The UK has entered a period of real interest rate volatility in the last year, as the Bank of England struggles to contain the inflationary impact of the invasion of Ukraine, soaring energy prices, and the European cost of living crisis. And for treasury departments still using manual processes and spreadsheets to manage their debt, this has meant frequent changes to formulae and even more work checking for errors – hugely compounded by the Bank’s move from LIBOR to SONIA. But Swedish debt and risk management company Nordkap has a solution: its cloud-based automation software can automatically compound the daily SONIA rate and perform scenario analyses to project the total cost of debt. Head of International Sales Fredrik Eriksson explains how Nordkap can save treasury management departments time and effort, and the company’s plans to pilot its services in the UK before launching in mid-2023. You can also watch the first half of this interview with Fredrik Eriksson, where he explains just how much time and money Nordkap can save for commercial real estate treasury departments.
World Finance: I’m back with Fredrik Eriksson from Nordap, the commercial real estate treasury management specialists. Fredrik, here in in the UK we’ve entered a period of real interest rate volatility, for so many reasons; but compounding that challenge for commercial real estate companies is the Bank of England switching from LIBOR to SONIA?
Fredrik Eriksson:Yeah; going into 2022, we saw interest rates going up already back in the fall of last year. And no one could imagine that we would have a war, and the energy crisis, and coming out of the pandemic with the supply shocks. And the inflation that took off because of that has forced the Bank of England to increase rates multiple times.
But with the overlay and the transition from LIBOR to SONIA: commercial real estate companies are sitting in a position where they have to update manual spreadsheets multiple times a year, unless they have a system in place. And with the SONIA new calculation method, that’s not really an easy feat. It’s time consuming, and again it comes down to searching for errors.
World Finance: How does Nordkap’s treasury management system address this challenge?
Fredrik Eriksson:Well it’s a matter of having the calculation method for SONIA intact and in place, because a lot of the companies today struggle with setting up processes in how to calculate interest.
When we had LIBOR, you knew going in to the new period how much you’re going to pay by the end of that period. You can’t take that for granted anymore – in fact you find out five days before the payment due date how much you need to pay.
Within our sleeve of modules we have the ability to do a lot of scenario analysis and what we call budget reporting. Where we can do a lot of simulations with… we look at the forward curve of SONIA, for example, and together with that we can run scenarios and see how your interest rates cost will change depending on different scenarios.
It allows you to be more proactive and have a better understanding of where will I be by the end of the quarter?
World Finance: And of course you’re here in London as you prepare to bring your services to the UK; how does the market compare with back home, and how are you adapting your offering?
Well it’s a good question. I mean we’re looking at the UK market now, and we are initially scratching the service. We’re realising very quickly that it’s a very, very large market, and of course that’s the reason we’re going after it!
But what we’ve found though, even in the last couple of days looking at some of those competitors, they’re not really focused 100 percent on the commercial real estate market. They are more broad in their nature. They might not even be automated! We heard about a competitor yesterday, a fairly big one. You can enter your debt in their system, but you actually cannot get the interest updated in their system.
So we feel that where we are right now, we’re fairly nimble in that regard. So that allows us for example, going into this pilot programme, and we find out more about the intricacies and the special needs of some of the UK market needs, we can scale up within our development teams and bring in more people. And really help focusing on some of the features that are more required in the UK, compared to for example Sweden.
World Finance: Yes so you’re starting with this pilot programme – tell me more about that, and, do you have a timescale for your full launch in the UK?
Fredrik Eriksson:We have this three phase approach here. We will bring in three or four pilots, basically to validate that our calculation methods are correct. We’ve of course checked with BoE and so forth, but we want to make sure that the nuances between the different banks, that we get everything right.
So that’s the first phase with the pilot programme, and it allows companies to be part of helping us, and customising a system tailored to their specific companies. So they sort of create a wishlist of things that they would like to see us implement and develop over time.
So the pilot programme is estimated to run Q1 of next year, 2023. And then we have phase two, sort of the second quarter, where we will go into a sort of free trial and roll out a more complete solution to then hopefully having regular paying customers in the second half of next year.
World Finance: Fredrik, introduce us to Nordkap and the services you offer to your customers.
Fredrik Eriksson:We offer a risk and debt management system for the commercial real estate space. We started back in 2011, and what we see historically is that the people working in the functions of treasury work with a lot of manual entry – keeping track of what debt is maturing, when it’s maturing, and keeping track of all the cashflows that goes on within the debt structure of a portfolio.
What we do is, we automate that process. So interests are automatically updated, so they can easily access reports at their fingertips, with the click of a button. And therefore rather than spending their time entering manual data and searching their formulas for errors, they can focus their time proactively, in strategically managing risk and the business on an ongoing basis.
World Finance: I mentioned your incredible market-share; why do so many CRE companies choose Nordkap?
Fredrik Eriksson:They use us predominantly for a great customer service, they use us for the product support we have in the back. But also simplicity and the ease of use, and user-friendliness of our product.
It’s a SAAS solution, meaning it’s a system that you can log in, you can access the data and everybody has access to the same data. So it’s sort of syncing up in a way that makes it very, very easy. It’s a user-friendly system, it’s intuitive.
And when a CFO leaves, or a treasury manager or a finance director leaves, they usually go to a company that might not have Nordkap, and they bring it with them. So that allows us to broaden our spectrum that way as well. So it’s a lot of word of mouth, and it’s been really, really rewarding.
World Finance: So how much of an impact does working with Nordkap have on these companies?
Fredrik Eriksson:Well, we did some analysis a few years back with a consulting firm, just to kind of validate, you know, how do the companies work, and what is the impact to their business?
And we noticed they save actually around 30 percent in risk, just standalone, using our system. They save about 15 percent in just time savings going from a manual process into an automatic system. And in fact using one of our modules when it comes to swap transparency and so forth, they’ve been able to save roughly one percent in interest rate costs.
World Finance: Yeah, as you say, it is a modular system that you offer, how does this work for your customers?
Fredrik Eriksson:We want to make sure we have a system that works for the customer, that they don’t pay for a bunch of extra features that they don’t use.
We want to work with of course large companies, but we want to grow with the company as they start out in the business. It could be a spin-off, where you have maybe a company that only has three to five buildings; they might not have a very sophisticated need when it comes to the management of the debt, more than keeping track and getting the right reporting, and the right metrics of the portfolio. But over time as you grow and develop over the years, we can turn more and more features on for you, that are more sophisticated, and that they can use as they become larger.
So we can have clients for example that initially when they come in, they don’t have access to the capital market. They might not even use hedging. But over time, as they grow, they can start accessing the capital market, or maybe want to start hedging their portfolio in some ways, and that’s where we really can help.
Despite growing awareness around the environmental perils of plastic, the payments sector still relies too heavily on the material. Research from Finder has found that six billion new plastic cards are produced and issued each year, with the majority made from PVC. This form of plastic is harmful during its production, use and disposal, as PVC’s chlorine and dioxin components release huge amounts of toxic chemicals into the environment.
On top of this, 5.7 million tonnes of plastic cards end up in landfills every year. Over time, these break down into microplastics that can be inadvertently consumed by humans and wildlife, causing significant health issues. Plastic cards can also end up in the ocean, damaging marine ecosystems and food chains. Because of these problems, moving towards digital payments is imperative. Referring to any kind of electronic payment, these remove the need for physical cards entirely. Here are three digital payment methods for consumers and businesses to begin embracing today.
1) Digital wallets A digital wallet works as a virtual card that sits in your smartphone, enabling you to make purchases out and about by tapping it just as you would for a contactless card payment. Almost every mobile comes with its own wallet that’s ready to be used – for example, the iPhone has Apple Pay, Samsung has Samsung Pay, and other Androids have Google Pay. The great thing about mobile wallets from a business perspective is that they are easy to accept, as most in-person POS systems that allow contactless payments will also accept mobile wallet payments.
The ease of use for consumers and simplicity to set up for businesses has led to a huge rise in the use of digital wallets. According to IT service management company Marqeta, 75 percent of consumers are now embracing digital wallets to pay for their purchases, with 60 percent of people saying that they’d now feel comfortable leaving the house with just their phone and not their wallet.
2) Peer-to-peer payments Digital peer-to-peer (P2P) payment solutions enable users to search for one another and perform online transactions, with high-profile examples including PayPal and Venmo. These link the payer and payee’s bank accounts and enable you to make a payment without requiring the other person’s bank details, helping to keep them private. All you need is their email address or phone number.
This is not always the most viable option for larger companies, but for those running a market stall or a small business service, for instance, P2P payments is a useful way of accepting payments to start off with.
Research shows that there are just under 150 million P2P mobile payment users in the US, which makes up almost 62 percent of smartphone owners. By 2026, this number is expected to grow to over 180 million. In addition, the value of P2P payments is around $550bn, a figure that is expected to rise by 10.5 percent to $612bn in 2023.
3) Social media payments Many social media platforms now allow businesses to accept payments from goods and services from within their apps, including the likes of Facebook, Instagram and Pinterest. For example, Facebook Pay is a payment method open to all Facebook users that’s free for both businesses and consumers. All users need to do is add their bank details and they’re able to send and receive money from the click of a button. Such payments are inexpensive with minimal processing fees.
Over 50 percent of consumers have purchased something on a social media platform, with Facebook and Instagram by far the most popular. And, with 88 percent of 18 to 29-year-olds and 78 percent of 30 to 49-year-olds using social media every day, it’s clear that offering social media payments can be incredibly useful for businesses.
World Finance recognised Baiduri Bank’s b.Digital Personal app as the best mobile banking app in Brunei for 2021. Wen Feng Goh, Baiduri’s Head of Digital Banking, explains how important the app was in Baiduri’s response to the pandemic, what it means to build with an ‘all-in-one’ design principle, and how customers’ increasingly digital-first behaviour is informing Baiduri Bank’s strategy.
World Finance: You launched b.Digital Personal in March 2020, just as the world began to lock down – how important was it in your response to the pandemic?
Wen Feng Goh:The response for us is extremely important. Because as you can imagine, when the pandemic hit it brought a lot of unprecedented opportunities as well as challenges for the market.
So when we launched b.Digital Personal on March 9th, coincidentally it was the same day that Brunei recorded the first case of COVID-19. So as you can imagine that brought on swift social distancing policies and crowd restriction policies in place.
So when we launched b.Digital Personal, that was instrumental in getting people on board, because with the new platform it offers self-registration. So traditionally, with the old system, what customers would have to do is visit a local branch to get signed up for the service. But with the new b.Digital Personal, customers could just on-board themselves through the app.
World Finance: What other important features did the app offer?
Wen Feng Goh: So I’ll just focus on three features that we’ve rolled out since then. One would be the display of foreign exchange rates – so, that is important for the customer to be informed of the rates they will be offered, particularly when they’re doing international transfers overseas.
The second part is the recertification of the PCI-DSS standard. So that is an industry-wide certification that masks credit card information being transmitted across digital channels.
And obviously the third being our most important I think, is our ability to accommodate customers’ requests. Because as you can appreciate during the pandemic, customers are apprehensive about approaching our branches. So we have to offer them a way to interact with us. And that would be done through the digital app where it’s authenticated, and we will be able to expedite resolutions of any issues or requests.
World Finance: You’ve said the app is designed as an ‘all in one platform’ – how are customers using it to not only manage their balance, but their entire financial lives?
Wen Feng Goh:Yeah, so, all in one is still a design principle that we continue to invest in for any upcoming features that we have. So apart from the traditional transaction features that we have on the app itself, we also have loan calculators, retirement savings calculators, as well as an investment calculator, which helps customers to be informed about their risk appetite when it comes to savings, as well as making the right investments, what sort of investments is appropriate for them. As well as what sort of, for example, taking out a loan, what kind of income, savings they need to have, to be able to reach that goal.
World Finance: And how secure is all of this functionality kept?
Wen Feng Goh:So as you can appreciate, in this day and age customer information, customer privacy is of the utmost importance to us. So we continue to invest heavily in encryption methodologies, as well as adopting industry-wide practices from PCI-DSS standards to the 128 bit encryption across end-to-end, to be able to fully secure all those transactions and customer information.
Additionally, on top of that, we also employ mobile device biometrics, as well as an introduction of an n-PIN, which is a unique PIN that customers would set themselves to verify and authenticate transactions through the app.
World Finance: Finally, how has the app changed the bank’s relationship with your customers, and helped advance the bank’s strategy?
Wen Feng Goh:So, with the introduction of b.Digital Personal in the middle of the pandemic, it has inevitably changed customer behaviour. So right now I would safely say that the digital channel is probably the first that the customer would approach, rather than the traditional branch.
The bank’s strategy has always been to move to a digital-ready channel, right? That is the future, and that is something that we continue to invest in. And obviously with the new normal, you would call it that way, that customers are interacting with our digital channels, that gives us more confidence to be able to say that we will continue to provide more features and services for our customers.
Zenith Bank has long been at the forefront of corporate governance in not only Nigeria, but the whole of Africa. Its group managing director, Ebenezer Onyeagwu, explains how the bank’s chairman and founder established the core values on which Zenith continues to thrive, the bank’s commitments to sustainability, and its corporate social responsibility projects. Watch the other parts of this interview in our Zenith Bank playlist.
World Finance: How do you ensure robust standards and practices today?
Ebenezer Onyeagwu:First is that I think I will give the credit to our chairman and founder. When he started the bank, he made sure that the core values on which the bank thrive were integrity, discipline, ethics, and professionalism. That forms the bedrock of our corporate governance practices.
Governance is so well entrenched in the system that it is part of our creed. And it’s part of why we are successful. So we have it entrenched throughout the system, from the board to the least person. And that’s why we continue to be successful, and we’ve continued to sustain it. And we will continue to sustain it.
World Finance: Zenith has committed to a number of the UN’s sustainable development goals; talk me through these, how has it changed the way Zenith operates?
Ebenezer Onyeagwu:We’ve subscribed to quite a number of them. The first is the principles of people, planet and profitability. Besides that we subscribe to United Nation Global Impact, United Nation Finance Empowerment that deals with the principles of sustainable banking. We subscribe to Nigeria sustainable banking principles, as well as women empowerment.
Now, how has that impacted our business? Maybe I’ll start with the women.
Today, in terms of the composition of our staff, there is gender balance in the system. My deputy is a lady. We have four banking subsidiaries: two are led by women. We also have a women finance programme, where we provide funding for women-owned businesses at subsidised rates, both long-term and working capital.
We also ensure that we bring in the sustainability consideration into our credit process. So all our projects we do in the bank are screened to ensure that there is compliance with the sustainability principles.
We have done six standalone sustainability reports over the years. So we believe in these principles, we commit our soul and heart to it. And in Africa we’ve won awards back to back as the most responsible corporate organisation.
World Finance: Clearly the prosperity of Nigeria is very very important to you; how is Zenith Bank giving back?
Ebenezer Onyeagwu:Yeah – when it comes to corporate social responsibility we are very emotional about it. Last year we spent two percent of our profit after tax, which came to about $10.8m on social investment.
We give to support security in different states of the country. In 2016 we spent about $600m to buy 10 cancer screening equipment we donated to an NGO. We also support female basketball league, grassroots football. We are also building ICT centres in modern universities across the country.
One that comes to mind is the sponsorship of Inside Africa – is a platform for African advocacy, where we are expounding the rich cultural heritage of Africa, the high energy, the resourcefulness of Africa. Zenith has sponsored that programme for the past 15 years, because aside from Inside Africa, you see that Africa doesn’t really have a voice. So we’re happy to be playing our role, and happy to project and market Africa to the world.
Nigeria’s economy remains hugely dependent on its oil and gas industry – but thanks to tailored and innovative support for SMEs from commercial banks like Zenith, the country is slowly diversifying and becoming more economically stable. Ebenezer Onyeagwu explains how Zenith Bank is helping young businesses and start-up entrepreneurs. Watch the other parts of this interview in our Zenith Bank playlist.
World Finance: Let’s go back to the sectors you were talking about that are up and coming; how is Zenith Bank supporting all of those industries?
Ebenezer Onyeagwu:The first thing we are doing to support the industries is that we are providing credit facility for all of them, by way of working capital, by way of term facilities. We are also helping most of them to access the various intervention programmes that have been put in place especially by central bank, that comes as long-term subsidised rate.
We are also innovating. SMEs, we are very particular about them, we see them as where we grow the next champions. We are looking forward to them one day being listed on the stock exchange. So we have a programme, we have the SME Grow My Business, we provide credit facility for them. We expose them to financial accounting and record keeping. We also provide mentorship for them.
Beyond that, in the tech space we started with a tech fair. The essence of that tech fair is to enable us to identify up and coming digital entrepreneurs through showcase. And at the end of the day the finalists, apart from providing cash award for them, we take them under our wings. And right now I think we have about 20 of them under our mentorship.
Then we also have some creative sector, CBM initiative programme, that provides credit facility, long term also at subsidised rates. We are giving them access to those facilities as well.
World Finance: And what about for companies that are just starting up? How is Zenith Bank investing in the future of young African entrepreneurship?
Ebenezer Onyeagwu:First we onboard you, we situate you and understand your business plan. You know, in some cases, some of them well… out of passion they have this very big, bogus ambition. But we are able to get them through a first plan that will enable them to scale.
Then we make sure that when it comes to funding, we sit with them, because most of them – yes, they have the business idea, but they have never borrowed before. So we take them through the rudiments of accessing facilities and doing it in such a controlled and coordinated manner that they don’t get their fingers burnt.
So we take them through, especially those who are in the fintech space, who don’t understand issues around compliance, around governance. We provide a model for them. And also help them in terms of training their team.
Nigeria’s economy bounced back from its COVID-19 slump with growth of 3.4 percent in 2021. Zenith Bank group managing director Ebenezer Onyeagwu joins World Finance to discuss the country’s economic health, the government’s latest development plan, and the many opportunities available in Nigeria for investors who understand the country’s long-term needs and potential. Watch the other parts of this interview in our Zenith Bank playlist:
World Finance: What’s your view on the country’s economic health?
Ebenezer Onyeagwu:I’m very optimistic about the economic health of Nigeria. That’s because Nigeria is a huge market. You have 200 million people, and 50 percent of that population, that demography, is below age 30.
You are talking about an active, consuming, valuable workforce – you can’t beat that! You can’t get that anywhere.
Now in terms of economic development, if you look at how we came out of recession, what comes to mind is the contribution of agric, ICT, services, fintechs. These are sectors that are thriving.
There are quite a number of entrepreneurs who are innovating and digitising every aspect of human engagement. So for me I am quite optimistic.
And again, the government has come up with a lot of reforms. The national economic development plan emphasises that the country requires close to $800bn for us to improve the infrastructure in the country in the next five years. That will be a difficult thing to achieve, because we will need for Nigeria to really realise its potential, we need FDIs to come in.
World Finance: How attractive is Nigeria to foreign direct investors? There’s a lot of risks that are associated with Nigeria – security risks especially with infrastructure – what’s your view on that?
Ebenezer Onyeagwu:Thank you Paul – in terms of security risk, there’s insecurity everywhere. Different regions of the globe have their own different security challenges. I can admit that! Yeah we have our own, but it’s being addressed.
If we invite the other challenges we see, they represent opportunities for investment. For instance, we don’t have – if we are looking at roads, we don’t have good roads. We don’t have a rail system which will facilitate human traffic and also movement of light goods here and there.
We also need investment in healthcare. The amount of outflow from Nigeria to other parts of the globe in terms of medical tourism is huge! But if we have investment in healthcare, we will be able to save a lot of foreign exchange for the country.
And, if you look at agric – Nigeria, if you fly across the country, you see good arable land, that, oh, we need to do forming that you are seeing is subsistence level! We need to mechanise it. We need investment. Nigeria can become the food basket, the home for organic food the world!
I can go on and on. But what you see is that massive investment will need to be put into the country, but whoever is coming should be long term. If you are not long term, I mean, if you take a short term horizon in Nigeria, you will not make money. In fact you will create volatilities for everybody, including yourself.
I mean how come in Nigeria, if you look at the return – Zenith Bank is just 32 years. It was started by Mr Ovia in 1990. We took the equivalent of $4m. But today we have shareholders fund of over £300bn. I mean, that’s coming from Nigeria! We continue to grow and create wealth.
There are quite a lot of incentives. The government has also come up with a new finance act that has made the tax regime a lot more effective for corporates.
If you are looking for the destination of the next intelligent properties or building you have, it has to be places like Nigeria, and Africa.
Maybe what we need to do is stronger advocacy, in order to create the awareness for people that the country is not as bad as it’s been perceived to be.
Nigeria’s Zenith Bank group reported growth of 10 percent in gross earnings and in profit before tax in 2021 – a remarkable achievement considering the ongoing economic impact of the pandemic. Group Managing Director Ebenezer Onyeagwu discusses the ways the bank is innovating and its post-pandemic strategy. Watch the other parts of this interview in our Zenith Bank playlist.
World Finance: Ebenezer, talk me through those numbers: how was this growth achieved?
Ebenezer Onyeagwu:Traditionally, Zenith has been over the years a performance-driven organisation. The figure you see typifies the real core fundamentals of the business. We are very dominant when it comes to the corporate business, and indeed retail side too!
When we started retail business three years ago, we had about only 3.4 million accounts. But today we have 10 million accounts. We had about three million cards, today we have about 14 million active cards, and it’s growing.
We are the bank with the largest shareholders’ fund – about ¢3.2bn – that gives us the deepest pockets to do whatever kind of deal there is available to be done in the country.
We also have a pool of talent, the best in class set of teams working for us. And we also have a board that is very well diversified – so that also provides effective challenges in the board deliberations.
So the result you see is just a reflection of the history of performance of the organisation, and also the kind of quality and calibre of team that we have.
World Finance: As you say, Zenith has customers from retail up to corporate – how are you innovating for each of those segments?
Ebenezer Onyeagwu:The way we are innovating is looking at the customer journey, and being able to understand the aspirations, and making sure that we develop the right products.
So the first thing we did was to create an omnichannel, so that we can integrate and engage customers at whatever segment. We have mobile banking, we have the POS, we have ATM, we have the internet banking. So the kind of platform we have gives us that delivery to connect with customers at every segment of the market.
We are also able to integrate and connect with any business that has the artificial programme interface. So we are building products and services to really align with the demands of the market.
At the corporate end of the business, we are able to innovate – if you are a corporate customer with Zenith, you can receive your money from whatever part of the country where you are. Then you can also make your payment from wherever.
We are also refining and promoting digital literacy and awareness, that is helping people to really embrace the use of digital technology in business. In fact we see ourselves as a technology company with a banking licence. Just because of the disposition we have towards technology applications.
World Finance: Now, what is the strategy for Zenith Bank group as the world finds a post-pandemic new normal?
Ebenezer Onyeagwu:Post-pandemic, a lot more transactions will be done electronically. Therefore what we have decided to do is, beyond the omnichannel that we use in engaging customers, we are looking at building a super app that is integrative. We will be looking at things like expanding our digital footprint. We also will be rethinking and remodelling our business services and products to ensure that they align with the aspiration of the new normal.
The board recently approved us to invest over $100m in building new enterprise architecture, and also building new applications that will give us that position and dominance that will secure a privileged position to take advantage of the opportunity.
Above all, we need to be assertive in the market with the digital application, and occupy that position of right of play in whatever segment.
Along with its fresh rebrand and new environmentally sustainable headquarters, Baiduri Bank has released a new brand promise: ‘Co-creating your future.’ Baiduri CEO Ti Eng Hui explains what the promise means for the bank and its customers, how Baiduri’s renewed focus on purpose-driven banking has changed the way it operates, and the new ways the bank is engaging with its local community.
World Finance: What does this promise mean to you, and how have your customers responded to it?
Ti Eng Hui:So this is a very clear message we want to send to the community: that we are there with them throughout their journey. Whether it’s their financial health, or whether it is their physical health, we want to be there with them.
We want to be in fact also their long-term preferred financial partner. If they run businesses we also want to be there when they’re small, and along the way we’ll support them so that they can grow.
And at the same time we make sure that they’re given all the tools and financial advice possible to grow their business. Bring in the relevant government agencies, give them the relevant marketing support.
So that’s the message we want to send; we’re always there for them, co-creating the future together.
World Finance: And how has this renewed focus on purpose-driven banking changed the way that Baiduri operates?
Ti Eng Hui:So, because of this purpose focus on helping customers, co-creating the future together, the team now looks at what they do very carefully, to make sure that whatever that we do is there to support the customers.
From the way we advise to them, to the way we process it. From the way we plan their future, we are there all the way for long term.
So I think our staff has taken it as a challenge, our staff has taken that as a way to make sure that whatever we have developed for them, whatever we plan for them, is good for them – not just for the short term, but also for the long term.
World Finance: And you’re walking the talk with the new headquarters that I mentioned; tell me how it improves your environmental sustainability, and your ability to engage with the community.
Ti Eng Hui:So our new head office is a prime example of what we’d like to do in Brunei going forward; it’s that we want to bring the sustainable into Brunei: environmentally, also financially. We want to make sure that the environment aspect of it benefits everybody: the surrounding that we have developed, in terms of the landscaping, the green, is also benefiting the neighbourhood. Really from the moment you walk in you can sense this is a very green building, very environmentally sustainable.
The building also incorporates what we call Baiduri Community Space on the top floor – essentially a space for the community to use for their art events, for their cultural events, free of charge. It is about being a responsible corporate member, how we can help the communities come together, how we can engage them. So this is what we mean by co-creating our future together.
Along with its fresh rebrand and new environmentally sustainable headquarters, Baiduri Bank has released a new brand promise: ‘Co-creating your future.’ And that doesn’t just mean for its retail customers, where Baiduri is innovating through its branch network and mobile devices; or for its business clients, where the bank is collaborating with government to help MSMEs embrace technology. It also means for the community, where Baiduri is giving back through a number of impactful CSR initiatives. Baiduri Bank CEO Ti Eng Hui discusses all of these in this video; while in the first half of this interview he talks about the commitment to sustainable banking and long-term customer care that ‘co-creating your future’ represents.
World Finance: I’m back with Ti Eng Hui, CEO of Baiduri Bank; you’ve launched a number of important CSR programmes in the last few years, talk me through some of the most impactful schemes.
Ti Eng Hui:So, one of them that we have launched recently is, together with an NGO, we’ve worked with the Ministry of Education to help students to learn Low Impact Living. So we thought that’s something that is very important to have that developed at a young age. So when the children go back home they will tell their parents. And we thought that is one way we can help, in terms of supporting the community.
We have also launched, just before the second wave of COVID last year, a national platform for volunteerism, to allow volunteers to come forward and help those patients in need, those nurses in need, those medical staff in need. And the impact has been tremendous. So we are really grateful for the opportunity. And it’s really something that we’re very proud of.
World Finance: And how is Baiduri supporting Brunei’s micro, small, and medium enterprises – especially as customers increasingly adopt a digital-first mentality?
Ti Eng Hui:So we work with a government statutory department called Darussalam Enterprise to run workshops covering marketing, accounting, and technology, to make sure that the MSMEs can embrace technology.
We also run business matching forums so that MSMEs can become suppliers to this bigger group of companies.
So we thought that would, you know: put it together, help each other. In terms of supporting the local businesses, the smaller businesses. And allowing the bigger businesses to do their part in helping the smaller guys.
World Finance: Baiduri Bank has committed to an omnichannel approach to customer service; how are you innovating in both the digital space and your physical branches?
Ti Eng Hui:So what we have done with the branch footprint is that we have increased the ATM space and reduced the counter services. At the same time we throw in digital services, where of course customers can come in; if they’ve a problem using their mobile phone or internet banking, they can get support from there.
But what is important is that on the technology front we have adapted the latest technology and optimised into the banking for mobile phone usage. Customers can sign on using biometrics, so that provides a new level of convenience.
Customers love the experience so far, we’ve got very good sign-ups and we’re hearing fantastic stories.
We also have rolled out the AI chatbot called Emmi, which allows customers to send in messages, and they get the response immediately for any enquiries that they have.
So these are the current technologies that we have deployed, and I think customers have responded very well so far.
Just as the stock market offers its clients a clear and transparent operation reaching back centuries, the new forex market is similarly unique and full of exciting possibilities. Although it is new, it has still managed to emerge as the largest and the most liquid financial market across the globe. Especially with the advent of internet marketing, real-time forex trading has become a very common concept among brokers and people interested in investing money. Millions of investors have shifted stocks from traditional markets to forex. But how the brokers have convinced them to do so is still a pertinent query.
Almost every broker in recent times aims to provide their customers with a variety of investment options. Customers who are unwilling to trade on their own are the key target market for such brokers. These customers need customised services to address their monetary needs. Brokers have found the best customisable trading robots in Forex which allow these customers to fine tune how trades are executed on their accounts while allowing them to make profit with a hassle-free, hands-off approach.
Another method employed is the utilisation of do-call managed accounts which follow a specific strategy while calculating the risks associated. Below we’ll discuss the distinctions between PAMM, and Copy trading systems, and how brokers make them worth a try for investors across the globe. Although there has been a lot of ambiguity associated with the context they are used in, brokers use them widely as the most suitable and futuristic money management options.
So how is Forex PAMM and Copy trading employed for managed investment?
Forex PAMM
PAMM (Percentage Allocation Money Management) is the most suitable and widely accredited method used to carry out the automation and management of your trades and money. The major benefit of PAMM is the distribution of transaction volumes on the basis of the percentage across everyone participating on the platform. The allocations of the transactions are mostly decided and calculated on the basis of the investor’s balances or equity.
It is worth mentioning that the entire balance of the investor is replicated on the account of the Broker or the Money manager. This also includes combined balances of all interconnected accounts. This infers that the master doesn’t possess any money of his own; as an alternative, the master possesses a virtual balance which is equal to the balances of investment accounts.
As soon as any transaction is carried out from the master account, it is quickly and proportionally divided in all the investor accounts at similar pricing to the master account.
Certain PAMMs are nation equipped with features of displaying the individual transactions on investor trading accounts. However, they take care of the own back office where the trade-based P&L is apportioned. This technique is not particularly appreciated by consumers since they prefer to see all of their transactions being carried out on their trading accounts. A few PAMMs also offer leaderboards for master accounts, which grant the investors a chance to evaluate their performance before promising to avail their services.
One of the most important details to know as an investor is that you cannot trade independently on investor accounts linked to PAMM. The major logic behind this restriction is that it would endanger the percentage allocation on all accounts. Normally, you can delink the investor account from the Master any time you want. However, the transparency of this method is what makes it a bit questionable among investors.
Copy trading
Copy trading, sometimes referred to as Social trading, is the most transparent and flawless method of money management. There are specified platforms which grant traders a chance to incorporate a copy trading solution with the brokerage company of the investor. Alongside that, they offer their personal database of established signal providers, with an assortment of other information for each of them. It is a major advantage in comparison to Forex PAMM since the broker does not need to source steadfast money managers on their own. Furthermore, it’s important to highlight that the MT4 and MT5 servers offer their own copy trading service as well. It comes with a substantial number of providers who are reachable through the MQL5 website.
Clients mostly track the signal providers who have a specific presence and following on the social trading platforms. These clients can subscribe to multiple suppliers who work on a single trading account – which is unfeasible for PAMM. Concurrently, clients are permitted to trade on all of these accounts or liquidate positions as provided by the signal providers. In the case of the investor account, the results are not deeply linked with signal providers as the investor manages their own money.
Providers are specifically answerable for the results generated on their own accounts, and granted signals may be utilised and manipulated in many ways by an individual investor and different investors. A few platforms even grant the capital of signal providers’ transactions. Most platforms allow the client to directly get in touch with providers by asking queries based on their operations, or they can even start an online discussion with them. Most online platforms take membership and subscription fees to give customers access to signal provider’s services.
It is quite apparent that there are multiple alternatives which your brokerage can use in order to offer managed account services. The method which is most suitable for your money management is solely dependent on the trading platform that you are using and your personal preferences from the options available. Due to the intensity of the competition in the market, brokers will have a fair opportunity to get the required solution for you at an affordable price. It will undeniably aid your organisation in getting a competitive edge.
For the past decade, Peter Bakker has led the World Business Council for Sustainable Development (WBCSD) based in Geneva, Switzerland; the premier global, CEO-led community of over 200 of the world’s leading sustainable businesses. WBCSD is a membership organisation that considers business a critically important driver in leading the transformation needed to ensure over nine billion people are living well, within planetary boundaries by 2050 – a net-zero, nature-positive and equitable future. But business alone will not be able to ensure the scale of transformation needed. WBCSD’s list of members includes many of the world’s most famous brands and household names, including some who have been accused in the past of doing harm to the environment. Bakker spoke to World Finance about creating change from within.
Is it for businesses to lead the way on climate change and self-regulate, or is it for governments to take a harsh line and force change via policies? How realistic is either proposition and how does WBCSD see the way forward?
A combination of policy and regulation as well as leadership from business to keep driving forward change is needed. Our member companies come from all business sectors and all major economies, representing a combined revenue of more than $8.5trn and 19 million employees. Together their actions can be truly transformational and we need to start with those value chains where it is most needed and that have the highest impact.
Let’s take energy for example. Energy powers the economy and enables people to live the lives they aspire to. A sustainable energy system will need to provide reliable and affordable net-zero carbon energy for all. The speed at which the energy system will be decarbonised will critically influence our ability to limit the rise in global temperatures to 1.5 degrees Celsius.
Decarbonisation and transition will only happen if forward-thinking companies within the energy space work together to design a net-zero carbon, nature positive and equitable energy transformation as well as scale innovative business models for low-carbon energy solutions. We need to bring new innovative thinking together with the scale and reach needed to drive and implement change.
You talk about ‘reinventing capitalism’ to reward true value creation, not value extraction – what exactly does that look like?
The starting point is rethinking capitalism, and not in an ideological way. In the world today there are three severe crises in sustainability: climate instability, loss of nature, and mounting inequality. In our current model of capitalism, we only measure financial performance; we don’t integrate environmental or social performance. That means that when we do damage, there is no penalty that anyone pays. We need to start integrating the environmental and social impacts that governments and businesses have.
Then we get to a value creation model – if you reduce the environmental impact on people and improve their lives, you create social value and by measuring that as well as ESG disclosures, capital markets will begin to value that performance. Twelve months ago, we published Vision 2050 – Time to transform. The cornerstone of that vision was reinventing capitalism. It has been signed off by 44 companies who helped us create it. WBCSD has transformed its strategy to align with this vision and it was taken to vote in October 2021.
Given the growing propensity towards ‘greenwashing,’ there are those who may feel that they have lost trust in businesses’ self-selected green propositions. Why is it important that businesses in the very sectors known for high-impact carbon emissions (oil and gas, banking, ‘big food’ etc) are on board and taking action?
We are fortunate in that our membership is just that – a membership and entirely voluntary – but there are a number of criteria that members have to adhere to in deciding to be a member. Our philosophy is that it is better for big, impactful companies to be in the tent rather than outside the tent. There are plenty of organisations and individuals who don’t believe that and who judge, but our role is to bring companies into the tent and work with them on how to decarbonise, become nature positive, and be more equitable.
In our current model of capitalism, we only measure financial performance; we don’t integrate environmental or social performance
We still see that business has a trust deficit in the eyes of many – oil and gas companies are in that camp, for example. Only by taking real action and being transparent about what is your target and whether you are making progress can you rebuild the trust; it is a journey. You need to set a target aligned with science, and then through ESG disclosure and reporting, you need to be very transparent on progress.
There is a lot of pressure on companies now because of competition, activism, and consumers asking for a different solution. McDonalds joined us eight or nine months ago, which was after Vision 2050, and after our new membership criteria. They walked in with their eyes open and we wouldn’t have let them join had they not understood the membership criteria. Companies come to us as they get real support on how to decarbonise.
Do you really manage to get 200 CEOs of some of the largest businesses in the world in the same room at the same time?
We have a council meeting once a year and invite CEOs as council members. We have never had all of them at the same time, but there are always more than 100 over one or two days. We host roundtables bringing people together over similar themes and shared knowledge. But more important than that is for the teams of the CEOs and the CFOs to really make progress. It is not a talk shop, it is a bringing together to figure out how to turn decisions into action, identify projects to move forward, then progress reporting for CEOs and mobilise teams to do more.
One of the major challenges you tackle is mounting inequality. How can business leaders approach this meaningfully and avoid failure of sustainability efforts? Why are the two interlinked?
As business leaders we must ask ourselves – are we truly committed to a more sustainable world? And if the answer is yes, we must accept that it cannot be a pick and mix approach to sustainability. Reducing our emissions will not be enough; committing to a circular economy will not be enough. We must take urgent action to create a more equitable world where everyone has access to opportunity, justice, and income regardless of their race, gender, or background. It is only by achieving this that the world has the possibility to transform. Inequality has become a systemic risk – a risk that is threatening not only individual companies or communities, but entire economies and societies.
Wide disparities in income, wealth, and overall wellbeing, underpinned by deep, structural differences in the opportunities people have to achieve those outcomes, are fuelling widespread dissatisfaction and disillusionment. This, in turn, is contributing to a cascade of consequences with dire implications for our societies and for businesses around the world: eroding social cohesion, diminishing trust in key institutions, fuelling civil and political conflict, and undermining our collective capacity to tackle complex challenges. It will not be possible to arrest climate change, for example, without addressing inequality. Meanwhile, a number of major trends and developments are making the situation worse. Climate change, technological disruption, and the COVID-19 pandemic, for example, are all hitting the most vulnerable the hardest.
Do you liaise with direct action groups such as Greenpeace and Extinction Rebellion? How would you describe the interplay between the two types of organisations?
Activism, if applied honestly, has a useful role in moving people’s minds. We have had projects engaging with other players like Greenpeace but structurally our organisations have different roles to play. In terms of our membership, I always describe WBCSD as the ‘challenging friend’ of the business – constantly trying to help them do better, faster. We are there to help them, sharing best practices and redefining value terms. We have now got a network of over 50 Chief Financial Officers to work jointly as well. As a bridge between the corporate world and the capital markets, CFOs are uniquely positioned to set the agenda and trajectory of market transformations as they begin to take shape.
Ultimately, the agenda and end goal of our organisation compared to activist ones is no different, but our messages are. Across the world, corporate sustainability performance is top of mind for investors and consumers alike. Global financial reporting standard-setters are quickly paving the way towards alignment of sustainability disclosure frameworks, with new regulatory requirements for ESG and climate disclosure on the horizon. Business is entering a next phase of ESG performance, transparency and accountability.
To realise a world in which over nine billion people can live well, within planetary boundaries, over the next decade we need to unlock change in a way – and at a rate – that has so far eluded us. It is not enough to know what needs to be done. We need to accept that radical shifts in all parts of society will be required, including business. Leading companies need to prepare now.
Portugal’s residency by investment programme, one of the most popular golden visas in the world, rolled out some changes in January 2022: in particular, investment in coastal residential properties no longer qualifies investors for the scheme. Still, with about five percent rental income per year and capital appreciation of up to four percent a year, residential units in the interior of Portugal are still an attractive proposition. David Machado and Tiago Camara of PTGoldenVisa discuss the changes to the scheme, the residential and commercial investment opportunities available throughout Portugal, and the larger real estate projects that PTGoldenVisa has started offering to its investors.
World Finance: David,what changes were made earlier this year, and how has the market responded?
It’s true that from January 1st 2022, we no longer can qualify with investment in residential properties in the coastal areas. But we have quite interesting opportunities in inland areas, we’re seeing quite good results, and the reality is, all of Portugal is booming at this stage. So it’s expected to have very high capital appreciation on these investments, even for those who choose to invest in inland areas to qualify with residential properties.
World Finance: Tiago, tell me more about those investment opportunities.
Tiago Camara:In the category of €280,000 in the interior of Portugal, the majority of our properties are residential units, with 2-3 bedrooms in regions with easy access, good logistics and infrastructures. In these regions we normally agree with the local developers for them to rent these properties and guarantee our investors four to five percent rental income per year. The capital appreciation expected ranges from two to four percent a year.
On the high density areas, the investment goes up to €350,000. Lisbon keeps on being the most requested region, where we have been successful in selling offices and shops to our clients, providing them around four percent rental income guaranteed. And four to six percent capital appreciation for this type of properties.
Another region in very high demand is Madeira island. It qualifies investors for a golden visa with €350,000 investment. Madeira is a region packed with tourists all over the year, very well connected with all European cities by air, and with a real estate market appreciation of more than 10 percent every year.
World Finance: Now David: who are your clients? Where are you seeing the most interest from around the world?
David Machado: Yeah, the Portuguese golden visa programme targets all the non-European Union citizens. We are seeing these days an extra effort from North Americans coming to Portugal and doing a lot of investments, so that’s a bit of the change that has happened in the past year. Before the main investors were Chinese, and they’re still a big part of the golden visa programme.
The programme continues to reach all over the world; people who are looking for a backup plan for their families, opportunities to relocate, to enjoy retirement days in Portugal, have access to premium healthcare facilities, premium education. All those benefits – together with the free ease of movement once you have a residence card from Schengen countries – it’s what attracts investors to come.
Plus, after five years you qualify to access citizenship, so those are the benefits that are bringing people from all over the world.
These days I would say investment, just the pure investment in real estate in Portugal is delivering very high returns, so it’s also something to watch.
World Finance: You successfully support over 100 investors every year to apply to the Portuguese residency program – what kind of experience do you offer to your clients?
Tiago Camara:First of all, we are a one-stop shop service provider, managed by two Portuguese experienced managers, with a full knowledge of the Portuguese real estate market. We have a team of around 40 professionals based in Portugal, guaranteeing our clients on a daily basis full scope of services that they need to proceed with their investments and residency programme.
We support our clients specifically on selecting the best investments, opening their bank accounts, having a tax number in Portugal. We support them on finding the best law firms to support them in the programme and on the investment. And we guarantee very professional management of their assets in Portugal. We manage their properties, and we are able to generate them very good returns on their investments.
World Finance: And what does the future hold for PTGoldenVisa?
David Machado:We are still very focused on delivering a high level of service to all our clients. So the idea that we continue to provide this service from A to Z, which provides a full solution from any client wanting to invest in Portugal and collecting the benefits. This is mainly our focus.
However, because our database of clients is pretty large, and we have been overseeing great opportunities in terms of real estate deals, we also focus now on bigger developments – let’s say hotels, where we are providing development of hotels for clients. Or aparthotels, or bigger projects to develop compounds. So those are projects that PTGoldenVisa is now also focused on, which are not directly related to the golden visa, but most of the time also involve investors which have started with the golden visa now doing other investments with us.
The automotive and transport industries are continuously evolving, and today’s real challenge is the ability to create value in the context of these changes. Many parts of life as we knew it were irreversibly altered when the pandemic struck, and while the transition to a circular and greener economy had already begun, the recovery from COVID-19 should serve as a catalyst for change in the automotive and long-haul trucking industry. The sector’s growth prospective will highly depend on the strong commitment to leading the change to a more sustainable future and increasing the focus on technology and innovation.
Leading the transition
Climate change and the race to net zero are arguably among the greatest challenges that the automotive and transport industries have ever faced. As a whole, the UN’s Intergovernmental Panel on Climate Change (IPCC) estimates that these industries are responsible for approximately 23 percent of total energy-related CO2 emissions.
The solutions devised to ensure the achievement of sustainable logistics are diverse in their nature and scope – from fuel-efficient vehicles, and cleaner fuels, to alternative driveline technologies such as electric cars and trucks. Additionally, in order to increase the autonomy of vehicles and to create more sustainable transport solutions, it is essential to explore other solutions towards net zero emissions in a broader perspective, such as bio-methane.
Technology: the key pillar of growth
Innovation and sustainability go hand in hand as the use of technology is essential for reducing emissions and preserving the environment. The sector has responded to the pandemic by focusing more heavily on innovation as it is fundamental to respond to the evolving needs of the automotive market to ensure the industry’s transformation and adapt to a changing world. Currently, we are in an industrial revolution with exponential innovation everywhere. The key to success in this disruptive environment is to accelerate the introduction of new technologies through a new way of working, leveraging on a vast variety of different competencies inside a broader ecosystem of players and partners, as this will be the most important competitive advantage.
We don’t fight the change, rather we will use its energy and momentum to transform our sector
With the fundamental and profound shifts in technology taking place, our objective is clear: embracing powerful market trends and anticipating the products and services that customers need. We don’t fight the change, rather we will use its energy and momentum to transform our sector – as well as our whole economic system – for a sustainable future.
An important factor to be aware of is the changing mobility needs of people and goods. European and global fleets are setting ambitious decarbonisation targets, and continued investments in research and development will open the door to unlimited possibilities. R&D is also the answer to advancing technology and analytics in business models, offering innovative solutions for vehicles and powertrains.
Fully integrated
There is another big transformation underway linked to product connectivity and the internet of things. We are going to see more and more trucks and commercial vehicles fully integrated into a broader, connected ecosystem, and this will enable vehicle-to-vehicle and vehicle-to-infrastructure communication. It will also foster green, and in some cases autonomous, transport solutions that offer clear benefits for the entire value chain in terms of efficiency.
Energy transition, vehicle connectivity and digitalisation, and autonomous driving are the key areas of the technological roadmap we should keep in mind and leverage on. All these innovations in the wider automotive industry represent a unique opportunity for the trucking sector to confirm and solidify its central position in the global trade ecosystem.
Our ambition is to make them merge and interact together in order to offer sustainable and connected transport solutions, while transforming business models. This approach will help to not only increase the share in the multi-billion-euro profit pool of commercial vehicles worldwide, but also to step up our offering. Only by leveraging on the opportunities offered by new technologies will we be able to secure a long, prosperous and sustainable future for our sector.
When Jared Bibler visited Iceland for the first time in 2002, he couldn’t imagine that one day he would become an Icelander himself. A native of Massachusetts in the US, he was working for an Icelandic bank when in the autumn of 2008 the country’s financial sector hit an iceberg. His stint as investigator at the Financial Supervisory Authority (FME), the regulator that sent some of the main culprits to prison, helped him discover how a country of reticent fishermen became a global banking powerhouse and then lost everything. In Iceland’s Secret: The untold story of the world’s biggest con, a mix of personal diary, travelogue and financial thriller, Bibler narrates with gusto the Scandinavian saga of a nation that briefly went mad. He tells World Finance’s Alex Katsomitros how Icelandic banks collapsed, why he left the country disappointed and what’s the next bubble that may crash.
What went wrong in Iceland? Was it the system or the people who were responsible for the crisis?
A bit of each. Surely there was naiveté on the part of the people. Money was a relatively new idea there – they started using it a few generations ago. Before that, money was something the Danish overlords had and Icelanders didn’t. So having money in itself is already exciting in Iceland. We spend it with almost adolescent exuberance. Bars and clubs are full at the first and last weekend of the month when everyone gets paid. People spend what they get each month. But maybe that makes sense, given the high inflation history of the country.
Did the fact that it’s a small society play a role?
I didn’t write the book to pick on Iceland. It’s a much bigger story. There is, however, something I did not like. In every country conflicts of interest can arise in business, but in Iceland people use the small-society argument as an excuse to run towards conflicts of interest instead of avoiding them. It’s like “there are so few of us, so I have to give my cousin a discount.” There’s a level of person-to-person corruption. People love to get around the system, which is human nature, but in this case the system is a small society, so you are just cheating your neighbours. But Icelanders don’t see it that way.
The other piece you can’t ignore is the role of big global creditors pushing money into the country. Early on mainly German banks, but later from all over the world; Japanese housewives had ISK investment funds. The economy could not handle the amount of liquidity. In a place where people were not used to having money, suddenly they could borrow as much as they liked. Many went crazy, buying cars they didn’t need with foreign currency loans.
The biggest crime was happening inside the banks. Ordinary people did benefit, but in the end they paid the price. People often say to me: “But Iceland came back.” But nobody gave me my house back. Macroeconomically things look good, but individually, many people like me lost a lot. It set me back for my whole life. My retirement savings were zeroed out in my mid-30s.
It’s clear that you fell in love with Iceland and became an Icelander yourself, but you don’t hesitate to be critical of the culture. For example, you criticise the financial regulator. You argue that they did 10 percent of what they could have done and currently they are understaffed and not independent anymore. Some of the regulators were even involved in scandals. Would it be right to assume that you left Iceland with a bittersweet taste in your mouth?
I’m glad that that my disappointment came through in the book. Some readers told me that it wasn’t the market manipulation that shocked them the most. It was what happened at the regulator. It shocked me too. I think the regulator completely fell down on its obligations, because under Icelandic law only the regulator was authorised to originate criminal cases of market crimes, not the state prosecutor or the police. But they didn’t. What the regulator did at the end of 2011 was to effectively shut down the investigation team, reassigning its members or not restaffing when people resigned. Then they gave a triumphant press conference, saying that all cases from the crisis were investigated and closed.
That’s completely untrue, because I had a huge list of investigations that we hadn’t even opened yet. Those investigations usually take six months to a year each. There’s no way that they could have opened and resolved all of these. I don’t know where the pressure came from, but there was pressure to move on. I sometimes hear the criticism that my motivations are to punish people, but that’s not the case. What I want to see is due process. If there’s a potential crime, it needs to be investigated. Most of the people involved in the crisis got away with it.
I was quite bitter at the way the regulatory team was dismantled, because the regulator was left without an enforcement capacity, which most regulators have. A regulator needs a special team that’s set aside from the day-to-day tasks, taking up potential criminal or civil cases against market participants. You can’t have the person who’s calling every month to get a loan spreadsheet be the same one who’s investigating potential misconduct, because the majority of regulatory employees have to be on good terms with the people they oversee. A special team is required for this. Iceland never had such a special team and after we established what could have become that, it got dismantled. And today the regulator has become part of the central bank, which is cause for concern because they have even less independence.
What about European regulators?
They did try to act, but it was too late. In 2006 there was a mini crisis in Iceland, which was the beginning of the real crisis. The IMF came in and had some very strong words about Iceland’s overheating economy. In the summer of 2008 a meeting of central bankers was held in Basel and the Icelandic central bank governor got lectured by European central bankers to clean things up. Icelandic banks collapsed a few months later.
The world’s financial system is so piecemeal that there are always ways around prudence. The incentives of Icelandic banks to borrow as much as they could were fantastic for their executives. But there’s no incentive for prudence for the people lending to them.
The incentives for Icelandic banks to borrow as much as they could were fantastic for their executives
A big piece of this is ratings. Icelandic banks in early 2007 were briefly rated as AAA, as though they were the Icelandic government, which was always in good shape financially. This was not a sovereign debt crisis like Greece. But private banks grew to become eleven times the size of the economy in just a few years. They were highly-rated because of the government’s rating. That meant that international pension funds could buy their debt and it was deemed safe, like holding gold, which is horrendously irresponsible on the part of rating agencies.
The whole rating agency system is a case of badly aligned incentives. Even today, the issuer of debt pays for their own debt to be rated. The incentive for the rating system is to give high grades, because you have capital requirements for banks based around ratings. If it’s AAA rated, you can hold as much as you like. When Basel II came into effect it meant that these ratings mattered for banks, so if they are holding a certain level of AAA debt, it’s like holding cash. That created regulatory arbitrage: a demand, especially by European banks, to hold AAA bonds. Some of the subprime US stuff was actually packaging up junk in a way that could be rated AAA, so that German and French banks could put it on their books, and earn more yield than they would get from government bonds. That was an incentive to create more subprime junk. That’s a broken angle in the system.
Why didn’t alarm bells ring when Icelandic banks started providing consumer banking services in the UK and the Netherlands?
Iceland is an EEA (but not an EU) member, so it passes a lot of EU law into domestic law. So it has access to the EU passporting system, which is still active today.
This means that a French bank can open a branch in Germany and its activities would be regulated in France. It’s set up to help banks expand, but banks like Landsbanki, my former employer, used this rule to open up branches on the Continent.
They did this because they were running low on funding after the 2006 crisis and needed new sources of deposits. Previously, they had been criticised for growing entirely on wholesale funding and not taking deposits. So they said ‘ok, we’ll take deposits’ and opened Icesave. They were operating under the EU framework, so there wasn’t much concern over legal issues.
In early 2008, the British government began to pressure Iceland to force Landsbanki to create a separate company in the UK, regulated by the UK as a bank, and put Icesave into it.
But even the Icesave marketing material said ‘Icesave’ brand and only the small print mentioned ‘part of Landsbanki, Reykjavik, Iceland’. So the British people who were putting money into these accounts were actually funding a branch of an Icelandic bank that just happened to be situated in the UK! The collapse of Icesave should have been a wake-up call for the EU to do something about passporting, but I don’t believe they ever closed this loophole.
The UK government famously listed the whole country and its central bank as terrorists.
That was brutal. There is a theory about a link to Scottish independence. Gordon Brown and Alastair Darling were both Scottish Unionists. Scottish nationalists were comparing Scotland to the Nordics and arguing that it could be a successful Nordic country. So they {Brown and Darling} may have done it for that reason.
How come Icelandic media didn’t suspect that something was going wrong, since there were early warnings? Were they too close to the banks? Perhaps they didn’t have the necessary resources or expertise?
The two big newspapers are Morgunblaðið and Fréttablaðið. The former is the mouthpiece of the centre-right Independence Party, the most powerful one in Iceland. Traditionally, they are the nexus of business and political power. Davíð Oddsson, still the most powerful guy in the country, is currently Morgunblaðið’s editor. But he was also the prime minister who privatised the banks. The critical 2006 IMF report was published just three years after full privatisation, so there wasn’t much interest in Morgunblaðið to talk about the risks because it was too recent, and their party was still in the government.
Fréttablaðið was part of Iceland’s biggest media company, controlled by Iceland’s leading businessmen, who also owned a large piece Íslandsbanki, the third biggest bank. So there probably wasn’t much appetite to criticise the banks there either. When I describe who controlled the newspapers, people sometimes scoff at this as an example of Iceland’s provincial nature. But on the contrary: Iceland is really the larger world in microcosm. These kinds of conflicts of ownership hamstring media organisations all over the West, it’s just more easy to see these patterns in a smaller economy.
What’s really striking is that most people got away with it. One convicted politician later became an ambassador to the US
He’s the only one ever convicted of a crime against the Icelandic state in the country’s history. And still he was rehabilitated. Many of these guys, even those who were jailed, rehabilitated themselves. They kept a lot of money offshore, hired PR people in Iceland and abroad, and cleaned up their image.
The dominant narrative now is that Iceland had a great banking system and finance was the future of the country. Then Lehman Brothers collapsed, and took Iceland down. There are even rightwing politicians today who question whether there was a crash at all.
So should we be holding up Iceland as a success story?
It’s a success story insofar as we got some criminal convictions. That we briefly had the resources to do that can be seen as a mark of the public’s rage. It can’t be overstated how bad things were for a few months, especially after the banks collapsed and the UK terrorism law was enacted. We were frozen out of our savings and we were losing our houses and cars. That dark mood of struggle persisted for four years. The darkest times were the first six months, but it was an unfolding tragedy that just kept rolling. We couldn’t go on vacations or to a restaurant anymore.
Our lives became really hemmed in and very close to the bone. There were ads on TV telling people to only buy locally made products and showing how the stacks of coins would stay in the country. It was like we had become an agrarian society, a throwback to the 19th century. Because of that desperation, there was a movement to go after people. Whenever I told people at social gatherings that I was investigating banks, they would say ‘go get them’. The man on the street was sure that he had been swindled by a group of criminals. And he was right.
Have things improved now?
This March (2022) the government sold a 22.5 percent stake in Íslandsbank to a secret list of 207 bidders through an auction. Bidders got their shares at a discount of four percent to the market price. Oddsson’s successor and protégé Bjarni Benediktsson, oversaw this process as finance minister, although they created another agency at an arm’s length from the ministry to carry out the privatisation. They wanted to keep this process secret and said that the bidders were professional investors: hedge funds and pension funds. But then it came out that some bank employees were in on the deal as well.
So there was pressure to publish the list and eventually the finance ministry relented. It turned out that one of the successful bidders was the finance minister’s father! These bidders got a four percent discount and flipped their shares over the following days, basically printing money for themselves. There were foreign and domestic investment funds on the list who asked to participate and their emails were never answered. And the list of buyers includes many old names from the 2008 collapse, including people who went to prison.
So they’re still on it.
I think nothing has changed.
You said that there was a lot of anger, because people lost their money and jobs. How come there was no populism, an Icelandic version of Trumpism or Brexit?
This was 2009, so before those forces were unleashed. There’s more of that happening in Iceland now. And in 2008 it was obvious to most of us who the culprits were: the Independence Party that had run the country for decades and had privatised the banks, and even after the collapse refused to step down. That party was symbolic of the Icelandic elite. Davíð Oddsson had been the prime minister and then was made head of the Central Bank as a retirement gift and made some questionable decisions in the run up to and during the crisis. Trumpism and Brexit were anti-elite movements. In Iceland it was Oddsson, the Independence Party and the central bank that represented the elite.
But they were reluctant to let go of their power. Oddsson did not step down as central bank governor until six months after the crash. This was the biggest financial collapse in Western history, and the guy in charge was still there! There were people outside the parliament every day all winter long, banging on pots and pans. They wanted a new election. And we got one, as well as new parties in government. The Independence Party was kicked out of power, but only for a few years.
They came back in power along with their little brothers, the Progressive Party, as a coalition in 2013. They said that the last four years had been really hard not because they had run the country into the ground in 2008, but because of these other parties. So they promised debt relief on mortgages and came back in.
You are a ‘bubble expert’ now. Is there another bubble in the global economy that you think we should be worried about?
We have a huge bubble of global debt: the highest global debt-to-GDP ratio ever. That needs to be unwound somehow and that’s going to be a programme of probably 10–20 years, perhaps the rest of our professional lives. We are also seeing the beginnings of a new monetary system. The US dollar sanctions on the Russian central bank were a wake-up call for other central banks that their dollar assets are political footballs that can be frozen by the West. So there are moves away from the dollar. Asian countries are talking about a commodity-linked basket of currencies they could transact in. So with the pandemic and Russia sanctions we are seeing a shift in the global monetary order. I don’t know how all that will shake out, but current global debt levels are very worrying. It’s like the whole world is Iceland now.
