Author: World Finance

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sebastien Lahaie: Thank you very much for having me.

Teaching entrepreneurship: Venezuela’s BOD backs micro-business funding

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Victor Vargas is one of Venezuela’s top entrepreneurs: president of BOD and numerous other Latin American banks, he is leading the charge in supporting micro-businesses in the country. He describes the micro-business landscape in Venezuela, how Venezuelan banks do things differently, and how he hopes his children inherit his values.

World Finance: Victor Vargas is one of Venezuela’s top entrepreneurs: president of BoD and numerous other Latin American banks, he is leading the charge in supporting micro-businesses in the country. He joins me now.

Victor, what are you doing to help micro-entrepreneurs to start up their businesses in Venezuela?

Victor Vargas: Probably one of my important concerns in my life is my country.

Venezuela probably needs now more than ever our help. I mean the people, normally: they do business in the street. You know? They put up a small sign, and maybe sell some kind of merchandise.

These people are victims of the people that give financial possibility to do their business. We try to work with them. We have now five different schools in Venezuela. And if you are these kinds of people, and you have interest in trying to be a small entrepreneur, a micro entrepreneur: you can go to these schools, you can study for three months, and you can graduate yourself into an entrepreneur. Because when you finish your course with success, immediately the bank will give you credit in order to start your business.

And this year we have had 20,000 people graduated from these schools. And our goal is to double this figure for 2016.

You know, for me, this is my project. I love this project, I love these people – because you see the reactions of the people when they look back and say, ‘I was there, less than six months ago! I now have my small business!’ And when I talk to everyone about this, I say, ‘This is not for now; this is for the rest of your life. Probably, this business will be there for your kids, and you’re doing something for your family.’

This is very important: the value of this project is amazing for us.

World Finance: Tell me about BoD – how did you grow the bank?

Victor Vargas: BoD started something like 58 years in Zulia state. Our goal at that time was to try to grow the bank into the top five banks in the country. That was a success: now we are number four, number three. And we are very happy with our success.

Today, BoD has around six million different customers. And of these six million customers, 4.8 million are doing transactions every day.

World Finance: How did you attract such a strong customer base? How do you set BoD apart from your competitors?

Victor Vargas: All the banks are very good banks. If you have a bank and you say, ‘My bank is better than your bank!’ – that’s not true.

All the banks have exactly the same services. Our goal in this is to do things differently. And we speak directly the client.

In Venezuela, people like to speak with their banker. They feel they’re part of the family. They speak like, ‘I want to speak with my assessor! Give me some kind of advice in order to use my money.’ They can call and say ‘What happened with me,’ or, ‘Can you see me this afternoon? I would like to speak with you.’

Now, we have four thousand people in service of our customers. They’re executives. And normally they attend directly: person to person with people. And you can speak with them through the web, you can speak through WhatsApp, or Blackberry, or something like that.

Our goal is: you call, you have an answer. You can all the time speak with your financial assessor. That’s what works in Venezuela.

World Finance: As well as your commitment to supporting Venezuelan business owners, you’ve invested heavily in culture and the arts – why is this so important to you?

Victor Vargas: The opportunities in Venezuela to develop culture and education are few. It’s not like Spain or the US. The level in Venezuela in this area is not the best level you can do. You know, I mean, probably, in my condition, if you have the possibility with 4,000 direct employees in Venezuela: you need to do something for these people.

We operate the most important culture centre in Venezuela: in Spanish it’s the Centro Cultural BoD. It’s very active in culture, in different kinds of areas; in the arts, theatre and music.

Our expectation is to be ready in 2017 with four different cultural centres in Venezuela. And we would be very proud of that, you know? It’s important, it’s necessary, and it’s our commitment. For me it’s compromise with my country and my people.

World Finance: Your country is clearly extremely important to you, but I also know your family is a large part of your life. Are you trying to pass on these same values of helping others to your children?

This is a very smart question. You know… probably? My expectations would be that my kids do exactly what I’m doing right now! But you never know! I have two young kids, from my second marriage. We try to give to our kids a very good education, a clear concept about family – that’s important for us, because everything is coming from the family. If you have a very good formation in your family, you’re going to be a very good citizen in your country, you know?

World Finance: Victor, thank you.

Victor Vargas: Thank you so much.

Choosing an investment strategy: Learn from advisors’ experience

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Dramatic valuation increases in the equity markets mean investors are taking on more risk, says Scott Clemons, Chief Investment Strategist for Brown Brothers Harriman. He explains a recent trend in asset allocation from fixed income to equities, and how investors can become more active in their approach.

World Finance: Choosing a passive investment strategy might seem the safest long-term bet, but it brings inherent risk. Excessive diversification has also proven to be an inadequate tool for managing risk. 

So where is the middle ground? Scott Clemons shares his insight.

So first, are investors more or less at risk since the global financial crisis?

Scott Clemons: Kumutha I think they are, in the simple sense that valuation is the best measure of risk. Valuations of equity markets either here in the US, where I am, or in Europe or abroad, have risen dramatically, since the worst days of the global financial crisis. So the risks that remain in the market remain without the margin of safety that lower valuations might bring. So yes, I think this is a riskier investment environment.

World Finance: Very interesting, now with the global ageing population increasing, frankly, in its demographic, are you seeing more turning to passive investments, such as index funds? 

Scott Clemons: The real shift that we’ve seen in asset allocation isn’t so much between active and passive, because of demographics, but it’s from fixed income and into equities. And that is a reflection largely of a lack of yield available in global fixed income.

Traditional asset allocation would have an investor raise his or her allocation to the safety of fixed income as they age, but that safety comes without any yield. So investors have really had no choice, but to remain in equities versus fixed income. And, that is the shift we have seen demographically, as well as, reflecting the global nature of interest rates in this market.

World Finance: So what is the inherent risk that lies within these indices?

Scott Clemons: Well, Kumutha there is no such a thing as an investment without risk, and I worry that sometimes investors confuse the label ‘passive’ with the connotation of ‘risk free’ and it is not. For example, there is an investment strategy baked into the fundamental approach of any index fund.

Most index funds are based on market capitalisation. So the larger a company is, the number of shares outstanding; times the price of those shares; the more of it an index fund has to buy – It is the essence of a price momentum strategy.

When markets are going up, price momentum is great.  It is a strategy that works. But when markets turn down a price momentum approach, such as that imbibed with an index fund, it can be quite painful, as we learnt in 2008, 2009, during the global financial crisis, and really in any bear market in equities. We see price momentum on the down side: that is all an index fund provides.

World Finance: So if the solution is to be a more active investor who insists on transparency in the investment process. How does one go about achieving that ideal?

Scott Clemons: I am afraid it takes some work. The beauty of passive investing is a thoughtless, if you will, approach to owning equities or owning any asset class. And, by active approach: don’t confuse active approach with a frequency of trading, or high trading type approach. It simply means understanding what the underlying investment strategy is, in whatever fund you are using, and comparing it to the alternatives.

So if, on one hand, an index approach is largely a price momentum strategy, investors should compare that to other strategies such as a value based strategy, or a fundamental based strategy and then decide which of the options on offer are best aligned to supporting their goals.

World Finance: Now when it comes to passing wealth to future generations, should one’s investment portfolio goals equally shift?

Scott Clemons: Absolutely, and if you look at the shear scale of wealth that’s likely to be transitioned over the next generation, largely because of the demographic trends that you’ve identified. Investors are already confronted with the opportunity and the challenge of investing, not only for their own lifetime, but also for the lifetime of their children, their grandchildren; as well planning for philanthropic goals.

So I think the old traditional approach of making sure you have enough money to prepare for retirement, and for healthcare in your later years; as wealth levels rise, begin to encompass the broader goals of the next generation as well. Investors are well advised to think about that, as they create their asset allocation.

World Finance: Finally, how can advisors to wealthy families help with that transition?

Scott Clemons: Well, if you think about the wealth transition that families go through. Most families only ever experience that maybe twice at most: One when the current generation inherits their wealth from their parents, and then again, when they pass it onto their children. So they have two data points of experience to draw on.

Advisors on the other hand; accountants, financial advisors, investment advisors, have a whole wealth – a breadth – of information and experience of how those transitions take place. Simply by asking the question of your advisory team, you can uncover paths to failure, paths to success. You can learn vicariously from the experience of others. It’s something that both investors, as well as their advisors, should spend more time and attention on.

South Africa’s retirement fund reforms

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Retirement fund industry reform has been a hard-pressed objective in South Africa. Mothobi Seseli, CEO of Argon Asset Management, discusses the objectives behind South Africa’s reforms, Argon Asset Management’s role in the process, and his hopes for the financial system in 10 years.

World Finance: Retirement fund industry reform has been a hard-pressed objective in South Africa. Here to share insight on the path to innovation: Mothobi Seseli.

First, let’s talk about the objectives behind this reform.

Mothobi Seseli: With any reform process, what you’re actually trying to achieve is to get the system to work better. The objectives behind the reform process within the South African retirement fund industry are numerous. I’ll mention just a few.

You want to broaden coverage and participation in the system. You want to lessen the burden on the state. You also want to make sure that as you try to build up retirement capital that you’re doing so as cost-effectively as possible.

There are of course a whole range of other objectives, but those primarily would be the key ones.

World Finance: So, tell me where would you place Argon Asset Management in this process?

Mothobi Seseli: Argon Asset Management is an asset management or investment management company. We provide investment management services to the retirement fund industry.

We have a role to play as a stakeholder in that industry, so we talk to our clients about the reform process. Because it is about change, and change is always difficult.

And if you think, in a South Africa sense, the rebuilding of our society is important. So as we democratise, as we try to get more inclusivity, you are going to see change across all of the industries that feed into the retirement fund industry.

So, we’re doing our bit with technical relevance on the money management side. And I think that we’re doing a good job of it.

We built a globally recognised, multi-award winning investment management organisation. And that is our contribution to the game, on two levels: the discourse with clients about the change, and the benefits of a wider and bigger system that is more inclusive; as well as what we do on the money management side.

World Finance: So Mothobi: you know, when you are advising clients, do you suggest that diversifying risk is indeed the way ahead for them?

Mothobi Seseli: Risk is very important. As an investment principle you need to be diversifying risk. But you can’t diversify all the risk away. If we’re going to meet member return expectations, some risk is required.

So yes: go on to take risk, but be mindful, and be clear about what type of risk you are assuming. And of course allied to that is your return expectations.

World Finance: So what role does the South African government play in this effort?

Mothobi Seseli: As you’ll appreciate from an earlier question, one of the key objectives behind the retirement reform process is to lessen dependence on the state. So the state is a key stakeholder in this. So the state has a role to play in driving policy, driving the engagement that is necessary to achieve what they want to see. So the South African government is giving that kind of direction and leadership.

World Finance: So how does South African retirement fund reform play into the larger story of the pension industry, both regionally, locally, and then internationally?

Mothobi Seseli: I think that when you have a system that works really well, I imagine that the features of a well functioning system will be high integrity, high engagement, with attendance to the things that I spoke about. We have greater participation, greater coverage, you’re preserving as you should, and it’s cost-efficient.

What you’ll have is possibly, much more confidence in the system. Much more trust in the system.

When it works that way, you hopefully will be able to encourage more people to come into the system. So you also hopefully will benefit on the savings rate increase likelihood. When that increases, obviously your risk and capacity also improves. So it’s got meaningful economic growth implications. And that’s not only in the South African sense: it’s regional and global.

World Finance: So where would you like the industry to be, about 10 years from now?

Mothobi Seseli: I think that what I’d like to see is an industry that is delivering the majority of its desired goals and outcomes to the majority of the members, the consumers that it’s designed to serve. That kind of system is a lot more sustainable for me.

It’ll be a lot more inclusive a system. As I said, high integrity and high engagement, I think, are critical. That would be my desired picture.

World Finance: Mothobi, thank you so much for joining me today.

Mothobi Seseli: Thank you.

Brunei banking: staying strong in a declining oil market

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Brunei’s banking sector remains resilient, according to Standard and Poor’s. Pierre Imhof, CEO of Baiduri Bank, explains how Brunei’s government is investing in a diversified economy, and what the Brunei banking sector is doing to assist small and medium private businesses.

World Finance: Despite the recent financial crisis, and now a fall in oil prices worldwide, one banking sector that remains resilient is that of Brunei: according to the global rating firm Standard and Poor’s. Joining me now is Pierre Imhof, CEO of Baiduri Bank, one of the leading banks in the country.

Pierre: falling oil prices have slowed the Sultanate’s economy. Why has this not impacted the banking industry?

Pierre Imhof: There is definitely a sharp decline in oil and gas prices. But Brunei is a country where the economy is mainly driven by government spending.

And therefore, this year the government has decided to keep the budget – and therefore the spending – at a level very close to last year’s. For the year 2015-16 the budget will be reduced only by around four percent, so it’s very small.

Of course, the income will not be at the same level as last year, so the deficit, the budget deficit, will be covered by part of the accumulated reserves of the country.

So this budget remaining more or less at the same level will definitely help the domestic economy. And therefore, being a local bank with all our activity within the country, we expect that we will not suffer too much from the oil prices.

World Finance: So what challenges does the banking industry face, and how does Baiduri approach these?

Pierre Imhof: If the prices of oil and gas remain low for a long period, the country will probably have to adapt and adjust. The government may not be in a position to maintain such a level of its budget for too long.

The second challenge is that the oil and gas industry – and the operators in such an environment – are trying to reduce their costs. And that may affect the private sector. There might also be some delay in infrastructure developments by the government.

So all these will be challenges that the banks will have to face during this difficult time.

World Finance: Staying competitive is of course a major issue for any bank, and that often means really staying on top of the latest technological innovations. Does this relate to Baiduri? And how do you adapt to customer needs?

Pierre Imhof: Technology is definitely an important part. But our absolute priority is to give to our clients – when they deal with Baiduri Bank, whether they use one of our branches, or electronic channels – to always give them the best customer experience.

We have launched in Brunei the first Café branch. Nothing to do with banking. Our clients come to a branch, and they can relax, sit in a sofa and have a coffee while they are transacting.

We want also to give them a choice. If they want to come to a branch, we have the branch network. If they want to go through the internet, we are also able to offer them the internet.

We have been the first in Brunei in many services and many products. The latest one is the Visa payWave. So now our clients use their Visa card: just tap and pay.

The last example I would like to give is in terms of security. We pay a lot of attention, and we make a lot of investments, to make sure that our clients data are protected.

World Finance: Ninety percent of private businesses in Brunei are SMEs – how do you cater to this market, and how does this translate to the economy as a whole?

Pierre Imhof: First, our services – and especially financing – are customised for these clients.

Secondly, we are a local bank. The decision making process is in Brunei. It allows us to be more flexible, and faster, taking a decision in granting a facility, in structuring financing.

Third, SMEs need very specific financing. We have micro-finance schemes, and enterprise facilitation schemes, which we offer to SMEs in collaboration with the Ministry of Industry and Primary Resources. And these are schemes which are designed for SMEs: they are cheaper, and companies which might not be eligible to other schemes can still access financing through such schemes.

World Finance: In 2014 Brunei implemented the Local Business Development programme in the oil and gas sector. Can you elaborate a little bit on this, and how will this really impact the banking industry?

Pierre Imhof: It definitely impacts the banking industry a lot. This programme – Local Business Development – was developed by the authorities in Brunei to encourage economic players to rely more on local resources and to develop more local contacts. It has the objective to encourage local employment: 99 percent of Baiduri Bank’s employees are locals.

When its activity grows, definitely it’s an opportunity for Baiduri Bank to employ more people. So in that respect Baiduri Bank is contributing to local business development. But Baiduri Bank is also benefiting from this local business development programme. A number of companies would now under this programme be encouraged to deal with a local bank. And we have definitely in that respect benefited from it a lot.

World Finance: Finally, what trends do you foresee really impacting the banking industry in Brunei, as we move toward the second part of 2015?

Pierre Imhof: If the oil and gas prices remain at the present levels, I think that the country will not be able to rely forever on oil and gas income to maintain and develop further its economy.

The positive effect is that it may lead to accelerating the policy of diversification in the country. And the banks will have a lot to benefit from diversification: first of all it will give them opportunities in the country, but diversification will also mean, beyond the Brunei borders, Asian economic integration. Brunei and Brunei companies may have a role to play; and banks in Brunei therefore may also have a role to play.

We spoke about technology, and definitely in the future we need to continue offering our clients the latest technology.

Even though we are a small country, we cannot miss this technological challenge.

Leonardo Braune: Brazil’s tax reforms risk alienating HNWIs

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Brazil’s multi-layered tax system is long overdue for reform. And the country is finally trying to simplify its processes, says Leonardo Braune, Managing Director of Intercorp Group. But by bringing Brazil’s taxes in line with jurisdictions like the US and UK, the country is risking its competitive edge.

World Finance: Juggling assets and tax liability is no easy feat – but it’s something Brazilian Intercorp Group has mastered. With me to talk about navigating the Brazilian tax system is Leonardo Braune from the firm.

Well Leonardo, you deal primarily in tax; so, this is a major issue at the moment, with avoidance and loopholes dividing opinion. So how do you approach this?

Leonardo Braune: The approach is first of all to try to understand the client’s demand, and see exactly what they’re concerned about.

And then based on that, we try to match their needs with what we know in terms of the multiple jurisdictions where they may be operating from. And based on that, we try to come up with a plan that will involve sustaining efficiency, while at the same time keeping compliant. That’s the juggling that’s very difficult: how far can we stretch the efficiency side without crossing the line of the compliance?

And once we get that out of the way, then things go smoother with the client.

World Finance: How is the Brazil tax system structured, compared to other leading jurisdictions?

Leonardo Braune: Brazil has a very complex tax system – and complex I guess is a definition that applies to most tax systems! The difference in our case is that we have many taxes – over 50 different types of taxes – so the collecting system is different, the types of returns you have to file is very different.

Brazil comes from an inflationary background. And as a result of that, the need for the government to collect is actually careful, because in addition to wanting to collect taxes, they were very afraid of not being able to collect taxes in time, given the inflation. So the whole system was designed to almost calculate tax very much at the time they’re due.

So unlike the UK, for example, where the tax year ends in April, and you can file your tax return up until January; in Brazil, taxes must be paid on a monthly basis in advance. Because the tax return is really just a compilation of the process.

That makes the burden on the tax payer much higher. Because they have to file their returns, do the information, process everything on time. So this is one side of it, the compliance side is very hard.

The other side is just different issues with the taxes. Because what happens is, you have municipal taxes, state taxes, federal taxes. Sometimes you have a double layer of taxes – they don’t offset each other. So we’re trying to simplify all of that, and maybe come up with a general VAT tax system, and fewer taxes involved, and just splitting them between the different entities.

World Finance: You work for high net worth individuals; what sort of challenges do they face, and how do you assist?

Leonardo Braune: High net worth individuals are always trying to juggle between two main concerns: the income tax bracket they fall in, not getting caught up in multiple double-taxing situations, and also not getting caught by inheritance tax. Because there’s a high dispute in the US and the UK on inheritance tax issues. Brazil, just for you to compare, has a tax rate of four percent when it comes to inheritance: compared to the UK where it’s 40, the US where it’s 40.

We’re now discussing changes in that area – there may be an increase in that rate from four to 16 or 20 percent.

So the high net worth individual is always worried about keeping their high net worth as high as possible, and not being impacted by the different laws. And with cross-border changes, and the kids moving abroad, the business expanding? That becomes very complex.

That’s exactly where we come in: trying to help out, making sure that the business still stays efficiently tax-compliant.

World Finance: So how do you tailor your services to the individual?

Leonardo Braune: Basically the first thing we do is, we spend a lot of time understanding the business itself, and the individual needs, and what their approach is. We don’t simply put the rules on the table, and try to just tell them, ‘Look, this is what the tax law says’.”

Our job is to take advantage of the knowledge we have of the tax legislation, learn from the individual what his business is all about, and then try to guide them through the process.

So our approach is very unique. We spend a lot of time doing business consulting, and understanding the business. And then just simply apply what’s best from what we know. And that’s what makes us different from most of the other companies.

World Finance: And when it comes to client investments, how do you handle these?

Leonardo Braune: Well, the first thing we have to do when one talks about investments is understand, what’s the goal? And there’s a few things that are very relevant.

First of all is, how much risk is the client willing to take, versus how much risk they need to take? And also, how much risk they understand. So, it’s all about risk and goals. Some people may want to basically multiply their wealth through the investment strategy. That means they have to take higher risks – but they must be willing to lose something.

Others just want to preserve the wealth, and just basically maintain capital: that’s a whole different approach.

So again, it’s all about understanding the goals. The methods are all available, and the different approaches can be taken. But balancing objectives with the actual tools we’re going to use is what’s really key in the process.

World Finance: And finally, how are new government tax incentives impacting your clients and business?

Leonardo Braune: Well first of all, Brazil is not a country that has a lot of government incentives, unfortunately. What’s happening right now is, we’re going through a big change in terms of adjusting to the global tax systems. And as a result of that, we’re going through an increase in the tax rates, and the tax burdens in general.

So inheritance tax is probably going to grow. We’re discussing an asset tax, we’re discussing an increase in the income tax. Not much of an incentive there, but also the other way around. It has triggered a lot of ultra high net worth individuals to consider moving out of Brazil.

And actually, because, if Brazil becomes more compatible with the other jurisdictions like the UK and the US in terms of how high the taxes are, then other things play an effect on the decision of where they want to live. Security. Personal issues. The economic benefits.

So that’s a big challenge: from one end the government wants to tax more; from the other end, they can’t reach too high, because if they do people will move around and just simply look for a more beneficial relationship overall.

World Finance: Leonardo, thank you.

Leonardo Braune: Thank you very much.

Ghana’s banks must “aggressively support” productive sectors

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Ghanaian regulators are taking a more robust stance with the country’s banking sector – but Daniel Asiedu, MD and CEO of Zenith Bank Ghana, says the industry is better off with the tougher rules. He explains the role banks must play to keep the country growing, and how Zenith Bank Ghana has repositioned itself in light ofthe new regulations.

World Finance: As regulators take a far more robust stance towards a Ghanian banking sector, an industry player tells us whether these changes are for the positive or negative. Daniel Asiedu of Zenith Bank Ghana joins me with his thoughts.

So, let’s first talk about economic growth prospects. We know that next quarter is going to bring a slowdown, right? So in the larger picture, tell me: where does the banking sector fit in?

Daniel Asiedu: When you look at the growth trend in the Ghanian economy up to 2013, 2013 closed at a growth rate of about 7.3 percent. Last year it dropped to four percent, and then this year it’s projected to close at 3.9 percent. So you could say that the economy’s growth has been sliding. And this has been attributable to inflation, depreciation of the cedi, and the energy crisis.

Having said that, of course, when you look at how growth has been projected – and next year we are looking at a growth rate of about 6.4 percent, and then that should rise to about 7.8 percent in 2017. Inflation currently is about 16.9 percent, and that has been projected to close the year at 12 percent, and then next year we are looking at a rate of about 10.2 percent.

And so, when you put all this together, you will see that the future looks bright. And as an industry, what role can we play?

What we have to do is to look at the productive sector and support it aggressively. We have to also look at the companies that are exporting, and also support them.

So this is a time that we – as a financial institution playing the intermediary role – must be visible in our support for the government, so the economy can be put on the growth path.

World Finance: Now in terms of government intervention, we know that regulation has been ramped up in your country, so tell me: how has that had an impact on the banking sector? Would you say a net positive or negative?

Daniel Asiedu: Basically, regulation all over the world has been stepped up; and our country has not been left out.

And that’s because we all know the impact or the implication of non-proper regulation: we know what’s happening in the world.

When you look at it from that perspective, you’ll agree with me that it’s made banking a bit tough. However, the net effect is that we are better off. Customers now have more confidence in the industry; the international community – especially correspondent banks – have a lot of confidence in us; the system is more transparent; and so you have nothing to worry about.

World Finance: So Daniel, you know: as these regulatory changes are implemented, your bank – any bank – is going to have to reposition itself. So how have you done that?

Daniel Asiedu: Let me start by saying that, as a bank, before even regulation was stepped up, we have been built on a culture of compliance and very strong controls.

You will see that most of the things we do are things that have been designed as a result of the experience we have acquired over time. So that whatever we do, we have in the back of our minds that we need to ensure that the system is quite tight.

In west Africa we’re the first bank to be licensed by Visa to do acquiring, and for Visa to give you that platform? It should tell you the comfort they have in your system.

We’ve had calls to partner with regulators – the Bank of Ghana – for some of the systems they intend to roll out. And when the National Risk Assessment Committee was set up, we as staff of Zenith Bank were nominated to represent the banking industry.

So, we think that we’re on the right path, because we’ve positioned the bank along those lines.

World Finance: OK, excellent. Now, of course, there’s always improvements that can be made. If you could speak directly to central bank governors, what other regulatory adjustments would you make?

Daniel Asiedu: You agree with me that the environment is quite turbulent, and things are changing. Nothing is dynamic. And so even though we may have system processes in place, we need to constantly update them.

I think that as we move along, and as events unfold, the regulators look at how things are done, and come up with other ways and better ways of ensuring that the system is better off.

So sitting here, I would not be able to – but I know the central bank will continue to work in the industry, in the interests of all players.

World Finance: OK – now, when you talk about optics when it comes to Africa as a whole – combatting terrorism is a sticky situation. Tell me, how can the banking sector see improvements be made in terms of how this issue is tackled?

Daniel Asiedu: Let me start by saying that I think we all need to realise that there is a problem. There is a problem with money laundering, there’s a problem with financing of terrorism. And we may not be experiencing it directly in Ghana, where I’m from, but all over the world it’s happening. And if action is not taken very soon, it’s going to affect us in our market.

And so the earlier we all position ourselves, the better. And I think as an industry we need to support the government; as an industry we need to be proactive; we need to appreciate what the government is doing. And so we must all have systems and processes to make sure that we support government to achieve this particular objective of ensuring that we stop from breaching the environment.

World Finance: OK. And are you instilled with confidence that this is indeed what will happen? That this sort of troubling period is one that the banking sector, the continent as a whole, will be able to eventually move on from?

Daniel Asiedu: We have an association – which incidentally I’m the treasurer of – and when we go for our meetings, these are some of the things we discuss.

It’s important that the industry positions itself to tackle some of these problems head-on, to support government. Government cannot do it alone. We are the players of the industry, and the government can only push it from the regulation point of view. We must implement – and it’s important that we support government.

World Finance: OK! Daniel, thank you so much for joining me today.

Daniel Asiedu: You’re welcome; thanks for having me here.

 

It’s easy to say ‘Save for the future’: Brazil’s pension challenge

Posted on by World Finance

Brazil’s pension system is one of the most generous in the world – and with its ageing population, increasingly overburdened. Alfredo Lalia, CEO of HSBC Insurance Brazil, explains why Brazilians can find it hard to plan for retirement, and the reforms currently underway to combat the challenges Brazil faces.

World Finance: Retirement and pensions are an issue worldwide. And in Brazil, this is no exception; with recent HSBC Fundos de Pensão research showing that a great proportion of the country’s population are gravely underprepared. With me now is Alfredo Lalia from the fund to speak about the challenges the industry is facing.

Well Alfredo, Brazil’s pension system is well-known to be overburdened. But it also has some of the most generous pension rules in the world, so how does it stand today?

Alfredo Lalia: Yes, in fact Brazil is a developed country, with a very generous public pension offer. So we are at risk of having big growth in the ageing population, without them becoming rich, as has happened in developed countries.

So, it’s a challenge to solve from next year, and pension funds can solve a part of this gap.

World Finance: Now, at the start of this year, pension benefits were cut due to austerity measures. How has this impacted the industry, and the already overburdened population?

Alfredo Lalia: Reform has just started, and has impacted much more in the protection part of social security – not so much in the annuity or pension part. But we are analysing what can be the opportunity, and how to help build a sustainable pension system in Brazil.

World Finance: So how well covered are people in Brazil, and how is the industry structured?

Alfredo Lalia: In fact, Brazil works with the traditional three pillars of pension: the public sector, companies trying to help individuals, and individual savers.

So, public sector is as I told you, very generous. So people have the feeling that they are well covered.

But you know that with the ageing population, the changing demographics, and the reduction of active work to finance retirement, you need to trust more in the second or third pillar. And each individual should have his pension plan to have a good retirement future.

World Finance: Well according to recent research conducted by yourselves, 41 percent of the population think they’re inadequately prepared for a comfortable retirement. Why is this?

Alfredo Lalia: Well, I think it’s a challenge to work with consumption, and to save for the future.

So it’s easy to say that, ‘You know, you need to save for the future.’ But the day-by-day consumption fights against this need.

And financial planning is not so common in Brazil: Brazil has only had 20 years of a low inflation environment. So this generation is not used to thinking in the long term, because they’ve lived through a hyper-inflation period. It’s been very difficult to preview what will be the value of your money in one month – so planning for 20, 30 years is not so common.

So this is changing: you have a new generation, born in a low inflation environment. But financial planning is a key thing that we need to develop in Brazil.

World Finance: So what services does HSBC Fundos do Pensão offer to combat these challenges?

Alfredo Lalia: Providing this financial planning. We try to go individual by individual and help them to analyse that they are prepared or not. How they are investing, how they are funding their future life.

So we have specialist team to provide this service to help people to think about the future and decide what they need to do today to have a good retirement period.

World Finance: Well finally, looking towards the future now, and how do you envisage the Brazilian pension landscape evolving?

Alfredo Lalia: I think we are a young population yet so, with this financial planning, the population understand much more the pension system, and all the tax benefits that a pension plan has in Brazil.

I see a big role – the main industry has had growth in double digits in the last 15 years, and probably we will keep this path of growth. A good future.