Author: Ashton Wenborn

Although Canada is traditionally a resource-based economy, it is well diversified. Current efforts to expand knowledge-based industries and service sectors are supported by the country’s robust banking sector, which is facilitating the growth of both small and large businesses. With five major national banks and a number of smaller regional players, the reach of national networked banks is wide and has also made Canadians fast adopters of new technology. Following a number of reforms to Canada’s Bank Act in recent years, the sector is showing great regulatory strength in terms of governance, which has been aided by the fact that Canada was not affected as badly as many countries during the financial crisis.

Changes in commercial customer behaviour, which are driven most notably by the confluence of mobile networks, rapid digitisation, customer analytics and cloud-based computing, are transforming the competitive landscape in all industries and prompting reviews of long-held business models and inviting new entrants. This transformation can be seen in banking also, as exemplified by the pace of innovation in the payments space. World Finance had the opportunity to speak with John MacAulay, Head of Canadian Commercial Banking for BMO Bank of Montreal, about changes in the industry, the importance of relationships and how the bank is striving to get more women in the workplace.

We want to target growing and dynamic market segments – we see women entrepreneurs as one of the most vibrant segments
in Canada

Relationship building
The importance of customer relationships is vital for the continued development of the banking sector. “We know that our financial performance as a company is grounded in the day-to-day realities of the people and companies that bank with us”, said MacAulay. “These customers expect their bank to guide and support them, especially when the 24-hour news cycle generates mixed and often confusing signals about what will happen next.”

BMO has a highly involved approach to relationship management with its clients, striving to meet changing needs and preferences. By offering products such as Deposit Edge for scanning and depositing cheques, customers can benefit from faster payments and greater convenience. While PaydPro also saves clients a great deal of time as it transforms mobile devices into debit and credit terminals. “The primacy of the customer is our focus. Nothing is more vital to us. In fact, our bank’s stated vision is to be the bank that defines great customer experience”, said MacAulay.

“In the commercial banking space, that means seamlessly bringing the full value of BMO to every relationship – and growing with our customers.” The bank regularly engages with its customers in order to assess their evolving needs and then provides customised solutions that draw on a full range of products right across the BMO Financial Group. The firm calls the approach “Relationship Management the BMO Way”; through a regular cadence of contacts over the course of a year, a recipe for making those contacts valuable and a commitment to excellence, customers feel assured that they can rely on the service.

Focused approach
BMO Commercial Banking is currently concentrating on industries in Canada that are exhibiting opportunities for growth. For example, the manufacturing sector sees great promise in Ontario and Quebec. With the US economy strengthening, low fuel prices and the low Canadian dollar, experts expect the sector to remain strong for some time to come.

The bank is also making gains among small businesses, again in Ontario and Quebec, where the service industry is benefiting from renewed economic growth and the low dollar. “We are particularly proud of our strength in Aboriginal banking”, said MacAulay. “We have 14 Aboriginal branches and we are one of two major banks with an on-reserve housing loan programme.” BMO is the only bank to have been honoured for four consecutive years with the Canadian Council of Aboriginal Businesses’ Gold Progressive Aboriginal Relations Award.

BMO is also an industry leader in providing customised financial solutions for Canadian farmers. The bank’s agriculture banking specialists focus on understanding the challenges of the industry, its cyclical nature and the need for financial banking solutions that are convenient, affordable and adaptable. “Customers see our commitment to the industry, to their business, and they have confidence that we have the right people in place to help them succeed”, said MacAulay.

Women in business
The bank is also making a vigorous effort on a key growing segment – that of women entrepreneurs, which now represents over half of new small business start-ups in Canada. “It is our goal to be seen as the bank for women in business”, said MacAulay. “We want to target growing and dynamic market segments – we see women entrepreneurs as one of the most vibrant segments in Canada”, he added. To show its commitment, BMO recently announced that it is making an additional $2bn in credit available to women-owned businesses across Canada over the next three years. By having more of the bank’s balance sheet available to women, they are afforded more certainty in terms of credit, which enables them to invest in their businesses, expand their operations and create more jobs for Canadians.

The women in business segment in Canada is indeed vibrant. The number of women in professional roles has grown 35 percent over the past 20 years. Women retain an ownership stake in 47 percent of Canada’s 1.6 million SME enterprises and majority ownership in 16 percent.

“The number of self-employed women is up 17 percent over the last decade compared to a five percent increase for men [see Fig. 1]. And we already know that women business owners feel a significant amount of confidence in the Canadian economy”, said MacAulay. A recent BMO study found that 66 percent of women surveyed have a positive economic outlook for the upcoming year, and nearly half expect their businesses to grow.

BMO’s commercial bankers are observing impressive growth in parts of the economy where small businesses play a vital role, such as knowledge-based industries, agriculture and professional services.

Professional services
Professions that require specialised training is a sector that is quickly becoming recognised as needing specialised expertise from financial institutions. “We know from our own surveys that two-thirds of Canadian entrepreneurs say the professional services sector represents an attractive investment opportunity”, said MacAulay. Those entering the professional services space often require a number of credit facilities in order to function, such as operating lines of credit, term loan financing, as well as acquisition and succession financing. There is also a growing need for finance in terms of equipment, leasehold and real estate in the growing sector. Moreover, many professional services need training in the field and so must consider these costs also.

Through its commercial bankers BMO offers the support required to such industries, including funding for schooling, financing for the business or assistance with succession. “We aspire to be the bank of choice for Canadian businesses from start-up through growth and ongoing expansion. That means having the best bankers on the street, providing top-notch relationship management and the solutions that our clients need to fulfil their goals”, MacAulay explained. With so much growth expected in the areas that are being focused on by BMO’s commercial arm, it seems the bank has placed itself in the best position to seize the favourable opportunities that are currently unfolding in Canada.

BMO Bank of Montreal is winner of the World Finance Banking Award for Best Commercial Bank, Canada 2015

When, in 2014, Ghana’s headline GDP growth slumped to four percent, down from 7.3 the year previous, the World Bank remarked that the figure was likely to fall further in 2015. Impeded by an irregular gas supply, a sharp fall in local currency, rising inflation, declining oil revenues and low prices for gold and cocoa, the country’s export growth has been heavily weighed upon. Nonetheless, Ghana’s prospects remain broadly positive, and the coming years should see the numbers rebound, as policymakers keep to the solutions set out by the IMF.

Of the many factors at play here, banking has proven to be of great importance to the economy. World Finance spoke to Daniel Asiedu, Managing Director and Chief Executive Officer of Zenith Bank Ghana, about the major ways in which the industry has shaped the economy, and how Zenith factors into the country’s future.

What impact has the banking industry had on Ghana’s economy?
The banking industry continues to play a critical role in financing various sectors of the economy, with the services sector being the largest beneficiary. Loans and advances to customers grew by 90 percent between 2013 and 2014. These went to finance the various aspects of productivity across different sectors of the economy, contributing to the GDP growth experienced in 2014.

All over the world, countries are moving to a cash-lite economy, owing to the benefits associated
with it

In addition, the banking industry contributed GHS 837m ($204m) in taxes and levies in 2014 to boost government revenue (see Fig. 1), and the introduction of VAT on financial services lends credence to the contribution of the banking sector to economic growth.

How is Zenith redefining banking in Ghana?
Since its inception, Zenith Bank has always operated with the objective of making banking easier and better than anything customers have ever experienced. Currently in its 10th year of operation, Zenith has improved upon its operating capacity, size, market share and industry ranking in all parameters. It has built financial, structural and technological muscle, established its presence in the country and has created a beacon of innovation and service excellence in the Ghanaian banking industry.

The bank has played a major role in the transformation of the banking industry into an intensely competitive, customer-oriented, more efficient and technologically inclined industry. Before Zenith commenced operations, relationship banking was novel, e-banking was almost restricted to ATMs, banking was limited to a few hours in the day and weekend banking was almost non-existent.

What are the advantages of having a cash-lite economy?
All over the world, countries are moving to a cash-lite economy, owing to the benefits associated with it. For households and firms, increased transparency means that payments can be easily and accurately tracked. The risks associated with loss of funds are considerably reduced and the exchange or usage of funds can be concealed from parties with no legitimate right to the information. Likewise, payments can be made at a speed proportionate to the underlying need for which the payment is made, with the knowledge that they will be delivered in a dependable manner. Ultimately, it facilitates better financial management, or, the ability to implement additional financial practices that enable better financial record keeping and control of finances.

In terms of the economy, a shift to electronic payment can increase the range of services available and may decrease costs over time, although this outcome will depend in part on the functionality of the bank account in use. For an unbanked person, receiving a payment into an account creates a point of entry into the financial system. New payment methods also open opportunities for new businesses to start up. One such opportunity is for local merchants to serve as agents of financial providers, receiving a fee for offering a cash-in or cash-out service.

Various studies have acknowledged the link between financial development and economic growth and concluded that greater financial depth leads to faster economic growth. Countries with greater financial depth also have lower levels of inequality. While greater depth is not the same thing as more electronic payments, the two are related: electronic payments depend on the payer having electronic value to transfer; a higher proportion of electronic payments in an economy would imply a higher proportion of deposits in the formal financial system, which would be measured as greater financial depth.

How can Zenith help create a cash-lite economy in Ghana?
The bank can play a major role in the payments council that the Bank of Ghana (BoG) seeks to set up in the near future. Zenith Bank prides itself on being a leader in the provision of e-banking products and services and will make a significant contribution to the activities of the council. The council’s mandate primarily is to ensure that the economy moves from cash-heavy to cash-lite as well as ensure greater financial inclusion. Zenith Bank Ghana has been at the forefront of implementing electronic platforms for the purpose of driving banking products and services. The bank is also noted for its safe and reliable internet banking platform, which enables its customers to access funds and transact business wherever they may be. It is the bank’s objective to increase its reach to all corners of the country, not only through its physical branch network but also through electronic banking products and services such as mobile money, thus reaching more people who are unbanked.

What products and services are on offer for customers in Ghana?
The bank offers its customers a comprehensive range of products and services using leading technologies. We believe that development and deployment of e-business products and platforms are key competitive tools in the banking industry.

Our target is to dominate the market by continuously developing innovative products on the back of our robust IT infrastructure as we win new customers and gain market share. The bank’s products and services are usually birthed out of the needs of its customers.
With our diversified customer base, mobile banking is becoming an indispensable channel for our retail as well as corporate customers. We are therefore developing new products to tap into the business opportunities this channel presents.

Why has compliance become a top priority for Zenith’s operations?
Compliance has not ‘become’ a top priority; it has always been a top priority in Zenith Bank’s operations. There has, however, been a need for greater emphasis in recent years as reflected by a number of factors. First is the formal establishment of a compliance department, whose job it is to deal with issues as compliance gains prominence as a distinct industry discipline across the globe; an increasing recognition of the problems of money laundering, terrorist financing, corruption and financial crime in general, against which new non-traditional lines of defence need to be erected.

Regulators are taking a far more robust stance/approach to the issue of non-compliance by industry-players. Conversely, foreign banks have adopted an attitude of much greater scrutiny of the relationships with their correspondents around the world. The point is to ensure that respondents do not present an unacceptable level of money laundering/terrorist financing risk.

Local regulators have also applied more pressure and have demanded greater demonstration of compliance from local banks. In Ghana for instance this is reflected in several ways: the establishment of the Financial Intelligence Centre (FIC), which in recent times has been known to issue a regulatory report on the levels of compliance achieved by local banks; the drafting of various laws, Anti-Money Laundering (AML) Act, AML Regulations, AML/Combating the Financing of Terrorism (CFT) Guidelines, Anti-terrorism Act, Anti-terrorism Regulations); the conduct of annual AML on-site examinations by the BoG; an increase in the powers given to the FIC, as set out in the amended AML Act; and the mandatory submission of various compliance/AML-related returns to both the FIC and BoG at specific times throughout the year.

In the long run, non-compliance will prove to be an expensive way to do business, and will have severe regulatory repercussions and ultimately erode the reputation and competiveness of any bank.

How did Zenith withstand Ghana’s challenging operating environment in 2014?
The major challenge faced by banks in Ghana in 2014 was shrinking margins as a result of increased competition, rising cost of funds, inflation (see Fig. 2) as well as depreciation of the local currency. However, our prudent management culture, disciplined emphasis on measuring every aspect of our business, well diversified transactions, commitment to controlling expenses as well as unparalleled service delivery, resulted in a strong balance sheet in 2014.

What plans does Zenith have for further growth in Ghana?
We are committed to delivering the right strategy, business mix and culture, using the best people to drive continued growth and take advantage of the opportunities in the marketplace. We want to be the best in all parameters (especially, customer service delivery) in a very dynamic industry, an objective shared by our dedicated staff. The brand is living up to the meaning of its name Zenith and becoming stronger and stronger each year.

As we celebrate our 10th year of operations in Ghana this year, we look into the future with confidence and a deep sense of appreciation of the tremendous opportunities ahead of us. We are proud of our successful track record of balancing the interests of our stakeholders i.e. shareholders, customers, employees and the communities in which we operate in.

We have built a strong foundation of integrity, trust, and ethical behaviour in our businesses. This foundation will serve as a springboard into the next decade, when our operations as well as our commitment to stakeholders should extend far beyond taking deposits and giving out loans.

Following the long-awaited onset of Europe’s economic recovery, the French investment banking and insurance sector is experiencing a revival of sorts and stronger sales as result of a greater volume in activities. The stimulus programme implemented by the European Central Bank has so far been successful in promoting trading within the region’s financial markets, while also creating a more favourable environment for the industry and lifting the earnings of European banks.

The Crédit Mutuel Group stands out among the most prominent in the sector, in terms of its recent performance and the consistency – regardless of the ebb and flow of the European financial landscape.

Since its formation, Crédit Mutuel Group has worked tirelessly to create a vivacious network of clients and shareholders. This has been achieved through the company’s mantra of tailored service, which is seen as fundamental to the business. The group’s organisational structure has also contributed significantly to its ongoing success; by creating an environment conducive to outstanding teamwork, high productivity and smooth internal operations are realised on a daily basis. World Finance had the opportunity to speak to Michel Lucas, Chairman of Confédération Nationale du Crédit Mutuel, about how the group achieves enduring success, even during challenging economic periods.

Democratic approach
Established as a cooperative bank in 1947, shareholders own the group’s equity capital and also direct the company’s strategy through a democratic approach. “We pursue development by remaining resolute to our founding values: solidarity, responsibility, equality, proximity and transparency”, said Lucas. “Proper company management, which is essential to the company’s long-term success, does not seek to enrich a group of shareholders. This makes it possible to ensure steady growth, together with the best possible service at the lowest cost.”

This decentralised organisational structure thus promotes greater employee involvement at every level – local, regional and national – and achieves excellent responsiveness and superior service. This arrangement also enables an efficient decision-making process, together with better risk diversification and improved quality control.

As a mutual company, Crédit Mutuel Group is not listed on the stock exchange, while, as Lucas explained, “Its sustainable development strategy is not focused merely on short-term returns. The Crédit Mutuel financial cooperative cannot be sold, as it is inalienable.”

As a leading banking and insurance company in France, the group comprises the Crédit Mutuel network and all of its subsidiaries. The wide reach of the its two main retail bodies – Crédit Mutuel and CIC – has recently been complemented by Targobank and Cofidis – together they constitute a network that has almost 6,000 points of sale. While CIC, the retail banking subsidiary that is located in the Paris region, has a sweeping presence itself, comprising of five regional divisions, as well as specialised subsidiaries in all finance and insurance business streams. Crédit Mutuel Group’s local banks are located in 18 regional federations; as each federation is a member of the Confédération Nationale du Crédit Mutuel, the group’s central administrative entity, an encompassing scope across the country is facilitated with relative ease.

Growing stronger
In terms of its financial strength, Crédit Mutuel Group continues to grow through its efforts to bolster all of its regulatory capital ratios. “With nearly €44bn in shareholders’ equity attributable to the group, which is up by 9.1 percent, the group has a CET1 ratio of 15.3 percent and one of the strongest balance sheets in Europe”, said Lucas. “The quality and solidity of the group’s assets have been confirmed by the European Central Bank (ECB) and European Banking Authority (EBA), which ranked it first among the leading French banks and among the safest European banks following the stress tests of 130 European banks carried out in October 2014.”

Crédit Mutuel Group ended 2014 with a net income of more than €3bn, thereby exhibiting an impressive growth rate of 11.4 percent. “It’s worth remembering that Crédit Mutuel is not just a bank. Its insurance, telephone and customised remote surveillance activities complement the traditional banking business, constituting additional services that help to satisfy the needs of shareholder members as closely as possible”, said Lucas.

Crédit Mutuel Group owes its results to the dynamism and expertise of its 78,000 employees and 24,000 directors, together with their ability to develop trust-based relationships with customers. In order to maintain this strength, the group pays special attention to training both its employees and volunteer directors. “It is they who represent the group, and their professionalism constitutes one of the keys to its development”, said Lucas. Leading on from this belief, professional training at Crédit Mutuel Group has become increasingly prominent, particularly as new technologies play a greater role in the lives of consumers.

Pillars of strength
Along with the bricks-and-mortar branch network, the group provides its customers with full online banking and insurance access. Crédit Mutuel Group places a strong importance in providing a local service that is easy to access, together with a portfolio of simple products that are especially adapted to meet customer needs. High standards of clarity and transparency are also carefully maintained features of the organisation, as is the security it can offer, which is predicated on the group’s financial strength.

Understanding customers is at the heart of the organisation’s strategy and forms an integral part of the culture at Crédit Mutuel Group. “Customer satisfaction is based on the group’s three pillars: stability, security and service quality, which together, guarantee trust”, said Lucas. This structure requires measured growth, notably in regards to the loan-to-deposit ratio, as well as improved profitability in equity capital and risk management. “These three pillars are strengths that make it possible to continue improving the service given the group’s 30 million customers in France and the rest of Europe.”

This philosophy works together with a strategy that alternates between organic and external growth on the one hand – and the consolidation of acquisitions on the other. In the span of just a few years, Crédit Mutuel Group has expanded its international position through various strategic deals. The purchase of Germany’s Targo Bank and French group Cofidis are major new growth paths for the company in Europe and also in terms of its scope for consumer credit. Similarly, Assurances du Crédit Mutuel (GACM) has successfully gained a foothold in Spain and continues to grow there, as evidenced by the acquisitions of RACC Seguros, Agrupacio, and most recently Atlantis. In 2014, international business represented 16.8 percent of Crédit Mutuel Group’s net banking income – showing growth of 4.7 percent since 2005.

Sustaining momentum
As a leading retail bank, Crédit Mutuel Group has helped to support the economy across all of France’s regions, while also developing strategically significant partnerships abroad. “The group owes its results first and foremost to the vitality of its networks and dynamic sales growth. These factors enable Crédit Mutuel Group to serve a variety of clients, from retail customers and associations to professionals and companies on an optimal basis, allowing them to achieve an excellent volume of business through the group’s far-reaching networks and diversified business lines”, said Lucas.

The group’s total savings in 2014 had grown by 6.9 percent to €708.8bn, while customer deposits increased by 4.8 percent to €305.2bn – excluding the contributions made by Société de Financement de l’Economie Française. This growth essentially stems from sight deposits and home savings plan deposits (see Fig. 1), which last year showed 10.7 percent growth to €95bn and 10.4 percent growth to €30.1bn respectively, thereby illustrating the behaviour and growing prudence of households in a low-interest rate environment. Dissimilarly, Livret Bleu and Livret A passbook savings accounts were adversely impacted by a reduction in their interest rates and made less headway, growing only 0.7 percent to €38bn, in 2014.

The share of savings centralised with Caisse des Dépôts et Consignations was 56 percent, representing a total of almost €33bn. As such, repurchase agreements with new customers are now accounted for as deposits in order to better reflect the economic reality of these short-term financing transactions. Insurance savings increased by 6.6 percent to €114bn as a result of healthy inflows from customers within a context of falling regulated savings rates, while bank financial savings of €289.6bn exhibited strong growth that amounted to 9.5 percent. Both areas of growth were underpinned by the high business volumes carried out by the group’s specialised businesses, as well as several acquisitions made over the course of the year, resulting in a 15 percent share of the French market for deposits.

In terms of lending, outstandings rose by 4.3 percent to €364.8bn, while housing loans grew to €189.4bn last year, making up 52 percent of the group’s lending breakdown (see Fig. 2). Growth in consumer loans accelerated thanks to an increasing number of new loans in group’s network and subsidiaries, with outstandings climbing by 2.2 percent to €36.5bn. Amid a restrictive economic environment, the group also stepped up its activities with individual business owners, leading to substantial increases in equipment loan outstandings and leasing outstandings. Also of note in 2014 was an accounting classification change for securities held in repo.

A good year
In 2014, net banking income increased by 1.4 percent to €15.4bn, benefiting chiefly from the group’s robust insurance business, which paved the way for an 8.7 percent increase in revenue earned on insurance activities and an appreciation of the fair value through profit or loss portfolio (notably in the private equity business). The net interest margin on customer transactions also improved despite the persistent low interest rate environment, while net commission income also grew slightly by 0.8 percent.

Following the exceptional stability seen in 2013 that saw no increases in general operating expenses, such costs rose by 2.5 percent last year, largely as a result of ‘other operating expenses’, which had climbed by five percent to €3.39bn in 2014. As a result, although the other components remained stable, the cost-to-income ratio reached 64 percent, compared with 63.3 percent in 2013.

Another positive result for the group was the 23 percent reduction in the cost of risk to €1.05bn. “This decline concerned both the actual net provision for known risks, which had decreased by €241m, and the net provision allocations/reversals for loan losses. This trend reflects our rigorous risk management combined with the team’s dynamism in their relationships with customers”, said Lucas. The proportion of non-performing loans also fell in 2014 from 4.4 to 4.3 percent. Net income attributable to the group totalled €2.95bn, showing a growth of 11.5 percent from the previous year, with its banking and insurance arms contributing the majority of this revenue.

At the close of last year, the group held a 17 percent share of France’s retail bank lending market. “The continued improvement of the loan/deposit ratio, from 147.1 percent five years ago to 119.5 percent in 2014 shows the group’s decreasing dependence on the markets for its refinancing”, said Lucas.

With expansion plans afoot and a more stable environment to operate it, the scene seems set for the continued growth of the French giant, or as Lucas put it, “Committed to both deliberation and action, Crédit Mutuel is pursuing its development by relying on the participation of its employees and elected directors looking to build a strong, human and unified Group, the Crédit Mutuel of tomorrow. More generally, faced with the limitations of the all-provident State, we must rediscover the power of individual initiative and its collective face: cooperation.”

According to data released by the Portuguese Statistics Office (INE), Portugal’s GDP registered 1.5 percent YOY growth in 1Q15, which compares with 0.6 percent growth in the previous quarter. This positive variation of GDP in 1Q15 means that the Portuguese economy has completed a cycle of six consecutive quarters of YOY growth, following contractions in GDP between 1Q11 and 3Q13. In 1Q15 the Portuguese GDP grew 0.4 percent per quarter, similar to the growth between October and December 2014.

Reducing the external imbalance of the Portuguese economy was one of the priorities of Portugal’s economic and financial adjustment programme implemented between May 2011 and May 2014. This entailed rebalancing the current and capital accounts – with deficits of around 10 percent of GDP between 2000 and 2010, followed by a surplus of roughly two percent of GDP in 2014. The steady reduction of the government deficit, as well as the deleveraging of the private sector was positive from the fourth quarter of 2012 onwards.

Before 2011, the Portuguese bond market could be split in two segments: rated and non-rated issuers

The latest projections from the Bank of Portugal (BoP) forecast the continued improvement in the current and capital accounts as a percentage of GDP, reflecting a fall in the external imbalance of the Portuguese economy. The performance of GDP over recent quarters had a positive impact on confidence and economic activity indicators, which are both expected to gradually perform more positively over the coming years.

Predicting projections
The BoP disclosed its updated projections in mid-June for 2015 to 2017 periods. For 2015 the BoP projects GDP growth of 1.7 percent, underpinned by greater optimism for domestic demand – revising up the contribution from this component of GDP – and the continued contribution of net external demand. In terms of domestic demand, BoP projections for 2015 are of 2.2 percent growth in private consumption (which is an increase of 2.4 percent on previous estimates), a 0.5 percent fall in public consumption (the same as previous estimates) and a 6.2 percent rise in investment (against a increased four percent forecast previously).

In relation to net external demand, exports should grow 4.8 percent, while the growth rate for imports is expected to be 5.7 percent, against estimates of 4.3 percent and 3.9 percent respectively in the March Economic Bulletin. The European Commission, IMF and OECD make similar projections for 2015, considering that the economic recovery will be due to more buoyant domestic demand, especially private consumption and investment.

The Portuguese Central Bank’s projections for the domestic economy continue to indicate a gradual recovery over the coming years, with growth rates similar to those of other countries in the eurozone. The balance of the current and capital accounts should remain positive in 2015, corresponding to three percent of GDP, which confirms the continuation of the adjustment process of the external imbalance of the economy, rising to around 3.4 percent of GDP in 2017, according to the BoP.

INE data reveal that the budget deficit for 2014 stood at 4.5 percent of GDP. According to the first 2015 notification on the Excessive Deficit Procedure, the budget deficit for 2014 amounted to €7.7bn, with GDP rising to €173.05bn, which is a reduction of €460m from the 2013 deficit of €8.18bn – amounting to 4.8 percent of GDP. It is estimated that the budget deficit for 2015 will be 2.7 percent of GDP. In 2010, the budget deficit corresponded to 9.8 percent of GDP. Despite the steady decline in the budget deficit, the ratio of public debt to GDP increased from 111.1 percent in 2011 to 130.2 percent at the end of 2014 (see Fig. 1). Nevertheless, this is expected to decrease steadily over the coming years to below to 110 percent in 2019.

Leading a responsive market
In the recent years, CaixaBI played a significant role to help the Portuguese bond market recover what was lost during the sovereign crisis. After a 65 percent fall of the amount issued in 2011 relative to 2010, the market recovered immediately the year after and continued to steadily improve in the ensuing years. However what seems to be a mere catch-up of lost ground hides considerable underlying changes that have occurred in the last five years.

Running the risk of being overly simplistic, it can be said that before 2011 the Portuguese bond market could be split in two segments: rated and non-rated issuers. The overwhelming majority of the issuers pertaining to the first group were investment grade. Typically these issuers would come to the market regularly to place benchmark transactions in the euro bond market. These included the top banks (CGD, BCP, BES, BPI and Santander Totta), the major corporates (EDP – Energias de Portugal, Portugal Telecom, REN – Redes Energéticas Nacionais and Brisa) and state-owned companies (Refer, CP and Metropolitano de Lisboa).

Before 2011, all the remainder issuers tapped the domestic bond market with private transactions that typically were underwritten by a bank or a group of banks. It was very uncommon to see these transactions being placed into other institutional clients. It was in fact just an alternative way for banks to provide credit to this universe of corporates. There were some specific cases of pure market transactions, and retail placements were even scarcer.

It was precisely in this segment and with placements into the retail universe that major transformations recently started in the Portuguese market. In December 2011, EDP – a rated issuer – opened the door for many other issuers, rated and non-rated. EDP launched a six percent coupon, three year and €200m deal targeted to retail investors. The institutional market had been shut for Portuguese issuers during the sovereign crisis and EDP grabbed the existing strong appetite from retail investors for relatively high interest rates.

Not only rated issuers took advantage of this sudden interest by retail investors. Corporates with well-known household brand names perceived as solid investments followed suit. Zon, (today known as NOS in the telecommunications industry), Semapa (pulp and paper) and Mota Engil (construction) were some of the names that also took advantage of this window of opportunity.

Portugal’s retail outlet
After the surge of retail placements, they gradually fell out of use. However, unlike before a retail bond culture stayed among Portuguese investors, having introduced new dynamics to the Portuguese capital markets both on the primary and secondary market. This in turn has allowed lead managers to quote two-way markets in most transactions, and it’s not uncommon to see top global dealers quoting on some of these.

Concerning the primary markets, evidence of a landscape change can be confirmed in terms of amounts issued, and in 2014 non-bank corporates issued €6.1bn. That is just four percent above the 2009 peak. However the number of transactions has risen at a steady pace since 2011. In 2014 the number of issues were 3.5 times that of 2009. The average size per transaction has been reduced mainly because the typical issuer in the market is different from that of the period prior to 2011.

The great transformation that has occurred was that unlike before 2011, an increasing number of non-rated issuers have tapped the market with transactions that were placed with institutional investors as well as banks. Since issuers are smaller-sized companies, transactions were on average smaller as well. Some of those were already known by the market but increased their presence issuing larger volumes than in the past. Examples include the transactions of NOS, Mota Engil and Semapa. More importantly, the market has seen an increased number of new issuers, allowing for a more diversified market sector. A few examples of these names are: Bial-Portela (in pharmaceuticals), José de Mello Saude (in healthcare), Saudeçor (also in healthcare), Sonae Capital (in tourism) and Media Capital (in media).

The Portuguese bond market has finally become that – a market – and CaixaBI has played a vital role, leading and co-leading in all major operations. Where before a significant portion of bond transactions were just instruments for banks to provide credit to corporates, in recent years an increasing number of issuers have come to the market to place bonds for final institutional investors. Apparently the catalysts were the banks and their need to deleverage a wave of interest from retail clients to create the dynamics required to raise interest from institutional investors. Gone is the myth that a bond issue had to be a benchmark to be liquid, and to have screen prices on the secondary market.

Just over a decade ago, the Dominican economy was in ruin. Following rapid growth fuelled by manufacturing, tourism and funds sent home from citizens abroad, the misguided bailout of Banco Intercontinental in 2003 caused government debt to double and the currency to collapse. A drastic overhaul was needed in order to restore macroeconomic stability and confidence in the financial sector, as well as taming the spiralling interest and inflation rates.

Despite such overbearing challenges, this is exactly what has been achieved in the years that have followed. A series of hard-hitting financial reforms and the close coordination between monetary and fiscal policies have ushered in a new period of economic growth and a revitalisation in all sectors, including the banking industry.

Since the crisis, the financial sector has undergone considerable development through the implementation of robust policies that have addressed fundamental weaknesses and greatly improved performance (see Fig. 1). As a result of such reforms, the finance industry in the Dominican Republic is now flourishing, while its continued growth is driven by the country’s largest private and capital bank, Banco Popular Dominicano (BPD). World Finance had the opportunity to speak with BPD’s Executive Vice President of International Businesses and Private Banking, Luis E Espínola, about the economic challenges that have been impressively overcome in recent years, and the future of the Dominican financial sector.

Since the crisis, the financial sector has undergone considerable development through the implementation of robust policies that have addressed fundamental weaknesses

Transforming the industry
New regulations, such as additional capital requirements, have been implemented effectively since 2003, thereby creating a stronger regulatory framework. Enhanced transparency in the eyes of the general public has been a key step, which has been supported via independent regulatory institutions and the introduction of relevant banking requirements. The publishing of monthly and annual financial statements, as well as detailed information on the loan portfolios of various financial intermediaries, have further improved the levels of transparency within the sector and contributed to its healthy development. Therefore, the financial system has been able to develop more competitively through a model of risk-based supervision, which features high levels of liquidity and solvency, as well as greater international openness. “These measures have contributed to the healthy development of the financial sector, in line with the steady growth and improved fiscal management that the country has experienced in recent years”, said Espínola.

Given the impressive turnaround achieved, various steps have been taken in order to prevent the economic crisis from reoccurring, namely enhanced financial regulations have been applied to compliance and risk assessment management. “The principles of the Basel Accords were also adopted so as to enhance the standing of Dominican Republic’s financial sector within the international system”, Espínola continued. Furthermore, market risk is now highly regulated by ensuring equal treatment to all entities, regardless of capital origin.

The periodic review of contingency plans is also employed in order to address the shortage of funds of financial intermediaries. “Regular stress tests and reviews of the Board of Directors’ meeting minutes really help to monitor internal decisions”, Espínola explained. Moreover, the adoption of the Regulation on Corporate Governance for Financial Entities and the User Protection Regulation of Financial Services have both played central roles in strengthening confidence in the financial system, improving internal management and promoting financial education.

The Monetary and Financial Law has made a considerable impact to the consolidation of the financial sector, while also facilitating the monitoring of markets and improving market indicators. “One of the greatest achievements is the improvement of the loan portfolio’s quality, which by the end of 2014 had a default rate of 1.3 percent”, said Espínola. “While in the business side of the industry, companies are now looking for solutions that will help them to streamline operations, mitigate risk and lower their costs. Banco Popular Dominicano has adapted and successfully put into motion a portfolio of products that accommodates the changing times.”

Integrating app development
Technology is central to the continued development of the country’s financial sector, and is used as a tool by BPD in order to promote enhanced customer satisfaction and financial inclusion. “Our institution has been at the forefront of technological innovation locally. We were the first to develop and introduce a fully functional smartphone app that allows customers to make transactions and find offers available in stores, restaurants and other businesses”, Espínola explained.

The map-based app, which has an augmented reality view and geo positioning, has become widely popular in the country. In 2014, it had approximately 950,000 transactions – a 300 percent increase from previous years. Then there is BPD’s recent partnership with PayPal, which allows customers to make transfers from their PayPal account to their BPD account. “With this service we have encouraged our SMEs to market their products and services online locally and worldwide.”

In the corporate sector, the organisation has implemented several cash management products that have received wide acclaim. The Smart Safe is an example of one of BPD’s most successful products, consisting of an electronic vault installed within an office that accepts cash deposits and immediately reflects the availability of cash on a customer’s account.

In addition to its support of the private sector and local markets, BPD has developed several products that strive to serve disadvantaged and low-income groups: “We have programmes to help clients to plan a future and save funds in order to achieve their goals”, said Espínola. “Through our latest programme [called] ‘Tu Casa’, we can help our customers to plan their savings and achieve specific amounts in a designated account for long-term mortgages. With this service BPD seeks to support families that otherwise would never afford a roof over their heads. We also have savings accounts with no service charges and very low minimum balances available for low-income clients.”

Financial inclusion is one area that BPD strives to promote through such policies: “Financial inclusion is more than just a philanthropic subject. It is also an opportunity for our institution”, added Espínola. Working with over 952 banking sub-agents has enabled BPD to reach communities that would otherwise not have access to any banking services.

One of the main challenges which continues to face the Dominican Republic’s banking sector, both at a local and regional level, is the use of technology in order to achieve greater financial inclusion. “It has also been challenging to meet the ever changing consumer demands, especially of newer generations who are accustomed to using sophisticated technology constantly in their everyday lives”, said Espínola. In order to offset evolving customer needs and preferences, in recent years BPD has invested heavily in various platforms, which has brought the institution to the forefront of banking technology in the country. “This year, we have been in a position to launch several initiatives that will help us to complete our goal of being the most innovative institution in the Dominican Republic.”

Strength in numbers
BPD is focused on strengthening the sustainability of all business segments; to this end, the institution continues to endorse financial educational programmes and to invest in technology platforms that can develop new channels of financial inclusion. This includes more options via BPD’s online banking services, which will enable customers to conveniently fulfil their banking needs. “We have allocated many resources to our newly launched web page, which has a very user friendly interface and is designed to allow current and new customers to solicit most of our products and services online – without making a phone call or visit one of our branches.” After being launched this February, the website has already received over 8,000 credit card applications, almost 7,000 loan applications and just over 3,000 requests for new accounts.

Targeting the youth is a vital aspect of BPD’s business model. “The web page and the mobile app we launched back in 2013 are great assets when approaching a young segment that appreciates the comfort of mobility and are looking for simple and efficient approaches to their banking. Through this app, our financial education campaign and our collaboration with several universities to support entrepreneurship programmes, we plan to bring in the new generation and grow with them”, Espínola explained. “We are also focusing on increasing our market penetration in the youth and young adult segments, and expanding in the tourism and export industries.”

Meeting customer needs remains at the forefront of the bank’s strategy, and as such BPD has invested significantly into developing existing and new products that accomplish smarter, safer and more efficient ways for clients to manage their accounts and make requests. For example, corporate clients are offered products that focus on asset management and enable them to handle their cash and account payables in much easier and more efficient ways. Moreover, a programme called ProExporta has been launched for export-focused industries, which offers a full portfolio of services, along with regular educational seminars in order to support newly-established SMEs.

“The ProExporta initiative was recognised by the Association of Exports of the Dominican Republic for being the biggest supporter of this growing industry”, said Espínola. Another programme, which is successfully supporting SMEs in the country is Impulsa Popular. Since it was established in 2012 it has provided assistance in all types of financing, account and cash management, as well as other services and educational seminars. By offering such involved and resourceful support, BPD is helping to drive one of the most important segments of the Dominican economy, and as a result, such programmes and initiatives help propel the country’s continued growth.

This year is proving to be another successful period for BPD and a fine example of its innovative strategies and holistic approach. It’s alliance with PayPal, the deployment of deposit accepting ATMs and nationwide Smart Safes, together with the launch of a new website are all part of a proactive strategy that the institution has set for the coming years. “Banco Popular Dominicano will increase its presence in a younger market, which is in the forefront of the entrepreneurship movement. We are also working to develop products that will fit the needs of these individuals and encourage them to establish a relationship with our institution that will help them succeed.”

One bank may have caused the country’s economic collapse, but in just over a decade, another has come to its rescue. Achieving what many would have considered impossible, BPD has become a pillar of Dominican Republic’s economy and enduring fiscal growth.

Vietnam’s banking industry is the lifeline of the economy and the biggest driver of the country’s growth. It plays a crucial role in the financial intermediaries system and is relied upon heavily by the economy, largely as a result of an under-developed capital market. In recent years, Vietnam’s financial sector has undergone a series of significant changes, which have led to marked improvements. For example, by the end of 2014, total assets grew by 1.5 times GDP, while total credit for the economy has reached 100 percent of the GDP, thereby creating a favourable environment that can meet the country’s development needs.

Following the impact of the global financial crisis, positive recovery signs can be seen in Vietnam’s banking sector. That being said, certain areas still require improvement in order to build a more sustainable and efficient financial system, such as adopting more international administration standards, resolving bad debt and the need for greater transparency. Refining capital demand, levels of liquidity and better risk protection can also contribute to a more robust financial sector. Despite such challenges, Vietnam is at a pivotal moment in its banking history and on the cusp of a new period in terms of development. Nguyen Dinh Tung, CEO of Orient Commercial Joint Stock Bank (OCB), told World Finance about the ongoing reform of Vietnam’s banking industry.

Enhancing the mechanisms to achieve greater competitive power for Vietnam’s banking system can bring it up to par with other countries in
the region

A budding industry
As the leading organisation within the sector, the State Bank of Vietnam (TSBV) is shaping industrial development, while also bolstering financial activities and strongly supporting economic improvement. “In recent years, TSBV has deployed a series of hard-hitting administrative solutions in order to deeply reform the banking sector and resolve challenges within the financial industry, particularly in regards to bad debt and credit capital flow guarantees”, said Tung. This is being achieved through the thorough inspection, supervision and, if necessary, reconstruction of credit organisations. The process allows the accurate evaluation of an institution’s operations, administrative capabilities and transparency levels, thereby permitting a holistic overview of each bank’s proficiencies.

Reform has led to the withdrawal of poorly operating banks from the market, which in effect is creating a more proficient financial sector. “In such cases, TSBV has accommodated the exit and directly bought back shares”, said Tung. TSBV also encourages knowledge sharing of possible mergers in order to increase competitive power. Moreover, banks are urged to set systemic bad debt to below three percent, which can be achieved by selling bad debt to the Vietnam Asset Management Company, thus increasing credit quality within the system.

The recent trend of regional and international integration, in regards to the ASEAN community in particular, presents further opportunities for the enlargement of Vietnam’s financial sector. “Enhancing the mechanisms to achieve greater competitive power for Vietnam’s banking system can bring it up to par with other countries in the region”, said Tung.

Leader of the pack
In progressing along with Vietnam’s banking system, OCB has implemented a strategy to become a leading retail bank. “Our mission is to create optimum solutions for our customers and investors”, said Tung. “In order to achieve this goal, we are investing heavily in reconstruction activities.”

As such, OCB has transformed its operating model to incorporate specialist groups that can serve various types of customers, from individuals and SMEs, to big firms and niche business groups. “The aim is to optimise the business model together with offering the best service for all customer groups”, said Tung. OCB is also developing new corporation identify programmes in order to revitalise its look and appeal as a modern, friendly and convenient bank. Creating a favourable exchange environment will also enhance the customer experience.

Given the trend of digital technology, particularly within the banking industry, OCB is investing in new platforms in order to reach its target of becoming one of Vietnam’s top five banks. Using digital technology can also attract new customers, while simultaneously encouraging existing customers to use more products and services on offer.

Risk management is another major area of focus for OCB, which is working closely with KPMG so as to meet international standards and Basel II. Moreover, this partnership is helping the bank to employ customer credit rating models, effective risk management schemes, credit index management and a robust debt resolution programme. As well as providing support for current safety guarantee systems, this approach also accelerates the resolution of existing issues in the system, while creating momentum for OCB’s continued development in the coming years. Given the potential of Vietnam’s banking sector, not to mention that of the economy, it is an exciting time for the industry and for those that are growing in conjunction with it.