Month: February 2014

India to inject $1.2bn into state-run lenders

Posted on by Ashton Wenborn

“Banks are under strain owing to rising non-performing assets,” said India’s Finance Minister Palaniappan Chidambaram in a speech announcing the government’s interim budget for the year to March 2015. “Bankers have assured me that as the economy turns they will be able to contain the nonperforming assets and record more loans.”

These were the reasons given by the finance minister to justify his announcement that 112bn rupees, or $1.8bn, of capital will be injected into state-owned financial institutions over the next fiscal year.

[N]onperforming assets, particularly loans that have gone bad, are the biggest strain on India’s banks

“In 2014-15, I propose to provide 112bn rupees for capital infusion in public sector banks,” said Chidambaram in his speech. “They have opened 5,207 branches so far, against the target of 8,023 branches, and are near the goal of installing an ATM at every branch.”

The bank has already infused close to 140bn rupees in public sector banks so far this year, so the new announcement does not represent much change from current policy. For the finance minister, nonperforming assets, particularly loans that have gone bad, are the biggest strain on India’s banks as the country’s economy continues to struggle. Typically, the central bank injects capital into state-run institutions by buying shares.

Bad loans have long since been a drag to India’s economy. Raghuram Rajan’s, governor of the Reserve Bank of India has already vowed to cleanse the country’s banks of the scourge, and individual lenders have also been taking steps to mitigate their losses. United Bank of India, the state-run institution with the highest percentage of loans is likely to receive a further government capital injection to boost its risk buffer, according to Finance Ministry Banking Secretary Rajiv Takru, though he declined to specify how much that is likely to be worth or when it might occur.

Bad loans have increased to 4.2 percent of total credit as of September 2013, the highest number is close to six years. It was a significant increase from an average of 34 percent the pervious March, according to a central bank report published in December.  The total amount of nonperforming assets has more than doubled since March 2011.

How can Europe regain its former competitive glory? | Video

Posted on by Ashton Wenborn

Despite a huge and educated population, and massive wealth, the European Union has been stifled by rigid labour laws and crippling tax systems. Damian Chalmers from the London School of Economics discusses what challenges lie ahead for the continent, the lessons that can be learned from Germany, and whether economists have focused too much on failure rather than success.

World Finance: Well Damian, let’s start with the situation on the ground. How competitive is Europe compared to the rest of the world?

[T]here’s a danger on focusing on what Europe doesn’t do well, rather than what it does do well

Damian Chalmers: You have to bear in mind that as a proportion of world trade, the EU still does very well. If we look at something like the World Economic Forum, and its views of competitiveness – a liberal measure if ever there was one! – one finds European states very well represented in the top 10. Particularly north European states.

So there’s a danger on focusing on what Europe doesn’t do well, rather than what it does do well.

World Finance: What are the major challenges it now faces?

Damian Chalmers: One of the things is that many of Europe’s traditional sources of competitive advantage have eroded. That other companies from non-European states, for example, are used to applying European standards now. It’s something that used to give us a first-mover advantage – that’s rapidly disappearing. Europe perhaps had cheaper access to finance than many other parts of the world. I think the differential there is also disappearing.

World Finance: Onto Germany now, and it’s a country that’s often criticised others for accumulating too much debt. But it’s now under investigation by the EU Commission to see if its huge trade surplus can threaten the rest of the block. Do you think this could be the case?

Damian Chalmers: Well it is under investigation by the EU Commission. There’s this argument that the surplus now exceeds what Germany is allowed to have for the purposes of the macroeconomic imbalance procedure.

It’s seen as a problem within the EU because there is so much intra-EU trade. And if some of the newer states in southern Europe are to, if you like, grow their way or export their way out of the current economic predicament, then one of the biggest markets would be Germany.

It’s seen as a problem within the EU because there is so much intra-EU trade

That said, this internal surplus vis-a-vis other Euro-area states can’t be seen in isolation. It is surely a good thing for the EU that one has an engine of growth and an engine of competitiveness in Germany, which is exporting not just to other EU states, but around the world.

World Finance: Germany is the strongest economy in the EU, so what can other countries learn from it?

Damian Chalmers: I think one has to be very careful about this. Certainly since the beginning of the Euro-area crisis, Germany has tried to suggest the model which has served it well should exist for the rest of Europe. Now, it’s not clear to me how easy it would be for others either to fit into this model, or whether the costs of fitting into this model would just be too severe.

Germany is a capital-intensive economy with strong resources in terms of its educational and skills base. This is just not there in certain other Euro-area states.

World Finance: How does the gap in competitiveness between the north and the south impact the overall picture?

Damian Chalmers: I don’t know is the answer to that. If one was looking at somewhere like the US, one probably wouldn’t be talking about it in quite the same terms, as saying “Does the gap in competitiveness between this state and that state affect the US competitiveness?” But of course there is a difference. The US is a single state, it’s a federal state, and the EU is not. And that means the EU is more politically turbulent, it means that different parts of the EU have to account for this relative gap of competitiveness, while the centre of course will put ever greater controls, as happened in the US, to check the less competitive parts of the EU, if you like, up their game. So what is likely to happen is increasing political centralisation, I would guess.

World Finance: Are there any policies that have been implemented that you’ve really thought, you know, “Oh no!” and is there anything that you would have done differently?

I do wonder whether we fight yesterday’s wars

Damian Chalmers: I do wonder whether we fight yesterday’s wars. So this commitment to constitutionally entrench structural balances, or modest structural deficits. I wonder if in a few years’ time we’ll be looking at that as the next great mistake. It is introducing an inflexibility into the system that is perhaps not a great thing, and I think we might also look at the controls that are currently put on the European Central Bank as the controls of a past era.

World Finance: Well what single piece of advice would you give business leaders in the EU if you could make changes?

Damian Chalmers: I think one of the big challenges for business leaders – and they could tell you this across the EU at the moment – is getting access to capital on competitive terms. And that to my mind is probably a bigger challenge than some of the other restrictions that more attention is paid to, such as labour laws and tax laws.

World Finance: Damian, thank you

Damian Chalmers: It was a pleasure.

EC’s new late payment directive grossly overlooks the buyer

Posted on by Ashton Wenborn
The European Commission's updated directive on late payments is geared towards protecting SMEs, and woefully overlooks the buyer
The European Commission’s updated directive on late payments is geared towards protecting SMEs, and woefully overlooks the buyer

After a long consultation period, the European Commission has finally updated its directive on late payments. Though the document came into force in May last year, EC lawyers and economists in charge of the document are still doing the rounds, visiting European capitals to discuss the document with local business leaders and the press.

It is a lengthy, comprehensive document that builds on some of the loopholes left in the preceding directive published in 2000. In it the EC defines the acceptable time a company or a public office has to make a payment for goods and services received. It also details penalties, fines and costs that a buyer might accrue if it fails to make timely payments, and how the courts in each country can deal with the issue, if it comes to that. The directive offers valuable guidance but encourages member states to adapt the code to fit their own needs.

[The Late Payment Information Campaign] is suitably dramatic

The slogan the Late Payment Information Campaign has chosen to advertise its conference and efforts is ‘Time for Change’. It is suitably dramatic. According to the campaign’s literature, late payments can cause ‘companies [to] go bankrupt waiting to be paid. Jobs are lost. Dreams die.’

Small and medium companies are the worst hit. It is often the case that they have neither the time nor the resources to chase up late payments, and they are often the ones that are the most susceptible to the harms lateness can cause.

And while the EC is absolutely right to try and mitigate the damage late payments can cause to businesses, there was a woeful lack of provision to protect buyers’ rights. The onus of the new directive is entirely on companies collecting late payments, and there is very little room for buyers to protect themselves.

If the EC is so adamant that late payments kill small businesses – and they do – they need to be at least as clear that slapping enormous fines and compensation charges further delay payments.  A minor but significant change from the previous directive is that companies can now charge interest and collect compensation costs on delayed payments worth less €5. It means that a small business can be burdened with hundred of euros of additional costs for a charge worth less than the cost of an employee’s lunch.

During the presentation, constant allusions were made to the European crisis and how it has indeed caused companies to delay – and possibly miss – more payments. But surely if it is an issue for the seller, unpredictable economic conditions must also be an issue for the buyer. Though the EC is right to issue a directive in order to protect businesses, it must be more inclusive than what it is right now.

Negotiation must be at the heart of late payment collections in order to protect the integrity of the supply chain, otherwise the balance will remain tipped in favour of those with resources to prosecute, and sadly, that will never be the small businesses owner.

Comcast snaps up Time Warner

Posted on by Ashton Wenborn

After six months of takeover rumours, Time Warner Cable – America’s second largest pay-TV operator – has finally succumbed to its suitors. However, despite the aggressive pursuit of the company by smaller rival Charter Communications, Time Warner will in fact be joining forces with the country’s largest provider Comcast.

The deal, worth $45.2bn, is likely to face huge opposition from smaller players

The deal, worth $45.2bn, is likely to face huge opposition from smaller players, as well as intense scrutiny from regulators worried about a monopoly forming in what has been a relatively fragmented market. However, if approved by the FCC, it will see an industry giant created that will hold over a third of both the video and broadband subscriber markets.

Comcast was spurred into action by offering $158.82 a share, after months of speculation that Charter would merge with Time Warner. Charter has made a series of bids over the last six months, the largest of which came in January for a reported $60bn. However, the Time Warner board was not in favour Charter’s bid, describing it at the time as “grossly inadequate.”

With a $144.5bn market capitalisation, Comcast is the industry leader in the US, but the market has been seen as fragmented for years now. There had been speculation that Comcast would join forces with Charter to buy Time Warner, but it later emerged that the smaller firm would need to complete a hostile takeover if it was to be successful.

In separate, but potentially significant, news, Time Warner was today this week rumoured to be close to doing a deal with Apple to provide content with a new version of its Apple TV set top box. Such a deal could have proven persuasive for Comcast, seeing as there are an increasing number of people signing up to internet-based TV platforms. As part of the deal, Comcast will gain a series of popular TV channels, including HBO, as well as Time Magazine.

Are transport forecasting models accurate enough?

Posted on by Ashton Wenborn

A frequent topic of this column has been the difficulty – or impossibility – of predicting the future state of the economy. This is true for macroeconomic quantities such as inflation or GDP, but it also applies to things like predicting the economic benefits of particular projects. A good example is transport forecasting.

Forecasters have long been building sophisticated mathematical models of the transport system, which are supposed to predict everything from the flow of traffic in a city in a decade’s time, to the impact of an individual project such as building a bridge or a railway.

Overestimating the figures
While such models are useful tools for thinking about the transport system, their results when compared with outcomes show that accurate transport forecasting remains elusive. A 2006 study by the team of Danish economic geographer Bent Flyvbjerg – who is currently at Oxford University’s Saïd Business School – looked at over 210 projects in 14 countries, and found striking discrepancies between passenger forecasts and measured results.

For rail projects, passenger numbers were overestimated in 90 percent of cases, with an average overestimation of 106 percent

For rail projects, passenger numbers were overestimated in 90 percent of cases, with an average overestimation of 106 percent. Transport forecasts were more accurate for road projects, but half had a difference between actual and forecasted traffic of more than +/-20 percent, and in a quarter of cases the difference was more than +/-40 percent. Nor had forecast accuracy improved with time, or with more advanced models or computer power.

The forecast error is due to a number of factors. For rail projects, it seems that politics is important – passenger demand is overestimated because stakeholders want the project to go ahead. A safe prediction, based on past experience, is that projected numbers for England’s HS2 high-speed rail will turn out to have been significantly overestimated.

Road projects do not show the same systematic bias, so the error is more likely due to model limitations, such as inaccurate estimates of trip generation (based on incomplete data) and land-use development (based on uncertain plans and projections); as well as phenomena such as ‘assumption drag’ – maintaining assumptions even after they have lost their validity.

The assumption drag
As an example of assumption drag, Flyvbjerg et al noted that in Denmark, the energy crises of 1973 and 1979 led to increases in petrol prices and decreases in real wages. As a result, traffic declined markedly for the first time in decades. Believing that the trend would continue, Danish traffic forecasters adjusted their models accordingly. Instead, once the effects of these shocks had worn off, traffic boomed again in the 1980s, ‘rendering forecasts made on 1970s assumptions highly inaccurate.’

Of course, it isn’t just transport forecasters who are affected by assumption drag. As an example, the figure compares the price of oil with forecasts from the US Energy Information Administration (EIA), which are based on their World Oil Refining, Logistics, and Demand (WORLD) model. In the 1980s and 1990s, the forecasts consistently overestimated the price of oil, probably because the model similarly retained a memory of the 1970s energy crises (assumption drag).

The forecasts eventually learned that prices were not going to return to previous levels, and flattened out; but almost as soon as they did, prices spiked briefly to $147. As with travel forecasts, huge improvements in modeling and computational abilities over almost 30 years have had little impact on predictive accuracy.

As Flyvbjerg et al note, the lack of progress in predictive accuracy in recent decades suggests that ‘the most effective means for improving forecasting accuracy is probably not improved models but instead more realistic assumptions and systematic use of empirically based assessment of uncertainty and risk.’ So what alternatives exist, and what is the role of models?

One alternative to traditional model-based forecasting is the method known as ‘reference class forecasting’, which was developed in the 1970s by Daniel Kahneman and Amos Tversky in order to compensate for the cognitive biases which affect economic forecasting. Given a particular project, the first step is to identify a reference class of similar projects; establish a probability distribution for whatever is being predicted, such as changes in behaviour; and finally compare the new project with the class distribution.

A drawback of studying the future is that we don’t have much in the way of data for it

The reference class method relies on the existence of comparable data, which might apply to individual projects, but works less well for bigger questions such as how a city’s economy and infrastructure will evolve in the future. A drawback of studying the future is that we don’t have much in the way of data for it.

Another approach which also attempts to correct for cognitive biases, is the method known as scenario forecasting. Its use in business was pioneered by Shell, who credited it with preparing them for the oil price shocks of the 1970s, and it is becoming increasingly widely used. Usually a small number of scenarios – two to four – are chosen to represent extreme cases.

This helps separate the scenarios from each other (and also accounts for the fact that the future often does turn out to be extreme). Mathematical models can also be used to flesh out the details of the scenarios and check for consistency without masquerading as predictions.

As an example, one project I took part in used this technique to create scenarios for the US Department of Transportation that described what the US transport system might look like in 30 or 40 years time. However, such scenario methods are probably better suited as a way of thinking about general possibilities, rather than for forecasting the success of a specific project.

For those, it may be better to remember John Maynard Keynes’ admission that: ‘If we speak frankly, we have to admit that our basis of knowledge for estimating the yield 10 years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing.’ Of course that is no excuse to stop building railways or inventing medicines – but we should be open about the uncertainties involved, and remember that forecasts tend to rapidly go off the rails.

Eric Visser and Andre La Grange on the South African pension system | Sentinel Retirement Fund | Video

Posted on by Ashton Wenborn

With 90 percent of South African pensioners retiring with inadequate income, companies like the Sentinel Retirement Fund are more important than ever. Eric Visser and Andre La Grange comment on the challenges facing the South African pension system, and how Sentinel is helping fund members prepare for retirement.

World Finance: So Andre, let’s start with you, and research shows that only six out of 100 South Africans have money put away for retirement. Do you think this is an accurate picture?

Research shows that only six out of 100 South Africans have money put away for retirement

Andre La Grange: It is, South Africa has a two-tier system, which employed people do have pensions and do participate in pensions schemes and provident schemes, but there’s a whole lot of people who are not formally employed, who fall outside the formal savings and retirement industry network.

World Finance: So what happens if people don’t have adequate funds put away?

Andre La Grange: Well, they become destitute, and the state and the taxpayer in South African then have to look after them or cater for them, and you get an allocation of state funds to support them, and they become obviously the responsibility both in terms of health and insurance and old age and so on, of the government.

World Finance: Well how advanced would you say the pension system is then in South Africa?

Andre La Grange: You deal with a two-tiered system. The one is pretty advanced and competitive internationally, and best of breed, and the other one is obviously a concern to everybody. There’s reforms on the go at the moment, where the National Treasury in South Africa is seeking to establish a savings and retirement fund that’s compulsory for everybody and would provide that kind of cover, but I do think a part of the population, like you said, is not properly catered for.

World Finance: Well Eric, over to you now, and how does Sentinel fit into this picture then?

Eric Visser: Well Sentinel is part of the former sector, where employers, on a compulsory basis, in negotiations with the employees, provide them with a pension benefit, and Sentinel was created in 1946 specifically for the mining industry, and today we have 100 participating employers, 58,000 active members, and 43,000 pensioners, and it is a defined contribution scheme, so it’s a money accumulations scheme, where people save for their retirement.

World Finance: Well as you just illustrated, Sentinel is obviously one of the most popular retirement funds in South Africa, why do you think this is?

We use best of breed systems, and we allow members to exercise choice in where they want to invest

Eric Visser: We cater for in-house administration. It’s specifically around the mining industry it was created, and as I said, it’s a DC fund that we run, we use best of breed systems, and we allow members to exercise choice in where they want to invest. Obviously you need to create the portfolios for them, and that’s exactly what we’ve done.

World Finance: In 2013 you merged with the Mine Employees’ Pension Fund, what benefits did this bring?

Eric Visser: Obviously the benefits are economies of scale, better economies of scale, and being in-house run, there’s no profit motive or anything, all the benefits go directly to the members. I think it’s also part of what’s happening in retirement reform in South Africa; we sit with a lot of small funds, and treasuries encouraging more, bigger funds. And we had to position ourselves to be one of the players going forward.

World Finance: So what do you have in place to mitigate risk?

Eric Visser: First of all, we work on a liability driven investment approach. We do an annual asset liability modelling, and we project the cash flows that we need, not only for pensioners, but also for our active members, and from that we derive a risk budget where we can decide what are the asset classes that we need to invest in, the geographies, and the sectors and all of that. Then we create risk profile portfolios for people, where you get high exposure to, for instance, equities, and less exposure for your other portfolios, and this all hangs under this multi-manager asset management approach that we’ve got.

World Finance: So finally, what’s in the pipeline for 2014?

Eric Visser: We’ve opened the fund for other sectors beyond the mining industry, to join us as well as participants, and I think that’s a very exciting period that we go in. Especially taken that there’s no profit motive, so it’s an economies of scale game. The more members that we get on board, the less the cost for the members that are in the fund.

World Finance: Eric, Andre, thank you.

All: Thanks Jenny.

SWFs in the Gulf reach new heights through oil reserves

Posted on by Ashton Wenborn

While some sovereign wealth funds (SWFs) in the Gulf region can trace their origins back to the 1950s and 1960s as decolonisation gathered pace, fresh impetus was provided a decade ago when state coffers across the region swelled following a surge in average oil prices from $20 to over $100.

Though the 14 SWFs now operating in the Gulf may have a shared propensity for opacity, their investment objectives vary significantly – the conservatism of the Saudi Arabian Monetary Agency (SAMA), heavily invested in low yielding US T-Bills and other paper, contrasting sharply with the Abu Dhabi Investment Authority (ADIA), which champions portfolio diversification when it comes to allocation and asset type.

Fahad al-Mubarak, Governor of SAMA, who was appointed in December 2011, comes from the private sector, having previously been the chairman and managing director of Morgan Stanley Saudi Arabia. University of Houston trained, he was also chairman of the Saudi stock exchange, playing a major role in the privatisation of Saudi Telecom.

In its 2012 Invesco Middle East Asset Management Study, investment manager Invesco identifies four broad investment strategies adopted by Gulf SWFs. Development agencies, for example, often take a medium to high investment risk stance and are willing to accept low (negative) target returns in order to meet policy objectives.

Deciphering risk levels
Policy supporters adopt a high investment risk profile and are similarly willing to accept low (negative) target returns in order to meet policy objectives. Meanwhile, diversification vehicles use a ‘balanced’ approach with target returns of six to eight percent over a rolling five to 10 year period, while asset managers will have a ‘high risk’ appetite with target returns larger than eight percent, though often in double digits.

Invesco argues that diversification vehicles generally invest internationally through asset manager products (funds or ETFs). Policy supporters and asset managers similarly prefer international investments but frequently invest outside of asset manager products. Development agencies, on the other hand, focus almost exclusively on local direct investments.

ADIAs stated investment objective, for example, is to look beyond individual economic cycles and focus on strategies aimed at capturing long-term trends – this approach identifies an acceptable level of risk, and then building outwards by adding a diversified range of asset classes that allow it to maximise returns within these parameters.

Fresh impetus was provided a decade ago when state coffers across the region swelled following a surge in average oil prices from $20 to over $100

In addition it also has an internal strategy, which suggests any necessary changes to either new or existing asset classes and their respective weightings may include occasional ‘off-benchmark’ opportunistic investments. Developed Emerging Markets and Small Cap Equities comprise the largest allocation within ADIAs portfolio –allocations fluctuating within the ranges of 32 to 42 percent; 10 to 20 percent and one to five percent respectively; with bonds making up 10 to 20 percent. Geographical allocations range from 35 to 50 percent (North America); 20 to 35 percent (Europe), 15 to 25 percent (Emerging Markets) and 10 to 20 percent (Developed Asia).

The latest performance data from 2011 shows 20 and 30 year annualised returns at 6.9 percent and 8.1 percent respectively. ADIA however, has indicated a change of emphasis – Sheikh Hamed Bin Zayed al-Nahayan, ADIA’s managing director and a member of the ruling family stated:

“Economic leadership is passing to emerging markets, not just as their weight in the global economy passes 50 percent, but as their share of likely future global growth moves far higher.”

Sheikh Hamed, who has a degree in Economics from Emirates University and a Masters in Petroleum Political Economics from the University of Wales, also serves as Chairman of Al Etihad Airways. Meanwhile, December 2013 figures from the Sovereign Wealth Fund Institute show Saudi Arabia’s SAMA Foreign Holdings to be the second largest SWF globally – its assets of $675.9bn only eclipsed by the $818bn under the control of Norway’s Government Pension Fund Global.

Key funds

$627bn

Abu Dhabi Investment Authority

$386bn

Kuwait Investment Authority

$170bn

Qatar Investment Authority

Key players to the pitch
Other significant companies in the Gulf include ADIA at $627bn, the Kuwait Investment Authority (KIA) at $386bn and the Qatar Investment Authority (QIA) at $170bn. The smaller operators comprise of Dubai’s Investment Corporation of Dubai at $70bn, Abu Dhabi’s International Petroleum Investment Company at $65.3bn and Mubadala Development Company at $55.5bn.

According to KPMG in its May 2013 report Emerging Trends in the Sovereign Wealth Fund Landscape, global SWFs currently have approximately $5.3trn in assets under management (AUM). Of this, the GCC SWFs account for approximately 30 percent of global SWFs by AUM.

A similarly high profile to ADIA change has been the KIA, although it remains opaque when it comes to reporting investment returns, as the fund has being bound by clauses five, eight and nine under Kuwait’s law No 47 (1982). This mandates it to provide detailed reports to the Council of Ministers; but forbids it to disclose any performance related information to the general public.

The oldest SWF in the world, established back in the 1950s, had stated its investment objectives were to achieve a rate of return on investment that, on a three-year rolling average, exceeds composite benchmarks. This should theoretically be achieved by designing and maintaining an uncorrelated asset allocation consistent with KIAs return and risk objectives; selecting investments and investment managers likely to outperform the respective index for each asset class, and finally; making tactical changes to certain asset allocations so as to benefit from emerging economic and market trends without adversely altering the overall portfolio.

In common with many other SWFs in the region it invests across local and international asset classes as part of a wider brief to diversify the economy away from oil. Apart from utilising external fund managers (EFMs) to manage various mandates (especially for equities, bonds and cash asset classes) it also manages a portion of its assets directly through the Kuwait Investment Office in London (KIO).

Its London connection is important in more ways than one. Marking the recent 60th anniversary of the establishment of the KIO, Bader Mohammed al-Saad, the Kuwait University trained former head of The Kuwait Financial Centre and now Managing Director of the KIA noted the KIA, through the KIO, now manages more than $120bn globally compared with only $27bn 10 years ago.

The KIA has invested more than $24bn in the UK across all asset classes

“The KIA has invested more than $24bn in the UK across all asset classes, sectors and industries. This was $9bn 10 years ago,” al-Saad said.

“In the world of trade and industry, the close co-operation between the KIA and the UK is a force for good which I believe will continue and grow in the years to come.” The KIA also invests directly in private equity funds and hedge funds, and in certain instances will take significant direct stakes in companies for use as core holdings.

Broadening the standard horizons
Recent stakes taken and exited from include BP, Daimler AG, Merrill Lynch and Citibank, among others. 10 percent of all oil revenues are transferred into the Reserve for Future Generations, which it manages on an annual basis. Yet, as witnessed during the global economic meltdown in 2008 the KIA has periodically taken on non-investment roles – in its case propping up local capital markets to the tune of $5bn when the Kuwait Stock market crashed by more than 30 percent.

It also shored up Gulf Bank’s capital base in 2009 with an injection of $420m and still retains a 24 percent stake in Warba Bank, the Islamic lender set up by the Kuwaiti government in 2010 to help stabilise the nation’s banking sector. As part of its stock market flotation, in September 2013 a majority of the shares in the lender, set up with capital of $350m, were gifted to Kuwaiti nationals as part of the state’s wealth sharing programme – each citizen receiving 684 shares.

At the same time the KIA was supporting domestic capital markets, Dubai World (DW), owned by Investment Corporation of Dubai and the emirate’s SWF, issued a thinly veiled threat in a BBC interview to those criticising its failure to provide full financial disclosure – then DW chairman, Sultan Ahmed bin Sulayem, threatening to take his business elsewhere if EU attempts to regulate his activities and those of other SWFs were realised.

Despite the Emiratis seemingly kissing and making up with European politicians the issue of opacity remains a very real one in 2014

His argument was a simple enough one: it would be dangerous for Europe, given that money and liquidity was so badly needed, to discourage investment that could easily be taken elsewhere. Charlie McCreevy, the EUs internal market commissioner, and EU monetary affairs commissioner Joaquin Almunia, had previously argued that SWFs did not make sufficient disclosure of key financial information and backed calls for a code of conduct for SWFs.

In the event DW did not carry out its threat and through its DP World unit it has since worked closely with the UK government, for example, on the implementation of London Gateway, the high profile $2.4bn port and warehouse hub now being constructed to the east of London.

The most senior non-Arab on the board of directors of DW is George Washington University-trained Dr Soon Young Chang. He serves as Senior Advisor in the Investment Corporation of Dubai, providing advice to that investment arm of the Dubai government. ICDs portfolio includes investments in Emirates airline, DNATA, Dubai Aerospace Enterprise and a number of UAE-based banks and financial firms such as Emirates NBD and Noor Islamic Bank.

Despite the Emiratis seemingly kissing and making up with European politicians the issue of opacity remains a very real one in 2014. Observers of Gulf SWFs still rely on corporate filings for a significant amount of their information. Which of course works fine when stakes taken by SWFs exceed specific thresholds and have to be publicly reported anyway. To gauge SWF transparency (or lack thereof) the Linaburg-Maduell Transparency Index was developed at the Sovereign Wealth Fund Institute by Carl Linaburg and Michael Maduell back in 2008.

The index is based on 10 parameters depicting sovereign wealth fund transparency to the public – factors including reason for creation, origins of wealth, government ownership structure; up-to-date independently audited annual reports; ownership percentage of company holdings, geographic locations of holdings, total portfolio market value, investment returns, and management compensation among others.

The minimum rating a fund can receive is one, although for a SWF to be deemed sufficiently transparent the Sovereign Wealth Fund Institute recommends a minimum value of eight. Linaburg-Maduell is now accepted as the global standard benchmark. In Q3 2013 the UAEs Mubadala was the Gulf’s highest rated SWF with a value of 10. Close behind was the UAE’s International Petroleum Investment Company at nine; followed by Bahrain at eight; Kuwait KIA at six; UAE (ADIA) at five; Qatar (QIA) also at five; Saudi Arabia (SAMA); Saudi Arabia (Public Investment Fund); UAE (Investment Corporation of Dubai); Oman (Oman Investment Fund); Oman (State General Reserve Fund) all at four, and UAE (Emirates Investment Authority) at three.

A highflying portfolio
Despite signing the Santiago Principles, which detail governance and transparency guidelines for SWFs, full disclosure insofar as the QIA is concerned remains illusory. What it will publicly confirm though is a stated investment aim of taking strategic stakes in western and Asian companies as part of a wider strategy to gain exposure to major economies and furthering the Qatar ‘brand’.

GCC investment boom

$142bn

Estimated capital expenditure on infrastructure in GCC over next seven years

$86bn

King Abdullah Economic City in KSA

$70bn

Qatar 2022 FIFA World Cup

$20bn

Masdar City development

Major names featuring in the QIAs estimated $100bn and over portfolio include (and have included) Porsche, Tiffany, Credit Suisse, Bank of China, Sainsbury’s, LMVH, and Barclays, among others. As Aladdin Hangari, head of Credit Suisse’s Qatar operations – one of the top advisers to the fund – puts it: “They tend to do more in Europe and the US because they’re more familiar with the legal framework, which makes it easier to do things.” But as he notes: “I think going forward; we’ll see them doing more in emerging markets as long as they find the right opportunities.”

For the QIA the Barclays stake has proven especially controversial – Barclays being accused by UK regulators back in September 2013 of improper conduct in its dealings with Qatar and threatening to impose a $79m fine. This stemmed from a long-running investigation of agreements the bank made with Qatari entities that were major investors in a pair of 2008 share sales by the bank.

Cynics charged at the time that the share sales amounted to nothing more than a device for the bank to avoid a bailout from the UK government and, by extension, UK government control. UK regulators have alleged the bank acted recklessly by failing to disclose to investors the full extent of two agreements it made with Qatar in 2008, adding that the main purpose of two advisory services agreements made between the bank and Qatar Holding (in June and October 2008) – the global investment house founded by the QIA in 2006 – was not to obtain advisory services but to make additional payments, which would not be disclosed, for the Qatari participation in the capital raisings at the time.

Another example of not everything going to script was the planned flotation of Doha Global Investment, a $12bn Qatari investment firm backed by assets from Qatar Holding, which was postponed in May 2013, pending necessary regulatory approvals. Qatar had unveiled plans in February to create the investment company with Qatar Holding transferring $3bn worth of assets into the new firm – a similar amount due to be raised via an IPO on the Qatar Exchange, aimed at Qatari citizens, companies and institutions.

What is noteworthy about Doha Global Investment – apart from reconfirming Qatar’s aggressive acquisition of foreign assets – is that it will be independent, in terms of investment selection, of Qatar Holding – even if Qatar Holding makes investment suggestions. What it will do is serve as a conduit for the local private sector to participate in investment opportunities across the world, similar to Qatar Holding. The fund is being created as economic growth picks up after much of Europe fell into a recession last year and the Chinese economy advanced at its slowest pace since 1999.

In the meantime, the investment focus is generally beginning to shift, given capital expenditure on infrastructure projects in the GCC is set to total $142bn over the next seven years – the majority of which will relate to road and rail. In addition to this are planned mega projects such as the $86bn King Abdullah Economic City in KSA, Qatar’s $70bn 2022 FIFA World cup related infrastructure and the UAE’s $20bn Masdar City development.

Given this backdrop it should come as no surprise that the Gulf SWFs, which have traditionally been involved in infrastructure and real estate investment in any event, are likely to further raise their profiles in the region as governments accelerate local development objectives to facilitate greater economic growth as they diversify away from predominantly energy-based economies. This will mean further expenditure not only with infrastructure but also in the education and healthcare sectors.

As KPMG points out, “While distressed periods are typically times when oil-rich SWFs have taken advantage of opportunities to acquire trophy assets in the west, we expect there to remain a heightened sense of caution. Western governments and organisations looking for capital from the Middle East need to adapt and demonstrate a deep understanding of what is driving the thinking of SWFs in the region, and be dedicated to making a long term commitment to building relationships that add value to their investment policy.”

Invesco’s own data would appear to confirm this – its asset management study noting that investment allocation by GCC SWFs went from a split of 33 percent to 19 percent in continental Europe and 29 percent in North America back in 2011 to 56 percent, to four percent and 14 percent in 2012. Whether this changing stance will translate into a boost for investment performance returns in many ways is a moot point – the more immediate objective being to pacify young and increasingly demanding local populations.

The myth of isolationist America

Posted on by Ashton Wenborn

Is the United States turning inward and becoming isolationist? That question was posed to me by a number of financial and political leaders at the recent World Economic Forum at Davos, and was heard again a few days later at the annual Munich Security Conference. In a strong speech at Davos, Secretary of State John Kerry gave an unambiguous answer: “Far from disengaging, America is proud to be more engaged than ever.” Yet the question lingered.

Unlike the mood at Davos a few years ago, when many participants mistook an economic recession for long-term American decline, the prevailing view this year was that the US economy has regained much of its underlying strength. Economic doomsayers focused instead on previously fashionable emerging markets like Brazil, Russia, India, and Turkey.

The anxiety about US isolationism is driven by recent events. For starters, there is America’s refusal (thus far) to intervene militarily in Syria. Then there is the coming withdrawal of US troops from Afghanistan. And President Barack Obama’s cancellation of his trip to Asia last autumn, owing to domestic political gridlock in the US Congress and the resulting government shutdown, made a poor impression on the region’s leaders.

[T]he prevailing view this year was that the US economy has regained much of its underlying strength

Indeed, with Kerry’s time and travel focused on the Middle East, many Asian leaders believe that Obama’s signature foreign policy – strategic “rebalancing” toward Asia – has run out of steam, even as tension between China and Japan, evident in their leaders’ statements at Davos, continues to mount.

Particularly egregious from the point of view of “Davos” was the recent refusal by Congress to approve the reform and refunding of the International Monetary Fund, even though a plan that added no significant burden to the American taxpayer had been agreed years earlier by the G-20 under Obama’s leadership.

When I asked a prominent Republican senator why Congress had balked at keeping an American commitment, he attributed it to “sheer orneriness,” reflecting the mood of right-wing Tea Party Republicans and some left-wing Democrats. Further evidence of American isolationism can be found in a recent opinion poll taken by the Pew Research Center and the Council on Foreign Relations. According to the survey, fifty-two percent of Americans believe that the US “should mind its own business internationally and let other countries get along the best they can on their own.” About the same number said that the US is “less important and powerful” than it was a decade ago.

The problem with these perceptions – both at home and abroad – is that the US remains the world’s most powerful country, and is likely to remain so for decades. China’s size and rapid economic growth will almost certainly increase its relative strength vis-à-vis the US. But even when China becomes the world’s largest economy in the coming years, it will still be decades behind the US in terms of per capita income.

Moreover, even if China suffers no major domestic political setback, projections based on GDP growth alone are one-dimensional and ignore US military and soft-power advantages. They also ignore China’s geopolitical disadvantages within Asia.

America’s culture of openness and innovation will ensure its role as a global hub in an age when networks supplement, if not fully replace, hierarchical power. The US is well positioned to benefit from such networks and alliances, if American leaders follow smart strategies. In structural terms, it matters greatly that the two entities in the world with economies and per capita income similar to the US – Europe and Japan – are both American allies. In terms of balance-of-power resources, that boosts America’s net position, but only if US leaders maintain these alliances and ensure international cooperation.

Decline is a misleading metaphor for today’s America, and Obama fortunately has rejected the suggestion that he should pursue a strategy aimed at managing it. As a leader in research and development, higher education, and entrepreneurial activity, the US, unlike ancient Rome, is not in absolute decline. We do not live in a “post-American world,” but we also no longer live in the “American era” of the late twentieth century. In the decades ahead, the US will be “first” but not “sole.”

Eisenhower was right about something else, too: America’s military strength depends on preservation of its economic strength

That is because the power resources of many others – both states and non-state actors – are growing, and because, on an increasing number of issues, obtaining America’s preferred outcomes will require exercising power with others as much as over others. The capacity of US leaders to maintain alliances and create networks will be an important dimension of America’s hard and soft power. The problem for US power in the twenty-first century is not just China, but the “rise of the rest.”

The solution is not isolation, but a strategy of selectivity similar to what President Dwight Eisenhower advocated in the 1950’s. A smart power strategy starts with a clear assessment of limits. The preeminent power does not have to patrol every boundary and project its strength everywhere. That is why Eisenhower prudently resisted direct intervention on the French side in Vietnam in 1954.

Eisenhower was right about something else, too: America’s military strength depends on preservation of its economic strength. Nation-building at home is not the isolation that critics fear; on the contrary, it is central to a smart foreign policy.

A smart strategy would avoid involvement of ground forces in major wars on the Asian continent. Yet such prudence is not the same as isolationism. The US needs to combine its soft- and hard-power resources better.

As Obama said in his 2014 State of the Union address, “in a world of complex threats, our security depends on all elements of our power – including strong and principled diplomacy.” Eisenhower could have said that, and no one would accuse him of being an isolationist.

© Project Syndicate 1995–2014

Joseph S Nye, Jr is a professor at Harvard and author, most recently, of Presidential Leadership and the Creation of the American Era.

Kuwait International Bank on the rise of the Islamic banking sector | Video

Posted on by Ashton Wenborn

Having just been upgraded by Fitch, Kuwait International Bank is leading the way in the Islamic Banking sector. Mourad Mekhail talks about how the bank has come up trumps in spite of conflict in the Arab world, and how it is working towards staying Sharia compliant.

World Finance: Well Mourad, the Arab world, in particular Syria and Egypt, has been beset by wars over the past few years. So how has this affected the banking industry in Kuwait?

Mourad Mekhail: They have very limited exposure to this area, and the few banks operating out of these countries are not affected. This type of turmoil is giving the bank a level of appetite to go for certain risk which they were not in the past taking.

[W]e can accommodate the business of our clients, even in these countries that have this turmoil

We, as Kuwait International Bank, as an always-prepared bank, we created some innovative structures that mean we can accommodate the business of our clients, even in these countries that have this turmoil. We have the investment banking department, where international banking professionals are doing their utmost to accommodate the business of the clients by creating innovative structures to mitigate and eliminate such political – and also commercial – risk, related to doing business in these countries.

World Finance: Kuwait’s banking industry has gone from strength to strength, and it was relatively unaffected, would you say, by the global financial crisis. And it was also bolstered by the government’s $130bn national development plan. So how is Kuwait International Bank involved in this?

Mourad Mekhail: It is in fact an ambitious plan for the whole country. We are, as we said, prepared. We know our client very well: we listen exactly to what they need. We know the market. We are prepared to offer all types of services that can be needed in the markets in terms of international banking, in terms of using the services of our treasury, in terms of using our retail banking network.

It is really our utmost priority: if it comes to the business of our country, then we will be offering all of what we have to serve them.

World Finance: Well you’ve recently had your Fitch rating upgraded, so what would you say your key to success is?

Mourad Mekhail: We enhance the asset quality of our bank. We use the NPLs that we have and have tapped into international transactions in the region. It’s very important here to say that really we rely on the teamwork and the spirit of cooperation of every employee in our bank.

We are bringing new products and new ideas and new business solutions to our clients

World Finance: Islamic banking is huge in Kuwait, and obviously that means there’s quite a lot of competition. Now Kuwait International Bank has been Sharia-compliant since 2007, so how do you stay ahead of the game?

Mourad Mekhail: We are focusing on our niche. We are establishing that, and building it based on our client need. We listen to our clients, we know the market very well, we are always maximising the penetration of the market. We are partnering globally, bringing the expertise, the know-how. We are bringing new products and new ideas and new business solutions to our clients.

World Finance: A large part of Sharia-compliant banking is, of course, social responsibility, so what sort of projects do you have set up in that area?

Mourad Mekhail: We adopted a programme of educating the youth in Kuwait to bring them to the level of understanding what finance is. It is one of the non-profitable organisations related to UNICEF, and they are keen to bringing and educating the youth, to tell them what finance is. We started with very simple stuff: saving. From the different departments of the bank, we visited a couple of schools, and we have the intention in the future to penetrate the market; not only to educate our people for savings. We would like to educate our pupils and students of the value of their money, to know what finance is, and for it to be one of the important subjects in their schools.

World Finance: An important part of financial development in Kuwait is of course the growth of capital markets, and the increasing role of regulators. So how do you address this?

We adopted a programme of educating the youth in Kuwait to bring them to the level of understanding what finance is

Mourad Mekhail: Our intention is that we as a bank go to the regulators, talk to them, introduce to them our visions. You know, if you introduce your vision in advance, so you have someone from the regulators to shape your vision, then you have a warning signal: all right, here you cannot go more than this, or that. So, being one of the leading banks and looking to be a market player, and market maker even. One of the very important to establish working very closely with regulators and creating the transparency and taking that further.

World Finance: Well finally, looking to the year ahead now. What’s in store for Kuwait International Bank?

Mourad Mekhail: The year started very positively. This is confirming what we have as a major target, is being a market player and a market maker. Of course we will be continuing doing our homework and concentrating and focusing our market niche, concentrating and focusing on our client needs, and increasing the return on equity of our stakeholders.

World Finance: Mourad, thank you.

Mourad Mekhail: Thank you very much.

Kuwait International Bank is the winner of the World Finance award for Best Islamic Bank, Kuwait, 2014.

Juhani Hintikka on trends in the telecoms industry | Comptel | Video

Posted on by Ashton Wenborn

The telecommunication industry has evolved massively over the past few years. Juhani Hintikka from Comptel talks about what key trends and challenges lie ahead for companies operating in the market, and how his company intends to capitalise on the current trend for big data

From 4G to mobile device management, the telecommunication industry has seen major advancements over the past few years. Joining me now is Juhani Hintikka from Comptel, a leading international software company specialising in telecommunications.

World Finance: Well Juhani, 2013 was a huge year for telecommunications, so what were the major trends do you think that came out of that year?

Juhani Hintikka: First of all, of course the network evolution continued so there was an investment into LT networks, investment into fibre, and also we started to see the first forays into what would be the future of software defined networking, and last but not least from our perspective, we started talking about the big data in the networks, how can we actually make use of the vast amount of data that’s being transported in the networks?

We seek to revolutionise, if you like, the way the OS’s/BS’s business is being carried out in teleco networks

World Finance: Well what are the major challenges now facing the industry?

Juhani Hintikka: In terms of the telecom carriers, clearly of course there is the ever increasing pressure on cost, and also the competition that they are seeing by other players in the industry, which leads into consolidation, pressures on cost and harmonising their infrastructure. At the same time, taking good care of their customers and differentiating from the competition.

World Finance: Well Comptel, your company, processes 20 percent of global mobile data. Now that’s very impressive, how do you manage this?

Juhani Hintikka: Well we’ve been in the business since 1986, it is one of the things that we do, we started focusing on a large scale data processing in the operator environment, a particular example being India where we process on a daily basis over 20bn transactions. So that’s given us a good basis for understanding what to with the data, how to reliably process the data.

World Finance: So how is Comptel structured to turn intelligence into opportunity in real time?

Juhani Hintikka: The key point in our differentiation, in our industry and for us as a company, comes from a couple of things. First of all, we operate in the teleco/IT environment. At the same time, it is very essential for us that we are able to differentiate through the way we look at this industry, and we do that by actually harnessing the intelligence and the data in the networks, so we seek to revolutionise, if you like, the way the OS’s/BS’s business is being carried out in teleco networks.

World Finance: You’re an international company, operating in 87 countries with the last addition being Viet Nam. Does this pose any additional challenges?

Juhani Hintikka: Well, we’ve been a global company for a long time, and that’s represented both in terms of our customer base but also in terms of the people we employ. We are listed in the Helsinki Stock Exchange, it’s part of the OMX Nordic Nasdaq. Finland has about one third of our employees, but two thirds are outside of Finland, so actually our largest site is in KL, Malaysia. So yes, we’re very used to dealing with culture differences, but also difference between different markets.

We’re very used to dealing with culture differences, but also difference between different markets

World Finance: So looking to the future now, what do you see to be the major trend then in this industry for 2014?

Juhani Hintikka: For us, clearly, it will be about bringing big data forward in telecoms, it will be about contextual intelligence, it will be about operational intelligence, so we really our looking at bringing analytics into all of the teleco processes rather than seeing only as a disparate part in a business intelligence system. That is truly driving us forward as a company. We will be also integrating analytics into different parts of our offering, and also beyond that to our partners’ offering.

World Finance: So finally, how do you plan to capitalise on these changes then?

Juhani Hintikka: Well let me use Asia as an example. We’ve been operating there since the 90s, we have a fairly good footprint across the region, and clearly there’s tremendous development ongoing in Asia. At the same time, it’s been very mobile driven, but now we start seeing certain markets maturing, so the operators are looking for ways to differentiate, provide the user experience, the customer experience that clearly is an opportunity for us. We’re Asia based, we have large footprint there, a large customer base, and we can actually bring solutions around big data, but also other solutions related to the automated service delivery like service fulfilment or charging payments related solutions like policy control and charging. So that is very much one of our growth regions going forward.

World Finance: Juhani, thank you.

Juhani Hintikka: Thank you very much.

Yilmaz Yildiz on the Turkish insurance sector | Zurich Sigorta | Video

Posted on by Ashton Wenborn

Thanks to a growing economy and favourable demographics, Turkey’s insurance sector is thriving. Yilmaz Yildiz, CEO of Turkish insurer Zurich Sigorta, talks about the surge in foreign investment for the industry, the effects of Turkey’s attempt to join the EU, and how geopolitical issues have impacted on trading.

World Finance: Y&#x131lmaz, what is driving this growth, and how has this impacted Zurich’s strategy in Turkey?

Y&#x131lmaz Y&#x131ld&#x131z: The growth in Turkey is based on two major impacts actually. One is the economy’s size and growth rate, and the other one is the favourable demographics. If you look at the Turkish economy’s size, it’s the sixth largest in Europe, and 17th largest in the world. And in a couple of years it will be a $1trn economy. So it’s quite big.

In terms of growth rates, after China and India it has been one of the fastest growing economies in the world, because the economic crisis of 2008 did not really impact negatively. Turkey got into the crisis with very strong fundamentals.

In terms of growth rates, after China and India [Turkey] has been one of the fastest growing economies in the world

On top of that, if you look at the favourable demographics, 50 percent of the population is under 30, population growth is still healthy; all these come together actually. The right macro fundamentals, the growth and the favourable demographics, to create a really strong momentum for the economy, and for the insurance market.

In Turkey, when we talk about insurance, in fact, it’s about a $20bn market, which is growing anywhere between 15-20 percent per annum, which is quite big. And if you look at the fact that the insurance premium to GDP is less than one percent, the penetration is so low, and we have huge growth potential. The combined is a very strong environment for further investment and more, let’s say, bright future for Turkey’s insurance industry overall.

World Finance: A lot of international companies have entered the Turkish market. How has it impacted the local industry?

Y&#x131lmaz Y&#x131ld&#x131z: That has meant a very big popularity in terms of investment fund direct investment into the Turkish insurance market. And if you look at the non-life insurance market, nine out of 10 is foreign-owned. And then if you look at the market as a whole, the foreign-owned players were eight; now it’s 35. The interest is there. And it looks like there will be more demand.

It’s both in non-life, but also strongly in life and private pension side of the business which is growing just as fast – if not faster. But I think the foreign investors will need to do more to get the returns they have targeted when they were initially entering the market. And that will take some restructuring, that will take some more sophisticated underwriting, better cost management and all of the basics to manage a good insurance company.

World Finance: With Turkey hoping to join the EU, how is the insurance market responding to this?

Y&#x131lmaz Y&#x131ld&#x131z: The move towards the EU – in fact for all of the sectors it meant a realignment with EU norms, regulations, and laws. And insurance has been just like that. We could actually classify those changes in a number of buckets. One is definitely the regulation: it’s one of the biggest implications of that. Laws like Solvency II is an important matter, which basically will require better risk management, risk adjustment, and probably higher solvency ratios, higher capital for insurance companies. Especially small to mid-size insurance companies will be impacted substantially, and some of the big ones as well.

That has meant a very big popularity in terms of investment fund direct investment into the Turkish insurance market

The second has been regulation on all company financials. Better, more strict reserve requirements. And that’s also very important, because insurance is one of the sectors in which your reserves will determine your financial health. So that part has been quite important.

The other one is mandatory insurance products. There have been, because of the changes and the alignment with the EU, many mandatory products that previously did not exist.

The fourth, just like every else, it’s the customer rights, and how insurance should be sold, and how customers should be informed before and after the sale, so that they know what they’re buying. And there’s no mis-selling or aggressive selling tactics in place. So the full picture is what we call enlightened regulation, which actually supports growth, while maintaining the health and sustainability of the insurance sector in the mid-to-long term.

World Finance: How have government initiatives impacted the sector?

Y&#x131lmaz Y&#x131ld&#x131z: The ones that I’ve mentioned have been quite positive actually. I very much support most, if not all, of the regulations that have been put in place.

First and foremost, the regulations have set the big picture in place, right? And that is the EU, the whole integration and alignment with the EU. So I think within that picture, what has been done have been very positive steps.

Overall I see that the regulation and the government has been very supportive of the sector, and it looks like it will continue to be so.

Iraq is a very big trading partner now

World Finance: How have geopolitical issues around Turkey impacted the industry?

Y&#x131lmaz Y&#x131ld&#x131z: Of course there are some very unfortunate things happening, especially in the Middle East. Still, if you look at our eastern neighbours – Syria, Iraq, Iran – the impact has been minimal. Iraq is a very big trading partner now, and now with the sanctions on Iran released a little bit, Turkey’s expected to benefit commercially from that. So overall minimal impact, really. And the economy is growing: we’re isolated from some of the unfortunate events happening in that region.

World Finance: And finally, how can the insurance industry support Turkey as a growing economy, and what is Zurich Sigorta doing about this?

Y&#x131lmaz Y&#x131ld&#x131z: Turkey is a manufacturing and services economy. So, what happens in the economy has profound impacts on insurance. If you want to export something or import something, it means marine insurance. If you want to build a factory it means property insurance, liability insurance, and many others. If you’re getting a loan from the bank, you get life insurance, but then you get home insurance. So if you look at what happens in the economy in general versus insurance, insurance is very much interlinked.

Employment is also a very big issue. More than 2-300,000 people are working in insurance. It’s usually the more educated that work there, so to that end insurance plays a very important role too.

Employment is also a very big issue. More than 2-300,000 people are working in insurance

So going forward, we think that we’re very well positioned in terms of our multi-segment, multi-product, multi-channel approach. And we’ve done quite a lot to restructure our company so that on one side we can compete among those 35 new global or international players that are in the market. And for us it’s growth that’s important; but even more important is to be consistently profitable, which we are working hard on, and we think we can deliver.

At the end, our mission is to be the preferred insurance partner for our customers, for our employees, and of course for our shareholders. And we think that we’re very well positioned to make the most out of Turkey’s high growth rates and favourable demographics.

World Finance: Y&#x131lmaz, thank you.

Y&#x131lmaz Y&#x131ld&#x131z: Thank you.

Rami Raslan on corporate governance in the UAE | Abu Dhabi Commercial Bank | Video

Posted on by Ashton Wenborn

Abu Dhabi Commercial Bank is fast becoming the number one bank of choice in the UAE. Rami Raslan, Vice President and Senior Corporate Secretary, talks about the bank’s corporate governance strategy, the first woman to join its board of directors, and how its policies and procedures are shaping a strong and sustainable future.

World Finance: Rami, what’s changed in the boardroom here in the last five years?

Rami S. Raslan: Several changes have happened over the past couple of years on the boardroom level. In particular, the policies and procedures that were scattered all over the bank were governed in one framework in a way that adds value to the overall framework. We have clearly defined the roles and responsibilities between the board and the management, in particular to have a greater, enhanced sense of accountability and responsibility between the two levels.

We have also appointed the first woman to the bank’s board of directors

Additionally, there were several enhancements that happened on the management and the board level. In particular, we have enhanced the risk framework, the risk appetite, we’ve defined clearly the bank’s risk appetite, and the way to achieve those parameters. We have also appointed the first woman to the bank’s board of directors, and this is in line with the international and best practices in terms of involving the female factor in the decision making process. More importantly, it is in line with the government of Abu Dhabi guidelines to have more female individuals involved in the decision making levels, both on a government and on a private sector level.

We have had several enhancements in terms of disclosures and the way that the bank deals with their shareholders. Various enhancements included where in the annual report the fees, the several items that we were pioneer in disclosing to the market, which were very well received by our shareholders.

The board has continued to focus on their effectiveness and engagement through various efforts, in particular through various professional development programs, regular evaluations and continuing to focus on their boardroom practices and procedures. Additionally, the corporate governance committee has involved various businesses of the bank in the corporate governance framework, so basically we got the wholesale banking to come and present on their governance initiatives, we got the consumer banking to come and present on their initiatives, to tell the board where they stand today, what are the low hanging fruits, and what are the intended steps to further enhance their corporate governance initiatives, and this all feeds into a board level committee which governs the entire process.

The board has also continued to realise that risk and remuneration governance continued to be very important aspects on a board level

The board has also continued to realise that risk and remuneration governance continued to be very important aspects on a board level, especially after the Walker and Dodd-Frank reports were out, the board is very well aware of them, they read it and they tried to apply as much principles as possible out of these two reports, in addition to other best practices as well.

World Finance: So what role has good corporate governance played in the turnaround story here at Abu Dhabi Commercial Bank?

Rami S. Raslan: Obviously there are areas that the improvement was more evident than others. The bank’s board overall effectiveness has improved dramatically, the board has now strengthened its strategic oversight which provided the bank with a strategic stewardship. The changes that the bank has adopted in terms of risk management have provided serious enhancements to the mitigation and management of all those types of risk. The risk management enhancements contributed more to the internal controls, especially on a board and management level, various board committees, be it the audit and compliance or the credit and risk committee, have both enhanced their internal controls and their ability to manage and to contribute to the risk management framework of the bank.

World Finance: Your bank was ahead of the pack in the UAE in implementing world class standards, so how can that help deliver strong and sustainable growth?

Rami S. Raslan: If a company is well governed, it will usually outperform its competitors. It will not only do that, it will attract investors whose support can finance further growth. At ADCB, the way we apply best practices is dynamic, so we continually assess the best practices and their applicability in this part of the world and to the bank as well, and we are always up to date in terms of what’s going on in the outside world and what best practices are on, even if it’s still in the draft form, so we continually keep ourselves up to date with those best practices.