Month: September 2015

Foreign investment floods Vietnam

Posted on by Ashton Wenborn

As a consequence of recession and financial crisis, the Asian economy has been slow over the last few years, but thanks to the gradual recovery of global and local markets since the end of 2012, along with the implementation of favourable policies by the Vietnamese Government, Vietnam has seen its economy improve significantly.

For starters, the country is well positioned to increase its exports even further (see Fig. 1), which are driven by technology and electronics, as well as other major exports including oil and gas, shoes, seafood and agricultural products, which demonstrates how deep their integration into the global and regional value chains have become.

Vietnam managed to maintain steady GDP growth of around six percent in 2014, which is considerably better than the global average, according to the World Bank (see Fig. 2).

What’s more, investment continues to flow into the country despite challenges earlier in the year, from both new and long-term investors, as Vietnam emerges as a high-end manufacturing hub. Samsung, for example, is about to build a $1bn factory in Vietnam, its third plant in the country to date, with a fourth in Ho Chi Minh City already being considered.

Banking industry reforms continue to be implemented under the close guidance of the State Bank of Vietnam (SBV), emphasising on the merging direction of local banks.

Several deals are already underway as part of an emerging plan, which is expected to bring about a significant change in the Vietnamese banking sector – something that will help make the market healthier and more attractive to outside investment

16,300

Active FDI projects in Vietnam, May 2015

$238bn

FDI in Vietnam

Vietnam also benefits from having a young, well-educated and eager-to-learn population, which is another must-have for foreign investors. However, having investment in training these talent resources, and making sure the investments go into the right talents continue to be the key challenges that investor’s should take into account in their strategy of developing business in the market.

It is clear that Vietnam has been set on the right directions for growth. To find out how the country is planning to capitalise on its recent successes World Finance spoke with Dang Tuyet Dung, Deputy CEO of one of the country’s leading financial institutions, Maritime Bank.

What advantages does the Vietnamese market have that makes it so attractive for foreign investors?
By the end of May 2015, there were more than 16,300 active foreign direct investment (FDI) projects in Vietnam that have collectively pulled in a total of $238bn. In 2013, FDI inflow exceeded $22bn, an increase of more than 35 percent from 2012. The figures indicate that Vietnam has become a destination of choice for foreign investors.

Vietnam was influenced by the global and Asian market crisis, which led to slow economic growth and high pressure on non-performing loans (NPLs) in the banking industry. However, the Vietnamese government has implemented aggressive and consistent policies to stabilise the economy, manage inflation, and reduce NPLs. One illustrative example of such effort is the forming the Vietnam Asset Management Company (VAMC), designated to help transform the banking industry, which in turn, provides the necessary market stabilisation.

Vietnam also has a youthful population, with 60 percent of it in the working age. The country is located right at the heart of East Asia, a favourable geographical location – home to a number of large and vibrant economies. Being a member of the World Trade Organisation, and a party to multiple frameworks of international economic integration, including free trade agreements with partners both within and outside the region, Vietnam clearly becomes an attractive place for foreign investors. Furthermore, the country is part of the Trans-Pacific Partnership (TPP) negotiations.

To advance socio-economic development, Vietnam will continue to attract and efficiently use FDI inflows, focusing on FDI projects that use advanced and environmentally friendly technologies, and use natural resources in a sustainable way. The priority will also be given to projects with competitive products that could be part of the global production network and value chain. To achieve these targets, the Vietnamese Government has committed to create a fair and attractive business environment for foreign investors, and is constantly improving its legal framework and institutions related to business and investment. The government has been working hard on three ‘strategic breakthroughs’: putting in place market economy institutions and a legal framework; building an advanced and integrated infrastructure, particularly transport; and developing a quality workforce. These should all be completed by 2020 – confirmed by Prime Minister Nguyen Tan Dung.

Vietnam

What other developments are currently underway in the country?
Vietnam’s economy further maintains its recovery trend in 2015 as the macroeconomic stabilisation and global economic developments are providing strong pillars for the growth. The growth target of 6.2 percent set by the government in 2015 is viable. The potential for growth in Vietnam is still there: the World Bank forecasts Vietnam’s economy growth rate in 2015 and the next two years will be on the upward trend. Vietnam’s GDP growth is forecast at six percent in 2015, which will be gradually increasing to 6.5 percent in 2017 thanks to positive developments in the manufacturing, export and foreign investment sectors.

However, there are also a number of problems and challenges to this acceleration in the upcoming period of time. Service and agricultural sectors have been struggling and slowing down in the past two years; the industrial sector may no longer sustain its rapid growth; industrial growth and trade balance are driven by FDI sector; the restructuring process for state-owned enterprises (SOEs) remains challenging and requires more consistency and speed-up; trade deficit, and budget overspending has yet to improve; concerns about public debt are looming; geopolitical tensions pose an imminent risk, etc.

What role will Vietnam’s relationship with the TPP and other trade agreements play in its economic development?
The relationship between Vietnam and regional free trade agreements plays an important role in the economic development of the country. Recently, Vietnam has been getting increasingly engaged in both regional and global trade agreements. The engagement creates both opportunities and challenges for economic growth.

Export markets are expanding and Vietnamese products afford a competitive advantage. Industries such as textiles and garment, leather and footwear, seafood, and more, have a chance to thrive. The domestic market also benefits from the importation of goods and services at competitive prices and consumer support.

There is pressure to reform many sectors due to tough competition from abroad as tariffs fall and technical barriers are applied. Domestic industries such as steel manufacturing, insurance, banking and finance, retail and consumer goods are under high pressure. The requirement for SOEs reform is more urgent than ever. In the face of opportunities and challenges posed by the conclusion of free-trade agreements, the role of the relationship between Vietnam and other partners in the negotiation of such agreements has become increasingly important. Such a role has been demonstrated by the attainment of terms, which help mitigate challenges while still managing to utilise opportunities from these agreements.

Vietnam 2

As the Vietnamese economy strengthens, what are the implications for the country’s banking sector?
The banking sector and financial market in general have benefitted from the economic recovery. Only when economic growth is stable can the banking sector have better growth prospects. Given the fact that net interest income makes up 70 percent of the profit composition, flourished credit can create an opportunity for banking sector to improve its profit. Besides, banking services will further grow in the era of the internet-connected and hi-tech economy. Rapid credit growth will help improve NPL ratios, and safety for the banking system. Amid the challenges and opportunities from the integration, the banking sector must be persistent with the restructuring process and improvement of the system health in order to grasp new opportunities.

However, to ensure sustainable development, lending control must be tightened; required ratios must be better adhered to for avoidance of adverse impacts on the verge of a real estate bubble.

How does Maritime Bank support Vietnam’s economic advancement?
Maritime Bank has a sound and sustainable development strategy. In recent years, the bank has been restructuring itself aggressively. The majority of NPLs have been resolved given the focus on having dedicated asset management company to handle NPL, the proactive effort of selling debts to VAMC and the strong guidance towards credit policy and collection structure of new loans book.

Credit growth has been under control and mobilisation carried out with caution. A modern banking platform has been built and various products have been offered – including online products, state budget collection, online payment, retail banking products and corporate banking products. Finally, MDB – the Maritime bank merger – is under way to help strengthen the network advantage and bank’s capitlisation.

Banco de Credito e Inversiones strengthens Chile’s economy

Posted on by Ashton Wenborn

Pushing the development of small and medium-sized enterprises forward, Banco de Credito e Inversiones (Bci) is part of a highly competitive market – in which over 20 Chilean and foreign banks operate. It stands out as one of the most important banks in Chile, with over 10,000 employees who strive to provide the best customer experience in the more than 360 branches and contact points, not only throughout Chile but also through its representative offices overseas. If there is something that has characterised Bci over 78 years of its history, it is that it has dared to do things differently, working daily to achieve its goals. Right from the start it has put the customer at the heart of its operations, permanently innovating and constantly supporting entrepreneurship.

A lesson in history
The incorporation of Bci was accepted on May 7, 1937. The first board meeting was held eight days later, comprising of a group of immigrant businessmen. From the very beginning, its main objective has been to serve the country’s productive sector, with its core pillars being a customer focus, support of entrepreneurship, an innovative spirit and transparency.

Over the years, Bci has consolidated its development by achieving ambitious objectives

Over the years, Bci has consolidated its development by achieving ambitious objectives. In 1958, it was in fifth place of the banking sector for loans. In 1964, it was already in third place. It has always grown constantly with a business culture based on core values and principles, putting people at the heart of its activities and committed to permanent innovation to seek service, channel and process solutions. It was the first corporation in Chile to invite its employees to have a share of its ownership by subscribing to stock and the first bank to receive the award for the Best Company in Chile given by the Chilean Institute of Rational Corporate Management (ICARE) in 2006.

On October 17, 1991, Bci became the first bank to pay off the subordinated debt, ending the commitment undertaken with the Chilean Central Bank due to the financial crisis in the early 1980s. The former President of Bci Jorge Yarur informed his employees of this news in an emotional speech, closing by saying “it was a task and challenge. This is an opportunity to thank all customers for their trust and all employees and executives for their spirit and drive to achieve what we are now celebrating.” A few hours later he died, after 37 years of sound management of Bci.

In 1998, Bci launched its international expansion process, opening up new representative offices and addressing new challenges in Peru, Mexico, Sao Paulo and Miami. That same year, it became the first 100 percent virtual bank in Chile, with a 24/7 service in which its customers can meet all their banking needs without having to visit a branch. This was a completely revolutionary idea at the time.

Throughout its history, Bci has been a forerunner in adopting new technologies seeking to deliver the best customer experience. It became the first online bank throughout Chile and the most advanced computer project in the Chilean banking sector of that time. It was a pioneer in developing the first ATMs and the first non-interest bearing deposit account that was then adopted by the whole banking sector. It drove the automatic payment of bills, self-service, telephone banking and was the first to implement mobile banking on a mobile device.

Operations today
Bci is currently the third largest private bank in Chile in terms of loans and net income, and it has attained this position so far based on sustainable organic growth and a strategy focused on strengthening the most profitable areas, with defined and diversified risk, by means of a wider geographical field to tap into new opportunities. This has enabled it to attain return on average equity (ROAE) of around 20 percent, one of the highest in the banking sector.

It operates in four customer segments: retail banking, SME banking, commercial banking; and corporate and investment banking (CIB), which represent different customer segments. The retail banking area services customers through different platforms; the commercial banking division serves companies – mostly with sales of over $80,000 a year – CIB is targeted at large corporations and institutional customers with a high net worth, operating in the financial market with sophisticated financial service needs like investment banking, treasury and others. Lastly, the SME banking area comprises of the microenterprise, entrepreneur and small business segments.

Based on this commercial structure, Bci has defined its strategic focus generating the best customer experience, attaining a different value proposal for the different segments and sub-segments. Always seeking innovation and new opportunities, the bank has developed a strategy of internationalisation and diversification of external financing sources in terms of investor profile and their geographical origin.

Bci’s growth has not only been evident in positive economic and financial indicators (see Fig. 1), it has also been reflected in important areas including transparency, corporate social responsibility (CSR) and innovation, for all of which the bank has obtained numerous awards and accolades, including ‘One of the most transparent companies in Chile’ by Chile Transparente and KPMG for the third year running.

In the customer experience area, the specialised consultant IZO, along with Universidad de los Andes, ranked Bci as the bank offering the best customer experience in the Chilean banking sector. Bci was also ranked in first place of the National Customer Satisfaction Index in the large bank category, according to the ranking by ProCalidad, Universidad Adolfo Ibánez, Adimark, Praxis and Capital magazine.

Bci's net income

In regard to CSR, the bank was selected as the most responsible company with the best corporate governance in Chile, according to the report by the Business Monitor of Corporate Reputation (MERCO). This report also recognised Bci as the number three company with the best corporate reputation in the country and the sixth most attractive company to work for in Chile. Bci also attained first place in the national CSR ranking conducted by the ProHumana Foundation with the support of Qué Pasa magazine.

It is also important to highlight that the University of Chile distinguished Bci as the ‘Most innovative bank in Chile’ in the innovative company survey made by the Business School of Universidad de Los Andes, and in the Best Place to Innovate report.

For business management, the Boston Consulting Group (BCG) selected Bci as a Local Dynamo in 2014. This means that the bank is the only company in Chile in the group of 50 companies with headquarters in emerging economies, which have been particularly successful in competing in their markets, beating multinational and Chilean companies.

World Finance distinguished Bci in first place of Chilean Banks in four categories: Best Banking Group in Chile; Best Private Bank in Chile; Most Sustainable Bank in Chile, and Best Asset Manager in Chile, with the latter award going to Bci Asset Management. The bank achieved all the above due to an organisation that believes people are the core of all human activity. This is how the bank connects to the customers and employees, making each interaction a memorable experience.

To become a company with over 10,000 employees, the bank has always taken special care to create and manage a sound organisational culture that puts people at the heart of any business success, and for that reason the content employee equates to customer success.

As a result of this, Bci’s organisational culture is based on values that include respect, integrity and excellence, which gives priority to meritocracy as the main mechanism of growth and internal development by means of working with the entire organisation. It thereby fosters the creation of an unrivalled work environment that promotes creativity and innovation, quality of life, teamwork and the professional and personal growth of each one of its employees.

Bankmed on the significance of the Lebanese banking sector

Posted on by Ashton Wenborn

With a strong ability to weather shocks and overcome challenges, the Lebanese banking sector has proved to be one of the main pillars of economic stability in the country. Amid a continued domestic political stalemate and regional turmoil, which still pose a serious challenge to the Lebanese economy, the banking sector managed to sustain growth in major key indicators over the period stretching between 2010 and 2014. Assets grew by an average of 8.1 percent annually, private sector deposits increased by 5.7 percent, loans to the private sector witnessed an increase of 9.9 percent and the loans-to-deposit ratio grew to 31.4 percent. The high liquidity provides Lebanese banks with high immunity to unstable conditions and the ability to absorb shocks. Relative to the size of the economy, the banking sector has grown over the years, accumulating assets in excess of 350 percent of the country’s GDP amid on-going deposits inflows.

As such, the Lebanese banking sector has earned the trust of the global financial community given its experience in risk and crisis management. The challenges faced by Lebanese banks at this volatile stage lie in the levels of growth and profits. The size of the banks relative to GDP has allowed them to fund both the public and the private sector, with loans to the private sector representing more than 90 percent of GDP.

Despite the delicate political and economic situations that have continued to loom over Lebanon and the surrounding region over the past five years, profitability has increased

However, the banking sector is not insulated from current events, and it is natural that it is affected by the economy. Therefore, the central question remains: how will the sector sustain its growth in the face of the mounting challenges that continue to weigh down on the Lebanese economy?

To address this challenge, over the past two decades, Lebanese banks have expanded the scope of their operations, developing a widespread external network of representative offices, branches, subsidiaries and sister companies. This expansion has been triggered by a number of pragmatic reasons, including the small economy and the small size of the population, in addition to other factors such as political instability and security issues.

Today, more than 15 banks, which constitute over 85 percent of the Lebanese banking sector, have an established presence in more than 30 countries including Turkey, Egypt, the Gulf states, the US and Australia, as well as other countries in Africa and Europe.

As one of Lebanon’s most dynamic banks, Bankmed has been a pioneer in this regard. With 70 years of solid banking experience, it has acquired a distinctive balanced risk approach. This know-how has endowed it with the competence to diversify its streams of profit as well as its concentration risk. Hence, the bank has broadened its scope of operations and expanded its footprint into new markets within the region. The latest opening at the Dubai International Financial Centre (DIFC) serves as a clear attestation of the bank’s continuous effort to maintain its leading position and sound reputation. It also reflects its forward view to widen its client base and address its customers’ financial needs wherever they are.

Bankmed has successfully positioned itself at the forefront of Lebanese banks, displaying a notable ability in sustaining growth year after year and exhibiting an unmitigated capability in exploring new opportunities locally and regionally.

Greater horizons
It is because of this broadened scope of operations that Bankmed has been successfully moving on a path of steady growth. The sustained expansion into regional markets and the diversity of business lines have positively impacted the bank’s performance. Hence, despite the delicate political and economic situations that have continued to loom over Lebanon and the surrounding region over the past five years, profitability has increased.

Bankmed in 2014 assets

$15.4bn

Assets

$4.7bn

Loans

$12.1bn

Deposits

39.1%

Loans-to-deposits ratio

$2.5bn

Trade finance volume

The bank has been exhibiting consistent growth in its balance sheet and bottom line objectives. In 2014, the bank’s net income increased to record $133.5m (see Fig. 1) – the highest in its history – while its total consolidated assets increased by 12 percent annually to reach $15.4bn by the end of the same year. The increase in the bank’s investment portfolio, as well as its growth in loan portfolio, have been the main drivers behind this growth. Loans grew by six percent to reach $4.7bn and customer deposits increased by 10 percent to reach $12.1bn. Loans-to-deposits stood at 39.1 percent and the provisions coverage ratio exceeded 150 percent. Moreover, the bank’s liquidity ratio stood at 35.45 percent, and its capital adequacy ratio reached 14.3 percent, exceeding, yet again, the regulatory requirement of 11.5 percent, which is set by the Central Bank of Lebanon. The high liquidity and strong capitalisation are some of the fundamentals that the bank’s management continually focuses on.

In addition, Bankmed achieved several milestones across its various business lines in 2014. The bank still holds one of the largest commercial lending portfolios in the Lebanese market, covering top-tier corporate clients across myriad industries. The success realised in corporate banking has eventually spanned into other areas as Bankmed has adopted several initiatives, which enabled it to enhance other essential business lines. Realising the great potentials that lie within the small- and medium-sized enterprises (SMEs) sector, the bank actively worked on capturing a large segment of the market in an aim to leverage economic opportunities within the sector. As a result, the bank’s SME portfolio has grown by more than 20 percent per annum over the past five years, while its headcount was increased accordingly to support this expansion.

Rewarding results
In parallel, Bankmed realised growth in other areas. Its retail loan portfolio witnessed an increase of 20.6 percent year-on-year. This upsurge was driven by growth in loans to retail customers (including mortgages) in Lebanon and Turkey (through Turkland Bank). Moreover, despite the critical regional conditions, Bankmed grew its trade finance volumes to reach more than $2.5bn by the end of 2014.

In terms of microfinance, Bankmed continued to assume leadership in this regard. The bank’s fully owned subsidiary, Emkan Finance, has provided over $95m worth of microloans for its 47,000 borrowers among economically active low-income earners in Lebanon.

On the investment front, Bankmed has been successfully diversifying its liquidity profile minimising risks while enhancing profitability. The treasury’s online trading turnover has been steadily growing since 2013 to reach $4bn; similarly, its FX turnover has also been progressively expanding over the past five years to record $60bn. In the same manner, Bankmed’s investing banking arms, SaudiMed Investment Company, MedSecurities Investment and MedInvestment Bank, also played a pivotal role contributing to the bank’s success.

SaudiMed continued to focus on building its core competency business line of corporate finance advisory. In 2014, SaudiMed earned the » Best GCC Structured Finance Company award, which marks the success of the first inventory securitisation operation in the Middle East, which it executed in collaboration with MedInvestment Bank. Following this recognition, Bankmed witnessed an increase in demand in terms of investment products, namely within structured finance. As for MedSecurities, it continued to realise increased success in 2014, introducing new investment solutions to a growing client base, an aspect that also earned it global recognition. In fact, MedSecurities was named Best Broker by Global Investor magazine.

The bank’s continued success is largely attributed to its prudent risk management, strong corporate governance, and sound strategy. By focusing on locally driven growth in parallel with a well-planned regional expansion, specifically in markets that have sustainable growth potential, Bankmed has succeeded at establishing strong relationships with local, regional, and international clients, hence solidifying its position wherever it is present.

International expansion
Pursuing a prudent expansion strategy, Bankmed has succeeded at establishing presence in selected markets with sustainable growth potential. The bank is present in Switzerland through its fully owned private banking subsidiary, Bankmed (Suisse), in Saudi Arabia through its investment banking arm, SaudiMed Investment, in Turkey through its subsidiary commercial bank, Turkland Bank (T-Bank). Bankmed has also established presence in Cyprus, Iraq, and UAE through a number of branches.

Through its well-planned expansion, Bankmed has grown to become the preferred partner to a long list of local as well as regional corporates and investors. The bank has also recognised a huge potential for business activities that can be generated from cross-selling to its customer base. It continually supports its entities within emerging and thriving economies, and through these endeavours it remains strategically positioned to prudently capitalise on opportunities that could be available in new markets.

Emerging economies like Saudi Arabia and Turkey have presented the suitable attributes for the bank’s regional expansion as they both continue to present the right venue for growth. The Turkish economy, in particular, has witnessed a lot of reform and is expected to sustain growth in the near future. Within this context, T-Bank has been laying a specific focus on the SME sector, especially significant given that the vast majority of companies in Turkey are classified as SMEs. T-Bank has been steadily growing its SME portfolio, extending further financial solutions to its widening client base. In 2014, its portfolio grew by 22 percent, contributing significantly to the bank’s overall growth. In addition, the bank has been expanding into economically vibrant regions within Turkey, where most of these businesses exist.

As for the Saudi economy, it has also been witnessing positive growth based on its long-run prospects. In this regard, SaudiMed, which is licensed and regulated by the Saudi Capital Market Authority (CMA), offers a wide range of innovative and customised financial advisory and financing services and solutions. These cover: debt and equity arranging and advising, mergers and acquisitions advisory, corporate restructuring, as well as private placements. The company is also licensed to structure and market a range of local, regional, and international investment funds and to offer services covering various asset classes and investment strategies.

With respect to Iraq, the bank solidified its presence in the major cities in the country by inaugurating a branch in Basra in 2014, following the establishment of its branches in Baghdad and Erbil in 2012. Despite the challenging environment in Iraq, Bankmed continues to recognise a growth potential within the country. The Iraqi economy was at a point one of the fastest growing economies in the MENA region, and this attribute is extremely important for Bankmed’s strategic expansion. In addition, the bank’s expansion into Iraq came also as a result of the trade magnitude between Iraq and Turkey. Operations in Iraq cover both, retail and commercial activities. On the retail side, Bankmed offers personal and housing loans as well as typical retail services. However, on the commercial side, the bank endows corporate commercial lending and caters for high-quality trade finance services.

Bankmed's net income

An enriching platform
Most recently, driven by the success it has realised in regional markets and in line with its prudent expansion strategy, Bankmed and MedSecurities established a presence in the DIFC, one of the world’s most prominent global hubs for financial activity. Through this step, Bankmed became the first bank in the MENA region to operate in the DIFC under a Category 1 license, the most comprehensive license granted by the Dubai Financial Services Authority. This fact underpins the stringent regulatory framework in which the bank operates and highlights its expertise in risk management. As for MedSecurities, it received a Category 3 license that entitles it to address the evolving needs of customers and to offer a wide range of financial services within a world-class regulatory framework.

Given the well-entrenched position of the banking group in the region, the opening at the DIFC serves as a new and enriching platform that enables Bankmed to broaden the scope of our operations. The move has been triggered by the economic growth prospects in the GCC, which offer a business opportunity for Bankmed (Dubai). Moreover, the DIFC enjoys an excellent regulatory and judicial reputation in addition to its excellent regional and international business platform, which has turned it into one of the world’s financial hubs, attracting global and regional financial institutions. Similarly, the UAE’s prime position as a trade platform between Asia, Africa and the Middle East, serves as a key business destination for the Levantine as well as for Iraq and Turkey. Hence, Bankmed (Dubai) is ideally positioned to optimise its performance due to its synergies with the banking group’s other entities.

Moving forward, Bankmed is strategically placed to carefully capitalise on opportunities that could be available in new markets within the region. The bank will continue to explore expansion opportunities while cementing its presence in existing markets.

Bank of the West helps clients manage uncertainty

Posted on by Ashton Wenborn

CFOs and treasurers today need to navigate a rapidly evolving, frequently uncertain and increasingly competitive marketplace. Technology and digital channels continue to transform industries. The regulatory environment also keeps changing, with many business leaders concerned about the potential impact of more regulation.

According to a 2015 PwC survey of CEOs, while two-thirds of business leaders globally see more opportunities for their companies today than three years ago, an almost equal number see more threats to growth. And according to a 2015 survey by our parent company, BNP Paribas, and The Boston Consulting Group, CFOs and treasurers around the world rank risk management as their highest priority.

That’s no surprise – particularly as companies need to navigate a range of market and economic challenges and risks. Market volatility has surged with lingering eurozone concerns and on going speculation about the timing and frequency of US interest rates hikes – the Federal Reserve’s first rate hike in nearly a decade. In recent months, companies have also faced currency volatility that has reached its highest level in years. Currency movements may have cost North American and European companies more than $31.7bn in the first quarter of 2015, posing risks for corporate earnings and revenues going forward – particularly as companies become more international.

Geopolitical and cyber risks pervade
Companies are operating against an uncertain geopolitical backdrop. Risks ranging from the effects of a slowdown in Chinese economic growth and the Russia-Ukraine conflict to the spread of ISIS influence across the Middle East and North Africa continue to simmer around the globe.

Global GDP growth rate

2016 (est.)

3.3%

2015 (est.)

2.8%

2014 (est.)

3.3%

2013 (est.)

2.2%

Source: The World Bank

Meanwhile, cyber threats continue to escalate, with the size, frequency, and financial cost of cyber crime incidents reaching record levels. Juniper Research expects the cost of data breaches will increase to $2.1trn globally by 2019, almost four times the estimated cost of breaches in 2015.

At the same time, economic growth continues to be subdued around the world. In June, the World Bank downgraded its outlook for global growth to 2.8 percent (see side bar), expecting continued strains as the global economy transitions due to imminent monetary tightening in the US and the ramifications of low commodity prices.

How can businesses manage these myriad risks and gain a competitive edge across their footprints? Let’s look at three essential commercial banking strategies that companies can adopt to minimise risk and enhance competitiveness in a world of flux and unpredictability.

1. Supporting innovation across markets
Companies are adding or amplifying an international dimension to their operations, with 72 percent of Fortune’s 2015 Most Admired Companies reporting that globalisation will have a ‘very important’ or ‘important’ impact on their organisations. But large corporations are no longer the only players extending their reach by participating in international trade; small and medium-sized companies are getting into the game.

If your company is going abroad for the first time or you are looking to expand your existing international presence, ensuring your commercial bank focuses on the regions where you operate is critical – whether it’s in Europe, Africa, Asia Pacific, or the Middle East. Working closely with a bank that can support your operations around the world creates consistency, increases transparency, and improves economic efficiency and controls for your business. With BNP Paribas as our parent company, Bank of the West connects our clients to commercial banking solutions and expertise in 75 countries, reducing geographic and organisational borders that can otherwise stifle growth. As companies operate more broadly in an increasingly complicated world, they need to understand the international business landscape and implement smart financial strategies in order to keep innovating and set themselves apart from their peers. For example, smart trade strategies can dial up your company’s competitiveness and agility wherever you operate. This can include securing and strengthening relationships with key commercial partners to expand your company’s reach in your home market and abroad.

A banking partner can serve as an intermediary to bridge the interests of buyers and suppliers using solutions like trade instrument financing or receivables monetisation. At Bank of the West, our Global Trade Solutions (GTS) team delivers solutions that address a buyer and supplier’s payment needs while helping companies build stronger trading partnerships, regardless of competing interests or currency fluctuations.

Companies can also implement strategies to reduce risk related to a supplier or buyer, and explore ways to extract additional liquidity related to commercial contracts. Our GTS team analyses a company’s trade and supply chain cycles to extract alternative and incremental sources of buyer or supplier liquidity. For example, we offer a unique asset purchasing solution that enables a seller to accelerate its collection cycle, creating incremental liquidity with no business disruption.

In addition, collaborating with a banking provider that offers robust international cash management capabilities can help strengthen your business’ liquidity management, risk management, and accounting controls, while facilitating your cross-border transactions. Bank of the West’s International Cash Management team helps meet businesses’ treasury needs across international markets – giving them visibility over their cash, increasing their control, and helping optimise their working capital so they can deploy cash wherever they need to.

2. Managing volatility and uncertainty
Volatility and uncertainty are two key words that have defined the business landscape in 2015. Currency markets have been rattled by monetary policy divergence and soft commodity prices prompting interest rate cuts in markets around the globe. The US dollar’s significant appreciation versus all major world currencies has created a headwind for the US economy, US-based exporters, as well as corporations in emerging markets with significant dollar-denominated debt.

An experienced commercial bank can recommend hedging tools to help your business manage currency risk and movements – such as a strengthening dollar. There is no such thing as a one-size-fits-all hedging strategy. At Bank of the West, our foreign exchange team customises strategies – including identifying natural hedges within a business, setting up foreign currency accounts, and implementing forward contracts with variable settlement windows – to minimise currency risk while protecting and potentially improving profitability everywhere our clients operate.

Actively managing interest rate and commodities price exposure can also help reduce one of the financial uncertainties of running your business in a volatile environment. Interest rate risk tolerance levels vary widely, particularly during volatile times. Bank of the West’s interest rate derivative team works closely with businesses to understand their unique risk appetite and operating environment, considering economic and market conditions before building and delivering appropriate and prudent interest rate hedging strategies.

3. Defending against cyber threats
Last but by no means least, cyber security threats loom as a significant risk to every company’s competitiveness, growth prospects, and survival. The frequency and costs of cyber crime incidents continue to rise: according to PwC’s 2015 Global State of Information Security survey, the total number of security incidents detected by respondents reached 42.8 million in 2014, an increase of 48 percent from 2013. That translates into 117,339 incoming attacks every day. A whopping 62 percent of organisations were targets of payments fraud last year, according to the 2015 AFP Payments Fraud and Control Survey.

The impact of these attacks is very real – and they can have fatal consequences for a company’s reputation and profitability. The average cost of a data breach has reached a record $3.8m, representing a 23 percent increase since 2013, according to a May 2015 study by the Ponemon Institute.

And no organisation is immune, as demonstrated by this year’s theft of personnel data on millions of current and former US government employees. Despite these real and present dangers, corporate budgets are not keeping pace – the PwC information security survey revealed that investments in information security budgets actually declined four percent over 2013.

Vigilant eyes and ears
Taking a thorough and holistic approach to fraud prevention is essential for your business to guard against creative and diversified cyber criminal attack strategies. A banking partner should serve as your company’s vigilant ‘eyes and ears’, keeping you educated about the latest cyber crime trends and threats. A bank also needs to be proactive to minimise the risk of fraud while also helping your organisation contain and mitigate the damage caused if cyber criminals are able to strike.

At Bank of the West, we deliver a robust suite of fraud prevention solutions and features that are essential to safeguarding against fraud. Our Security team maintains open lines of communication with law enforcement organisations and have strong information sharing mechanisms in place so we can stay aware of known risks, alert our clients, and modify our processes as needed.

We speak with our clients about security regularly, gathering their feedback so we can modify and strengthen our products and back office controls.

Saudi Arabia opens its capital markets to foreign investors

Posted on by Ashton Wenborn

The development of the Middle East’s leading economy has brought with it comprehensive and wide-reaching gains to the country’s almost 30 million inhabitants, and none can dispute the nation’s growing geopolitical clout on the global stage. Its real GDP increased fivefold in the period through 1970 to 2007, averaging at 5.5 percent a year, and even the financial crisis couldn’t stop the nation’s onwards march, with growth clocking in at 6.5 percent in the period between 2010 and 2013.

Home to one of the planet’s most formidable hydrocarbons sectors and one of the fastest growing economies worldwide, the recent decision to open up the stock market to foreign investment looks to extend these benefits further afield, though at what price is unknown.

“I think Saudi Arabia’s decision to open its capital markets this year for foreign participation will lure big global investors to take part in the Middle East’s biggest economy”, said Ihsan Bafakih, CEO of MASIC, or Mohammed I Alsubeaei and Sons Investment Company, to give the firm its full name.

“There is no doubt that international investors would leap enthusiastically at the chance to participate in such a market. The Tadawul exchange (Saudi stock market) is as big as that of Russia and, with a market capitalisation of over $430bn.”

5.5%

Saudi Arabia’s share of total emerging market capitalisation

Market penetration
Before the reform was passed, foreign businesses could access the market only through a local Saudi institution, which was both costly and complicated, and served to dissuade a great many from investing. The opening up of its capital markets, however, makes Saudi Arabia a more inviting opportunity for foreigners, and, as well as driving growth, promises to boost employment opportunities for the kingdom’s fast growing population. The decision is also important insofar as it marks a departure from the cautious approach that has so characterised its past, at least as far as foreign influence is concerned, and the move is closely in keeping with a much broader liberalisation push sweeping the economy.

The region has seen similar attempts to open markets, recently in the UAE and Qatar. With the opening of Saudi Arabia, the major emerging market indices will have a greater representation of Middle Eastern markets. Prior to the move, the country was perhaps the last big frontier market to shield its capital markets from foreign influence in this way, though the decision to turn tail on the strategy is proof enough that foreign investment has a big part to play in the coming years.

Larger than South Africa, Mexico, Turkey and Russia, Saudi Arabia represents some 5.5 percent of total emerging market capitalisation, and the reforms, while slow at first, mean that the country’s share will be greater even in the coming months. Initially, access is restricted to institutions going by the ‘qualified foreign investors’ tag, on the proviso that they manage a minimum of $5bn and have a five-year track record, so as to avoid a sharp spike in speculative money flooding into the country.

With oil prices still at a low, this influx of foreign money, while modest in its early stages, should extend Saudi Arabia a lifeline in a period where hydrocarbons are struggling to keep its development on course. Further, the decision is part of a much broader package to accelerate the country’s development and diversify its economic make up away from hydrocarbons. “The Saudi Capital Market Authority is opening up the local public equity market to qualified foreign institutional investors. Also, the Saudi government has indicated it will begin taxing raw land sitting in city centres in an effort to encourage more development”, said Bafakih.

According to official statistics, real estate transactions dropped off in the opening half of the year, and the land tax introduced by the government is intended to inject some much-needed life and affordability into the sector. In doing so, the government aims to transform real estate, both by making homes more affordable and boosting construction. “The taxation of vacant land will spur land owners to develop the real estate instead of leaving it undeveloped hoping for price appreciation. It reduces land speculation and gives our cities what they deserve in quality efficiency”, said Bafakih. Whereas beforehand landowners were known to sit on land, only to await the right development opportunity, the new tax means that owners will be more inclined to build income-generating housing on a shorter timescale.

Right place, right time
“MASIC is well positioned to benefit from these regulatory changes, given our exposure to public equities and given our real estate portfolio, which has been developing raw lands and creating alternative real estate plays that cater to our continuous needs”, said Bafakih, in relation to the reforms.

Since 2006, MASIC has transformed from a traditional family investment businesses into a professional investment company, though without losing the values that so characterised its initial establishment. Focusing on new opportunities on local, regional and global frontiers, the firm has established a reputation as a responsible investment vehicle, whose decisions are underpinned by an ethical culture.

“MASIC is a holding company and does not offer investment services to third parties. Our portfolio includes investment services offering such as Albilad capital, Jadwa Investment and Fajr Capital who offer investment products”, said Bafakih.

“After 80 years of running the business, the drive came from the principals/owners who wished to work toward the family business having a long corporate life (measured in hundreds of years, not decades). To achieve this goal, MASIC adopted international best practices in terms of corporate governance, policies and procedures, decision-making process for investments and family participation – i.e., no family member works in MASIC, their representation is at the board or committee levels.”

Speaking on the importance of family values and on the key issue of Sharia compliance, Bafakih said, “MASIC’s values are very important to us as they define who we are, what we do and why we do it. MASIC believes in supporting our local community and investing in companies/sectors that do not harm people or the planet, e.g., alcohol, tobacco, defence, etc.”

Closely in keeping with this same commitment to corporate social responsibility, MASIC holds an annual forum each year, where the company invites the business community in Saudi Arabia to hear from world-renowned experts in the fields of investment and economics. In doing so, the company plays an important part in the education of the business community and in shepherding positive and progressive change throughout. Another of MASIC’s main goals is to support the Mohammed and Abdullah Alsubeaei Charity Foundation, which, in the 10 years since its inception, has donated generously to support humanitarian, religious, cultural and social projects in the kingdom.

With oil prices still at a low, the influx of foreign money, while modest in its early stages, should extend Saudi Arabia a lifeline

Localisation targets
In this same vein, MASIC shares the government’s commitment to localisation, and to equip the kingdom’s growing population, particularly the youth segment, with the right tools to succeed. “Attracting local talent from the Saudi population is a priority of MASIC. Our firm has nurtured strong ties with local educational and training institutions to source talented Saudis. We offer attractive and competitive packages to draw high-quality graduates, along with an entrepreneurial environment that allows young Saudis to excel. This initiative is in line with the government’s continuous efforts to increase employment among the Saudi youth by investing profoundly in its education sector”, said Bafakih.

By focusing on both financial returns and social development, MASIC’s approach mirrors that of the nation as a whole, as the government seeks to more fairly distribute the country’s economic gains and build a sustainable future for younger generations. True, by opening up its capital markets, Saudi Arabia may lose some of the conservatism that has so characterised its past, though in order to build on the progress made in past decades and compete with similarly sized nations, the country must do away with its overly conservative tendencies.

In doing so, the country runs the risk of exposing the economy to disruptive and potentially damaging forces, so companies like MASIC are paramount in demonstrating that international exposure is not necessarily at odds with local gains. “God willing, MASIC will grow in terms of assets, employees and our impact in the business world”, said Bafakih. “We hope to practice the high ethical standards embodied by our founder and to encourage others to do the same. We hope that MASIC will continue to be a leading light in the investment world 100 years from today.”

US Department of Justice indicts Hound of Hounslow

Posted on by Ashton Wenborn

The US Department of Justice has unsealed its indictment for Navinder Sarao, the trader alleged to have caused, at least in part, the 2010 Flash Crash – which saw trillions of dollars momentarily wiped from stock markets.

Through the use of algorithms, often referred to as High Frequency Trading, Sarao is said to have placed large orders on certain stocks, leading to prices to surge and then cancelling his order and selling shares at a higher price, a form of market manipulation known as spoofing.

Many have been quick to point out that Sarao’s trades actually took place before the Flash Crash and could not have actually caused it

Many have been quick to point out that Sarao’s trades actually took place before the Flash Crash and could not have actually caused it – leading to accusations that the various US government agencies and financial regulators pursuing him are engaging in witch-hunt, and using him as a scapegoat.

However, even if he did not cause the crash in question, the evidence in the indictment suggests that he was consciously manipulating markets through spoofing.

In one email from 2009 he wrote that “If I am short I want to spoof it (the market) down, so I will place offer orders … at the 1st offer and 2nd offer and an order … into the 1st bid. These will not be seen.” Another sees him write to an unidentified programmer “I have got the [program] running. We now need to make it workable in terms of me moving the market like we discussed.” At one point he directly refers to his intention to spoof markets: “I need to know whether you can do what I need, because at the moment I’m getting hit on my spoofs all the time and it’s costing me a lot of money.”

A number of times Sarao was questioned concerning his trading behaviour. At one point the CME pulled him up on the large number of trades he had cancelled, for which he apologised by claiming he was ““just showing a friend of mine what occurs on the bid side of the market almost 24 hours a day, by the high frequency data geeks”.

Dubbed the “Hound of Hounslow,” Sarao was taken into custody from his West London home in April 2015. According to City Wire, he “faces a maximum prison term of 380 years if he is found guilty.” The US Commodity Futures Trading Commission is also pursuing civil charges against Sarao.

Lahaie: Paraguay must maintain tight fiscal policy to hit investment grade

Posted on by World Finance

Ratings agency Standard and Poor’s has upgraded Paraguay to BB, because of its very stable overall outlook. But, says Abbeyfield Group CEO Sebastien Lahaie, Paraguay mustn’t get complacent if it’s to continue on its attractive growth path. Sebastian explains what has fuelled Paraguay’s growth, banking sector reforms, and the potential for public pension institutions to invest into Paraguay.

 

World Finance: Sluggish growth in Brazil and Argentina is having a knock on effect in Paraguay, a country pitted between the two economic giants. 

Here to share insight on how the banking sector is responding: Sebastien Lahaie.

Now let’s talk about how you would characterise your country when it came out of the depths of the 2008 crisis?

Sebastien Lahaie: Following the 2008 crisis, the response from Paraguay was to immediately lower interest rates. That reduction in interest rate laid the foundation for future growth that we are experiencing since then: both in the financial sector but as an economy overall.

World Finance: So how do you think the banking sector found its equilibrium, as it came out of this period?

Sebastien Lahaie: To understand this, we need to look at the beginning over the last 10 years, since 2004 when the financial sector benefited from the first regulation that was set in place in Paraguay. Resolution about provisioning levels, classification of bad loans and loan performance monitoring.

The country started to experience massive growth in the financial sector that only slowed down slightly in 2008-9.  Right after that, with the low interest rates, the sector continued to grow massively and has fuelled the growth of the country, which has an average of about five percent year in, year out for the last 10 years.

World Finance: Given that it has such a strong pace of growth, tell me how has banking sector reform kept pace?

Sebastien Lahaie: First the country laid down the ground rules for non-performancing loans, non-performing loan provisioning ratios. What kind of level do you need to have in the bank, how do you monitor the non-performance: 30 days, 60 days, 90 days. Over the last 10 years the focus has now shifted to the solvency and the level of capital that each bank needs to have.

We currently have a piece of legislation that has been discussed with the central bank and with congress to re-evaluate those levels of solvency and what level of capital do Paraguayan banks need to have. We have to bear in mind that there is no capital market activities in Paraguay, it is a very traditional banking system: commercial and retail.

So having solvency ratios that are identical to the ones we are trying to have in Europe or in the US is somehow very conservative and to a certain extent, appropriate for Paraguay as well.

World Finance: So as a country that is caught between Brazil and Argentina, you are heavily reliant on capital markets. Tell me how the instability over there impacts your country?

Sebastien Lahaie: Paraguay has benefited from its own resources to fuel the growth of the banking system over the last 10 years. Most of the deposits in the banking system are from local Paraguayans and local investors.

The banking system as a whole is not very dependent on external funding, about 50 percent of its funding comes from outside Paraguay and mainly through multilateral agencies of the development bank.

So Paraguay is not a country: or its financial system, it would be better to say, is not dependent on external funding from capital markets per se. However the interest in Paraguay has been such that we have seen a massive inflow of credit lines from multilateral development banks. And that is the funding that has allowed banks in Paraguay to offer longer-dated, longer-maturity credit that has helped that growth.

What we are seeing now in Brazil and Argentina, which are two countries that were highly dependent on capital markets outside for its own funding, is that when that money dries up, and if you don’t have a solid capital base in the country itself, growth is impacted negatively.

World Finance: Of course, ratings agency Standard and Poor’s has upgraded your country to BB because it felt there was a very stable overall outlook. Tell me: how has that impacted your ability to continue driving investment interest?

Sebastien Lahaie: I mean, obviously when a country grows at an average of five percent per year for the last 10 years, it starts to draw, to bring attraction, and the light is currently shining on Paraguay as an investor’s destination. However it still remains somehow an exotic destination for Latin America: it’s not Peru, it’s not Colombia, it’s certainly not Chile yet.

However the potential for growth is really high. Increasing the rating of the country, has given the opportunity to some investors who have limitations in where they can invest their own funding – especially asset managers – it’s gave them the opportunity to start discovering Paraguay as a potential destination for their funds.

We are still not investment grade but we are one notch below and I am hoping that within the next couple of years we’ll get there. With that fame – in brackets: sudden fame – from sovereign debt, Paraguay has been able to issue government bonds for the very first time over the last three years through two issues; two separated issues that placed about $1.5bn of bonds.

The temptation is always high to continue the issuance and it is important to maintain a very tight fiscal policy, which progress has been able to do.  Still an on-going discussion, but I think it’s one of the key strengths of the country’s stable microeconomic data.

World Finance: Finally can you tell me what is in store in terms of banking reform?

Sebastien Lahaie: The average maturity for deposits in Paraguay has gone from about six to seven months, 12 years ago, to about shy of two years now. We’re still a long way to get longer deposits in the system, we are still very dependent on multilateral institutions, development banks to get longer-term funding – so that we can finance infrastructure that is very, very much needed for the development of the country.

One piece of legislation that’s extremely important to pass and hopefully will before the end of the year is private and public pension regulation, which will allow for the public institutions to invest their pension savings, inside the country – so banks can issue long-term dated bonds.

For example, public institutions will be involved to invest in those and in return we can fund domestically long-term investments that are needed in the country.

World Finance: Very interesting Sebastien – thank you so much for joining me today

Sebastien Lahaie: Thank you very much for having me.

Guatemala’s president faces criminal investigation

Posted on by Ashton Wenborn

Following months of allegations for his involvement in a massive customs scandal, President Otto Pérez Molina has lost his right to immunity and is banned from leaving Guatemala. Crowds on the streets cheered as they heard the decision had been voted by Congress unanimously, and that the president is now open to a criminal investigation.

Numerous private citizens and government officials have also been arrested following the probe

First unveiled in April by an enquiry that was conducted by Guatemalan prosecutors and a UN-backed special committee, the scandal has caused the largest political unrest in the country in over two decades. The customs corruption ring known as La Linea (The Line) was linked to former vice president Roxana Baldetti, her aide Juan Carlos Monzon Rojas, as well as the president. La Linea received bribes in order to reduce the customs duties paid by businesses by 40 percent, thereby defrauding the government of millions.

Mounting evidence led to Baldetti’s arrest in August, three months after her forced resignation. Numerous private citizens and government officials have also been arrested following the probe. Rojas, whom many believe was the mastermind behind La Linea, remains a fugitive – with authorities suspecting that he is hiding in Honduras.

Despite months of protests across the country, Molina refuses to stand down from the premiership, denying links to one of the biggest corruption scandals to hit the country. The public, together with well-known business leaders, have repeatedly called for his resignation, during which time a number of ministers and ambassadors resigned. Pressure mounted following a general strike last week that brought the country to a standstill, leading Congress to begin the impeachment process.

The Congressional decision comes just days before presidential elections are due to take place. As Guatemalan presidents are only eligible for one four-year term, there has been no intention for Molina to run in this month’s elections.