cambodia ANZ Royal BankSince opening in 2005, ANZ Royal Bank has enjoyed global recognition as it continually improves and spreads its influence across Cambodia. The firm has placed great emphasis on customer service, and the expansion strategies over the last few years have paid off with more and more success in domestic markets.
Month: September 2015
Banco do Brasil
brazilBanco do BrasilA leader in banking and financial services in Brazil, Banco do Brasil offers a plethora of services and products that have driven it to become a market leader for both individual and corporate customers. The organisation is a fully diversified and strategically motivated platform that sustains a positive and growing network across the country.
RZB Group
AustriaRZB GroupFounded in 1927, RZB is Austria’s third-largest bank and the RZB Group currently ranks as the largest banking group in the country, measured by balance sheet. The group boasts a network of almost 1,600 branches, and has played an important role in shepherding the region’s thriving banking community.
MoraBanc
AndorraMoraBancThe history of MoraBanc corresponds with its nature as a company – constantly evolving with its surroundings and consistently placing family values at its heart. The Andorran banking group has a solid reputation for professionalism and stands out for its deep-set respect for transparency and legality, while maintaining a careful focus on customer needs.
Baiduri Bank
bruneiBaiduri BankBaiduri Bank is a leading commercial bank in Brunei. Together with its wholly owned subsidiaries Baiduri Finance, an automobile finance company, and Baiduri Capital, a securities trading company, it offers a comprehensive range of financial products and services to meet the diverse needs of individuals and businesses in Brunei.
Banco Mercantil Santa Cruz
boliviaBanco Mercantil Santa CruzBorn of a merger between Banco Mercantil and Banco Santa Cruz, BMSC is currently the largest financial institution in Bolivia and is a key contributor to the national economy. With over a century of experience under its belt and a host of banking services to its name, BMSC enjoys an outstanding reputation.
Commbank
australia CommbankCommbank is Australia’s biggest provider of integrated financial services. Specialising in retail, premium, business and institutional banking, the firm also works in fund management, insurance and investment. Its goal is to come top for shareholder return over each five-year period, and it intends to achieve this through its diversified business.
M&A activity surges to record levels
With stock markets hitting severe turbulence in August, many observers expected a level of restraint by big firms around the world. However, according to research by mergers analyst Dealogic, August represented the busiest on record for M&A deals in US history, continuing a trend of strong activity throughout this year.
Activity for this year has already surpassed $3trn, according to
Thomson Reuters
Activity for this year has already surpassed $3trn, according to Thomson Reuters – which is the highest amount since pre-crisis levels in 2007. According to the Financial Times, recent M&A deals include US private equity giant Blackstone’s $6bn deal to acquire hotel group Strategic Hotels, as well as Japanese conglomerate Mitsui Sumitomo’s $5.3bn offer for British insurance firm Amlin. In the UK alone, deals surged to over £260bn, including the recent £6bn merger between betting companies Paddy Power and Betfair.
One area experiencing considerable consolidation is the technology sector. According to Dealogic, global M&A activity hit $1.9bn earlier this month for 2015 so far, which is up 23 percent on the same period in 2014. This represents the highest level since the tech bubble of 2000. Deals include eBay’s spinning off of Paypal for $49.2bn, which completed in July. Avago Technologies has also bid $36.6bn for Broadcom, which is pending approval.
While high levels of M&A could be seen as a reflection of confidence within many markets, they may also represent a desire to consolidate industries in the face of uncertain economic conditions in the coming months.
Speaking to the Financial Times, Chris Ventresca, JP Morgan’s global co-head of M&A, said that many of these mergers could be to create larger firms more resistant to market volatility. “While market volatility generally dampens M&A activity, for some deals it may make sellers more willing to transact to protect value for their shareholders or consider merging to create a larger, more stable pro forma company.”
A history of foreign exchange
1875
Before 1875, a double standard for silver and gold was used for international payments, causing difficulties when their value rose and fell as a result of supply and demand. To eradicate this, the gold standard was informally created, guaranteeing the two-way conversion of currency into a set amount of gold. The world’s major economies pegged a specific amount of respective currencies to an ounce of gold – the difference in price became their exchange rates.
1900
Following the rejection of the proposed international bimetallic standard by the British, the US finally embraced the gold standard on an official basis. US President William McKinley signed the Gold Standard Act and established that gold was the only reserve accepted for redeeming coinage and paper currency, thereby bringing an end to bimetallism. After this, every dollar issued by the US was equivalent to the value of 23.22 grains of gold.
1933
The gold system started to break down during the Second World War when European powers printed more money than they had in gold reserves to fund military projects. The financial crisis of 1933, during which large volumes of gold flowed out of the US Federal Reserve, led to the US stating it could no longer fulfil convert currency into gold. The Gold Standard ended when US President Franklin Roosevelt made the private ownership of gold illegal, except in the case of jewellery.
1944
Over 700 delegates met at the UN Monetary and Financial Conference in New Hampshire to fill the vacuum left behind by the Gold Standard. A mechanism for fixed exchange rates was established with the appointment of the US dollar as the international reserve currency. It was decided that international agencies would be created in order to monitor economic activity across the globe. Representatives of 45 countries signed the agreement and the Bretton Woods System was born.
1945
The Second World War ended in September, allowing the Bretton Woods System full reign. Fixed at $35 per ounce, the US dollar quickly gained traction as an international reserve currency. While the world had begun the painstaking process of economic recovery, the International Bank for Reconstruction and Development was founded to offer financial assistance. Problems resurfaced as surpluses in US trade soon led to a shortage in dollars overseas.
1947
The IMF became operational, acting as a supranational body to promote global monetary cooperation and provide loans to developing nations. The General Agreement on Tariffs and Trade was also signed with the aim of stimulating international trade. Yet, trouble in the system began as military spending, foreign aid and international investment in the 1960s meant that the US no longer held the reserves necessary to cover the volume of dollars in circulation around the world.
1971
US President Richard Nixon announced his new economic programme, known as the ‘Nixon Shock’. The US refused to exchange US dollars for gold, marking the end of the Bretton Woods system. After months of negotiations, the Smithsonian Agreement was ratified and had established a new set of fixed exchange rates based on the devalued dollar. Despite being heralded for its significance in financial history, the Smithsonian Agreement began to break down a year later.
1976
Following the collapse of the Smithsonian exchange rate system, IMF members met in Jamaica to agree on a new international monetary framework. The Jamaica Agreement abolished gold as a reserve asset and formalised the floating exchange rate system that survives to this day. Countries around the world have since chosen their own method of fixed or floating, allowing either central banks or demand to determine exchange rates.
As Russia’s legal problems mount up, is it judgement day for Putin?
To read the international press, one would think that the last two years have been good ones for Russian President Vladimir Putin. His campaign in Ukraine has largely achieved its main goals; Russia has wrested control of Crimea and destabilised large portions of the rest of the country. Plunging oil prices may have wreaked havoc on Russia’s finances, but so far Putin’s popularity seems unaffected.
But a long stream of little-remarked-upon legal defeats could have a dramatic impact on Putin’s fortunes. In 2014, for example, the European Court of Human Rights (ECHR) delivered 129 judgments against Russia, and in January, the Council of Europe deprived Russia of its voting rights for its violations of international law. As rulings pile up, they are starting to pose a threat to Russia’s international standing, its financial health, and Putin himself.
129
ECHR judgements against Russia in 2014
Judgment days
The rulings have not been merely symbolic. In July 2014, the Permanent Court for Arbitration in The Hague ordered Russia to pay $50bn to former shareholders of the oil company Yukos for having illegally bankrupted the firm and distributed its assets to Rosneft, a state-owned producer. At its peak in 2003, Yukos was valued at $30bn. The judgment is the largest ever awarded by the arbitration court, and it cannot be appealed. France and Belgium have begun seizing Russian assets to enforce the judgment.
In a separate case, in June 2014 the ECHR ordered Russia to pay Yukos’s shareholders more than $2bn “in respect of pecuniary damage”. This judgment was also the largest in that court’s history. Russia, which is in the midst of a liquidity crisis, will struggle to raise such huge sums; failure to comply, however, would jeopardise future foreign investments.
The Yukos case could be a sign of things to come. In April, the European Commission issued a Statement of Objections to Russian gas giant Gazprom, charging it with violating Europe’s antitrust laws by partitioning Central and Eastern European gas markets, forbidding cross-border resale, and closing its pipelines to third parties. Gazprom faces a fine of 10 percent of its revenues, which totalled $177bn in its last fiscal year. Already struggling with low gas prices, increased competition, and now falling production Gazprom will be hard pressed to come up with the necessary funds without sacrificing urgent infrastructure projects.
Criminal conduct
Russia is also coming under increased pressure regarding alleged criminal conduct. Indeed, it recently vetoed a Security Council resolution, sought by Malaysia, Ukraine, the Netherlands, Australia, and Belgium, to establish a criminal tribunal to prosecute those responsible for the downing of Malaysia Airlines Flight 17 in July 2014 over rebel-occupied territory in Eastern Ukraine.
Evidence gathered by the five countries points to a missile fired from a Russian BUK system operated by a Russian crew.
Were Russian guilt for the downing of Malaysia Airlines Flight 17 to be established, Putin’s depiction of his country as a bystander in the Ukrainian conflict would be exposed as a lie. In any case, Russia’s veto in the Security Council is a tacit admission of guilt, opening the door for the Netherlands – which lost the most citizens in the attack – to push for additional sanctions.
Meanwhile, in July 2014, the UK reinstated a legal inquiry into the November 2006 polonium poisoning of Alexander Litvinenko, a former Russian state security officer who had become a UK citizen. Public hearings were held in London to identify “where responsibility for the death lies”. The inquiry devoted particular attention to a Russian law passed in March 2006 allowing the state to kill those, such as Litvinenko, deemed to jeopardise national security.
A ruling by a British court that the Russian government ordered or abetted the murder of Litvinenko would have far-reaching consequences. The verdict would lend credibility to other charges of criminality, such as the bombing of four Russian apartment blocks in 1999 and the murders of several investigative journalists. It would also strengthen the European Parliament’s call for an independent international investigation of the murder of the Russian opposition political leader, former-Deputy Prime Minister Boris Nemtsov, and bolster his family’s petition for an international investigation.
The annexation of Crimea
Finally, while Russia has established de facto control of Crimea, it is likely to find itself increasingly embroiled in legal challenges to its presence there. No credible government or international organisation accepts Russia’s description of the annexation as a legal democratic act by the Crimean people. The United Nations, the G-7, the EU, and the US all characterise it as an illegal act. In May, German Chancellor Angela Merkel described it – in Putin’s presence – as “criminal and illegal under international law”.
In June, Ukraine presented Russia with a 17-volume calculation of its losses from the annexation of Crimea, totalling nearly $90bn. Additional losses could be billed for the Russian-supported war in Southeast Ukraine, which has led to 6,000 deaths and large-scale damage to infrastructure. Russia is certain to find itself mired in years of legal battles in venues like the ECHR and the International Centre for the Settlement of Investment Disputes. These endless legal challenges will scare off investment in Crimea, requiring Russia to subsidise its occupation for years to come.
Putin has overplayed his hand. In addition to its exposure to liability for damage caused during the conflict in Ukraine, Russia faces legal penalties totalling roughly four percent of its GDP – roughly what it spends on education. Putin may have been able to bring his country’s legal system under his control, but he remains vulnerable to international rulings. With Russia too enmeshed in the international legal and financial system to cut ties and become a rogue state, its president is increasingly likely to face the consequences of his actions.
Did Gazprom gazump the competition?
The dominant gas supplier in several countries across Central and Eastern Europe, Gazprom is under investigation by the EU Commission for what it describes as “hindering competition” in the gas markets of Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. In particular, the commission details the following:
“Gazprom imposes territorial restrictions in its supply agreements with wholesalers and with some industrial customers in above countries. These restrictions include export bans and clauses requiring the purchased gas to be used in a specific territory (destination clauses). Gazprom has also used other measures that prevented the cross-border flow of gas, such as obliging wholesalers to obtain Gazprom’s agreement to export gas and refusing under certain circumstances to change the location to which the gas should be delivered. The Commission considers these measures prevent the free trade of gas within the European Economic Area.”
“These territorial restrictions may result in higher gas prices and allow Gazprom to pursue an unfair pricing policy in five Member States (Bulgaria, Estonia, Latvia, Lithuania and Poland), charging prices to wholesalers that are significantly higher compared to Gazprom’s costs or to benchmark prices. These unfair prices result partly from Gazprom’s price formulae that index gas prices in supply contracts to a basket of oil product prices and have unduly favoured Gazprom over its customers.”
“Gazprom may be leveraging its dominant market position by making gas supplies to Bulgaria and Poland conditional on obtaining unrelated commitments from wholesalers concerning gas transport infrastructure. For example, gas supplies were made dependent on investments in a pipeline project promoted by Gazprom or accepting Gazprom reinforcing its control over a pipeline.”
Source: European Commission
Paul Gregory is Professor of Economics at the University of Houston
© Project Syndicate 2015
China considers new stability plans
Chinese equities have faced a turbulent summer. Wild fluctuations in prices set off alarm bells in global markets, as well as forcing the Chinese government to step in, in an attempt to enforce stability. Through banning selling by major shareholders, to state agencies and state owned enterprises buying up falling stock, government efforts racked up a bill of $236bn. China now, however, has come up with a more permanent solution to its stock market swings, with plans for instituting a “circuit breaker” mechanism.
The Chinese equity market is particularly prone to panic buys and sells
The mechanism would see a temporary halt on trading whenever market price sees either a five percent bull or bear. According to the draft plans, this could only happen once a day. Further, a market index swing, up or down, of seven percent or greater would see trading closed for the rest of the day. According to state-owned news agency Xinhua, “China’s stock exchanges on Monday began soliciting public opinion on an index circuit breaker system,” and will continue to do so until September 21.
Commenting on the system, Yang Delong, Chief Strategy Analyst at the Southern Fund, said: “the A-share market has seen violent plunges recently, and with the circuit breaker mechanism investors would have a cooling period before taking irrational actions”.
The Chinese equity market is particularly prone to panic buys and sells due to being dominated by individual sellers that are more jittery and often do not consider the fundamentals of certain company stock due to a mistrust in the public financial reports of firms. Such a “circuit breaker” then, could provide much needed stability.
The Chinese government is also using tax incentives to encourage longer-term investment strategies. Any investor who holds on to a share for more than a year is to be exempt from the five percent dividend tax. Selling a month or sooner after purchase will incur a 20 percent dividend tax, while holding a share from between a month to a year will see a rate of 10 percent.
Yanis the dynamis: a look at Varoufakis’ time in power
On July 5 2015, after months of tense negotiations between Greek government officials and European leaders, the Greek population voted in a historic referendum. Asked whether or not to accept certain austerity conditions and unlock bailout funds, the people of Greece overwhelmingly voted no. This, at the time, was lauded as a big victory for the Syriza Government, which called for the referendum in the first place and urged a ‘no’ vote. However, one man in the government – though pleased with the outcome – reacted in an unexpected way. The morning after the result was announced, Yanis Varoufakis announced his resignation as Minister of Finance.
Upon entering government, Varoufakis immediately became a media sensation, riding his motorcycle to meetings and appearing next to European leaders sporting an unbuttoned shirt and boots. As Suzanne Moore wrote in The Guardian, “Clearly, in the world of Eurocracy, to not wear a tie is radical. Or rude. Or both. Sometimes he wore a leather jacket. Or a Barbour, or a shirt that was perhaps a little bit too tight. He signalled simply that he was not another ‘suit’, and made the rest of them look stuffy, uptight and clonish.”
Varoufakis seemed to revel in the role he had created for himself, happy in his status as the arch-enemy of Brussels and Berlin
Varoufakis seemed to revel in the role he had created for himself, happy in his status as the arch enemy of Brussels and Berlin. In a post on his personal blog, the former minister hailed the referendum result as “a unique moment when a small European nation rose up against debt-bondage”, urging that “the splendid ‘no’ vote” be used by the Syriza-led government to secure “an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.”
He went on, however, to claim that this would best be achieved without him in the role of Finance Minister, adding that he had been made aware that his absence from any further negotiations would strengthen the country’s bargaining position. So, in the hope of Greece securing the best possible outcome from future talks, he, along with Prime Minister Alexis Tsapris, felt it best for him to resign immediately. “We of the left know how to act collectively, with no care for the privileges of office”, he said.
From activist to academic
Before irking the most powerful men and women in Europe, Varoufakis was a relatively obscure economist. Born to a politically active family, his father was a communist veteran of Greece’s civil war, and later an activist in the centre-left Panhellenic Socialist Movement (PASOK). At a young age, Varoufakis helped set up the youth group of PASOK, and as a teenager he developed an interest in the Irish Republican Army, supporting the Troops Out Movement, which advocated an end to British military presence in Northern Ireland.
After gaining a PhD from the University of Essex, Varoufakis went on to hold a number of teaching positions at universities around the world, before returning to his native Greece and taking up a position at the University of Athens. In the early 2000s, he made his first foray into politics, acting as advisor to George Papandreou’s PASOK government, ironically the same government that created much of the mess Varoufakis would later take on the role of trying to fix.
In late 2011, he was headhunted by Gabe Newell, CEO of Valve Software, where they were having trouble scaling up virtual economies on their platforms. This led to him being hired in 2012 as the economist-in-residence at Valve, where he researched for Steam and its virtual economy, which he detailed in a blog.
Speaking to The New Economy while at Valve in 2013, Varoufakis’ disdain for conventional economics and its practitioners, for which he would later become world famous, was already clear: “After the crash of 2008, we have no excuse to continue living in hope that economic models can be as useful to the social theorist as mathematical physics is in helping explain the universe. Economics resembles a religion with meaningless equations and fruitless statistical models.” He would later express his view on the current state of economics further in his 2013 book The Global Minotaur: America, the True Origins of the Financial Crisis and the Future of the World Economy. Prior to this, he had penned a number of other books, but the larger part of his work was academic, concerning the finer details of game theory economics, which had little readership outside of academic circles.
The Global Minotaur, which takes a long view of how the 2008 economic crisis developed over the centuries, takes aim at US hegemony and economic policies, and was printed by Zed Books, a publisher known for its left-wing output. This helped propel Varoufakis to the forefront of left-wing thinking in Europe. The premise of the book is that the US economy is reliant upon the primacy of the global economic dollar surplus. While the US enjoyed the position of the global surplus economy since becoming a debtor nation in the 1970s, a huge part of the world’s capital flows were being sucked in, leading to financialisation and the creation of various Wall Street bubbles.
Dealing with negative press
Although he never actually joined Syriza, he became one of the most familiar faces of the government it formed. In his first few days in government, the British press was ablaze with intrigue about the man meeting top UK cabinet ministers. Though generally calm and self-effacing in the spotlight, he did attract criticism for posing with his wife in a luxurious photoshoot in a French magazine – something he later regretted.
His biggest critics, however, were those he was tasked to negotiate with. Sticking to his guns over his core belief in the need for Greek debt relief, various finance ministers and other European leaders openly expressed their disdain for the motorbike-riding renegade.
Varoufakis seemed to revel in the role he had created for himself, happy in his status as the arch enemy of Brussels and Berlin. He often took to Twitter to voice his disdain for European officials; after one conference he not so subtly quoted Franklin Roosevelt, saying: “They are unanimous in their hatred of me… and I welcome their hatred.” His relationship with the German Finance Minister was particularly rocky, saying once: “We didn’t even agree to disagree.” In his resignation blog post, he boasted that he would “wear the creditors’ loathing with pride”. He maintained his maverick status to the end, giving his resignation conference in casual attire, later to be photographed in a bar drinking beer with friends.
Despite the shortness of his time in power, his personality, politics and charisma mean he will be remembered for as long as the crisis in Greece continues. With a CV consisting of various academic posts, employment by one of the largest gaming companies in the world, and a starring role in attempting to remedy the biggest crisis the EU has ever faced, Varoufakis is sure to have plenty of options for his next move. Few, however, would bet on a predictable turn.
Saudi Hollandi Bank promotes the growth of the Kingdom’s economy
In recent years, the Saudi Arabian economy has begun a period of transformation. Both the government and the private sector are realigning their sights on untapped markets and industries as part of an effort to diversify the country’s oil-based economy. The result has been a fast-paced development of the state’s infrastructure and the creation of new opportunities for corporations of all shapes and size. In turn, this economic shift has had a drastic impact on the Saudi banking industry, which is in a state of expansion.
As such, banking in the country continues to go from strength to strength, being driven forward by growing confidence and recent innovations in technology. Moreover, the Saudi Government is firmly committed to driving the financial industry forward through the implementation of a new regulatory framework and support.
Even with the strides already taken in Saudi banking, there is still a great deal of the market that has not yet been reached. This is especially true because Saudi banks are still underbranched at present, particularly in the country’s most remote areas. Leading the trend in offering an expanding network and meeting evolving customer demands is Saudi Hollandi Bank (SHB), the longest-established provider of financial products in Saudi Arabia. With a focus encompassing the entire spectrum, from big organisations to individuals, SHB is at the forefront of understanding customers and providing adept solutions. World Finance spoke with the company’s CEO, Dr Bernd van Linder, about the expansion of Saudi Arabia’s financial industry and how the bank is preparing for a new economic era in the Kingdom.
Saudi Hollandi Bank
1926
Founded
1,637
Employees
56
Branches
SAR 1.82bn
Net income
SAR 65.15bn
Loans and advances
SAR 96.62bn
Total assets
Notes: Figures from year ending 2014
Tell us briefly about the recent growth of the Saudi Arabian banking industry
The Saudi Arabian economy reported 3.59 percent growth in the first quarter of this year. Combined with strong producer and consumer confidence, this growth underpins a resilient and expanding banking sector. The government’s investment in infrastructure projects and its strategy of diversifying the Kingdom’s oil-based economy is creating more opportunities for private and public sector companies as well as for individuals and their families. The Saudi banks have an important role to play here, supporting large project financing, large, small- and medium-sized enterprises (SMEs), and the growing wealth of the Kingdom’s population.
We are seeing particular growth in areas where the government is focusing its energy in supporting smaller businesses and entrepreneurs, such as SMEs, and in the encouragement of home ownership by individuals. Working in partnership with the government to provide banking services to small companies, while offering additional finance to Saudi families on top of government provided housing loans, means that the banking sector is broadening its services and deepening its impact.
How significant is personal banking for the industry’s ongoing development?
When you consider that the Kingdom is still underbranched compared to other countries, particularly in remote areas away from the major cities, the opportunity is very significant. Because of this, banks have expended their physical presence. For our part, we have grown our branch network by 20 percent over the last year and almost doubled our ATM network over the last two years. We expect this type of growth to be common across the industry in the coming years.
However, it is not just about physical presence in the retail market. The key will be to successfully integrate branch services seamlessly with other channels. Customers should expect to be able to initiate a transaction using one channel and finish it on another, without having to restart or duplicate their activities. Of course, branches will continue to play an important role in the future, but as one part of the overall customer experience rather than as the sole or even the main point of interaction.
All of this is being driven by customer demand and a growing sophistication in customer expectations, encouraged and enabled by technology. As a whole, the industry has seen significant growth in retail banking over the last year and we expect to see that trend continue.
What are the major opportunities and challenges in this area?
Clearly, with the government’s commitment to continue to invest in the economy and its support for private enterprise and families alike, we expect there to be opportunities across the whole spectrum of corporate and retail client segments. Although growth is likely to be strong in all segments, we expect it to be particularly material in the segment of SMEs. We also see an opportunity to help customers in this sector from the perspective of advice, as well as finance. Many entrepreneurs are growing their businesses fast without any previous experience so we are providing structured advisory assistance to them in addition to providing the full range of banking services.
But there are challenges. Competitive pressures are always present and margins are tightening, and we see this intensifying as every bank is recognising the potential of this market. And as technology evolves and customer expectations become more defined and sophisticated, there will be pressure on the banking industry to address these issues quickly and design new services and channels efficiently and securely.
How is SHB preparing for future changes?
We are already known as a force in corporate banking, and we will continue to expand our business with large corporates, but mindful of the trends I mentioned earlier, we have also made significant investment in our support for SMEs and individuals.
We are growing our presence in both of these areas and are proud to have already been recognised for our work through a number of awards. By focusing on providing the solutions we know these customers need to grow their own businesses or manage their personal financial assets, we aim to become the bank the Kingdom always chooses.
What is it that differentiates SHB from others in the industry?
Founded in 1926, SHB was the first bank to operate in the Kingdom and acted as the de facto central bank for some time. So a major differentiator for us is the length of our involvement supporting the Kingdom, its companies, individuals and communities. This brings with it deep knowledge and understanding of the fundamentals that drive every customer segment. We know our customers; we know their requirements, and we are able to provide solutions to meet those requirements. Our customers in turn know that Saudi Hollandi is a bank that will stand by them through economic cycles.
But we don’t rest on our laurels. We know that customers want to access the products and services they need quickly, easily and securely. So we listen to them and create ways to deepen our relationships using a mix of the latest technology, specialised customer service and streamlined processes. From extensive internet banking and our smartphone app, to more ATM services and business banking centres, our corporate, institutional, SME and individual customers can connect to us in even more convenient ways.
This is helping to build real customer loyalty and we are always looking for ways to deepen and reward this. To make our retail offerings more attractive, for example, we have a unique bank-wide rewards programme, which gives customers value at each touch point, earning points when they apply for any product or use an alternative delivery channel, such as internet banking or our mobile app. We want to give our customers something back to thank them for their usage of our products and channels.
Customer deposits, sar billions
2010
41.60
2011
44.68
2012
53.19
2013
61.87
2014
76.81
How does the country’s banking industry compare with other nations in the region?
The sheer scale of the Saudi economy, and the country itself, marks it out from its near neighbours and so poses many more opportunities for growth as well as different challenges in terms of physical reach and service provision. The government has worked hard to establish an effective and robust regulatory regime and today the two main bodies – Saudi Arabian Monetary Agency (SAMA) and the Capital Market Authority (CMA) – are recognised internationally for their strong guidance and support. In fact, today the Kingdom’s banks and financial institutions are at the leading edge of compliance with global banking standards.
This has ensured that the sector has grown steadily and carefully; an approach that is being reflected in the opening of local financial markets to international investors. An exciting development for local institutions and their stakeholders.
Broadly speaking, the Kingdom is relatively underbranched, when compared to similar markets in the region or outside. But we, like others, are addressing this, as I mentioned earlier. Otherwise, the challenges that banks face around the world, not just here in the Gulf, are common to all. Competition, quality of service, channel expansion; just a few of the challenges that banks and their customers worry about.
What role has technology played in the industry’s development?
Since the earliest days of electronic payments and transfers, technological advancements have driven changes in the banking industry at a rapid pace and the banks that have adapted to these quickly have been able to maintain the loyalty of their customers. That trend is still true today. We are now in an age where formal and informal information flows are instantaneous and customers expect to be able to react using the channels they find most convenient. From simple deposit placing, to bill payment, to asset management, our customers expect to be able to transact online and via apps as well as in our branches. So we make continual investments in our current platforms as well as in the work we do to build the channels of the future.
Technology has noticeably transformed the retail banking market and it is a key success factor in preparing and launching any new product for our customers. Used well, and of course marketed and explained well, technology can make banking straightforward and easy and it is a cornerstone of our connectivity to customers of every size and ambition. Consequently, its latest applications are at the core of the training programmes we run for our bankers and their teams.
Can you expand on the importance of multi-channel solutions in the banking industry?
Even though we believe that physical branches continue to play an important role in customer interaction, primarily at the time of customer acquisition, and we expect the number of bank branches in the Kingdom to continue to grow over the coming years, the key will be to have these branches integrate seamlessly with other channels.
Customers want options, so we have to provide them. It is as simple as that. And today technology allows us to develop channels to allow them to access their bank in ever more easy ways.
What examples can you give where technology has helped grow your business?
A great example is our new bank-wide rewards programme. Customers accrue points through their usage of our products and services and use technology for online redemption of these points with vouchers from partner organisations. This also allows us to monitor customer behaviours and trends, which is useful feedback for future tailoring of our services.
Also, recently we launched a completely revamped internet banking system for our corporate customers, which offers many new administration, transaction and global trade services. And we similarly made advances in personal banking to simplify transaction flows and further widen services such as e-statements for loans and mortgages and for registration with credit cards.
One very popular service has been our mobile banking app, which enables customers to perform their essential daily banking transactions on the go. This has already attracted nearly 20 percent of our customers and we expect that percentage to continue to grow during the year. We are also working on the next generation of our mobile app with different designs for smartphones and tablets that include a number of exciting innovations.
How significant has the opening of the stock market to foreign investors been for the banking industry and the economy?
This move has been much anticipated both in the Kingdom and abroad and comes at a time of a strong economy and a growing financial sector. The opportunity is clear – the Saudi stock market capitalisation is larger than all the other GCC stock markets combined and is likely to prove an attractive option for investors wishing to gain direct access to the Kingdom’s growth story. For example, the local insurance market is the second-fastest growing in the GCC and has good potential for further gains due to its low penetration levels, according to Moody’s Investors Service.
The opening of the Saudi market will widen the foreign investor base, which is currently less than one percent of total holdings. Given the size and depth of the market, it is expected that the Kingdom will be included in the main emerging markets benchmark indices in the future, attracting further interest.
This exciting development is being handled with care and caution by the well-regarded regulators and very clear rules have been put in place to ensure that investors with longer-term interest are prevalent.
3.59%
Growth of the Saudi Arabian economy, Q1 2015
What are some of the current opportunities for foreign investors in Saudi Arabia?
Encouraged by robust GDP growth and macroeconomic stability, both producer and consumer confidence are well above the regional average. Growing private credit and increased public expenditures (see Fig. 1) on infrastructure and other projects provide a broad basis for robust opportunities in Saudi Arabia, and these are translating into particularly strong and sustained growth in domestic demand.
The Kingdom itself has never been more committed to supporting economic growth. As wealth reaches previously less developed areas of the country, attractive opportunities are emerging to cater to pent-up demands in sectors such as healthcare, power and water, and consumer goods.
As the region’s largest economy (see Fig. 2) and the world’s 19th largest exporter, the sheer size of the markets that Saudi-based companies serve is a competitive advantage, allowing Saudi businesses to benefit from economies of scale. With excellent access to Saudi and other MENA markets, as well as the advanced and emerging economies of nearby Europe and Asia, market exposure for Saudi-based companies is not only vast but also highly diversified.
How important has regulation been in facilitating this growth?
The regulators have played a key role in ensuring that the Kingdom’s growth is controlled and well-managed. This applies, for example, to the way in which banks provide the services the Kingdom needs and the very high levels of capital strength with which they are expected to comply.
How would you say Saudi Arabia’s corporate governance standards stack up against those in neighbouring nations?
In Saudi Arabia, corporate governance standards are already high and effort is now being applied to intensify compliance with the opening of the markets to foreign investment. The CMA is continually focused on ensuring compliance, strengthened controls and improved transparency. As a result, listed corporates and banks are exercising great diligence in managing their affairs.
According to the Hawkamah Institute for Corporate Governance, its ESG index, which measures the environmental, social and governance attributes of publicly traded companies in the MENA region, has shown good results for Saudi Arabia. Another attractive trait for international investors.
What are SHB’s ambitions for the future?
We aim to be the bank the Kingdom always chooses and will continue to work hard to that end. There are three key drivers of our approach: efficiency and capital strength, investment in our core businesses and a single-minded focus on our customers. Together with the strong internal culture that helps customers realise every opportunity, these cornerstones will ensure that we continue to grow and to broaden our market presence.
BOD Financial Group harnesses opportunities in Latin America
A slow and uneven recovery throughout much of Latin America has intensified the challenges for financial services, and with the global commodities boom having faded and FDI struggling, the responsibility has gone on to local names to harness growth opportunities from within. Nowhere else is this challenge more pronounced than in the banking sector, which has been tasked with managing the region’s changed economic circumstances and serving a community for whom opportunities come less easily as they perhaps have done in the past.
Recently, the banking system has undergone a series of extraordinary changes, though the challenges facing the industry at present ask that they understand the changing nature of risk and get to grips with a marketplace no longer flush with hot prospects. In meeting the challenges and opportunities of the day, certain names have taken the lead and done much to push the latest developments.
[BOD Financial Group], which is among the six largest issuers of American Express cards in the world, has globally grown exponentially, rising 430 places in the Global 2000 list published
by Forbes
BOD Financial Group, for example, is proof that a sound financial footing and a commitment to the community are essential. However, this commitment is one that must come from the top and extend to all areas of the business, if only to make a real and measurable difference, and unfortunately such an attitude is rare.
The history of BOD Financial Group is closely linked to Victor Vargas, its President and an experienced Latin American businessman. A career highlight has been to transform the previously regional bank into the fourth largest financial institution in Venezuela. In addition, over the course of these past two decades Vargas has managed to build BOD into the 34th biggest financial institution in Latin America, according to The Biggest 250 Banks in Latin America report, published by América Economía earlier this year.
The bank, which is among the six largest issuers of American Express cards in the world, has globally grown exponentially, rising 430 places in the Global 2000 list published by Forbes, according to which BOD is the 1,407th most valuable company in the world. Currently, the business generated by the group exceeds $25bn and provides work for over 14,000 people across Latin America.
A history of growth
Victor Vargas’ career as a banker began at a young age. He was appointed President of Banco Barinas, a regional business that grew to become the Cordillera Group, at the age of 28. In 1991, he decided to sell the company in order to begin a new stage in his business career with the creation of the Cartera de Inversiones Venezolanas holding company (CIV) and enter into new markets.
He founded pioneering companies in a wide variety of industries, including Fabrica de Carrocerías Cordillera (FACORCA), which was franchised by British automobile manufacturer Rover to assemble the Mini Cooper in Venezuela and distribute it across South America; Alfa Gerencia Inmobiliaria and Grupo Asesor Inmobiliario (GAINCA) in the real estate sector; and Aficheras Nacionales (STYLE) in advertising. The holding also continues through financial investments with the creation of BOI Bank in Antigua and Barbuda, and National Leasing in Panama – which have both been operating institutions for 25 years.
In 2000 BOD merged with Banco Noroco and Valencia Entidad de Ahorro y Préstamo, (which subsequently became Norvalbank). In December 2002 Norvalbank, Banco de Monagas and Fondo de Activos Líquidos BOD merged, which marked a significant step, as BOD then became a universal bank. Four years later, in September 2006, Vargas acquired CorpBanca from the Chilean Corp Group, and in the process became American Express’ operator in Venezuela – extending the services of both banks across the entire country. In 2007, BOD and CorpBanca integrated their technological platforms, allowing clients to carry out banking transactions at both banks. The merger was finalised in 2013, five years after the process began.
Another major acquisition process began in 2008 as BOD opened negotiations with Spanish group Banco Santander over the acquisition of what was then its Venezuelan subsidiary Banco de Venezuela, the country’s first bank with over 100 years of history. After BOD had transferred $150m to Santander as part of the acquisition process, the late President Hugo Chávez decided to nationalise the bank, side-lining Vargas from negotiations. To this day Banco Santander and BOD are still trying to resolve the issue in court.
Vargas’ strategic vision led to the creation of Grupo Financiero BOD, a step taken as a response to the growth of the holding company and the need to further strengthen its financial arm. Grupo Financiero BOD is made up of BOD (Venezuela); Allbank (Panama); BOI Bank (Antigua and Barbuda); BONV (Curacao); and Bancamérica (Dominican Republic). For capital markets institutions it is made up of BOD Valores Casa de Bolsa (Venezuela); Corp Casa de Bolsa (Venezuela); Plus Capital Markets (Panama); Plus Capital Markets (Dominican Republic); BOD Fondos Mutuales (Venezuela); and Element Capital (Venezuela-Panama). The group also includes a number of insurers, including La Occidental; Global Care; Salud Care y Planinsa (all Venezuela, as well as Pymefactoring RD (Venezuela-Dominican Republic) and National Leasing (Panama).
With a career spanning over 32 years, Vargas is today one of Venezuela’s most successful entrepreneurs, not simply for the large number of companies he has acquired but also for his commitment to the country and his contribution to the development of the national economy. The Spanish magazine Ejecutivos recently named him ‘Empresario Latinoamericano de Referencia’, which means a Standout Latin American Businessman.
Social engagement
Alongside his professional work, Vargas has supported a number of business, cultural and educational projects, and in the process has contributed to the growth and development of Venezuela. Through the BOD Foundation that was created in 2002, he has invested close to $20m in CSR programmes, which has helped to support thousands of entrepreneurs, improve education, spread cultural awareness and bring the bank’s social work to disadvantaged communities. The BOD Entrepreneur Centre has organised training and financing projects, with over 300 credit operations at a total value of over $15m, helping entrepreneurs develop their businesses.
As part of a commitment to social engagement, for over 20 years Vargas and BOD have supported cultural initiatives. Their commitment to culture grew in 2006 with the acquisition of CorpBanca, an institution that operated a historic cultural centre in the Venezuelan capital, Caracas. Thanks to Vargas’ strategic and managerial vision, the BOD Cultural Centre turns 25 this year and is considered a reference point in both Venezuela and abroad. In 2014, it welcomed 116,420 attendees to 920 theatrical events, 28,834 spectators to 98 concerts, 43,060 participants to 112 corporate events and 12,157 visitors to 4 art exhibitions. In total, 204,071 people attended 1,137 events.
BOD’s educational work features the BOD Prize for Educative Talent and along with the Fundación Enclave runs an annual Musica para todos programme, which provides free music lessons to 6,500 children in public schools. Investment in the development of the programme reached $500,000 in 2014.
“As an entrepreneur myself, supporting entrepreneurship in all its forms is one of my greatest passions. Since the start of my professional career as a lawyer until now I can say with pride that over the course of the past 32 years I have built financial companies with a proven national and international profile”, said Vargas.
The upcoming challenges for Vargas and BOD are to focus on Grupo Financiero BOD’s international growth. The group is already present in five countries: Venezuela, Panama, Dominican Republic, Curacao and Antigua. Since Vargas acquired the company in 1994, BOD has maintained its position at the forefront of the Venezuelan financial sector. The bank’s objectives up until 2016 are focused on offering its clients personal assistance with projects, and on positioning BOD as a reference in terms of quality.
The plan underscores BOD’s present and future objectives of becoming a multichannel bank by 2016, one that its clients can access from different channels and within which its various internal channels interact among themselves. The foundation of this methodology is twofold: a clear understanding of the client through effective Client Relations Management and an efficient business model. The success of a financial company is not solely based on affronting business challenges or market developments. It must be based on solid principles of proximity and commitment to its community and, as part of the country, producing benefits for its citizens.
Banca CIS plays vital role in San Marino’s banking industry
While European microstates such as the Republic of San Marino have only been partially integrated into the European single market, they have already made significant strides, particularly within the banking sector. Usually when speaking about the EU, the first thought that comes to mind is the 28 member states that comprise the supranational institution. However, there are a lot of very small sovereign states scattered throughout Europe, better known as microstates. These are small independent states that, different from micro nations, are actually recognised by larger sovereign entities.
As a result of their size, microstates tend to have small, less diversified economies, which means that they have less choice both in domestic markets and in foreign policy. Therefore, they tend to rely on cooperation with the EU and neighbouring countries in supporting their economic targets.
For many years, these microstates had gained access to the EU by managing close relationships, through bilateral treaties with nearby neighbours. In the case of San Marino, a microstate set in a small enclave, Italy is the closest neighbouring country. But as the scope and size of the EU has grown, there has been a desire for deeper European integration and microstates have requested a more direct agreement that does not rely on the involvement of neighbouring countries.
There are a lot of very small sovereign states scattered throughout Europe, better known as microstates
In an attempt to address the issue, the EU Commission published a report that explained how the participation of the small-sized countries in the EEA was still not yet a viable option due to ‘political and institutional reasons’, and instead pushed for ‘association agreements’ as a more feasible mechanism for integrating microstates into the internal market of the EU.
This EU agreement for microstates, though not perfect, does provide the basis for a new level of cooperation that has many benefits for San Marino, and in particular its developing banking sector. World Finance spoke to Professor Massimo Merlino, Chairman of Banca CIS – Credito Industriale Sammarinese (Banca CIS) and Daniele Guidi, General Manager and CEO of the bank to discuss the company’s role in San Marino’s banking industry. “Many economists look with favour to the results of microstates in the globalised arena”, said Merlino. “Many of them and the other small states are driving globalisation processes with very good performances. San Marino is a benchmark among microstates in the World Health Organization regarding its welfare and health systems. The mutual transferring of best practices among microstates can be of exceptional interest for all them.”
A smart bank in a smart state
Originally founded in 1980, Banca CIS is part of the Republic of San Marino banks that have played a leading role in helping raise the country’s economic performance, while also gaining an international strategic position in the private banking market. Cultivating an impressive and effective business model achieved this.
Banca CIS has defined how it operates from three cultural and practical experiences, all of which are very different but still complementary: the private banking culture of the original Banca Partner of 2002; the tradition and prestige of a historical bank as Credito Industriale Sammarinese; and, the retail culture of a Eurocommercial bank have all merged to form an entirely new and distinctive Institution, with cross fertilisation of strategies and cultures.
All these factors are constantly revised in a continuous effort of improvement, helping to make Banca CIS a very peculiar and unique offering both within San Marino and in the wider international business community. But in order to balance its offering, it maintains more traditional banking services and practices, as well as providing customers with a wide array of products and services that cater to fulfil every possible need.
After the merging process from 2012, Banca CIS has reengineered its operations and organisational structure in order to attain a number of objectives. One of its many accomplishments has been its improved strength in relation to compliance, legal, auditing and risk management functions according to the new regulations introduced and coordinated by San Marino’s Central Bank. The new enhancements have enabled the bank to improve its risk management, focusing on credit loans. The bank has also been extremely proactive in updating its organisation department in order to fulfil the requirements of regulators and improve the use of new technologies in all areas of the business.
All of this has helped to strengthen the business area of the bank, especially in private banking. “Banca CIS is building a quantitative model to help the strategic planning department and top management to simulate different strategic alternatives, calculating the impact on main financial variables and indicators of the balance sheet and assets of the bank”, explained Guidi.
“With the help of this tool, top management will be able to examine a set of different scenarios and coherent decisions, and to verify their feasibility and value for business development and their relationship with the rules and ratios defined by the supervisory authority. New tools in risk management are also being set up to analyse management decisions and external scenarios in term of risks for the bank. All these tools and methodologies are used for financial forecasting in both European markets and other promising world areas”, continued Guidi.
A united front
The bank holds a unique position in the San Marino domestic private and retail market with more than 8,000 clients, all of which are very loyal to the new institution created when all three banks finished their merging process. Management is client focused, with a particular care for customer satisfaction by integrating services with traditional and innovative products and services.
Great attention is paid to the bank’s customers, which is evident in the comments made in customer satisfaction surveys. In order to maintain these high levels of service in the future, Banca CIS has set up a fully immersed training programme for all human resource staff members. Through its financial company Scudo Investimenti SG, the bank is able to offer funds of San Marino law to its clients, covering any form of investment they prefer from shares to corporate bonds and art portfolio investments.
“From its origin in Banca Partner, the competencies of business developers were oriented in private banking, but of course a deep transformation occurred with the exit of San Marino from off-shoring practices”, said Merlino. “Now Banca CIS needs the best professionals available in the market to compete with updated offering from international banking.
“A programme of reinforcing the structure of private banking department with new senior promoters has already been launched and will perform before this end summer. Supporting tools in CRM will be also introduced to better follow customers’ requirements and administration.”
While most private banks promote their wealth management as the most accurate and geared around the customer, Banca CIS aims to highlight its performance. It therefore makes sure to offer a wide range of services from trust to family office, personalising all of its financial products and services in order to better meet each individual customer’s preferences and needs, as well as continuously collecting detailed feedback from customers about their satisfaction in a continuous search to better understand and improve service quality.
“Accurate evaluation of the different cultures in Europe and in other major countries are made in approaching wealth management potential customers”, explained Guidi. “In other words the objective is to open the international market to Banca CIS, and this can only be done through a private banking service level not expected from a visitor of San Marino. In this way, Banca CIS provides customers with the same sense of security and quality service that they have come to expect at other more well known financial platforms in the world that exist outside the microstate of San Marino.”
The new status of normalised relations with Italian institutions, which was created as a result of the EU’s willingness to strengthen relations with microstates and attempt to better integrate them into the European single market, will result in new opportunities of commercial links with the Italian financial system. Banca CIS expects that the possible cooperation with Italian banks will provide various benefits for both countries.
Closer links and cooperation between countries will help financial institutions to improve the assistance towards the interests of their own customers, and that will facilitate the creation of a wider agreement for the development of new products and services for customer assistance. At the moment, funds of San Marino law cannot be commercialised in Italy, but this initial agreement is just one step in a much larger process, which in the future will hopefully build the foundations allowing for the creation of new opportunities with Italian financial authorities.
“For these reasons, the new Banca CIS business plan targets three macro guidelines”, said Guidi. “This is a strategic business model, with the goal of overseeing a network of international markets that include Dubai, Singapore, Malaysia, Hong Kong, the UK and US.” There is the investment advisory model that has an integrated approach to private and corporate business for customers that are both high net worth and ultra high net worth individuals working with the cross-border market growth of the EU, Monaco and Switzerland, with progressive steps forward in line with the development relations between San Marino and the EU.
