount stayed the same.

World Finance: All around the world the financial sector is known for its weakness in diversity and female equality – how do you deal with this?

Yılmaz Yıldız: We started about three years ago, and we said, look. Within the company we will reach 50:50 female:male ratio. We have achieved that.

Secondly, we said manager and up positions, we will achieve 50:50. We have managed to do that. And thirdly, CEO and minus one positions – so positions reporting directly to me – we have managed to achieve 50:50 there too.

But reaching those numbers is not enough. Because then the recruitment, promotions, trainings, need to be 50:50. And our employee engagement score, global employment engagement score, came out a few months ago. And we have a huge increase – 22 percentage point increase overall. But what is even better is, we have almost 30 percentage point increase in our female employees’ engagement. Which is great. So we intend to continue that – but it’s a major thing, and it’s a never-ending process. And you have to continue, you have to push for that.

World Finance: You also have a lot of CSR initiatives – now how do you merge your business goals with these initiatives?

Yılmaz Yıldız: Business has to have goals that go beyond just making money. Ninety-eight percent of our employees voluntarily participate in our CSR activities. We think that investing in children is the best insurance society can buy for the future. So we focus on orphan children, in many different ways, with many different projects.

The other part is art. We have been one of the major sponsors of Istanbul culture and art foundation. And just last year, for example, our activities attracted more than 200,000 people in Istanbul, which is great. It’s what gives meaning to what we do.

World Finance: And looking at Turkey more closely now, what would you say the investment sentiment is like in the country?

Yılmaz Yıldız: Overall I think that Turkey will diverge positively within the emerging markets. On the negative side is the geopolitics, and what’s happening across the borders. So that part I think is creating some negative sentiments.

But if you look at that geography – if you have the resources, and you need to allocate capital, Turkey is one of the few places in which you can actually invest in and expect sustainable returns going forward. And as any high growth emerging market it will have ups and downs, but the trend will always be up.