Asian Banking and Finance (October to December 2015) by Charlton Media Group

DISPLAY TO DECEMBER 31, 2015

asean in focus Asian trade finance faces double trouble

Forex Report:

Innovation stifled Islamic Banking: Why is corporate Sukuk Down?

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Award winners inside:

FIRST Asian banks unprepared for a cashless world

financial insight Yuan devaluation shaking up capital markets

COUNTRY REPORT Hong Kong banks: Risk on

first Demanding regulations ignite banking tech revolution in Asia

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ASIAN BANKING AND FINANCE | DECEMBER 2015 1

CONTENTS

STORY 40 COVER ABF salutes Asia’s brightest banks

FIRST

ANALYSIS

06 Asian banks unprepared

relearn strategy

07 Banks lose out in cybersecurity

36 Asian banks’ double whammy

08 Asian trade finance faces

double trouble

SECTOR REPORTS

10 Demanding regulations ignite

banking tech revolution in Asia

12 Regulatory traps stall banks’

24 Trading changes leave

expansion

banks flustered

28 The promise of Islamic

financial insight yuan devaluation shaking up capital markets

OPINION

32 Why Asian banks must

for a cashless world

country report Patchy road ahead for Hong Kong’s banks

banking in Asia

70 Unlocking the benefits of digital innovation 72 Why banks must respond to the threat of disruption

74 Taking an ‘Enterprise Payments Utility’ approach to Immediate Payments

76 Securities screening and its role in financial crime mitigation

78 What you need to know about global universal banking

80 The future of banking is more traditional than you’d think

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 101 Cecil St. #17-09 Tong Eng Building Singapore 069533

2 ASIAN BANKING AND FINANCE | DECEMBER 2015

For the latest banking news from Asia visit the website

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BANKING TECHNOLOGY

RETAIL BANKING

Regional online hiring activities in banking, finance sector fluctuating

Here’s why BOC’s 1% profit growth is likely a one-off phenomenon

Hong Kong banks’ system loan dipped as trade finance nosedived

According to the latest Monster Employment Index, with economic uncertainty lying ahead in Southeast Asia, online hiring activities in the BFSI industry across Singapore, Malaysia and Philippines have continued to yo-yo. The MEI, a monthly gauge of online job hiring activity, records the industries and occupations that show the highest and lowest growth in recruitment activity.

According to Barclays, although BOC posted 1% profit growth in 1H15 (similar to large peers ICBC/ ABC and meeting consensus), they are skeptical whether positive profit growth can continue. Relative to peers, they believe the bank has weaker revenue momentum (both on the fee and margin side), and it has arguably suboptimal provision levels (hence risks of higher credit cost).

According to Barclays, the HKMA’s July monetary statistics showed system loans declining 0.6% m/m led by a sharp drop in trade finance, down 5.2% m/m. Barclays believes weak trade loan demand was affected by RMB depreciation expectations against the USD/HKD (as implied by forward exchange rates) and negative market sentiment during the market correction.

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FIRST institutions will become more dependent on marketing partnerships to drive card use among specific merchants,” says Harvey.

In tech we trust

Having effective omnichannel strategies is now the name of the game especially for retail banks in Asia’s emerging countries. With multiple challenges including regulatory hurdles, changing customer habits and preferences, increasing competition with other banks (and even non-bank institutions), and advancing technologies, Asian banks now face the dilemma of making the most of the available technology to remain competitive. Apart from efficient omnichannel strategies, banks are encouraged to re-evaluate current systems with regards to customer interaction, and to develop customer trust. SunGard recently released the results of the Bank Readiness Report 2015 in partnership with Retail Banker International. More than 1,500 customers were surveyed in 15 countries. Challenges ahead According to the survey, reducing the risk of customer defection remains a significant challenge. Ninety percent of respondents have more than one banking relationship with 32% citing lack of trust in a single institution while 40% do so to spread risk across multiple institutions. “Faced with growing competition from new entrants, banks across the emerging regions should address trust and loyalty issues.” Chinmaya Joshi, principal solution consultant at SunGard’s retail banking business, says a lack of personalised services is fueling multi-bank relationships according to 38% of customers. Additionally, 79% of respondents are prepared to use social media such as Google (42%), Facebook (39%) and Twitter (34%) to voice a complaint, in comparison to a bank’s own internet banking channel (41%).

6 ASIAN BANKING AND FINANCE | DECEMBER 2015

Transitioning to a cashless market

Asian banks unprepared for a cashless world

anks could lose some of their influence over how customers pay for their transactions as they begin to ditch cash and even credit cards, and they must quickly carve out a new role or risk obsolescence, according to analysts. “In the payment market, cash and (quite possibly) credit cards are giving way to digital alternatives that will cost financial institutions at least some influence over the transaction experience,” says Chris Harvey, global leader, financial services at Deloitte. Harvey reckons mobility and connectivity are the key drivers hurtling society into a cashless age. From mobile applications which free users from their wallets and the checkout line, to integrated and streamlined technologies which make it easier to settle accounts, customers are beginning to see cashless as their preferred payment reality. And this might spell bad news for banks. “Whatever happens, financial institutions are likely to lose at least some influence over their customers’ transaction experience. Data from specific customer segments will become a more important way to gain adoption or wallet share in a diversified market. And financial

In the payment market, cash and (quite possibly) credit cards are giving way to digital alternatives that will cost financial institutions at least some influence over the transaction experience.

Innovation culture As more customers begin to appreciate the conveniences of cashless payments, banks, as well as card networks and merchant acquirers, must face five imperatives in order to survive the ongoing payments upheaval. These are: Retaining control of the merchant-consumer payment interface; providing tailored, segmentspecific propositions; strengthening proprietary distribution channels; embracing new payment types beyond cards, and; determining how to monetize collected data. Of these five imperatives, Glen Williams, partner at Bain & Company, says the last one is critical if banks hope to transition from the role of a financial utility – which he argues no longer generates value –into “true business partners” for customers. “How will you adapt your organization, culture and capabilities to evolve into a technologyled partner for your merchant customers? Bridging this gap is particularly important for bankowned acquirers, which find it hardest to adapt,” says Williams. He reckons one of the obstacles for banks is to adapt a culture similar to that of a successful technology company where ideas are embraced instead of feared. If they fail to create such culture, banks risk becoming too slow to reengineer their systems and transition to platforms required for cashless payments.

Consumers have embraced noncash payment methods

Source: Euromonitor data; Bain analysis

FIRST says Thio Tse Gan, south east Asian leader at Deloitte. The traditional approach of just protecting the bare essentials isn’t sufficient to mitigate the risk of a cyberattack.

New control frameworks needed

Banks lose out in cybersecurity

s customer demand for “anytime anywhere” banking spurs online accessibility of financial products, some experts argue that this has also made systems increasingly vulnerable. The increased accessibility over the internet and innovations via Fintech and online banking products may not have been matched with commensurate security measures, especially for critical processes and data. According to Jeremy Pizzala, a partner at EY, banks are in the middle of a major transformation in the business model of banking. “Leading banks are re-balancing

the equation to make cyber risk controls an enabler of customer digital adoption via greater ease of use,” according to Pizzala, and that regulators have been increasing the pressure to implement new compliance and controls frameworks. Regulators have a very good reason to be strict, given the increasing frequency of cyber-attacks and the failure to address even the simplest of these. “Banks are experiencing significant cyber-attacks weekly, if not daily. Common techniques such as tailored malware and spear phishing continue to be effective owing to the lack of appreciation of cyber risks,”

Protection against attacks Thio notes that the first step in protecting against these attacks is for banks to identify what are the “Crown Jewels” that need to be protected given that “the traditional approach of just protecting the bare essentials isn’t sufficient to mitigate the risk of a cyber-attack.” He explains that information such as product blueprints, securities pricing data, asset portfolios, business strategy, customer profiles and legally protected information are among the non-customer data now being targeted. After identification of what needs increased protection, banks must ensure that appropriate riskmitigation strategies are in place, focussing not just on the technology side but also assessing the processes they employ. “It is also recommended to expand the types of data analysed with security analytics to include endpoint devices (for data loss), user access and authorisation activities, user transactions and applications and databases to get a much better bank-wide protection coverage,” says Pizzala. The rising sophistication of digital attacks means that banks must employ new measures, given that traditional Security Incident, Event Monitoring and signature-based defences cannot effectively detect new forms of attacks.

The Chartist: Gloomy revenue and pre-tax profit growth for banks in 2016 Some Asian banks may have to wait a little longer to witness notable topline growth and booming earnings, as analysts are predicting lacklustre revenue and pre-tax profit growth for 2016. “As a result of little cost discipline and normalisation of loan loss provisions we expect pre-tax profit growth between +4% and –6% for 2016,” says Macquarie Research. Malaysia banks are expecting 4-7% revenue growth, which will likely come at poor risk adjusted returns. Meanwhile, Singapore banks are looking at 5-7% topline growth mainly because of higher short-term rates, Wealth Management and fee-based product growth.

Adj revenue growth (% 2016E)

Adj pre-tax profit growth (% 2016E)

Source: Macqquire Research, FactSet, September 2015

ASIAN BANKING AND FINANCE | DECEMBER 2015 7

FIRST

Asian trade finance faces double trouble

Mobile banking boom dares banks

rade finance in Asia might be building momentum, but it can only make full strides as a widely attractive asset class when it irons out issues in investor awareness and regional standardization. “Most investors are unfamiliar with these assets. Because trade finance is a bank-dominated industry where the products are focused on the origination side of the business, there are no uniform procedures,” says Claude Lopez, director of research at Milken Institute. “Required documentation can vary enormously from deal to deal because trade involves multiple parties across a wide range of jurisdictions, bankruptcy laws, tax regimes, and sovereign risk ratings. Many institutional investors are building the necessary in-house expertise and sector knowledge in order to take advantage of this asset class,” he adds. A second challenge for trade finance in Asia is streamlining the procedures across the region’s numerous countries which currently have wildly differing policies. “The lack of consistency from country to country in terms of due diligence under law, combined with the increasing cost of compliance

Regional standardisation is key

with regulations such as AntiMoney Laundering/ Know Your Customer, call for an international standardization and simplification of procedures as well as standardization of financial regulations, bankruptcy rules, and payment systems,” says Lopez. “While banks should implement master agreements for trade finance deals that provide yield, security, and granularity in the asset reference pool, policymakers and regulators should help standardize the documentation required,” he adds. Lopez says that trade finance should flourish in the region on the back of more stable access to funding.

Trade finance should flourish in the region on the back of more stable access to funding.

survey

Four in ten consumers worry over ATM-related fraud If you feel safer doing electronic payments in a physical establishment than doing it online, then you’re not alone. According to a survey by Mastercard Research, consumers across South East Asia, along with those from Taiwan and Hong Kong, are still more assured of doing their payments in a brick and mortar environment instead of doing it through the internet. Singapore, India, and Vietnam have the greatest percentage of consumers who feel very safe making electronic payments in an establishment among those surveyed with 44%, 39% and 37% respectively. Meanwhile, 42% of consumers in Southeast Asia also reported being concerned about ATM-related fraud such as stolen credit cards, cloning or skimming. In the Greater China markets, the figures were slightly lower at 31%.

8 ASIAN BANKING AND FINANCE | DECEMBER 2015

sian banks must prepare for A a huge influx of mobile banking users with more than 25% of the world population expected to join the bandwagon in the next four years. Although mobile banking is already the largest banking channel by volume of transactions, new customers are still hopping in at an exceptionally rapid rate, especially in the ASEAN. According to a survey by KPMG, mobile banking users are expected to double to 1.8 billion users by 2019, which means 1 in 4 people would be doing banking transactions using their phones. At the center of the boom lies Southeast Asia, which has a combined population of 625 million and several countries experiencing economic growth. This growth, coupled with young populations and a 100% mobile phone among adults in a large portion of the region, means that the scale of opportunities available for mobile banking products and services in South east Asia is vast, says Adrian Harkin, CEO, management consulting for KPMG in the ASEAN region. The challenge for banks Meanwhile, banks are also under pressure to make sure that their mobile platforms are backed by rock-solid security which can evolve to protect against present and future threats. A huge chunk of those opting to subscribe to mobile banking might be having second thoughts as 40% have concerns over entering card details in mobile devices. “Biometric apps and fingerprint scanning are earmarked as ways to bolster the security of mobile banking, whilst ensuring ease of access,” Harkin says.

FIRST

Demanding regulations ignite banking tech revolution in Asia

sian banks might have hesitated to invest heavily in new technology for regulation compliance a few years back, , now many are starting to take the leap as the once-muddled landscape shows clearer paths, especially in AML, FATCA and GST. “Regulatory reform has clearly moved from the design to the implementation stage. This is not to say that all the details are in place. Indeed the flow of new regulatory initiatives at times seems both undiminished and overwhelming. But in most areas there is at least now a clear direction of travel, and in many areas sufficient details, to enable banks to up the pace of their own journeys to a viable and sustainable future,” says Jeremy Anderson, global chairman, financial services at KPMG. Asian banks in particular are starting to initiate technology upgrades in three regulatory areas: Anti-money laundering (AML) monitoring, Foreign Account Tax Compliance Act (FATCA), and Goods and Services Tax (GST). For AML monitoring,

banks are rolling out technology upgrades, including the use of model risk management and analytics engines, that try to minimize the frequency at which money laundering activities goes potentially undetected, says Ling Kay Yeow, partner, advisory, Malaysia at EY. In the area of FATCA, banks are compelled to capture customer data for reporting purposes that may not be captured by existing systems. Ling says banks are starting to build new flexible front-end systems to capture this information, as well as setting up complex interfacing systems to map the data needed for FATCA reporting. Banks are also saddled with increased GST transaction requirements, which has forced banks to increase their processing and storage capabilities. Compliance in this area has been particularly troublesome for Asian banks since GST is not a core business for them, which has led many to consider outsourcing the infrastructure into a cloud environment.

Banks investstance in techis required as e-banking rises A moremust proactive

“Changes in requirements for GST reporting and the processes for claims are also forcing banks to build agility in the core, general ledger and reporting systems to ensure reliability of data and efficacy of reporting,” says Ling.

2015

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Oman Domestic Project Finance Bank of the Year in the ABF Wholesale Banking Awards 2015

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Islamic Bank of the Year – Oman 2015 by The Banker

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Best Islamic Window – Maisarah, Oman 2015 by International Finance Magazine (IMF)

Best Mobile E-Commerce Bank 2015 by Global Banking & Finance Review

Best Mobile Banking Oman 2015 by International Finance Magazine (IMF)

SME Bank of the Year Oman in the ABF Retail Banking Awards 2015

Website of the Year Oman in the ABF Retail Banking Awards 2015

Oman Domestic Cash Management Bank of the Year in the ABF Wholesale Banking Awards 2015

STP Award 2014 by Commerzbank, Germany

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FIRST NUMBERS

The future of payments

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Regulatory traps stall banks’ expansion

t’s do-or-die time for Singapore banks as they push for their regional expansion plans and grapple with increasingly dangerous risks. While the domestic market has showered Singapore banks with rising interest margins, their attention is locked on to the tasty regional banking pie that is growing larger every year. While expansionary greed can be good and even necessary for Singapore banks to avoid growth stagnation, analysts warn against regulatory traps and operational barbs lying in wait. The value of regional exposure “A regional footprint helps the banks to diversify their revenue streams and broaden their service offering, enabling them to better benefit from cross-border trade, greater Association of Southeast Asian Nations (ASEAN) integration and rising incomes across the region,” says Elaine Koh, director at Fitch Ratings. However, she cautions that greater regional exposure also comes with increased regulatory complexities and risks associated with emerging markets. “Growing offshore operations – in foreign currency and in countries with more variable credit cycles – may challenge the banks’ historical funding, asset quality and regulatory 12 ASIAN BANKING AND FINANCE | DECEMBER 2015

oversight strengths,” she adds. Koh says Singapore banks have so far managed such risks prudently. But if they are determined to compete with foreign players and non-bank institutions in non-lending activities – such as in wealth management, bancassurance, payments and transactions and capital markets services - Singapore banks will need to bolster their product and technological innovation. Higher interest rate threat Singapore banks should also be concerned about the decline in asset quality across their regional loans due to the prevailing higher interest rate environment, even as their domestic operations see a spike in net interest margins. BMI Research notes that the average net interest margin across Singapore’s three main domestic banks – DBS, UOB and OCBC – rose to 1.87% in the second quarter of 2015, a nearly three-year high. This pushed total net interest income across the three banks to an all-time high of S$4.3 billion. Singapore banks suffer some asset quality deterioration in its ASEAN loan book, says Sharnie Wong, analyst at Barclays, with DBS having already pointed to mild deterioration in Hong Kong and Singapore small and medium enterprises.

The average net interest margin across Singapore’s three main domestic banks rose to 1.87% in the second quarter of 2015, a nearly three-year high.

Source: Idc Financial Insights Consumer Payments Survey 2015

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FINANCIAL INSIGHT: debt capital markets

The yuan devaluation hurt the HK bonds market

Yuan devaluation shaking up capital markets Hong Kong dim sum bonds falter even as Asia remains afloat.

hen the yuan devaluation began in August, the currency’s value plummeted together with confidence in the offshore yuan, or dim sum, bond market in Hong Kong. Not only was the market facing an exodus of Chinese issuers who were beginning to look onshore for financing, but it was also feeling pressure from the rising popularity of the US dollar and Euro as issuing currencies. This is happening as turbulence hits Asian bond markets with Greater China and Singapore showing strength and Southeast Asia taking hits. “While Asia’s bond markets have proved somewhat resilient compared with the equities markets, the devaluation of the yuan in early August did not leave Hong Kong’s bonds market unscathed,” says Ashok Lalwani, head of Asia Pacific

16 ASIAN BANKING AND FINANCE | DECEMBER 2015

High yield issuances, in particular, have been subdued, with some of the deals having failed to launch due to heightened investor caution.

capital markets group at Baker & McKenzie. “Although the recent turmoil in the Chinese stock market might have prompted investors to turn to bonds, the offshore yuan bond market in Hong Kong is suffering as Chinese companies that used to be dominant issuers have left.” Lalwani says Chinese companies are starting to flock to the onshore market where funding costs are declining in part due to the Chinese central bank’s moves to depreciate the yuan. The onshore market has also become more attractive after the China Securities Regulatory Commission began allowing unlisted companies to issue corporate bonds on exchanges this year. “The dim sum bond market has significantly slowed down over the past 12 months primarily as a result of the changed expectation

of renminbi (RMB) appreciation,” says Hao Zhou, partner at King & Wood Mallesons. “Most People’s Republic of China (PRC) corporate issuers have opted for issuances denominated in US dollar or Euro instead.” PRC issuers used to widely prefer offshore yuan borrowings, says Zhou, but the cost of onshore borrowings is becoming lower as the Chinese central bank is expected to continue to cut lending interest rates. “Now, some PRC issuers are beginning to lose appetite for offshore financings as these are no longer necessarily cheaper,” says Zhou. High yield issuances, in particular, have been subdued, according to Zhou, with some of the deals having failed to launch due to heightened investor caution. Some high yield issuers even had to fund their financing needs through alternative and faster channels such as private club deals or traditional bank loans due to the lack of investor interest. But despite some of the uncertainties in the market, Zhou reckons there will continue to

FINANCIAL INSIGHT: debt capital markets be a large pipeline of investment grade issuances by debut PRC state-owned enterprise issuers, particularly at the provincial or municipal city levels. Keepwell deals As the offshore yuan bond market suffers some weakness, keepwell-supported deals could gain strength as a preferred option among issuers. “Many PRC issuers continue to use alternative credit enhancement structure with keepwell undertakings to tap the international bond markets in order to remit funds back to China subsequently. Since keepwell is not technically a guarantee, the ratings agencies typically will notch down the issue ratings from the issuer’s corporate ratings due to potential subordination in case of windingup or insolvency,” says Zhou. “We are currently working on some transactions which we hope, by implementing some additional credit protection features in the structure, will satisfy the rating agencies in a way that they could treat keepwell supported deals almost equal to those guaranteed deals credit wise. If successful, we expect many if not all future keepwell structure will follow and more issuers will turn to such structure due to the flexibility of transferring proceeds back onshore,” adds Zhou.

deals, and continues to see larger sized transactions relative to other parts of Asia. But dissecting the growth of Asian DCM, a tale of two markets emerges with Greater China soaring and south and southeast Asia crashing, says David Johnson, Hong Kongbased foreign legal consultant and partner at Norton Rose Fulbright Hong Kong. “Those of us focused on Greater China, by and large, have been pleased with overall transaction volumes, particularly since the first quarter. On the other hand, those of us focused on south and southeast Asia have experienced a pronounced slowdown,” says Johnson. He attributes these divergent trends in Asian DCM with global concerns such as interest rate hikes, oil prices and Greece and the Eurozone, and factors pertinent to each particular jurisdiction such as weakening currencies, regulatory impediments, stronger domestic markets and the cooling of sectors that have historically driven transaction volumes. “On the whole, the stronger credits have been able to get deals away. Generally, the trend away from Rule 144A issues continues as borrowers are able to secure strong demand in Asia for their paper,” says Johnson.

Tale of two regions The Hong Kong dim sum bond market’s tarnished appeal comes amid a surge in the wider Asian debt capital markets (DCM). Bond issuance and bank loans offered to corporates are seeing increased activity, especially for merger and acquisition deals, according to Girish Sahajwalla, managing director at PwC Corporate Finance. Sahajwalla estimates on average about 80 bonds have been issued each year since 2011 in Asia, resulting in approximately 350 debt capital markets transactions between 2011 and 2015. Greater China still accounts for half of the

Singapore stands out Singapore is proving somewhat defiant amid souring southeast Asian demand. Local bond investors have been displaying patience for long-term plays despite the spooky financial headlines and stock market declines, says Lalwani. “The local bond market has remained strong even with the current stock market rout. A key contributing factor could be that local bond investors tend to be individuals who have holding power, and who are familiar with the issuers,” says Lalwani. “This means they are more likely to hold on to their Singapore dollar

Ashok Lalwani

Girish Sahajwalla

(SGD) bonds even when market conditions become uncertain, which in turn translates into less panic and less volatility.” But Lalwani notes that while bonds from high quality issuers have been relatively resilient, weaker issuers have experienced a bigger sell off. Given this behavior among issuers, the Singapore DCM market has not been too kind on flailing industries. Issuers in the offshore marine sectors and the oil and gas sectors, for example, are finding it very difficult to raise funds in the DCM markets this year, says Sin Teck Lim, partner at Morgan Lewis Stamford. Lim reckons that the Singapore DCM market has also seen lower demand for new issues partly due to the increasing interest-rate environment, which makes it more expensive to issue new debt securities. In response to the prevailing DCM environment, Singapore small and medium enterprises (SMEs) have begun turning to the bank loan market for financing in the $20 to $100 million range. “In Singapore, SMEs have preferred to expand their banking relationships, and are therefore increasingly working with independent debt advisors to source competitive pricing and covenants from lenders,” says Sahajwalla. “The lender universe includes local, regional and international banks with mandates to grow their loan books in specific sectors across in key growth markets, including Singapore,” says Lim.

Singapore debt capital market volume First quarter volume

Source: Thomson Reuters

ASIAN BANKING AND FINANCE | DECEMBER 2015 17

COUNTRY REPORT: HONG KONG

Trade sector performance remain subdued

Patchy road ahead for Hong Kong’s banks Analysts worry over the growing imbalances in the economy and the banking system of the region.

ith an environment plagued by systemic imbalances and loose monetary conditions, Hong Kong’s banks are facing unfavourable trends. Further appreciation in property prices, rising private sector leverage, banks’ growing exposure to mainland borrowers, and the government’s proposed revision for the local bank resolution regime have continued to persist in one of the world’s largest financial hubs. Despite the traditional resilience of Hong Kong, Moody’s is concerned by the growing imbalances in the economy and the banking system of the region. The strong domestic demand supports growth and the labour market, but business conditions have worsened due to the rising land and labour costs and subdued external demand. Moody’s says these concerns overshadow the potential support to the banks’ credit profiles from continued economic expansion and a recent moderation in credit growth. “Domestic consumption will be a key growth driver, supported by low interest rates and buoyant asset prices. Labour market conditions should remain strong with a low unemployment rate,” says analyst Sonny Hsu of Moody Investors Service. Trade sector performance, in both goods and services, will remain subdued, given lukewarm economic growth among advanced economies and slowing consumer demand in mainland China, he adds. Meanwhile, rising labour and rental costs, and recent policies to temper tour18 ASIAN BANKING AND FINANCE | DECEMBER 2015

“Banks [will] further increase their mainland exposures in 2015, as mainland enterprises expand their overseas operations, both through organic growth and acquisitions.”

ism flows will challenge domestic business sentiments. Hsu says they expect ample liquidity conditions to persist in the near-term. Capital inflows were strong in the first half of 2015, as reflected in continued growth in the monetary base of the Hong Kong Monetary Authority. “The exuberance evident in asset markets continues on the back of loose monetary conditions. Home prices rose 21 percent over the 12 months to May 2015; prices were 73 percent above the previous peak in 1997, and affordability indicators suggest property prices are at unsustainable levels. Private sector leverage, in terms of credit to gross domestic product (GDP), rose to 209 percent, a historic high level,” Hsu says. He adds that while the currency peg implies that interest rates in Hong Kong will likely rise over the outlook horizon, in tandem with those in United States, the potential impact of upcoming Fed tightening on domestic liquidity should be minimal. On the other hand, private sector leverage soared to new highs in first half 2015, a trend that could continue amid strong fund inflows into Hong Kong. Growth in the island’s banks’ exposure to mainland China is also bringing about a significant change in the banks’ risk profiles. “We expect banks to further increase their mainland exposures in 2015, as mainland enterprises expand their overseas operations, both through organic growth and acquisitions. Mainland corporates tend to finance their

COUNTRY REPORT: HONG KONG overseas operations with borrowings outside China, including Hong Kong, due to China’s capital controls and lower borrowing costs offshore,” Hsu says. He adds that continued rapid growth in the mainland exposures of Hong Kong banks represents an ongoing major shift in their overall financial profile, demanding adjustments in their underwriting skills and risk management. “We do not expect that Hong Kong banks can completely insulate themselves from vulnerabilities in China, as economic and financial linkages between the two systems strengthen. Hong Kong banks’ higher ratings compared with their Chinese peers could render them more sensitive to potential downgrade pressure from potential adverse credit conditions on the mainland,” he says. Hsu explains that concerns over the banks’ growing mainland exposures are addressed by Hong Kong banks’ current offshore loan exposures largely consisting of lending to large state-owned enterprises and private entities with strong credit profiles. Hong Kong banks have also taken a cautious approach regarding onshore lending amid deterioration in the asset quality of loans in China. Moody’s sees borrowers facing high debt-servicing costs as authorities raise policy interest rates. Elevated asset prices expose banks to loan quality deterioration, while the banks remain well capitalised and less leveraged than their global peers. “Adding to the risk from this build up of corporate leverage is our assessment that business conditions have not caught up. In particular, we see mid-sized banks as particularly vulnerable due to their relatively high exposure to SMEs, which continue to face headwinds including tepid export demand and rising rental and labour costs,” he says. Meanwhile, consumer lending growth continued to outpace nominal GDP growth in 2014 and the first quarter of 2015. Consumer lending, of which mortgages comprised 70 percent, grew at 11.6 percent in the 12 months to March 2015. Total consumer lending amounted to 66 percent of GDP at end-March 2015, up from 62 percent at end-2013, and is at a historically high level, above where it stood at the onset of the 1997-98 Asian Financial Crisis. A continued rise in property prices remains a key source of macroeconomic imbalance and financial system risk. Prices grew a further 21 percent in the 12 months to May 2015, and are now 172 percent beyond their January 2009

Asset quality risks remain

levels. “This is despite the government’s multiple rounds of macroprudential measures designed to cool off the market and limit related leverage buildup. As a result, indicators like rental yields and affordability indices have deviated further from their historic norms to suggest that prices are increasingly overvalued from a fundamental perspective,” Hsu says.

High property prices pose risks

Source: Ratings and Valuation Department (Hong Kong Government)

“Consumer lending, of which mortgages comprised 70 percent, grew at 11.6 percent in the 12 months to March 2015. ”

Risks in asset quality Sharnie Wong of Barclays says although asset quality conditions in Hong Kong are stable, they expect further deterioration in the banks’ China onshore loan portfolio in line with the weakening economy. “Bank of East Asia has the highest exposure to China at 43 percent of its total loans. We believe Bank of China (Hong Kong) is most defensive to onshore China exposure given that it is disposing of its mainland banking subsidiary held through Nanyang Commercial Bank,” Wong says. For Hsu, the deterioration in the operating environment of Hong Kong banks underpins Moody’s negative assessment of Hong Kong banks’ asset quality outlook, even though most banks are likely to continue reporting good headline asset quality metrics over the outlook horizon. Moody’s predicts that asset performance pressure in the near-term will come from higher market interest rates, further deterioration in credit conditions in China, and pressure on corporate and SME borrowers amid tepid external demand. Soaring asset prices and high private sector leverage will worsen the deterioration in credit conditions when the cycle turns. “Adding to our asset quality concerns is the fact that a large proportion of bank lending is secured against real estate collateral. This pertains not only to general mortgage and real-estate loans, but also to most loans to midand small-sized corporates. The close linkage between property prices and bank lending and the current elevated ASIAN BANKING AND FINANCE | DECEMBER 2015 19

COUNTRY REPORT: HONG KONG property valuations present a clear downside risk,” Hsu says. Resilient capital Despite a potential ballooning of problem loans, Hsu says Hong Kong banks’ capitalisation should remain stable. In 2014, most Hong Kong banks either maintained or improved their capitalisation and funded their growth mainly through retained earnings. The banking system’s average Tier 1 capital ratio was 13.9 percent, and total capital adequacy ratio stood at 16.8 percent at end-2014, growing slightly from 13.3 percent and 15.9 percent, respectively, at end-2013, Hsu explains. Hong Kong banks are subject to local authorities’ implementation of Basel III capital rules, with a gradual phasein of minimum capital requirements. The government will start to phase in capital buffers between 2016 and 2019, including the capital conservation buffer, countercyclical buffer and, for domestic systemically important banks, additional capital surcharges. The Hong Kong Monetary Authority designated the five-largest locally incorporated banks as “systemically important” in early 2015, and they will need to meet steadily increasing capital surcharge requirements from 2016 onwards, Moody’s explains. In anticipation of this, Hong Kong banks have issued new capital and reduced dividend payouts to meet the regulatory capital requirements. Moody’s notes that the issuance of Additional Tier 1 securities can be used to satisfy deductions from regulatory capital, and free up Common Equity Tier 1 capital to meet capital buffer requirements. Current low interest rates also encourage banks to issue Additional Tier 1 securities. Six out of the 17 rated Hong Kong banks issued Additional Tier 1 securities in 2014, with three of the six banks issuing them to their overseas and mainland parents. Four rated banks also issued Basel III compliant subordinated debt to boost their total capitalisation. “We expect further issuances of Basel III-compliant capital securities in 2015 and 2016 as the banks seek to maintain their capitalisation and refinance maturing securities,” Hsu says. From this year, Hong Kong banks are required to disclose their Basel III leverage. The common equity-tototal assets ratio for rated Hong Kong banks ranged from 6 percent to 14.2 percent at end-2014.

Banks’ capitalisation remains stable

In 2014, most Hong Kong banks either maintained or improved their capitalisation and funded their growth mainly through retained earnings.

Mainland exposures on the rise even as the economy slows down

Source: Hong Kong Monetary Authority

20 ASIAN BANKING AND FINANCE | DECEMBER 2015

Moody’s adverse stress-test scenario assumes that the rated banks’ non-performing loans will increase to 1.7 percent from 0.5 percent at end-2014, while net interest income and other income will fall by 33 percent and 70 percent, respectively. Under this scenario, the rated banks’ average Tier 1 ratios would decline modestly to 13.5 percent from 14.3 percent currently. High credit costs, but strong income The expected increase in policy interest rates in 2015 and 2016 should lead to a widening in the banks’ net interest margins. Hong Kong banks’ loans, including residential mortgages, are predominantly floating-rate loans. Loan benchmark interest rates include Hong Kong Interbank Offer Rate and Prime rate. The Prime rate is generally set at a fixed spread to the policy interest rate. “We expect the benchmark interest rates to rise faster than current and savings deposit rates when the policy tightening cycle starts,” Hsu says. However, the positive impact of the expected policy rate increases on profitability will be partially offset by margin pressures on lending to high-quality borrowers amid strong competition as the banks take a more cautious stance with loan underwriting, and lower net interest spreads on banks’ RMB assets, Moody’s notes. “We assess systemic support for Hong Kong banks as deteriorating, given the government’s proposed revision for the local bank resolution regime, slated to be implemented by early 2016. The proposed regime is in line with the Financial Stability Board’s Key Attributes for Effective Resolution Regimes for Financial Institutions,” Hsu says. The proposed regime allows authorities to impose losses on creditors of distressed financial institutions deemed as non-viable, and aims to control the use of public sector funds in distressed financial institutions’ resolutions.

co-published Corporate profile

SmartStream demonstrates the value of moving post-trade processing to the cloud

SmartStream CEO Philippe Chambadal talks about cloud-based solutions in Asia.

ising costs associated with managing trading, clearing and post-trade processing are forcing banks to revisit how best to deploy their IT and operations budgets. This is leading to a move away from traditional, on-premise solutions and an increased interest in cloud-based services, according to SmartStream CEO Philippe Chambadal. “The cost of operating software onsite is extremely high. You have to buy the servers, a messaging layer and the middleware,” says Chambadal. “Typically, for every dollar spent on software, there can be an additional $15 in extra costs. Justifiably, financial institutions don’t want that level of expense, or to be saddled with running and maintaining that type of operation. Using SmartStream’s cloud-based solutions they only pay for the outcome, not the infrastructure.” Chambadal believes a lot of friction and cost in the post-trade process is related to the high levels of manual processing involved. “SmartStream is helping the banks to move away from this model, to automate post-trade processing, lower the number of trade breaks and increase STP rates. For an individual bank it’s difficult to build a best-in-class system. The SmartStream model is based on the belief that the majority of firms can trade using a single data set and a single model. By utilizing SmartStream’s services, they can eliminate up to 98% of the trade breaks across the board. Trading across hundreds of venues and 50,000 firms becomes simpler with SmartStream because banks can manage their posttrade processes using a single platform.” Bringing Value Then there is the issue of bringing value to the back and middle office functions. Chambadal explains: “If you run thousands of applications within a firm and you don’t have a streamlined set of transaction lifecycle management tools, it is virtually impossible to know to what extent trade breaks have been 22 ASIAN BANKING AND FINANCE | DECEMBER 2015

missed; it could easily be in the hundreds or thousands. When using spreadsheets you can only hope you discover what has been missed or processed incorrectly and that’s a big risk!” “In terms of control, what you want is a single front-to-back framework that captures 100% of the trades and payments so you are sure nothing falls through the cracks. And, if a trade does break, you need to have the audit trail to see why the break occurred and how it was resolved. When you are doing this as a shared service, at the industry level, your clients benefit from the network effect.” The scale of the problem caused by broken trades can be seen in industry figures which show that, in general, 16% of trades will break, increasing to 29% for derivatives. It is estimated that the cost of these breaks is between US$5065 billion a year. Evidence also shows that the majority of these breaks are caused by poor reference data – because, simply put, when the data doesn’t match, trades fail. Reference data “An actual example could be when the front office is using Bloomberg or Reuters terminals and the middle office is using an IDC feed. Though it may seem that the poor data quality leading to mismatches between the two systems is an easy problem to fix, the individual vendors are competitors and have no incentive to work together to remedy the problem. That’s where SmartStream steps in. SmartStream is not a data provider, we are a neutral vendor, and we can help solve the problem because we have created cross-referencing and increased the quality of reference data, so the majority of these trade breaks don’t happen anymore,” says Chambadal. “Cracking the code for reference data management is a big deal. Numerous firms have tried for decades to develop

Philippe Chambadal, CEO SmartStream a central utility and SmartStream is the first to be able to do it. There is a goal of eliminating $15billion in wasted expenditure due to poor reference data in post-trade.” Managed shared services In additional to the software-as-a-service model,SmartStream also offers clients the option of managed shared services. “For managed services, we deploy the service on our site and we run the transaction processing service for the client so they can completely outsource the function to us. In terms of time to market and the cost of onboarding, the savings are in the order of 70-90% versus doing it inhouse.” “The buy-side is currently more advanced with this type of model, they have already decided to get rid of the internal middle and back office function. However the sell-side is catching up. The retooling of the back office that was enforced by the financial crisis, and the regulators, is too expensive for a single bank to manage effectively,” concludes Chambadal, “so the only way forward is to move to a shared service model.”

“By utilizing SmartStream’s services, financial institutions can eliminate up to 98% of the trade breaks.”

ASIAN BANKING AND FINANCE | DECEMBER 2015 23

SECTOR REPORT 1: forex

FX hedging instruments are always in need

Trading changes leave banks flustered A torrent of new regulations is forcing banks to swerve quickly or risk falling by the wayside.

hen UOB began offering e-trading back in 2000, it knew that listening to customers and being one step ahead of the regulators were crucial to winning in the foreign exchange (FX) markets. But fast forward to 2015 and it seems banks in general are finding it harder to keep up. The number of regulations and market trends that banks must take into account has become quite daunting, and while many may try to hasten their evolution, that is far easier said than done. Regulatory roadblocks Among their concerns, banks are particularly preoccupied with complying with the new regulations in FX trading. European and US regulators have been accelerating the implementation of Basel III and European Market Infrastructure Regulations (EMIR) and Dodd-Frank (DF) regulations, which has brought about fresh worries of decreasing market liquidity. “Due to the impact of Basel III on capital requirements and EMIR/DF 24 ASIAN BANKING AND FINANCE | DECEMBER 2015

Asian businesses are clamoring for more FX solutions for their trading, investment, hedging, clearing and settlement needs.

on stricter internal trading policy, the number of market players is decreasing, resulting in lower liquidity in the market,” says Thiti Tantikulanan, capital markets business division head, KASIKORNBANK. “We see less and less proprietary trading activities and higher credit charges in derivatives transactions. This has been hindering liquidity providing in the interbank market, both in FX and derivatives, making it quite a challenge to serve customers whose flows are growing,” he adds. Taken together, current regulation has made the landscape of the FX market more restrictive and more transparent but less innovative, says Johannes Husin, treasury director at Bank OCBC NISP. He says this has been in response to the need of the market to more carefully consider the risks and rewards in FX trading. As a result of increased regulation, banks have been pushed to review existing activities and liaise with regulators before launching new products.

Banks are also facing an uphill battle when it comes to navigating the regulatory barriers in the ASEAN region and China where demand for intra-regional cross-border transactions is booming. “FX hedging instruments in such developing markets are always in need but given FX and capital control in most countries, it is still difficult to find solutions under the scope of regional currencies as customers require,” he says. “Most of the time a way out is to fall back to the usage of non-regional currencies, which usually incurs additional costs for the parties in such transactions.” Regional bank UOB has had a front-row view of these problems, and it traces the increasing demand for FX solutions in Asia to flourishing cross-border business and intraregional trade. Asian businesses are clamoring for more FX solutions for their trading, investment, hedging, clearing and settlement needs since Asian currencies are now being guided within

SECTOR REPORT 1: forex a managed float by their respective central banks in the FX markets, notes Ng Kwee Ming, executive director, corporate treasury and advisory at United Overseas Bank (UOB). Without being pegged to another currency – as was the case roughly two decades ago when most Asian currencies were pegged to another foreign currency like the US dollar – Asian currencies may display a larger volatility. “This becomes a concern for businesses as they may have dealings and receipts in different currencies,” says Ng. “FX solutions are therefore important for businesses to address their needs in managing currency volatility and fluctuations.” Here is where banks come in, helping businesses choose the FX solutions that suit their needs and also to comply with the wildly varying regulations across different countries and markets in the region. “Regulations for the FX and capital markets are becoming more stringent these days, with capital controls for both inflows and outflows becoming increasingly common in Asian markets,” says Ng. “This is because regulators also see these regulations as important tools to manage liquidity, ensure stability and reduce speculations in the markets.” UOB’s approach in the face of mounting regulations has been to establish a wide regional network that allows customers to easily move their capital around through the local currency markets. “Many regulators also do not allow financial institutions without a local presence to freely trade or settle a local currency. UOB’s strong regional presence in eight of the ten southeast

Asian countries, as well as subsidiaries and offices in major Asian markets including China, Hong Kong, Taiwan, Korea and Japan, means we can offer on-the-ground FX access and expertise to our customers,” says Ng. Market trends As if banks did not have enough on their plates by having to comply with all the new regulations, they also have to grapple with three emerging trends in FX trading: the rise of currency e-trading, increased volatility and FX futures education. “Besides addressing the need of increasingly stringent regulations, banks in the FX markets will also need to understand the shift in technology to better serve our customers. With the advance of technology, e-trading for FX has also become more common among our customers,” says Ng. “Over the years, e-trading as a platform has become beneficial for both the customer and the bank. Customers can use e-trading to trade on-the-go and enjoy lower transaction costs on line. E-trading has also helped to encourage a more efficient and transparent market for FX, saving customers both time and cost,” he adds. But Ng notes that banks should not forget that e-trading only improves expediency but does not circumvent the regulation challenges. “E-trading serves as an additional convenience and platform for our customers but the key is still in the ability to trade in local currencies according to market regulation,” he says. For his part, Husin believes that e-trading platforms are now a ‘must

E-trading encouraged a more transparent FX market

Johannes Husin

Masashi Nimura

Thiti Tantikulanan

[Banks] have to grapple with three emerging trends in FX trading: the rise of currency e-trading, increased volatility and FX futures education.

have’ given the increased competitiveness of Asian banks in FX markets. He says e-trading can help banks by reducing their bid/offer spread and provide transparency for clients. Tantikulanan says currency e-trading is suited to Asia’s frontier markets such as Japan, Singapore and Hong Kong, where the currencies are freely traded, and believes that moving towards a single trading platform could benefit the market by improving transparency and simplifying the technical structure for security control. The second trend that banks in FX trading should keep a close eye on is the increased volatility in the market. “We think we have to be watchful not only about potential counterparty risks but also the abnormally high level of volatility in forex trading,” says Masashi Nimura, deputy head of global markets group at Krungsri (Bank of Ayudhya PCL). “Financial markets across asset classes - commodities, FX, bonds, stocks - have become ever more interconnected through a rapid shift in asset allocation strategies of fund managers, making markets more unpredictable. Our customers, especially the corporate sector, therefore, need to hedge against their exposures,” adds Nimura. “While this provides opportunities for the bank’s markets business, it also highlights the need for competent risk management.” Nimura believes that the global economy has entered a phase of so-called “re-balancing”, where developed markets such as the US are doing better than emerging ones including China and Thailand. “During this phase, we will get a lot of price fluctuations, negative news, and rumors, as well as lowered risk tolerance of market players,” he says, and banks should be prepared to ride these rougher waves. The third trend that banks should focus on is to ramp up customer education, especially when it comes to FX futures. “Unfortunately market participants especially end-users on hedging are not welcoming the risk incurred from the mismatch between FX Futures and their underlying exposure,” says Tantikulanan. ASIAN BANKING AND FINANCE | DECEMBER 2015 25

PEOPLE PROFILE

ABN AMRO’s new CFO for Greater China zeroes in on strengthening ties with The Netherlands With the bustling business activity in Greater China, Oliver Kuan is determined to usher in a new phase of growth for ABN Amro. their supportive infrastructure and effectively provide more elbow room for their businesses to thrive. He also hopes to continue ABN Amro’s unique culture and values and extend it to his teammates. In an interview with Asian Banking and Finance, Kuan shares his philosophies and plans as he gears up for his new position:

Oliver Kuan Chief Financial Officer ABN AMRO, Greater China

quipped with a firm grasp of banking and finance in Greater China, Oliver Kuan has been appointed as ABN AMRO’s new Chief Financial Officer (CFO) and will be taking over the entire finance function of the bank’s Greater China offices and Wholesale Banking Asia business. He will be based in Hong Kong. For eight years, Oliver has worked with Deutsche Bank in London and Hong Kong, and has held a number of CFO Management and Supervisory Board positions. He has also worked in corporate finance and governance roles in China, the United Kingdom and Germany, with a different corporates focusing on transportation, energy, and natural resources. Kuan is also a holder of a Masters’ degree in Economics from the London School of Economics. With 20 years of finance experience under his belt, Kuan believes he is well prepared for his new position. As he takes over a position that is not entirely new to him, Kuan plans to expand their Hong Kong and Shanghai offices to extend

26 ASIAN BANKING AND FINANCE | DECEMBER 2015

sis on coaching and empowering my team members to be able to grow professionally and personally. As CFO and a senior member of the Greater China team, it is my responsibility and privilege to see that our employees feel that ABN AMRO is a place where they can perform and be recognised for it. This will in its own way bring a sense of satisfaction and, of course, go towards being an employer of choice in the market.

ABF: What makes you excited about your new position? My role is to help with a new phase of growth for a bank with a long history in Greater China as well as a strong brand recognition worldwide. I am personally excited to be able to contribute to the facilitating and strengthening of Netherlands - Greater China cross-border business activity and facilitating and supporting the exciting growth engines in Greater China. ABF: What three goals are you focused on? I am CFO for Greater China as well as for Wholesale Banking Asia and the responsibilities include the overall finance functions, management and regulatory reporting ALM/Treasury. I am currently expanding our teams in our Hong Kong and Shanghai offices in order to create a supportive infrastructure for our businesses to thrive. Hand-in-hand with that, is my role in propagating and promoting ABN AMRO’s unique culture and values internally. And finally, I hope to contribute to achieving best-in-class corporate governance standards in the bank to achieve the top employer-of-choice aspirations we have. ABF: What changes are you planning for? I would like to put further empha-

ABF: What are your key business philosophies? Like ABN AMRO, I believe in drawing from diverse backgrounds and experiences to forge a winning team so that we are able to exceed clients’ expectations. ABF: What previous positions prepared you for this and how? My background has been in finance and I had spent eight years in Deutsche Bank in London and Hong Kong previously. I’ve also held various CFO Management and Supervisory Board positions with companies I had help IPO. All in all, I’ve had 20 years of experience in Greater China in finance positions which I believe have uniquely prepared me for my current position. I hope to contribute to achieving best-in-class corporate governance standards in the bank to achieve the top employerof-choice aspirations we have.

ABF: Anything else you’d like to add? I would just like to mention the need for teamwork and how different individual perspectives from each team member helps with the overall decision-making process as well as enhancing our bank culture. I like that ABN AMRO has a relentless client-focus when it comes to internal and external stakeholders which is something I believe in too.

ASIAN BANKING AND FINANCE | DECEMBER 2015 27

SECTOR REPORT 2: islamic banking

Malaysia will lead in corporate sukuk issuances

The promise of Islamic banking in Asia How do banks play in a nascent industry faced with obstacles that impede growth?

espite being a burgeoning industry that provides a viable alternative to conventional banking, Islamic banking is beset with a number of challenges that has been keeping it from maximising its full potential. In a discussion note co-written by Alfred Kammer for the International Monetary Fund (IMF), the authors observe that while specific standards for Islamic banking have been developed by specialized standard-setting bodies, regulatory and supervisory frameworks in many jurisdictions have yet to cater to the unique risks of the industry. “Partly as a consequence, the practice of Islamic banking has, in some jurisdictions, resulted in complex financial products and corporate structures. Moreover, cross-border operations have expanded without regulatory harmonization. These developments indicate a need for increased regulatory clarity and harmonization, closer cooperation between Islamic and conventional

28 ASIAN BANKING AND FINANCE | DECEMBER 2015

The practice of Islamic banking has, in some jurisdictions, resulted in complex financial products and corporate structures.

financial standard-setters, and further enhancement of tools for effective supervision,” IMF notes. An industry with great potential IMF notes that Islamic finance, complying with sharia law, has the potential to foster greater financial inclusion, especially of large underserved Muslim populations. Its emphasis on asset-backed financing and risk-sharing feature means that it could provide support for small and medium-sized enterprises, as well as investment in public infrastructure. Its risk-sharing features and prohibition of speculation also suggest that Islamic finance may, in principle, pose less systemic risk than conventional finance. In May 2015, Indonesia sold its largest dollar Islamic bond (sukuk), while Hong Kong launched its second sukuk in June as it tries to catch up with bigger sukuk markets such as Malaysia and Singapore. Mohamad Safri bin Shahul Hamid, senior managing director

and deputy chief executive officer of CIMB Islamic, says Malaysia will continue to lead in corporate sukuk issuances despite lower projections for 2015. “We have just announced the world’s largest sukuk issuance for 2015 for an independent power company and we should be seeing a few more of these sort of semi-jumbo deals in the Malaysian ringgit market before the year comes to a close,” he says. Safri says that Indonesia is and has been the most prolific issuer of global sovereign sukuk and they expect this trend to continue. “On a corporate side, we expect to see a lot more interest coming from local Indonesian names taping the rupiah sukuk market in the nearto-medium term. The Indonesian authorities are drawing up an Islamic finance road map and the market is hopeful that this blue print will address areas such as the country’s strategic directions, legal and regulatory framework, tax legislation and neutrality,” he adds.

SECTOR REPORT 2: islamic banking Data from the IMF show that global sukuk issuance has grown significantly since 2006, although from a low base. It reached US$120 billion in 2013, bringing the outstanding sukuk to US$270 billion by the end of 2013, representing a quarter of global bond markets. In Indonesia, Islamic banking is not only catering to Muslim communities but to customers who are enticed by its products and benefits as well, says Koko T. Rachmadi, Bank OCBC NISP Sharia business unit head. “Some of the Sharia banks are involved in the branchless banking initiative by the Central Bank of Indonesia. With this technology, Sharia banks can reach rural population in Indonesia,” he adds. Meanwhile, in Malaysia’s dual banking system, the integration of Islamic banking into the mainstream has long taken place, says Puan Fozia Amanullah, chief executive officer of Alliance Islamic Bank Berhad. “Islamic banks coexist with their conventional counterparts, and provide Sharia-compliant options for almost every sphere of financial service. Islamic financial assets represent more than a fifth of total financial assets in the system. For many Islamic entities that operate in this jurisdiction, a sizeable portion of their customer base is represented by non-Muslim patronage. If there were a model for effective integration of Islamic banking into the mainstream, it would be the Malaysian model,” she says. Although showing potential for growth, Safri says Islamic banking’s penetration rate into the Muslim consumer market can be further

Islamic banking needs more skilled staff

improved. “The bulk of the deposits in Islamic banks still comes from non-Muslims, which is somewhat understandable given that there are other primary (non-banking) avenues for the Muslims in Malaysia to save or park their money. The availability of these avenues has given the Muslims in Malaysia plenty of viable options,” he says. “There is also a need to improve the service delivery level, emanating from the need to comply with Sharia requirements in the execution. Therefore a balancing of delivering seamless service while complying with Sharia requirements needs to be worked on further.” For Fozia, public policy and political will are key drivers in the growth and mainstreaming of Islamic finance. “Under the ambit of the Malaysian Islamic Financial Center initiative, Malaysia introduced laws, regulations, fiscal benefits, infrastructure, and other overt demand stimuli to create a conducive environment for the incubation and, thereafter, rapid growth of Islamic banking. Public awareness and outreach programs to promote Islamic banking were either fully funded or subsidized by the government,” she says.

Koko T. Rachmadi

Mohamad Safri Shahul Hamid

Puan Fozia Amanullah

Developing human capital Being a relatively small industry, Islamic banking all over the world is also faced with the lack of human capital. “Human capital development needs to be comprehensive and holistic in meeting the requirements for all levels. The horizon of talent development solutions has to be widened towards attracting, developing and retaining talents with required skills

Being a relatively small industry, Islamic banking all over the world is also faced with the lack of human capital.

and expertise for the industry. It must also meet the specific requirements of the workforce career progression, from the pre-employment stage, during employment and up to the leadership positions,” says Safri. He adds that talent development solutions may go beyond the circle of the financial services community to include other business communities, such as legal fraternity, government officials and information technology solution providers. “The advancement of the industry is also dependent on these parts of the private and public sector. Their training needs must also be met through structured training programmes to facilitate their understanding of the specifics of Islamic finance and its value propositions,” he says. A sign of nascency Fozia says the mismatch between talent supply and the talent requirements of this high-growth sector of finance is actually characteristic of the industry’s nascency. “Though modern Islamic banking had its genesis about 40 years ago, its growth only really accelerated in the past decade. As the industry grew, the supply of talent for this industry struggled to keep up. While, the talent gaps in management have largely been filled with ‘converted’ conventional bank professionals, it has been much harder to satisfy the demand for Sharia professionals and experts. This has of course driven up the cost of these Sharia talents,” she explains. At the same time, the industry has had to contend with Islamic banking professionals that lack depth in Sharia, and Sharia professionals who are not proficient in high finance – a compromised situation that has led to various intellectual confusions in the industry and certainly created a drag on the potential growth of this industry, she adds. “This cannot effectively be addressed by merely sending these professionals to one or two seminars to learn up on the subject matters they are unfamiliar with. On the other hand, to allow for education by osmosis or on-the-job training will mean a longer gestation towards mastery,” Fozia says. ASIAN BANKING AND FINANCE | DECEMBER 2015 29

PEOPLE PROFILE

BTMU’s Yong Lee Boon eyes robust transaction banking opportunities in East Asia With China de-regulations, BTMU’s new regional head of transaction banking sales for Greater China and East Asia plans to change mindset.

Yong Lee Boon Regional Head Of Transaction Banking Sales, Greater China And East Asia

ong Lee Boon will be taking over as Bank of TokyoMitsubishi UFJ’s (BTMU) regional head of transaction banking sales for greater China and East Asia. Having worked eight years in China has equipped Yong with various perspectives brought about by interacting with global corporate clients. She has also acquired leadership exposure due to her country management experience in Malaysia. Yong has a Graduate Bachelor’s Degree in Accountancy from the National University of Singapore and Masters in Business Administration from the University of London. Before joining BTMU, Yong was managing director, head of global corporate China, transaction banking at Standard Chartered Bank where she led the overall growth of the portfolio revenue. In an interview with Asian Banking and Finance, Yong discusses her goals and strategies: ABF: What makes you excited about your new position? 30 ASIAN BANKING AND FINANCE | DECEMBER 2015

There are a number of areas to be excited about including the opportunity to join a great team to take the transaction banking business to the next level. Our vision is to become a top 5 global player in Transaction Banking. Currently, East Asia is an exciting region especially given that Greater China is a key market for many of our clients. With the RMB internationalization and the China de-regulations, we have to constantly stay abreast of the operating environment and develop propositions to address clients’ needs. At the same time, we have many clients who are headquartered in this region who have expanded their business globally, and they have transaction banking requirements across multiple geography. Another thing is the opportunity to be a change agent in shaping the bank’s approach and delivery of transaction banking services to our clients, especially for the global corporate client segment.

there are a few key themes be it financing; liquidity management; improve process efficiency and control as well as risk management that our clients’ look to the bank for support, I believe I will spend a fair amount of time in coaching our transaction banking team and internal engagement with our Relationship Managers. ABF: What changes are you planning for? We are planning for coaching the team to move towards solutionbased marketing, and also to be the voice of our clients especially on our product developments and commercialization so that we can develop product and solutions that are relevant to our clients’ needs. ABF: What are your key business philosophies? We want to be relevant to clients, the bank and the various business partners. Transaction banking is quite commoditized these days, people are an important asset, and we have to invest in developing our team and people.

ABF: What three goals are you focused on? We are focused on developing the sales team in adopting a solutionbased approach when addressing client’s working capital management needs, being relevant to our clients and expand our share of mind and wallet in the Transaction Banking space and achieving financial performance. ABF: What will you do differently in this position? As part of the sales strategy, we have to move away from a productoriented mindset towards adopting a solution-based approach. It will have to start with understanding our client’s needs and developing the right solutions. Given that

We have to move away from a productoriented mindset towards adopting a solution-based approach.

ABF: What previous positions prepared you for this and how? Having spent eight years working in China has contributed much to my career development. It has given me exposure to the Global Corporate clients from China inbound and global origination perspectives. It also broadened my mindset in looking at new ways of doing things and be flexible in adapting to the fast changing environment. The country management experience in Malaysia also gave me the opportunity to manage the business end to end and to have a balanced holistic view of the business.

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analysis 1: corporate strategy in banking

Banks need to relearn strategy

Why Asian banks must relearn strategy The new market dynamic demands deliberate choices about where to play and how to win.

or many years, corporate strategy languished in banking circles. During the go-go 1990s and most of the 2000s, too many bankers pursued indiscriminate growth, had a broad appetite for risk and diversified their portfolios without worrying enough about controlling costs or staking out distinctive positions in the eyes of customers. Then, the 2008 fi nancial crisis caused an abrupt aboutface from growth to survival. Many bankers wielded blunt restructuring tools to take out costs and deleverage their balance sheets in order to meet regulators’ capital adequacy requirements. While most of these measures were necessary, they certainly did not set the stage for future growth. The majority of banks relied on the same tactics of cost takeout, branch network pruning and performance improvement over the past five years, yet the industry’s return on equity dropped by 6 percentage points since before the crisis, and continues to decline. The times demand that banks relearn strategy. Banks’ sources of revenue have come under pressure: Credit growth has slowed as consumers and businesses have deleveraged, net interest margins have been squeezed, and fee income has come under pressure due to increased competition and consumer watchdogs’ focus on unfair practices. At the same time, new digitally based entrants with disruptive business models, such as eToro and Kabbage, have been attacking lazy profit pools and taking share from incumbent banks. Several waves of regulation 32 ASIAN BANKING AND FINANCE | DECEMBER 2015

“The new macro and competitive environment means that banks have to adapt through more disciplined strategy.”

have introduced ever stricter and higher capital requirements, reducing banks’ own balance sheet leverage. The new macro and competitive environment means that banks have to adapt through more disciplined strategy. At some banks, what passes for strategy, in fact consists of the pursuit of quarterly profit targets. A long-term growth strategy, by contrast, often means enduring some pain over the short term and explaining to shareholders why it takes time to deliver results. To be sure, many challenges today—including low interest rates, high nonperforming loans in some countries and a regulatory backlash in many regions—have some element of cyclicality. Observers taking an extreme position could argue that banks in southern Europe will continue to lag no matter what their strategy is and that US banks can expect stronger growth once interest rates rise. Bankers who buy the cyclical explanation might feel as though they have limited options or should not make material changes. We believe that cyclical effects, though real, do not present a complete picture. Some banks perform better than others in the same conditions, and the winners over long periods manage the structural as well as the cyclical elements. Consider that the gap in total shareholder return between the best and worst of the 20 largest banks worldwide has widened from a 5% standard deviation from the average return between 1993 and 2003 to 9% over the

analysis 1: corporate strategy in banking 2003–2013 period. Clearly, different business choices led to different financial outcomes. The old, blunt strategic playbook took a resource-led approach to the portfolio that ranked businesses within existing constraints of risk, capital and liquidity, leading to short-term (one- to two-year) planning. A more effective approach to strategy defines decisions that can distinguish the bank from competitors in the eyes of customers and that allow the bank to beat competitors through cost leadership, superior customer service or other means. This approach takes a three- to fi ve-year planning horizon, with a target portfolio that determines risk, capital and liquidity boundaries. Writing a new playbook requires making real choices Any strategy should take into account the starting point and the customer, competitive, technological and regulatory trends affecting a bank and its markets. It should also equip the bank to manage through financial market and economic cycles, being explicit about the risk exposures desired and how to adjust those exposures throughout the cycle. Accomplishing both goals entails defining a much broader set of options than most banks have considered regarding their business portfolio, risk appetite and capital allocation. Strategy should define the attractive markets and whether a bank can develop a strong and sustainable position in those markets so that it can build a few distinctive assets and capabilities that set it apart. Differentiation comes not from baseline steps such as moving activities online but rather by sculpting features that will induce customers to take out a mortgage or invest their wealth with one bank over its competitors. Making choices about what type of bank to become is a central issue for all banks today. Bain’s analysis of 250 banks globally shows that only 1 in 9 are sustained value creators—we defi ne this group as banks that beat the competition on revenue and earnings growth over the 10-year period, while delivering total shareholder return greater than the cost of capital. In our sampling, 65% of the sustained value creators (by number of banks) are local or regional, multi-category banks. By contrast, only 4% of sustained value creators fit the global universal model, which is a smaller share than the 7% of total banks that fit the global model. Most of the global universal banks extended their footprint so broadly that they now have a long tail of subscale countries or products that don’t yield leadership economics. For years, given positive macroeconomic trends and reasonable growth in emerging markets, global universal banks were not required to prove that synergies of scope, scale and funding exceeded the potential drawbacks of complexity and control challenges. However, slower economic growth, increasingly sophisticated local competitors and recent regulatory changes have imposed signifi cant penalties for being global and universal. That forces global universal banks to reassess the value of this model. The result: The 3-percentage-point return on equity advantage over other banks that global universal banks once enjoyed due to synergies has been reversed, with

“Any strategy should take into account the starting point and the customer, competitive, technological and regulatory trends affecting a bank and its markets.”

some global banks posting an ROE disadvantage as large as 3 percentage points, according to Bain analysis. Now, a few global universal banks, such as Royal Bank of Scotland and Deutsche Bank, have started to move away from—or adapt—the model, exiting countries and splitting off large business units. Others, such as JPMorgan Chase and HSBC, conceding that the penalties have shifted the balance, seek to make conscious choices to ensure that the economics are sustainable. Customers notice these choices. In retail banking, for instance, large national banks’ Net Promoter ScoreSM, a well-established measure of customer loyalty, in some countries still lags behind direct banks, cooperatives and credit unions—institutions that tend to have clear, focused strategies and that explicitly choose not to do certain things so that they can excel at their core offerings. Some leading banks, therefore, are making strategic choices from a set of options that feel radically different from one another, rather than being a variation on a theme. Their decisions cluster in three areas: the bank’s overall ambitions; where it should play by country, product and customer segment; and how it can win in each chosen market. What’s your ambition? Setting a bank’s ambition at the enterprise level involves articulating a vision that’s both inspiring for employees and specific enough to enable choices as opposed to vague, feel-good aspirations. The vision can encompass what the mix of businesses and geographies will look like and the desired competitive position. Besides a compelling vision, defi ning the ambition involves choices concerning what balance of risk and return to adopt. This will depend partly on investors’ appetite for risk. Where should you play? Once the ambition is set, what should the business portfolio mix look like in terms of geographic focus, customer segments, product lines and parts of the value chain? Just as important, what links the businesses and could make the whole worth more than the sum of the parts? This

Banks must set an ambition at the enterprise level

ASIAN BANKING AND FINANCE | DECEMBER 2015 33

analysis 1: corporate strategy in banking question concerns not only cost and platform sharing or customer overlaps. Liquidity and funding have always been crucial in a balance-sheet business, but new regulations and near-death experiences should force bankers to more explicitly consider tradeoffs and asset/liability linkages. When weighing whether to keep or add a country or a product line, it makes sense to set a high hurdle. Choosing which customer segments to serve requires a rigorous review of how capital and management resources would be allocated across consumers, small businesses, multinational corporations and the sub- segments within each one. In small business lending, for instance, it is becoming increasingly important to pursue fee-based transactional activities such as cash management. In consumer markets, few banks can be all things to all people, so it may be better to exit serving a particular segment if you cannot deliver a differentiated experience. For any given product or segment, banks also have a range of choices about how to source and deliver the goods—their own product, a co-branded product, thirdparty investment vehicles, in-house vs. outsourced processing and so on. Viewing the portfolio in an integrated manner allows a bank to choose the best businesses to pursue and avoid less attractive, subscale businesses. You can build this view based on an assessment of each business’s attractiveness, using metrics such as return on capital and segment growth, and the bank’s ability to win, using metrics such as relative market share and relative customer loyalty scores. Then you can set a strategy for each business and allocate resources appropriately.

How can banks win?

“Distinctive how-to-win models in banking include product innovation, efficiency and repeatable mergers and acquisitions.“

How can you win? When banks make deliberate choices about where to play, some banks often then jump right to tactical steps. Most sustained value creators, by contrast, fi rst spend time determining how they can win—for instance, how to become a trusted proposition in small business lending and ancillary services, or which aspects of the banking experience will truly delight their retail consumers and improve the bank’s economics. Distinctive how-to-win models in banking include product innovation (as pursued by China Merchants Bank), efficiency (Santander) and repeatable mergers and acquisitions. While the models are not mutually exclusive, Assess portfolio choices on relatedness, attractiveness and ability to win

Source: Bain & Company

34 ASIAN BANKING AND FINANCE | DECEMBER 2015

each depends on a different mix of key assets and capabilities. It’s difficult and resource-intensive to be great at every capability; in fact, it’s not necessary or even healthy. Leading banks invest heavily in those few capabilities essential to realizing the strategy while being “good enough” where that’s sufficient. Strategy was dead, long live strategy The need to make strategic choices for long-term growth and performance has become more urgent for banks than their leaders may realize. Customers are increasingly willing to try disruptive models such as peer-to-peer lending or non-card payments systems. Local competitive dynamics also are changing—for instance, in developing markets, homegrown banks have been introducing more sophisticated services just as global banks retreat. At the same time, many of the strategic choices that banks will make have big implications for investments in technology and talent, and will take time to implement. These changes demand more from leaders at the corporate center. For example, they will need to develop a better understanding of the real profi tability of their businesses, adjusted for risk and capital requirements. While banks frequently used risk-adjusted return on capital measures in the 1990s, many moved in the early 2000s to a focus on operating profit, then moved to revenue or even volume of assets, which encouraged indiscriminate growth. Some banks only reestablished a focus on return on capital measures after the financial crisis. Most banks could also stand to improve their policies on transfer pricing, capital allocation and incentives for executives and staff. A great strategy will stall without effective implementation, of course, and banks face substantial challenges here as well. They have to deal with interlinked flows of capital and legacy IT systems that create interconnections and make it tough to unwind particular businesses. Those banks that move quickly to define focused and distinctive strategic paths and priorities will be able to control their destiny. By James Hadley, et al., Bain & Company

Analysis 2: loan growth in asia To be sure, China’s household debt levels are still contained, and its debt issues lie largely with corporates and local governments. This is not the case in a number of other countries across the region, including Australia, Malaysia, and Thailand.

Loan growth rebound unlikely in Thailand

Asian banks’ double whammy Behold expensive property markets and highly indebted households.

oan growth across Asia will generally be stable in 2015 versus 2014 levels, as the region’s major markets grapple with varying headwinds against their respective banking sectors. China is a relatively unique case in this respect, as we believe that a combination of monetary policy easing from the PBoC, as well as centrally-directed lending initiatives, will bring about a slight uptick in lending growth over the course of 2015. Chinese economic growth Loan growth generally stagnant

Source: BMI, Regional Central Banks

36 ASIAN BANKING AND FINANCE | DECEMBER 2015

Thailand’s banking sector is facing a similar outlook, with household debt having risen to an all-time high of THB10.6trn.

continues to become increasingly credit intensive, and this is in large part a symptom of investment in increasingly unproductive real estate and infrastructure projects following the massive stimulus measures adopted in 2009. In order to address these issues, the economy is badly in need of a protracted period of deleveraging, during which time loan growth would need to fall below nominal GDP growth. Given our forecast for total credit in China to grow by 15% this year, we clearly do not believe that this will be the case, and instead see the government pushing more liquidity into the market in order to prop up the ailing housing and stock markets in order to stave off a more rapid decline in real economic activity. In light of the high rate of credit growth expected this year, we see total banking sector assets as a proportion of GDP rising to 283.2% in 2015, the highest mark in the region behind global financial centre Hong Kong.

High household indebtedness In Australia, household indebtedness as a proportion of disposable income rose to 155.9% in March, reflecting the increasing burden of the country’s overheating residential property sector. This is not a sustainable state of affairs, and we believe that a downturn in house prices over the coming quarters is a distinct possibility. With housing loans representing a significant 64.8% of total loans across Australia’s big four lenders, we see little room for a rebound in loan growth in the country going forward. Thailand’s banking sector is facing a similar outlook, with household debt having risen to an all-time high of THB10.6trn (approximately 77.7% of annualised GDP) in Q115. The ratio of household debt to GDP is particularly high for a developing market such as Thailand, and along with thinning net interest margins, we believe that there is little room for either loan growth or overall revenue growth in the southeast Asian state over the coming quarters. In combination with relatively lacklustre activity in the broader real economy, we have lowered our 2015 loan growth forecast to 5.0% (from 5.5% previously), and expect lending growth to remain flat at this level in 2016 as well. In Malaysia, we see loan growth rising marginally to 6.5% (from 6.0% in 2014), as the market also grapples with high levels of household indebtedness (approximately 88.0% of GDP) amid an elevated residential property price environment. By BMI Research

ASIAN BANKING AND FINANCE | DECEMBER 2015 37

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COVER STORY

ABF salutes Asia’s brightest banks

he Asian Banking and Finance magazine proudly continued its long tradition of honoring Asia’s best and brightest banks at this year’s Wholesale Banking Awards and Retail Banking Awards. Around 200 bankers from over 30 countries flocked to the jam-packed event, which was held on July 8 at Shangri-La Hotel Singapore.“This year marks that 10th year of our Retail Banking Awards, and the 4th year of our Wholesale Banking Awards. ABF is immensely proud to have produced a long and esteemed roster of winners composed solely of Asia’s most impressive banks,” said Tim Charlton, editor-in-chief of ABF. The winners were selected from hundreds of nominations. This year’s roster included banks from 27 countries for the Retail Banking Awards, and 24 countries for the Wholesale Banking Awards. This year also marked the first participation of banks from countries including Myanmar, Oman, and Afghanistan participated. The nominations were carefully screened by a panel of esteemed judges, which included executives from the world’s largest accounting firms. Mehrotora was present at the ceremony and highlighted key challenges that the banking industry is currently facing, such as the role of social finance, the increased participation of women in the workforce, and the impact of Asia’s rapidly ageing societies on the banking sector. This year also marked the inaugural Charlton East Coles Corporate Performance Awards. The Charlton East Coles Corporate Performance Awards polls buy-side institutional investors and sell-side analysts and asks them to rate the corporate performance namely Management, Board, Shareholder, Strategy and Financial of the Top 50 listed companies, by market capitalization, in of listed companies in Asia. ABF congratulates all the winners, as follows:

WHOLESALE BANKING AWARDS 2015: Abu Dhabi Commercial Bank UAE Domestic Trade Finance Bank of the Year Azizi Bank Afghanistan Domestic Trade Finance Bank of the Year Bangkok Bank Thailand Domestic Trade Finance Bank of the Year BankDhofar Oman Domestic Cash Management Bank of the Year Oman Domestic Project Finance Bank of the Year Bank for Investment and Development of Vietnam JSC Vietnam Domestic Technology and Operations Bank of the Year Bank of Ayudhya (Krungsri) Thailand Domestic Technology & Operations Bank of the Year Bank of China (Hong Kong) Hong Kong Domestic Foreign Exchange Bank of the Year Hong Kong Domestic Cash Management Bank of the Year BDO Unibank Philippines Domestic Cash Management Bank of the Year Philippines Domestic Trade Finance Bank of the Year Philippines Domestic Project Finance Bank of the Year Burgan Bank Kuwait Domestic Cash Management Bank of the Year

40 ASIAN BANKING AND FINANCE | DECEMBER 2015

Cathay United Bank Taiwan Domestic Cash Management Bank of the Year Taiwan Domestic Trade Finance Bank of the Year CB BANK Myanmar Domestic Cash Management Bank of the Year CIMB Bank Berhad Malaysia Domestic Cash Management Bank of the Year CTBC Bank Taiwan Domestic Foreign Exchange Bank of the Year Doha Bank Qatar Domestic Trade Finance Bank of the Year DBS Bank, Singapore Singapore Domestic Cash Management Bank of the Year Singapore Domestic Technology & Operations Bank of the Year Singapore Domestic Foreign Exchange Bank of the Year DBS Bank, Hong Kong Hong Kong Domestic Technology & Operations Bank of the Year DBS Bank, China China Domestic Trade Finance Bank of the Year China Domestic Cash Management Bank of the Year Emirates NBD PJSC UAE Domestic Cash Management Bank of the Year Hang Seng Bank Limited Hong Kong Domestic Trade Finance Bank of the Year Janata Bank Limited Bangladesh Domestic Technology and Operations Bank of the Year JSC Halyk Bank Kazakhstan Domestic Project Finance Bank of the Year KASIKORNBANK Thailand Domestic Cash Management Bank of the Year Lao Viet Joint Venture Bank Laos Domestic Technology and Operations Bank of the Year Maybank Malaysia Domestic Technology & Operations Bank of the Year Malaysia Domestic Trade Finance Bank of the Year Vietnam Maritime Commercial Joint Stock Bank Vietnam Domestic Foreign Exchange Bank of the Year Maybank Kim Eng International Project Finance Bank of the Year National Development Bank PLC Sri Lanka Domestic Cash Management Bank of the Year Sri Lanka Domestic Project Finance Bank of the Year Noor Bank UAE Domestic Technology and Operations Bank of the Year OCBC Bank Singapore Domestic Trade Finance Bank of the Year PT. Bank OCBC NISP, Tbk Indonesia Domestic Technology and Operations Bank of the Year Indonesia Foreign Exchange Bank of the Year OJSC Optima Bank Kyrgyzstan Domestic Technology and Operations Bank of the Year Philippine Business Bank Philippines Domestic Technology and Operations Bank of the Year Private Joint Stock Exchange Bank Trustbank Uzbekistan Domestic Trade Finance Bank of the Year Uzbekistan Domestic Project Finance Bank of the Year PT. Bank Mandiri (Persero) Tbk Indonesia Domestic Trade Finance Bank of the Year

COVER STORY Indonesia Domestic Cash Management Bank of the Year RHB Banking Group Malaysia Domestic Foreign Exchange Bank of the Year Saigon-Hanoi Commercial Joint Stock Bank Vietnam Domestic Project Finance Bank of the Year Vietnam Domestic Trade Finance Bank of the Year Security Bank Corporation Philippines Domestic Foreign Exchange Bank of the Year Taishin Bank Taiwan Domestic Technology & Operations Bank of the Year T端rk Ekonomi Bankasi A.S. (TEB/BNP Paribas Joint Venture) Turkey Domestic Cash Management Bank of the Year United Amara Bank Limited Myanmar Domestic Project Finance Bank of the Year Myanmar Domestic Trade Finance Bank of the Year Westpac Banking Corporation Australia Domestic Cash Management Bank of the Year Australia Domestic Trade Finance Bank of the Year YES BANK India Domestic Cash Management Bank of the Year India Domestic Trade Finance Bank of the Year

RETAIL BANKING AWARDS 2015: AbuDhabi Commercial Bank Domestic Retail Bank of the Year - UAE Advertising Campaign of the Year - UAE Alliance Bank Malaysia Berhad SME Bank of the Year - Malaysia AmBank Website of the Year - Malaysia Australia and New Zealand Banking Group Limited Credit Card Initiative of the Year - Singapore Axis Bank Ltd. Advertising Campaign of the Year - India Mobile Banking Initiative of the Year - India Azizi Bank Domestic Retail Bank of the Year - Afghanistan Credit Card Initiative of the Year - Afghanistan Baiduri Bank Domestic Retail Bank of the Year - Brunei Mobile Banking Initiative of the Year - Brunei Bank of Ayudhya (Krungsri) Mobile Banking Initiative of the Year - Thailand Website of the Year - Thailand Advertising Campaign of the Year Bank of China (Hong Kong) Limited Mobile Banking Initiative of the Year - Hong Kong BankDhofar SME Bank of the Year - Oman Website of the Year - Oman

Burgan Bank Domestic Retail Bank of the Year - Kuwait Credit Card Initiative of the Year - Kuwait Advertising Campaign of the Year - Kuwait Cambodian Public Bank Domestic Retail Bank of the Year - Cambodia Citi International Retail Bank of the Year Advertising Campaign of the Year - Singapore Employer Award of the Year - Gold Citibank (Hong Kong) Limited Advertising Campaign of the Year - Hong Kong Branch Innovation of the Year - Silver DBS Bank, Taiwan Advertising Campaign of the Year - Taiwan DBS Bank, China Mobile Banking Initiative of the Year - China Online Banking Initiative of the Year - China SME Bank of the Year - China DBS Bank, Hong Kong Online Banking Initiative of the Year - Hong Kong SME Bank of the Year - Hong Kong DBS Bank, Singapore Domestic Retail Bank of the Year - Singapore DongA Joint Stock Commercial Bank Domestic Retail Bank of the Year - Vietnam DongA Money Transfer Company Finance Company of the Year - Vietnam Hong Leong Finance ASEAN Finance Company of the Year HSBC China Foreign Retail Bank of the Year - China HSBC Bank Australia Limited Online Banking Initiative of the Year - Austalia HSBC Sri Lanka Advertising Campaign of the Year - Sri Lanka ICICI Bank Online Banking Initiative of the Year - India Website of the Year - India Janata Bank Limited Domestic Retail Bank of the Year - Bangladesh Employer Award of the Year - Bronze JSC Eurasian Bank Domestic Retail Bank of the Year - Kazakhstan Kanbawza Bank Domestic Retail Bank of the Year - Myanmar Credit Card Initiative of the Year - Myanmar KASIKORNBANK PCL Domestic Retail Bank of the Year - Thailand Online Banking Initiative of the Year - Thailand Branch Innovation of the Year - Bronze Khan Bank Domestic Retail Bank of the Year - Mongolia

Banque Pour Le Commerce Exterieur Lao Public Domestic Retail Bank of the Year - Laos Mobile Banking Initiative of the Year - Laos

The Land Bank of the Philippines Core Banking System Initiative of the Year - Philippines Mobile Banking Initiative of the Year - Philippines

BDO Foundation, Inc. Corporate Social Responsibility Program of the Year - Silver

Maybank Mobile Banking Initiative of the Year - Malaysia

BDO Unibank, Inc. Online Banking Initiative of the Year - Philippines

Mashreq Credit Card Initiative of the Year - UAE

ASIAN BANKING AND FINANCE | DECEMBER 2015 41

COVER STORY Online Banking Initiative of the Year - UAE SME Bank of the Year - UAE METROPOLITAN BANK & TRUST, CO. (METROBANK) Corporate Social Responsibility Program of the Year - Bronze National Development Bank PLC. Domestic Retail Bank of the Year - Sri Lanka SME Bank of the Year - Sri Lanka OCBC Bank ASEAN SME Bank of the Year Mobile Banking Initiative of the Year - Singapore PT. Bank OCBC NISP, Tbk SME Bank of the Year - Indonesia Mobile Banking Initiative of the Year - Indonesia

Alexa Luccina Virata of Security Bank

OCBC Securities Pte Ltd Online Securities Platform - Singapore OJSC Optima Bank Website of the Year - Kyrgyzstan Philippine National Bank Website of the Year - Philippines PrimeCredit Limited Finance Company of the Year - Hong Kong PT. Bank Mandiri (Persero) Tbk Credit Card Initiative of the Year - Indonesia Advertising Campaign of the Year - Indonesia Domestic Retail Bank of the Year - Indonesia Public Bank Domestic Retail Bank of the Year - Malaysia Rizal Commercial Banking Corporation Domestic Retail Bank of the Year - Philippines SME Bank of the Year - Philippines

Andrae Krishnawan of OCBC NISP

Security Bank Advertising Campaign of the Year - Philippines Siam Commercial Bank PCL SME Bank of the Year - Thailand Standard Chartered Bank (Hong Kong) Limited Branch Innovation of the Year - Gold State Savings Bank of the Republic of Tajikistan “Amonatbonk” Credit Card Initiative of the Year - Tajikistan Taishin Bank Domestic Retail Bank of the Year - Taiwan Mobile Banking Initiative of the Year - Taiwan Credit Card Initiative of the Year - Taiwan The State Bank for Foreign Economic Affairs of Turkmenistan Domestic Retail Bank of the Year - Turkmenistan Union Bank of the Philippines Corporate Social Responsibility Program - Gold Employer Award of the Year - Silver

Andrianto Wahyu Adi of PT Bank Mandiri (Persero) Tbk

United Amara Bank Limited Core Banking System Initiative of the Year - Myanmar United Overseas Bank Online Banking Initiative of the Year - Singapore VPBank - Vietnam Prosperity Joint-Stock Commercial Bank SME Bank of the Year – Vietnam

Charlton EastColes Corporate Performance Awards 2015 DBS Group Holdings Limited Singapore Company Gold & Singapore Financial Company Gold 42 ASIAN BANKING AND FINANCE | DECEMBER 2015

Kajohnsak Manaviriyakul of Bangkok Bank

Low Seh Kiat, Andrae Krishnawan and Linus Goh of OCBC Aaron Hung and Cathy Li of Cathay Bank United Bank

Kyawt Kay Khaing and George Koshy from United Amara Bank Limited

Amit Pansare and Munindra Verma of Yes Bank

Low Seh Kiat of OCBC NISP

George Koshy of United Amara Bank Limited

Johnson Rajan of Abu Dhabi Commercial Bank

Edwin Romualdo Reyes and Walter Wassmer of BDO Unibank

BDO Unibank representatives

Larry Chung of Taishin Bank

Navinder Duggal, Choong Yang Ping, Chan Tuck Wai and Albert Lim of DBS Bank

Sarita Vongvanich, Weerasakol Chawanotai, Dan Harsono, ThamASIAN BANKING AND FINANCE | DECEMBER 2015 43 machart Rojanabenjawong, Pakamon Tulyapizitchai, Suwanna

Linus Goh of OCBC Bank

Wai Phyo Aung of CB Bank

Nguyen Thi Huong of Saigon Hanoi Commercial Joint Stock Bank

Chung Chee Kai of Maybank

Kumudari Peiris and Ishani Palliyaguru of National Development Bank Plc

Tan Kay Cheng of RHB Bank Berhad

Swapnil Desai of Burgan Bank

Amit Pansare of Yes Bank

Dithichai Limpodom of KASIKORNBANK

44 ASIAN BANKING AND FINANCE | DECEMBER 2015 Sami Omar Al Zadjali of BankDhofar

Dang Manh Pho of BIDV

Le Cong Nguyen of Lao Viet Bank

Samuel So of Bank of China (Hong Kong)

Samir Sahu of Emirates NDB

Munindra Verma of Yes Bank

Mohit Mehrotra of Deloitte giving a speech on behalf of the judges

Wai Phyo Aung of CB Bankv

Passakorn Reabroi, Dan Harsono, Weerasakol Chawanotai and Patcharin Khaoriang of Bank of Ayudhya

Zoemone Wong and Samuel So of BOCHK with Tim Charlton

Swapnil Desai of Burgan Bank

Kyawt Kay Khaing and George Koshy from United Amara Bank Limited

ASIAN BANKING AND FINANCE | DECEMBER 2015 45

Walter C. Wassmer and Edwin Romualdo G. Reyes of BDO Unibank

Tim Charlton of Asian Banking and Finance with Kajohnsak Manaviriyakul of Bangkok Bank

Maybank Team

Alexa Luccina M. Virata of Security Bank

Khomkhuanxay Sisouphanthong, Le Cong Nguyen and Nguyen Dinh Ngan of Lao Viet Bank

Kamill Fung, Janet Ching and Samuel So of BOCHK with Tim Charlton

Le NguyenAND andFINANCE Nguyen| Dinh Ngan2015 of Lao Viet Bank with 46 Cong ASIAN BANKING DECEMBER Nguyen Xuan Hoa and Dang Manh Pho of BIDV

Kajohnsak Manaviriyakul and Phongboka Baedya of Bangkok Bank

Krishnakumar Duraiswamy, Johnson Rajan and Mouli Vasan of Abu Dhabi Commercial Bank

Venkatakrishnan Menon and Fahad Al Reshaid of Burgan Bank

Phansana Khounnouvong and Bounchanh Bounthanome of BCEL

Sagnik Ghosh and Sohini Rajola of Axis Bank

Kalyani Balakrishnan Nair and Kawthar Mohd Sulaiman of Maybank

Walter Wassmer and Edwin Reyes of BDO Unibank

Alexa Luccina M. Virata of Security Bank

Gilbert Chuah of United Overseas Bank

Anthony Chin and Syed Faizal Syed Mohsen of AmBank (M) Berhad

Usana Wanachate of Siam Commercial Bank PCL.

Jesse Han and Larry Chung of Taishin Bank

Sarabjit Anand and Jon Tzen Ng of Standard Chartered Bank (Hong Kong)

Michaela Sophia Rubio of UnionBank of the ASIAN BANKING AND FINANCE | DECEMBER 2015 Philippines

Jocelyn dG. Cabreza and Gilda E. Pico of Land Bank of the Philippines

Nguyen An and Kieu Thi Xuan Hanh of DongA Bank with Trinh Hoai Nam of DongA Money Transfer Co.

Azaleen Mustapha of Baiduri Bank Berhad

Chan Tuck Wai, Choong Yang Ping, Kenneth Tsao and Albert Lim of DBS Bank

Kamill Fung of Bank of China (Hong Kong)

Dmytro Musiienko and Sholpan Muratbekova of JSC Eurasian Bank

UnionBank of the Philippines & United Amara Bank representatives

48 ASIAN BANKING AND FINANCE | DECEMBER 2015

Christopher Yap, Victor Khor and Eunice Ong of Alliance Bank Malaysia Berhad

Kyawt Kay Khaing of United Amara Bank Limited

Nang Kham Noung of KBZ Bank

Rina Ng, Mayank Dutt and Marcela Mihanovich of Citibank

Setiyo Wibowo, Hery Gunardi and Boyke Yurista of PT Bank Mandiri (Persero) Tbk

Pauline Tan of Hong Leong Finance

Kai Jin Fung of Vpbank

Cristy M. Vicentina of Philippine National Bank

Cameron Senior, Ian Yim and Catherine Olsen of HSBC

Bank of Ayudhya Team

Vallop Vongjitvuttikrai of KASIKORNBANK

Angela Tinio of RCBC

ASIAN BANKING AND FINANCE | DECEMBER 2015 49

Philip Lim of Australia and New Zealand Banking Group

OCBC Team

Sami Omar Al Zadjali of BankDhofar

Boyke Yurista, Hery Gunardi and Setiyo Wibowo of PT Bank Mandiri (Persero) Tbk with Tim Charlton

Choong Yang Ping, Charlton Eastcoles Awardee from DBS Group Holdings Limited

Axis Bank Team

United Bank Team| 50 ASIANOverseas BANKING AND FINANCE

DECEMBER 2015

Hery Gunardi of Bank Mandiri with Tim Charlton

Yes Bank & Eurasian Bank representatives

Aariz Patrick Ng and Azaleen Mustapha of Baiduri Bank with Tim Charlton

Kyawt Kay Khaing of United Amara Bank Limited

Ma. Angela Tinio of RCBC

Vpbank Team and Baiduri Bank Berhad Team

Ronald Tan, Usana Wanachate and Gillian Chan of Siam Commercial Bank PCL.

Jocelyn Cabreza and Gilda Pico of Land Bank of the Philippines

ASIAN BANKING AND FINANCE | DECEMBER 2015 51

Domestic Retail Bank of the Year - Philippines SME Bank of the Year - Philippines

RCBC: Bridging the gender gap in banking

ore than 99% of the country’s business landscape is composed of Small and Medium Enterprises (SMEs), a sector considered by the government as vital to the country’s economic growth and stability. RCBC expanded its presence in the SME market to reach out to these entrepreneurs. Programs were designed to be easily accessible to the needs of players in this segment to contribute to the government’s initiatives to improve small businesses’ access to credit and build a stronger economy.

International Finance Corporation (IFC), was one of two winners of the IFC CEO Gender Award for promoting gendersmart solutions, besting 114 nominees from more than 20 different IFC projects. This joint project paved the way for RCBC to become the first bank in East Asia to implement a women-focused program under the East Asia and the Pacific (EAP) Women in Business Program, disbursing almost 1,400 loans worth $70 million to women-owned businesses. The main objective of this specialized loan program is to break barriers and challenge limitations that women Women entrepreneurs entrepreneurs are faced with by expanding Economic empowerment is widely their access to financial services. recognized as an important factor in global According to an IFC study, women financial stability and poverty alleviation. owners of SMEs in the Philippines face a However, the business of running a larger credit gap of USD971 million versus business has always been known to be a their male counterparts’ USD817 million. man’s world. Women are mostly excluded Taking to heart its role in empowering from this. women by helping them expand On the other hand, studies show their business potential, RCBC, with that female customers have a higher IFC’s support, conducted focus group propensity to save both as business and discussions (FGDs) to develop more ways personal customers. They are even more to improve the program. meticulous and have lower risk tolerance Such has laid the foundation for an in business matters. They are multiupgraded version of RCBC’s loan program faceted individuals balancing their roles which now includes the following product as mothers, wives, career and/ or business enhancements: women, among others. Hence, they • A 90-day payment choose a bank that can make their life “holiday” during simpler, one that offers flexibility, offers maternity leave period a human touch and meets their business • Dedicated women’s champion account needs. managers • Business building networking forums The eWMN loan program • Business education and skills training The only local bank that has a special • Automatic eWoman deposit account financing program for women is RCBC upon approval of the loan through its e-WMN program. • Transaction journal for detailed In a continuing effort to address notation of checking account the changing needs transactions “The main objective of of Philippine SMEs, These latest features this specialized loan specifically the financial are consistent with program is to break inclusion of women the Bank’s directive to barriers and challenge shift from a mind set of entrepreneurs, RCBC relimitations that launched its loan program “transactional banking” women entrepreneurs to that of “relationship designed for women are faced with by under the eWMN Brand, banking”, which is key to expanding their access helping clients propel their which the Bank originally to financial services.” introduced under the name businesses to a higher level. Women’s Enterprise Loan In March 2014, the Program. newly improved program was officially The program, launched in 2012 in re-launched and re-branded as e-Woman partnership with the World Bank’s or “eWMN” with a tag line “Expanding 52 ASIAN BANKING AND FINANCE | DECEMBER 2015

RCBC building

Women’s Potential”. This change allowed RCBC to institutionalize the e-Woman brand, making it available to cash management, investments and other services. Seminars, trade fairs, and forums with professional women groups, such as the Business and Professional Women (BPW) and Network for Enterprising Women (NEW), were then rolled out providing avenues for clients and even non-clients to expand their networks and broaden their business know-how. The evolution of RCBC’s eWMN program gives honor to all passionate, strong and hard-working women who play various roles giving importance to their families, career and advocacies. It is a nod to women’s expanding role in the SME industry and a recognition of the importance of women empowerment in the country’s economic progress.

CONTACT Company Name: Rizal Commercial Banking Corporation (RCBC) Address: Yuchengco Tower RCBC Plaza, 6819 Ayala Avenue Makati City 0727, Philippines Phone Number: +632 8949000 local 9553 or 1619, +632 4704590 Fax Number: +632 8783490 Email: avtinio@rcbc.com, mttorres@rcbc.com Website: www.rcbcplaza.com.ph

ASIAN BANKING AND FINANCE | DECEMBER 2015 53

ASEAN SME BANK OF THE YEAR

OCBC: Deepening our presence in the Asian region

CBC Bank possesses the accolade of being one of the world’s most highly-rated banks, with an Aa1 rating from Moody’s and is ranked among the top 3 strongest banks in the world by Bloomberg Markets in 2015. Formed in 1932 from the merger of three local banks, the oldest of which was founded in 1912, OCBC Bank is the longest-established Singapore bank. It is also the secondlargest banking group in Singapore by total assets. OCBC Bank’s strength lies in its indepth relationships with SME customers and its deep understanding of the SME business life cycle. The Bank’s commitment to support SMEs in their business growth has garnered it several awards this year, including this publication’s “ASEAN SME Bank of the Year” for the fifth consecutive year and “Best SME Bank – Indonesia” for the second consecutive year. Broad network capabilities presents potential investors with more The Bank understands that as part of access to the Greater China region. the SME life cycle, companies that are With an enhanced global network, the more established would begin to look local market insights and local know-how into expanding their business overseas. that the Bank can provide are value-added With an extensive global network of over nuggets which can help drive customers’ 630 branches and representative offices businesses to greater success. in 18 countries and territories, OCBC Bank is in an ideal position Leading innovation with to strongly support the “OCBC Bank’s strength enhanced products and overseas ventures of SMEs. solutions lies in its in-depth The network includes 54 In keeping with the relationships with branches in Singapore, 41 SME customers and its tradition of being leaders branches in Malaysia, more deep understanding of in innovation, the Bank has than 330 branches and responded to customers’ the SME business life offices in Indonesia, and needs with a slew of cycle.“ 120 branches and offices in products tailored to better Greater China. serve them. Knowing that In order to further deepen its presence many young businesses face difficulties in and drive growth in the ASEAN region, securing working capital from financial the Bank has made concerted efforts to institutions, OCBC Bank offers the extend its reach in the region. The official Business First Loan, a collateral-free opening of the OCBC Yangon branch, in loan that provides companies between July this year, is a significant milestone in 6 months to 3 years with up to $100,000 OCBC’s history as it marks over 60 years in funding. The fast and easy process of of presence in Myanmar. The Bank is application for this loan has ensured its now set to serve the needs of customers popularity among start-ups. who are keen to tap into the numerous The Bank has also introduced growth opportunities in the fast-growing products that cater to customers’ niche Myanmar economy. requirements, such as the Business Following the acquisition of Wing Hang Purchase Financing and the enhanced Bank in 2014, it has been successfully Business First Account, both launched this rebranded to OCBC Wing Hang and now year. 54 ASIAN BANKING AND FINANCE | DECEMBER 2015

Going beyond the banking business While OCBC Bank looks to provide banking solutions to its customers, it is also committed to supporting the SME community in other ways. The Bank sponsors several established business awards that give recognition to deserving entrepreneurs and enterprises, ranging from emerging businesses to large corporates. It also participates actively in business conferences to share insights with business owners and help them better manage their business. The Bank is dedicated to educating SMEs for long term sustainability and growth. With a holistic array of initiatives and effective products, OCBC Bank helps customers achieve their business ambitions and expansion plans. By understanding SMEs and supporting them in every stage of their development, the Bank has built enduring relationships and forged strong partnerships with customers. It is a wellrecognised and trusted bank in the region.

CONTACT Company Name: Oversea - Chinese Banking Corporation Limited Address: 65 Chulia Street, OCBC Centre, Singapore 049513 Phone Number: +65 6538 1111 Website: www.ocbc.com

Mobile Banking Initiative of the Year - Hong Kong

Bank of China (Hong Kong)’s mobile initiatives bring a brand new customer experience

ith the growing popularity of mobile technology and digital devices, Bank of China (Hong Kong) (“BOCHK”) continues to invest in e-channels to bring customers a brand new banking experience. Ms Kamill Fung, Deputy General Manager of Channel Management, BOCHK, said, “BOCHK has been providing mobile banking since 2010 to meet the growing customers’ demand for mobility, speed and reliability. As mobile application is widely accepted by smartphone and tablet users, we have introduced a number of first-ever mobile functions in the local banking industry to keep pace with the digital trend and cater for customers’ lifestyle.” Innovative mobile functions to complement customers’ lifestyle With a smartphone or tablet in hand, customers can enjoy a host of our banking functions at their fingertips. In view of the increasing use of social media, we have recently launched our new WeChat banking services, allowing customers to enquire the balances of their bank and credit card accounts and transaction records anytime, anywhere. Customers will also receive e-alerts for credit card transactions and payment reminders to facilitate their financial management. Riding on the fast-developing technology, our upgraded mobile app introduced various innovative features, such as the new “appsdollar” that hits mobile app fans. Customers can enjoy

With our new appsdollar function, customers can redeem popular online games, paid apps and trendy products with their BOC Credit Card bonus points 56 ASIAN BANKING AND FINANCE | DECEMBER 2015

the flexibility to redeem paid apps and trendy products with their BOC Credit Card bonus points. We also launched the pioneering location-based privileges by adopting the presence detection technology. It enables customers to receive the latest promotions when accessing our mobile app at any of our designated branches. To find the nearest branch for banking services, smartphone and tablet users can access our branch locator supported by GPS for greater convenience. Comprehensive financial information and trading functions to help customers capture investment opportunities Our mobile app offers other user-friendly features. Customers can set up watch Ms Kamill Fung lists of their preferred stocks and foreign Deputy General Manager of Channel Management, BOCHK currencies and view the Hang Seng index, investment market news and researches to keep abreast of the market trends. It also the Mainland China, and Personal Loan provides the first-ever lifestyle features in to facilitate customers’ loan application the local banking industry, like weather through a smartphone. update and outbound travel alert, making it a truly personal assistant of the users. Overwhelming response from customers In addition, Our mobile app has been customers can access well received by the public “Going forward, BOCHK our mobile app for with over one million will provide more a range of mobile downloads. There is a innovative electronic banking functions, such services and functions in significant increase of 43% as currency exchange, in the download rate and investment and crosslocal securities and A 86% in the number of border banking, bringing shares trading, IPO and page views as compared to customers enhanced financing, as well as bill those figures recorded for experience in the payment, etc. the previous mobile app digital era.” To help customers version. capture the best According to the market investment opportunities around, we also survey by The Nielsen Company, around lead the market by providing “Shanghai 80% of interviewed customers were and Shenzhen A shares Information” satisfied with our internet banking security service, such as real-time A shares stock and the stability of our systems. quotes, graphs and technical analysis tools, Ms Kamill Fung attributed the Bank’s A shares indices and top 20 A shares, and success to her project team, who has been “A Share Knowledge” about terminology, devoting tremendous efforts to fulfilling trading arrangement and fees and levies of customers’ evolving needs by leveraging A shares markets. the banking technologies. Other popular services of our mobile app include Mortgage Expert for a CONTACT more convenient home-buying process, Company name: BOCHK e-Wallet for greater convenience Bank of China (Hong Kong) Limited in conducting cross-border RMB/HKD Website: www.bochk.com mobile payment both in Hong Kong and

service legends, serving the nation Bank Mandiri has been awarded The Best Bank Service Excellence for 8 consecutive years. Proof of our passion and commitment. Thank you for your trust. We are committed to always provide you with excellent service.

PT Bank Mandiri (Persero) Tbk. is a public listed financial institution under the supervisory of the Indonesian Financial Services Authority (OJK).

mandiri, for whatever your dreams.

Leading, Trusted. Enabling growth.

best SME Bank - Malaysia

Alliance Bank stays ahead in SME banking

lliance Bank has built a strong niche in SME Banking in Malaysia, with its business model of providing comprehensive and holistic range of services to meet their financing and transaction needs. This has enabled the Bank to stay ahead of the competition. SME banking has long been a focus for Alliance Bank because, along with having relatively high economic growth rates, they offer strong cross-sell opportunities for the consumer business. Today, one in eight SMEs in Malaysia has a relationship with Alliance Bank. Panel of Judges and Business Partners of the Its transformation journey, which SME Innovation Challenge 2015 commenced in 2009, was characterized The Bank recognizes that at each by three key phases: laying stronger stage of their life-cycles, the SMEs foundations, driving top-line growth, and would require different financing and accelerating market share. The strategic transaction banking solutions. Hence, the initiatives implemented under these onboarding and the underwriting process phases, have propelled the SME business was complemented with the advanced, to be one of the core growth engines for statistically-based program lending model the Bank. for the SMEs, thus enabling the Bank to The SME Business contributes 23% adopt a portfolio approach to risk. to the Group’s total revenue, accounts In 2013, the Bank embarked on a for nearly 16% of the Group’s total loan project to re-engineer its end-to-end portfolio and a third of its CASA deposits. sales to loan disbursement processes. The Bank’s SME loans growth rate is The result: streamlined processes, clarity nearly double the industry average. It has of policies, clear accountability and also achieved 66% penetration of online minimized rework across sales, credit and banking for business current accounts credit administration. The opened in the last three significant improvement years. What sets the Bank “The SME Business in turnaround time for apart is its unique and accounts for nearly loan approvals is now a key competitive interbank 16% of the Group’s competitive advantage. banking service platform, total loan portfolio in terms of usability and and a third of its CASA BizSmart Online Banking transaction flexibility for deposits.” Alliance Bank was the first the SMEs. The service Malaysian bank to offer capabilities of the platform, advanced online cash management tools is comparable to the cash management to better meet the transactional needs of services provided by the banking industry sole proprietors and small businesses. To to the larger corporations. Because of encourage customers to sign up to this this, the Bank continues to record strong new platform, the Bank offers free online recurring fee income growth, and the nonbanking fees. interest income ratio stands at 25%. The Bank also provides a suite of customised and bundled products for its What The Bank Did customers. It offers a novel picture-based One of the big problems SMEs have Business Platinum Card, which serves always faced when it comes to obtaining as a unique branding tool for SMEs as it financing from banks is the lack of proper allows business owners to custom-design information and documentation. To the face of the card to reflect their business mitigate this, the Bank has created a robust offerings. The Business Platinum Card platform for onboarding of its new SME proposition is crafted around the business customers based on the different life-cycles owner’s pride in his business, savings and of these customers. 58 ASIAN BANKING AND FINANCE | DECEMBER 2015

value, and meaningful connections to other SMEs. BizSmart Academy In line with its mission to support the nation’s entrepreneurs from the very beginning of their journey so that they can grow successfully, the Bank established the BizSmart Academy (www.BizSmart.com.my) in 2013. It continues to enhance the BizSmart Academy programs to help young Malaysian entrepreneurs to fulfill their business aspirations by providing education, mentoring and funding. In 2013, it launched the annual SME Innovation Challenge, to help facilitate the growth of high potential young businesses in Malaysia, especially those in the first three years of business operations. These young entrepreneurs submit their business plans online to participate in the challenge. The finalists go through structured business coaching, gaining in-depth insights from CEOs of top Malaysian companies, media exposure as well as a shot at funding to realize their business goals. Now in its third year, the SME Innovation Challenge features a total of RM1,000,000 worth of prizes.

CONTACT

Company Name: Alliance Bank Malaysia Berhad Address: 3rd Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur, Malaysia Phone Number: 03-5516 9988 Email: info@alliancefg.com https://www.alliancebank.com.my/

ASIAN BANKING AND FINANCE | DECEMBER 2015 59

Corporate Social Responsibility Program - Gold Employer Award of the Year - Silver

What makes a bank human?

f you ask people what comes to mind with the word “bank”, chances are they’ll say “serious, cold, and strict institutions.” But for UnionBank, banking isn’t just about transactions but relationships, not just profits but people. At UnionBank, we have made it our purpose to elevate lives and fulfill dreams. How did we turn our vision of cultivating a winning culture of experts committed to Making Da Diff into reality? By investing heavily on our human capital by inspiring, empowering, equipping and rewarding our people. We inspire them. Union Bank of the Philippines building façade Everyday, we have many stories of UnionBankers who reach out, engage, We equip them. innovate, go beyond, do more and better, To get things done, we believe that our and Make Da Diff in the lives of others, in employees must be given the right tools the communities we serve. It cuts across and skills. We gave employees Universal the bank, from top to bottom, nationwide. Training Plans (UTP) - training roadmaps Those that reflect extraordinary actions on designed to realize performance results an ordinary day are personally retold and and support business goals. Training is celebrated. Through their example, others delivered through the corporate university, are inspired to do the same. UnionBank University, where UTP And this is not just done through courses are offered through our nine writing - UnionBankers showcased academies, with senior management their authentic expression of the DNA serving as Deans. The elearning portal also through video (DNA on Cam) and expands training reach to all branches paintings (Paint My DNA and Family and locations nationwide Paint My DNA). while maximizing training “Banking isn’t just We empower them. about transactions but budgets. We also want to grow Building a strong culture is relationships, not just our crop of leaders, not just the job of a few at profits but people. At ready to take on key roles the top. To give autonomy UnionBank, we have to employees to lead made it our purpose to today and tomorrow. We positive organizational elevate lives and fulfill recruit the best and the brightest graduates to change, the Bank adopted dreams.“ join the Leader Executive the middle-out strategy Accelerated Development which resulted in three initiatives: Self(LEAD) Management Trainee Program, managed Culture Conversation (C2) which allows them to fast track their career teams composed of the next generation within six to seven years to an executive of UnionBank executives brainstorming position. Internally, we also developed and working on culture-related projects; Executive and Officer Development REaCh (Relevant, Expert, Challenging Programs, anchored on our 19 Leadership Convention) teams - consisting of junior and Management Competencies. officers and managers – that facilitate In UnionBank, we believe that our discussions to produce REaCH goals employees don’t merely have jobs but and identify REaCH projects; GoBeyond they can craft their careers with us. We Communities, an employee-driven and instituted a bank-wide program called -designed company sponsored program MyCareer – a program that enables for “personal” CSR”, empowers in areas UnionBankers to assess their strengths, that fall under environment, education, to define a career goal, to identify their employment and livelihood, and inclusion. 60 ASIAN BANKING AND FINANCE | DECEMBER 2015

skills gaps, to plan out a development path, to implement their development plans and finally, to evaluate their progress. The result is each UnionBanker has an Individual Development Plan and they are encouraged to see his own progress through. We reward them. To recognize and reward UnionBankers who exemplify our DNA, we have a Performance Management System (PMS) anchored on meritocracy and basing compensation on contribution and performance. Our major awards program, UnionBank Heroes & Champions, honors exceptional achievers in ten categories. Awards programs to recognize day-today heroes all year round include U Are Recognized, an electronic card that encourages UnionBankers to be more demonstrative in giving recognition; Celebrating a Brand Moment, Now Na!, intended to provide instant recognition to UnionBankers demonstrating brandaligned behaviors; and STAR Award, a quarterly awarding of individuals or teams who exemplify passion for excellence.

CONTACT Company Name: Union Bank of the Philippines Address: Union Bank Plaza Building, Meralco Ave. cor. Onyx Road, Ortigas Center, Pasig City Phone Number: (+632) 667-6388 Website: www.unionbankph.com

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ASEAN Finance Company of the Year

Hong Leong Finance: Evoking breakthroughs with proactive and innovative products and services

Modernised Jurong East Branch’s digital space

tarting out in 1961 as a small & medium enterprise (SME), it’s no surprise that Hong Leong Finance has evolved into the go-to finance company for SMEs and individuals due to its forward thinking and exceptional guidance. As Singapore’s largest finance company with a distribution network of 28 branches and 9 SME Centres, the financial services arm of the Hong Leong Group Singapore has received multiple awards at the Asian Banking and Finance Retail Banking Awards over the years, such as the Asia Finance Company of the Year in 2007, the Singapore Finance Company of the Year from 2011to 2013. And this year, the ASEAN Finance Company of the Year 2015 for the second time. Hong Leong Finance has also consistently been listed as one of SGX’s “Top 100 Most Profitable Companies by Earning Per Share” and “Top 100 Largest Companies” from 2011 to 2014. With over 50 years of experience in catering to the needs of SMEs and consumers under its belt, Hong Leong Finance has distanced itself from its competitors by offering an array of innovative financial products and services. Innovative solutions Aside from its basic offerings such as SME loans, corporate finance, development and construction loans and property loans for companies; and car loans, home loans and share financing for consumers, it has 62 ASIAN BANKING AND FINANCE | DECEMBER 2015

sophisticated and specialised equipment to renovation and medical suite to help medical professionals who need assistance in improving their service capabilities. Customer-centric technological services True to its customer-friendly service model, Hong Leong Finance has also rolled out its free value-added SMS Alert Service in order to inform Factoring and Accounts Receivable Financing customers punctually when their loan drawdown requests are approved. This provides peace of mind to the customers, allowing them to use the funds, focus on operations and work on their businesses efficiently. Hong Leong Finance unveiled a modernised branch at Jurong East complete with a digital space equipped with self-service terminals for customers to make loan application and compute their home loan total debt servicing ratio, iPads for enquiry on products and services and free wifi access. Tablets are used by relationship managers for financial consultation, enabling them to better engage customers.

expanded its services in order to cater to its SME clients and living up to the title as “The SME Specialist”. For instance, Hong Leong Finance has recently launched the SG50 Property Loan in celebration of Singapore’s 50th Anniversary. The loan provides a financial jumpstart to cashstrapped SMEs in raising financing for purchase of their properties and working capital to meet their cash flow needs. Customer dedication With rising operating costs in a Hong Leong Finance recognises the challenging business environment importance of rewarding its loyal and recognising that one major cost customers. When it was component for “We stay committed to lauded with the ASEAN businesses is the cost of our rich service culture. Finance Company of the their premises, Hong This will remain as our Year award in 2014, Hong Leong Finance boasts of top priority to Leong Finance rolled out a higher loan quantum promote a healthy a celebratory campaign to provide elbow room to thank customers for economic growth.” to SME in the form of their support. extra funds and the loan Mr Ian Macdonald, President of Hong is promoted with equipment financing and Leong Finance said, “We stay committed cashflow financing to provide a tailored to our rich service culture. This has been solution to meet each business’ needs. our driving force and will remain as our At the end of it, SMEs will have their top priority to promote a healthy financial worked out for them and the economic growth.” surety of their premises. Hong Leong Finance’s familiarity with the medical business sets it apart from CONTACT other competitors who have been trying Hong Leong Finance to nudge into the sector. Its experienced 16 Raffles Quay #01-05 Hong Leong Medical Financing Team, first formed Building, Singapore 048581 by a medically-trained doctor who Phone Number: 64159433 made a switch to the financial industry, Email: customerservice@hlf.com.sg is able to offer a variety of customisable Website: www.hlf.com.sg convenient loans from financing of highly

STAND OUT, STAND PROUD, STAND STRONG

We take pride in being amongst the youngest banks in Myanmar standing tall on the strength of our expertise and an inherent tradition of excellence. Already the recipient of multiple awards for innovation & enterprise, UAB is committed to becoming a bastion of strength, security and sustainability in Myanmar’s banking industry.

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UAE Domestic Trade Finance Bank of the Year

Open account trade – ADCB solution

any businesses have cash flow that varies. A business might have a relatively large cash flow in one period, and might have a relatively small cash flow in another period. Because of this, firms find it necessary to both maintain a cash balance on hand, and to use working capital finance to enable them to cover their short term cash needs in those periods in which these needs exceed the cash flow. Each business must then decide how much it wants to depend on working capital finance to cover short falls in cash, and how large a cash balance it wants to maintain in order to ensure it has enough Cash on hand during periods of low cash flow. Generally, the variability in the cash flow will determine the size of the cash balance a business will tend to hold as well as the extent it may have to depend on such financial mechanisms as Invoice Financing, Post-dated cheque discounting, Bill Discounting, Factoring, etc.,. Cash flow variability is directly related to 2 factors: 1. The extent cash flow can change, 2. The length of time cash flow can remain at a below average level.

factoring is fast-gaining acceptance amongst exporters and is being offered as a valuable financial product among major financial institutions and banks. Exporters do prefer Factoring on a nonrecourse basis, but mostly exporter’s look for liquidity solutions than balance sheet solutions; however it depends on the objectives of the entity as many MNCs prefer non-recourse solutions from a balance sheet perspective where as local and regional entities look for liquidity to manage their working capital cycle. The 2014 global factoring volume has more than doubled to USD2.81trillion since 2002 and is growing at a pace of 6% year on year1 as compared to the growth rate of world merchandised trade of 2-3% year on year2.

Open Account Trade products By leveraging on ADCB’s local expertise, we are able to provide Open Account Trade products which are comprehensive working capital solutions that provide funding, credit protection, sales ledgering and collections services to clients. The Open Account Trade Product offering by Abu Dhabi Commercial Bank consists of Invoice Financing (import and exports) as well as credit protection Cash flow problems on selective basis where risk mitigant If cash flow can decrease drastically, the solutions are available either through business will find it needs large amounts credit insurance or through Bank’s appetite of cash from either existing cash balances on buyers. or from a Bank to cover its obligations What is unique in during this period of time. ADCB’s offering is we are Likewise, the longer a “ADCB’s local & regional able to leverage on the relatively low cash flow can expertise helps in local network and provide last, the more cash is needed structuring efficient credit cover on buyers who from another source (Cash trade financing are banking within our Balances or a Bank) to cover solutions for clients.” network. Exporters who its obligations during this are based in United Arab time. Emirates and export to US, Europe, AsiaAs international and domestic trades pacific as well as within the GCC are able are increasingly conducted on open to avail the Bank’s services covering credit account terms, there is a need to offer cover on the buyers, collection services financing solutions to cash flow problems and sales ledgering. The provision of all encountered by Sellers who trade on open services under this working capital tool account. Abu Dhabi Commercial Bank makes it attractive to sellers who are able to (ADCB) offers various solutions for Open focus on their sales especially in times like Account finance requirements. One of the the present where cash is all important for popular and effective solutions has been the business. Receivable Financing products. As majority of trade in UAE is either ADCB offers various with and without local or within the GCC/Africa, ADCB is recourse solutions under the Receivable able to deliver liquidity solutions under its Financing products. With recourse 64 ASIAN BANKING AND FINANCE | DECEMBER 2015

ADCB Head Office

receivables financing products that help in client’s managing their working capital cycle much better. ADCB offers this service across all segments from Oil & Gas in Energy sector to trading and commodity segments. The services are availed by MNCs, large local corporate to middle markets and even SMEs as ADCB is able to customize the offering on need basis With signs of Global Trade slowing down, Clients are looking to mitigate risks in their receivables at an affordable costs and ADCB’s Trade financing solutions helps sellers address this risk. [1] Factors Chain International (www.fci. nl). [2] International Trade Statistics 2014, World Trade Organization, (https://www. wto.org/english/res_e/statis_e/its2014_e/ its2014_e.pdf)

CONTACT Company Name: Abu Dhabi Commercial Bank Address: Abu Dhabi Commercial Bank Building, Shk Zayed street. P. O. Box: 939, Abu Dhabi United Arab Emirates Phone Number: 971 2 6962222 Website: www.adcb.com Email: TradeSales@adcb.com

RHB Banking Group

SERVING YOU ACROSS ASIA Our regional presence in Malaysia, Singapore, Thailand, Indonesia, Hong Kong SAR, Cambodia, Brunei, Vietnam, Laos and China, puts us on the map for financial services you can trust. With a rich heritage and culture of excellence, we are setting newÂ standards in Asia.

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ASIAN BANKING AND FINANCE | DECEMBER 2015 65

Vietnam Domestic Technology and Operations Bank of the Year

Proactive in overseas financial markets of USD548 million; and a Stress Recovery Support project of ADB, with a total funding of USD500 million. BIDV is also an active member of various regional associations including Asian Bankers Association, ASEAN Bankers Association, ASEAN Business Advisory Council and China–ASEAN Interbank Association.

BIDV Head Office

n the course of BIDV’s 58 years of foundation and development, the last twenty years has seen the bank transform its entire system to become a fully integrated and innovative international-level player, maintaining a high growth rate, sound business acumen and the capacity to competitively participate in the global market. International business expansion BIDV has increased its number of RMAs in correspondent banking from 60 in 1995 to 1,700 in the present day. Connecting with leading banks and their branches from 122 countries and territories around the world enables BIDV to smoothly and effectively serve its customers as well as supporting its general business development. BIDV has become the customers’ first choice when seeking new products and services in Vietnam. Furthermore, thanks to its prestige, position and capacity, BIDV has established sound relationships with various international organisations. BIDV plays a leading role in offering agent banking services and on-lending services. It has the capacity to support large projects including three Rural Finance projects from the World Bank, with a total funding 66 ASIAN BANKING AND FINANCE | DECEMBER 2015

countries where BIDV has a presence.

A modern and transparent bank In 1996, BIDV was the first bank in Vietnam to adopt international independent auditing, and began publishing its financial statements under both Vietnam Accounting Standards (VAS) and IFRS. In this regards, BIDV was ahead of its time. Not until 1999, did all banks in Vietnam were required by the State Bank Expanding its overseas presence of Vietnam to adopt independent auditing In 1992 BIDV cooperated with Public under VAS. Bank Berhad (Malaysia) to found VID Assessing credit rating has been Public Bank, BIDV’s first joint venture standard practice in the international bank, with the aim of gaining experience financial market for many years. However, in modern banking from this prestigious this practice has only been adopted in Malaysian bank. Since then, BIDV has Vietnam in the last 10 years, with BIDV established numerous joint ventures and being the first bank to begin credit rating affiliated projects in the fields of banking, assessments. BIDV established credit insurance and fund management, with rating contracts with two of the three the leading counterparties from the U.S., most prestigious credit ratings firms Singapore and Russia. The financial in the world, namely Moody’s Investor and insurance markets have provided Service in 2006 and Standard and Poor’s opportunities for BIDV to conduct in 2010. These actions confirm the bank’s business, drawing on BIDV’s strengths in commitment towards transparency and networking and helping to shape BIDV applying international standards to BIDV’s towards becoming a universal financial business operations, thereby enhancing and banking corporation in Vietnam. the credibility of BIDV with overseas and As well as its active operations in the domestic partners and customers. local financial market, BIDV has made In recent years, prestigious global and firm movements to penetrate the financial regional magazines such as Asiamoney, and banking markets in countries Finance Asia, Euromoney, Asia Risk throughout Southeast Asia, including Magazine have recognised Laos, Cambodia and and awarded BIDV for Myanmar as well as “BIDV has increased countries which have its number of RMAs in its outstanding products significant Vietnamese correspondent banking and services. Many of those awards are voted by communities such as from 60 in 1995 to corporates and financial the Czech Republic and 1,700 in the present institutions who form part Russia. BIDV’s presence day.” of BIDV’s customer base, in the fields of banking, signifying the recognition insurance and securities of BIDV’s international standardised have proved its effectiveness and helped to organisational structure, management raise BIDV’s profile, prestige and position capacity and operational efficiency. in these countries. Also, BIDV has taken a leading role in CONTACT connecting with Vietnamese enterprises in foreign investment through its role as the Company Name: Joint Stock founder and chairman of the Association Commercial Bank for Investment and Development of Vietnam of Vietnamese Investors in Laos (AVIL); Address: BIDV Tower, 35 Hang Voi, in Cambodia (AVIC); and in Myanmar Hoan Kiem, Ha Noi, Vietnam (AVIM). Phone Number: (+84-4) 22205544 By taking an active role, BIDV has Fax Number: (+84-4) 22200399 made significant contributions to boosting Email: info@bidv.com.vn the economic, trade and investment Website: http://bidv.com.vn cooperation between Vietnam and the

ASIAN BANKING AND FINANCE | DECEMBER 2015 67

68 ASIAN BANKING AND FINANCE | DECEMBER 2015

OPINION

Axel Boye-Moller

Unlocking the benefits of digital innovation

Banks need digital transformation

n the wake of slower growth and increased regulation, people are considering how to adapt and evolve in this new environment. Innovation through digital transformation is an important theme in this market. In its purest form innovation is simply about solving customer problems. As Westpac’s General Manager, Global Transactional Services Rachel Slade explains the purpose of new technology is not just about inventing ‘cool things’ and hoping people will buy them. “It’s about partnering with our customers to solve their problems and delivering faster and more flexible ways to do things.” By placing a customer challenge at the centre of the innovation process, banks can focus on saving time and money to contribute more back into a customers’ top line revenue growth. Three examples of how Westpac is exploring this challenge is through new international payments technology, expanding data-related services and electronic trade documentation. As regulation has tightened around the international payments landscape there is significant room for improvement in customer experience. Recent trials, exploring new technology to send small value, international payments have delivered encouraging results. The solution enables the bank to identify the originator for each individual payment, satisfy its anti-money laundering obligations and remove

70 ASIAN BANKING AND FINANCE | DECEMBER 2015

BY Axel Boye-Moller Head of Global Transactional Services, Asia at Westpac

the risks associated with anonymity. It is also faster than other alternatives in the market today, providing same or next-day payment. Smarter use of data is another focus area. By combining and analysing data from the bank’s systems, the customers’ own data, and from external sources, new insights can be generated. It is proving results in lowering costs, improving working capital efficiency and identifying new growth opportunities for our customers. Paperwork-heavy industries such as trade finance are also ripe for transformation. Financing trade will always involve plenty of documents. With multi-layered ecosystems of buyers, sellers, banks, shipping companies and agents however we are beginning to observe the potential of effectively streamlining these processes through unified digital platforms. As an example, earlier this year Westpac participated in a first-of-its-kind end-to-end electronic trade transaction, involving an iron ore shipment from Australia to China. The transaction leveraged the essDOCS developed CargoDocs Bank Payment Obligation Plus solution. Westpac acted for BHP Billiton as the recipient bank on their trade sale to leading global resources company Cargill. Throughout the transaction, data flowed electronically through all four institutions with no data reentry, leading to a much faster completion time. By combining an electronic document platform with the Bank Payment Obligation framework, the efficiency of automated data matching can be combined with the ability to verify the true nature of the underlying trade transaction. This transaction demonstrated the sort of innovation that will drive transformational change across the industry, resulting in several benefits. First, if and when scaled up, the cost of processing trade transactions can be reduced; second, it removes manual processing and reduces the associated operational risk; third, it can provide greater transparency due to enhanced visibility through payment chains with the explicit nature of electronic documentation; and lastly, it improves efficiency of the working capital cycle. Efficient supply chains gives companies one less cause for worry with shipment of documents no longer being a conceivable factor for delay.

OPINION

paula da silva

Why banks must respond to the threat of disruption

he corporate banking industry has started to address how best to adapt its existing systems and processes so it can offer enhanced products to consumers. Advances in technology and system architecture in the consumer payments market are developing at a rapid pace, and steps need to be taken to prevent corporate banks being left behind. Convenience is growing in importance for the consumer experience. With the rise of smartphones and tablets, we have become accustomed to easy, instant access to banking services such as account information, payments and savings products. Many of the drivers for change in corporate banking practices originate as a result of the fact that people are in practice carrying around a powerful computer in their pocket 24x7. Similarly, corporate treasurers are starting to expect to use their mobile devices to gain real-time access e.g. to cash management, FX and payment services 24x7 in the same way as they can access their consumer mobile banking services. A major disruptor that is emerging from the consumer space is distributed ledger blockchain technology, such as Ripple Labs’ XRP, which is a data store containing the public ledger of cryptocurrency transactions. We expect the blockchain technology to have a major impact on the interactions between corporations and their banks as well as between banks and their correspondent banking partners. There is an opportunity for banks to use a realtime distributed ledger system such as the Ripple Labs’ protocol instead of the more complex correspondent banking networks that currently are used for cross-border payments. By using Ripple or a similar blockchain-based protocol, banks can decouple the actual payment from the payment information. Instead of having to operate accounts with correspondent banks worldwide, banks would send their counterparty bank the information about the payment they want to make on behalf of a client, and then clear and settle at the end of the day. This could potentially eliminate the need for multiple payment systems that banks currently operate, and result in considerable cost-savings in international transfers.

72 ASIAN BANKING AND FINANCE | DECEMBER 2015

Another benefit would be that, instead of having to wait for the correspondent banking payment cycle to be completed, clients could receive instant information on their payment transactions. Banks gather vast amounts of data about their corporate clients via their systems and as a consequence have the opportunity to effectively leverage this big data to offer clients tailored services that meet their needs. By embracing a more centralised approach to data management, banks can develop a more client-centric view and provide integrated product offerings. Banks can analyse all the information and then supply clients with advice and actionable data resulting from this analysis. Since banks hold so much data about their clients’ businesses, they potentially have a far broader overview of their clients than specialist non-bank service providers. Risk mitigation is another example of a value adding service that a bank could offer its corporate clients based on its knowledge of their business and their corporate risk policy. This could involve providing automated notification when the bank’s systems detect that a corporate client’s risk policies are being infringed or when subsidiaries are not adhering to agreed risk levels.

by paula da silva Head of Transaction Services SEB

Technology in payments developing rapidly

ASIAN BANKING AND FINANCE | DECEMBER 2015 73

OPINION

Alistair Currie

Taking an ‘Enterprise Payments Utility’ approach to Immediate Payments

ow do you build a payments capability across 35 countries, across a network of more than 1,200 branches and offices and a workforce of 55,000 people? Add to this the challenge of doubling your customer base in growth markets in 6 years? The answer is simplicity — both an approach that allows organisations to scale by optimising the re-use of enterprise assets and standardisation – which means minimising local customization. If you translate these principles in a payments environment, this standard model takes the form of an Enterprise Payments Utility (EPU) — the result of a disciplined approach to designing the target operating model, followed by a welldefined reference architecture. The following figure illustrates the components of this model, which applies two key principles: 1. Decoupling: The provision of payments services to channels through a central Payments and Transaction Manager, eliminating the in-channel replication of functionality and information, and reducing the integration required with core systems. 2. Standardisation: A payment is a payment — by embedding specialized payment engines for high-value, low-value and switching on a common architecture, the EPU reduces variation, and speeds up the evolution of payments functionality (e.g. immediate payments). Taking this standardised approach allows a rapid rollout — twelve countries in less than seven years in our experience, with new countries now taking up to 6 months. The additional benefits are many, from considerably lower cost to market (around a factor of ten), to consolidation of resources, higher STP rates, superior customer experience and reduction in systemic risk. The evolution towards immediate payments The establishment of real-time 24x7 payments capabilities is an industry imperative in response to changing customer expectations and regulatory requirements, and something that is sure to feature at SIBOS 2015. These systems need ultra-high availability to deliver the seamless, reliable and secure real-time payments service that customers demand.

74 ASIAN BANKING AND FINANCE | DECEMBER 2015

Domestic payments systems are expected to converge over time to a state where market infrastructures with superior functionality, speed and scale will dominate. ANZ’s Enterprise Payments Utility, with its intrinsic characteristics of decoupling channels from payments processing and core banking, enables the bank to confidently implement an immediate payments capability. Singapore FAST Payments is a perfect example of this strategy at work. With the EPU in place, customers initiating FAST Payments through Internet Banking channels are processed within 15 seconds, with 100% straight through processing. Is this for you? We believe there are two key success factors. First and foremost, the creation of the right team, with subject matter experts from both the bank and vendors working closely together throughout the project, from design to business-as-usual. This requires strong program management skills, with common processes and a shared understanding of business requirements. The second success factor is having a shared vision. In a super regional context, each country is naturally inclined to propose its own localised payments requirements. By staying true to the target operating model and common architecture, local customisations can be kept to an absolute minimum.

by Alistair Currie Group Chief Operating Officer Australia & New Zealand Banking Group

Evolution in immediate payments

OPINION

ASHLEY O’REILLY

Securities screening and its role in financial crime mitigation

ustodian Banks are used by their customers for the safekeeping of proprietary and third-party interests in securities; the settlement and clearing of securities trades; ancillary services including corporate action processing; securities lending and collateral management. Many Custodian Banks are complex global institutions and are not immune to the increasing risks associated with financial crime. The screening of securities (i.e. financial instruments) by Custodian Banks is an aspect of financial crime mitigation that is receiving increasing airtime in many Custodian Bank’s boardrooms. There is currently no regulation that specifically addresses financial crime in the Securities Services industry, however the ISSA (International Securities Services Association) principles provide guidance and improved financial crime compliance clarity. Some Banks in Asia are compliant with the ISSA principles, however industry-wide compliance remains moderate and the maturity of securities screening practices is varied across the industry. Custodian Banks in Asia should consider improving their securities screening processes and tools. At present, a wide variety of

“Some Banks in Asia are compliant with the ISSA principles, however industry-wide compliance remains moderate and the maturity of securities screening practices is varied across the industry.” tools, data types, and processes are leveraged to different degrees to screen securities. Norkom is a commonly chosen securities screening tool. Ficrosoft and WorldCheck are other popular tools. The current landscape may change as Custodian Banks upgrade their asset screening infrastructure. Electronic screening is recognised as the most efficient and cost-effective method, yet manually checking is still common practice. Security information, not limited to trustee and business registration numbers, company and issuer holder names, and business registration numbers can generally be screened electronically. Alert notices (e.g. from national departments of foreign affairs and trade) and sanctions restricted ISINs (e.g. SDN blocks, SSI rejects) are more commonly 76 ASIAN BANKING AND FINANCE | DECEMBER 2015

by ASHLEY O’REILLY Management Consultant Deloitte

Electronic screening is the most efficient

screened manually. The degree of automation is dependent on a number of variables including the tools available and asset types. No single sanctions list has been universally adopted by the industry. Most Custodian Banks consider negative news instances related to issuers as trigger events for further review, however Custodian Banks in Asia typically do not conduct negative news screening against instrument issuers or other securities information held. Instrument identifiers are typically screened against the OFAC Sanctions/ SDN Lists and/ or the UN Sanctions Ordinance and List of Names for Suspicious Account Reporting. Most Custodian Banks conduct ongoing periodic monitoring of their securities, however the frequency ranges from daily to annually depending on the institution and the product being screened. A Global Custodian Bank headquartered in Australia screens instruments when facilitating transactions pre-settlement and not when instruments are initially transitioned in with new clients. Most Custodian Banks screen securities at the time of instrument and/or client onboarding. Securities involved in large value corporate actions are often screened. Most Custodian Banks send sanctions hits to a separate team (within legal, compliance and/or risk) for a parallel SAR investigation. Custodian Banks should work in collaboration and embrace the evolving higher market standards relating to the screening of securities to mitigate the risks associated with financial crime.

Not immune to financial crime

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OPINION

Jan Bellens

What you need to know about global universal banking

by Jan Bellens Banking & Capital Markets Leader, EY

apparently uneconomic business activities viable. Of course, capital optimisation will not save every area of the business. In some product lines or geographies, global banks will find that value creation is no longer possible. These institutions will have to either exit business lines altogether, leaving local and regional banks to pick up these customers, or opt for a partnering approach.

n the immediate aftermath of the global financial crisis, a chorus of bankers reaffirmed their commitment to global universal banking because it helped smooth revenue volatility. Since then, a host of regulation, from structural reform to tougher capital and leverage ratios, has changed the game. EY analysis shows that genuinely global banks reported average return on equity (ROEs) of around 7.5% in 2013, while large banks with a less diverse business and geographic footprint were able to achieve an average ROE of around 10.7%. In Asia-Pacific in particular, the Basel III capital adequacy regime is changing the risk and capital dimensions of lending in emerging markets – a problem compounded by the fact that the local legal and regulatory frameworks do not suit large global banks. As a result, across the region, some global banks are already retreating from activities with too high a capital consumption relative to return – a trend that we believe will only continue. That said, before withdrawing from any market, banks need to first optimise strategy across three dimensions: capital, liquidity, and leverage. In our experience, banks can find substantial savings by changing processes, reviewing data issues and evaluating how models have been implemented. This can invert the economics of some activities, making capital usage more effective with no change to the underlying business. Often, capital savings of 15% or more can be found across core business units – with the potential to make 78 ASIAN BANKING AND FINANCE | DECEMBER 2015

What does exiting entail? When exiting client relationships, we advise organisations to have a fully thought-through end-to-end execution plan, in particular the handling of client communications, which need to be proactive and consistent. Many clients are likely to have existing relationships with the organisation outside of the country or business line in question and it is important that a communication strategy takes account of those broader corporate relationships so as not to cause unintended consequences to other parts of the business. Thought should also be given to facilitating the transfer of these customers to other institutions in order to minimise client impact. If the exit involves an asset or client portfolio sale to another institution, transition would normally form a key part of any plan. However, compelling demographics mean that many banks will be keen to retain at least a toehold in emerging economies. By 2025, the population of Africa and Asia will increase by about 350 million and 450 million respectively, accounting for about 55% of the world’s disposable household income. This population will lead an increasingly urban lifestyle with growing financial and banking needs. Banks that decide to completely exit these markets now

“The Basel III capital adequacy regime is changing the risk and capital dimensions of lending in emerging markets.” will struggle to re-enter them in future. Instead, they may choose to form partnerships with local or regional banks to use their distribution channels – a strategy that would also enable global banks to continue to provide a full international service to multinational corporations. The difficulty will be in negotiating terms that both parties can live with. Global banks must decide if they are exiting entire accounts, or just non-profitable products. And, if the latter, what is the incentive for local institutions to pick up the business? Will the potential to increase market share and cross-subsidise with higher value products be sufficient?

OPINION

Moorad Choudhry The future of banking is more traditional than you’d think

t has become fashionable to sound the end of banks and banking. Recently the CEO of one of the new crop of digital “challenger” banks suggested that the banking model was broken and needed urgent fixing; according to some commentators P2P and FinTech are queuing up to take away banks’ customer bases, the entry of Amazon into the lending market now means banks are finished, and it seems every time I pick up an inflight magazine there is an article gushing with excitement about how the latest non-bank start-up is going to take over the world of finance. Who would be an old-fashioned commercial banker in 2015? It isn’t only tough competition that might lead one to conclude that the future is bleak either; the need to comply with regulation introduced in the wake of the bank crash means that at some banks entire business lines are now unviable, while other banks will struggle to ensure compliance without long-term central bank support. The future looks bleak. Or does it? It’s easy to cherry pick certain customers and claim one is now a full-service bank. Equally it seems some new entrant banks offer such a limited product suite that they barely provide enough to still call themselves “banks”. Far from being broken, traditional commercial banks can ensure their continued relevance simply by doing well what they are already strong in, namely offering a full product set, whilst concentrating on working hard to ensure impeccable customer service. Consider the customer service channel first. To still speak of “digital banking” in 2015 is to date oneself already: what is important is the customer interface, be it branch, phone, internet, mobile, or the latest “video” banking. Any bank worthy of the name must strive to

“Far from being broken, traditional commercial banks can ensure their continued relevance simply by doing well what they are already strong in.” offer this omni-channel service platform, in a way that is seamless and error-free. Customers, like the banks that purport to service them, grow over time. As they age their service channel needs will alter. That doesn’t mean a bank needs hundreds of branches to serve its entire geographical area: within Asian countries it would be sufficient to place a physical presence only in towns with a population greater than (say) 250,000 – call it the Apple store model. That is not a large number of branches in many countries. Does a bank need any branches? Ask oneself if it realistic to expect that one’s entire customer base will only ever need one service channel for their whole working life and into retirement. Should we expect that no customer ever will wish to discuss a residential 80 ASIAN BANKING AND FINANCE | DECEMBER 2015

Moorad Choudhry Chief Executive of Habib Bank AG Zurich in London

The relevance of traditional banks

mortgage or a business start-up loan face-to-face? And let’s not confuse customer interface with product. Banks are still the only institutions that provide the vital lubrication of commerce that is the current account and the on-demand overdraft. A stand-by liquidity facility is a lifeline for many small businesses. Is this a standard product of FinTech and other disintermediaries? Banking is a product base as well as a customer interface. One can provide mobile financial services but one also has to provide the products that customers will require through the business cycle and over their lifetime. The foregoing is not meant to suggest that traditional banks can sit back and ignore the competition – far from it. There is still much we need to improve, both in the technology space and in the area of customer service. A recognised advantage of new challenger banks is that they do not suffer from unreliable legacy systems. But already we observe bank branches becoming the user-friendly environments that they should have been many years ago, and some banks are seeking to acquire the technical ability to understand their customers in the way that Amazon and Google can. This is the consistent upside of competition. And so a worthy aim for a bank would be to treat every customer as a name and not a number. But these are not insurmountable problems. The modern bank for the 21st century must provide a viable product suite for its entire customer franchise and deliver a concierge service. That’s what any good bank today should be: a bank for everyone. The future is bright.