Asian Banking and Finance

ASIAN

BANKING FINANCE DISPLAY TO JUNE 30, 2011

ASIAN BANKS BATTLE FOR CNY MARKET It’s Hong kong Vs Singapore in this

battle for the offshore yuan Asian Banking & Finance Magazine atm trends survey

EMpty thrones as banks

refuse to hire How stanchart does

marketing

EVOLVING regulatory reform Malaysia gets an edge in Islamic banking

How ANZ innovates

ASIAN BANKING AND FINANCE | JUNE 2011 1

2 ASIAN BANKING AND FINANCE | JUNE 2011

FROM THE EDITOR

ASIAN

BANKING FINANCE

Publisher & EDITOR-IN-CHIEF Assistant Editor Art Director

Jason Oliver Niyasuthin

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Regina Goloy

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Media Assistant Editorial Assistant ADVERTISING CONTACTS

It is not every day you get a $1 trillion market grow literally overnight, but such is the case with the offshore RMB market, which only got started in August last year in Hong Kong and Macau. In Hong Kong, RMB deposits now account for over 5 % of total accounts in the territory, whilst in Singapore banks such as Standard Chartered and Maybank exclusively revealed to this publication their plans of launching RMB deposits and products.

Tim Charlton

Ann Marie Aquino Alex Wong Laarni Salazar-Navida lanie@charltonmediamail.com Carolyn Solas carolyn@charltonmediamail.com Alyz Katherine Tenorio alyz@charltonmediamail.com Loren Laylay loren@charltonmediamail.com

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Hong Kong is the leader in offshore Yuan trading, or CNY as it is known, but it seems likely that the People’s Bank of China will set up a clearing centre in Singapore before the end of 2012 which will make Singapore a very keen competitor in this market. As the yo-yoing US dollar creates havoc with financial controller’s balance sheets, the ability to conduct business and store value in RMB will become increasingly apparent in an Asia dominated by the Chinese currency, and provide more options for bankers to serve their clients.

On the HR front, May saw a lot of banks ‘go silent’ on hiring, and anecdotally there is a lot of evidence of banks just not filling available positions and eschewing external hiring to internal transfers or rapid promotions. It is a trend that may continue; certainly the 2010 boom in bank hiring in Singapore and Hong Kong is coming to an end with the sole exception of Private Bankers who remain as much in demand as ever.

And finally, do keep up with the latest banking news as well as the winners of the 2011 Asian Banking & Finance awards on our website www.asianbankingandfinance.net.

All the best

Tim Charlton

tim@charltonmedia.com

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MICA (P) 240/07/2007 No. 65

ASIAN BANKING AND FINANCE | JUNE 2011 3

CONTENTS

11

BANKS Malaysia gets edge in Islamic banking

FIRST FIRST

30 Asian Banking & Finance Magazine ATM Trends Survey

10 Evolving regulatory reform

OPINION

10 Biometric ATMs top priority for Banks 11 Malaysia gets an edge in Islamic Banking 12 Off shore RMB market takes off in Hong Kong as Singapore poised in pursuit

FEATURE

14 Payment situation of Chinese companies: how will it affect Asian companies?

24

Interview

Biometric ATMs top priority for banks

How ANZ innovates

value creator 29 High-performance IT in financial services 33 Solutions for global banking dilemma

REGULAR 06 Most Read

18 Asian Banking & Finance hiring hot spots

08 Around Asia

20 The future of banker compensation 22 Investment operations get back to the gym

24 How ANZ innovates

26 Compensation policies as a strategic

4 ASIAN BANKING AND FINANCE | JUNE 2011

Banking

16 Empty thrones as banks refuse to hire

13 Standard Chartered “Here for good’

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 15 B Stanley Street, Singapore - 068734

10

34 Last Word

For the latest banking news from Asia visit the website

www.asianbankingandfinance.net

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News from asianbankingandfinance.net

The best of asianbankingandfinance.net Banks’ growth see-sawed in first quarter

MARKETS

most read

Taiwan banks face risks from property downturn

FOREIGN EXCHANGE

Russian bank considers yuan-denominated bond issuance in HK A Russian bank is considering its first issuance of yuan-denominated bonds in Hong Kong.

Vladimir Dmitriev, head of Russia’s State Corporation Bank for Development and Foreign Economic Affairs, said that China has expressed support for the issuance plan. However, he did not disclose details of the move, such as the amount and the timetable of the issuance.

MARKETS

Bain & Company Partner SeowChien Chew named World Economic Forum Young Global Leader Seow-Chien Chew is recognized for her contribution in helping solve the talent management challenges facing many non-profit organizations across Southeast Asia and Singapore.

According to Bain & Company, the recognition is for her outstanding leadership, professional accomplishments and commitment to social change.

Russian bank taps yuan-denominated bonds an increase of over 100 times than that of 2009.

It continued to maintain the market-leading position.

CARDS & PAYMENTS

BCA to lose 300,000 credit card customers Bank Central Asia is bracing for a loss of 300,000 of its credit card customers after the recent acquisition of retail chain Carrefour by Bank Mega.

BCA, Indonesia’s largest private lender by assets, recorded a total of 2.2 million credit card circulation in 2010, wherein 300,000 are BCA Carrefour credit cards.

RETAIL BANKING

BOC cross-border RMB settlement exceeds $24B BOC’s domestic branches’ transaction volume exceeded RMB 160 billion or US$24 billion in 2010. This is

Bank of China

6 ASIAN BANKING AND FINANCE | MARCH 2011

FOREIGN EXCHANGE

OCBC sees robust growth for dual currency investment in Malaysia Dual currency investments benefit those who conduct business transactions in the alternate currency, especially those in import-export businesses.

OCBC Bank expects double-digit growth for DCI due to its potential to vie for higher interest rates.

In a statement, OCBC wealth management head Ong Shi Jie said customers were now more aware of the short-term non-principal investment form.

Excessive housing price rises since 2003 may not be sustainable to bolster the Financial Sector’s long-run risk-adjusted return, said Jonathan Lee, Senior Director in Fitch’s Financial Institution group. He added that an abrupt downturn in the property market could lead to a sharp deterioration in asset quality as real estaterelated lending presents a substantial portion of banks’ total loans.

According to Fitch, Taiwan’s various government administrations’ recent tightening measures is a positive. They point out that the ongoing liberalisation of cross-strait banking between Taiwan and China is not expected to immediately affect any ratings.

RETAIL BANKING

61% PNB net income up 61%

Higher non-interest income and trading gains pushed PNB’s net income 61% higher. The bank recorded a US$82 million net income in 2010 up from US$50.9 million in 2009’s.

markets

More deflation before inflation in Japan Japan’s devastating disaster will keep the economy mired in deflation in the coming months.

Before, Japan’s gradual economic recovery had seen headline deflation easing and positive core price inflation had seemed imminent. But the destruction has set back the recovery, and the economy is facing a new stage of recession.

Longer term, inflation is expected to become more of an issue as domestic demand grows and excess capacity is absorbed, causing the output gap to shrink.

Reconstruction efforts should drive demand for building and construction workers. The labour market will play a key role in the consumer spending outlook and Japan’s exit from its damaging deflation spiral.

in 2011 is to improve the country’s central credit bureau to better protect consumers’ rights and improve the quality of data. PBoC’s plan to improve its central credit bureau is credit positive for the banking system, as it will help banks make better underwriting decisions.

BRANCH BANKING

China’s city lenders to reduce speed of regional expansion

BANKING TECHNOLOGY

77% of bankers think fraud is the biggest barrier in mobile banking The survey revealed that developing a mobile banking channel for corporate clients is a top priority. However, only 15% of the surveyed bankers see mobile corporate banking as a revenue opportunity.

This suggests that banks are yet to fully realize the opportunity in mobile banking. The major concern which stands as a barrier in mobile banking is related to security and fraud issues.

a wide range of business such as deposit taking and loans in the local currency as well as currency exchanges.

TRADE FINANCE

South Korea may initiate Daewoo Securities-Woori Investment merger The merger eyed jumpstart succeeding alliances in brokerages as the industry suffers from a lack of global competitiveness. South Korea may merge Daewoo

Securities Co. and Woori Investment & Securities Co. to leapfrog Samsung Securities Co. and spark takeovers in the brokerage industry, said the head of the Financial Services Commission.

RETAIL BANKING

Siam Commercial Bank sees better first quarter profit The lender bank sought to finalize the deal for a possible merger in the petrochemical sector worth $2bn.

Thailand’s Siam Com-

BANKING TECHNOLOGY

Strengthening China’s credit bureau

RETAIL BANKING

Sumitomo Mitsui begins Malaysia operations Sumitomo Mitsui Banking announced that its subsidiary in Kuala Lumpur began operations last April.

Sumitomo Mitsui Banking Corporation Malaysia will engage in

mercial Bank said it expected its first quarter net profit would be higher both on the year and on the quarter due to rising loan growth and higher fee-based income.

Siam Commercial Bank expects to conclude the financial advisory deal for a possible merger in the petrochemical sector worth up to 60 billion baht ($2 billion) soon, Senior Executive Vice President Arthid Nanthawithaya said in a statement.

Sumitomo Mitsui Banking Corporation

Limited credit information on borrowers is a key risk facing Chinese banks, especially when lending to small businesses, rural borrowers, and individual consumers.

All of which are growth areas for banks.

People’s Bank of China said its key focus

China’s regulator may reassess the operations of banks’ interregional branches as it advised them to focus on their own markets of origin, prevent risks and improve services.

City commercial banks in China are set to slow down their regional expansion this year, even though the banking regulator has not officially forbidden such moves.

RETAIL BANKING

Hana’s KEB takeover deal temporarily put on hold The FSC plans to end the Lone Star chief Paul Yoo’s stock manipulation case within the month.

Hana Financial’s takeover of the Korea Exchange Bank has been delayed but not for long with a top regulator already promising to make a decision in April.

Lone Star’s eligibility as the major shareholder of KEB has been a hot issue as the Supreme Court overturned a high court decision on March 10, which had cleared the fund’s Korean unit chief Paul Yoo of stock manipulation allegation.

ASIAN BANKING AND FINANCE | MARCH 2011 7

AROUND ASIA

CHINA

Chinese banks are getting creative, pumping out high-yielding wealth management products with enticing names to woo depositors.

HONG KONG

Hong Kong Monetary Authority gives banks a funding plan deadline to avoid the risk of creditfuelled property bubble.

INDIA

The online properties of HDFC Bank dominated ICICI Bank followed by The State Bank of India, according to ViziSense.

INDOCHINA

Asian Commercial Joint Stock Bank reportedly gained a total pre-tax profit of 900 billion dong in the first quarter of 2011.

THAILAND

TMB Bank earned a net of THB1,096 million from the operations of the Bank and its subsidiaries during 1Q 2011.

INDONESIA

According to BNI director for business banking Khrisna R. Suparto, the bank is targetting Rp 30 trillion in infrastructure loans at the end of 2011.

SINGAPORE

MALAYSIA

The Securities Commission has approved Malayan Banking’s proposed medium-term notes programme not exceeding US$2bln.

Maybank Singapore launches two new home loan packages. Customers can enjoy low interbank rates, and still get the assurance of fixed rates in subsequent years.

8 ASIAN BANKING AND FINANCE | JUNE 2011

JAPAN

CQG announced that it has entered into an order routing service broker contract with Dot Commodity, Japan’s largest online commodity futures broker.

KOREA

South Korea’s Financial Supervisory Service is tightening supervision of credit card companies on worries that their easy loans may lead to default crises.

TAIWAN

Government-owned Bank of Taiwan plans to sign a cooperation agreement with Industrial & Commercial Bank of China Ltd. to help develop ties and enable the exchange of information.

Philippines

Bank of the Philippine Islands first quarter profit up 4.5% to $65mn, surpassing last year’s $62.67mn profit.

AUSTRALIA

National Australia Bank is in talks with potential partners to jointly bid for 600 UK Lloyds Banking Group branches as it considers bulking up prior to an exit from Britain in 3 to 4 years.

ASIAN BANKING AND FINANCE | JUNE 2011 9

FIRST which is going to be a problem for emerging market banks as they want to roll out even more ATMs outside of the branch network. And the skimmers today are so good that the layman customer just won’t be able to recognize them. Which brings forth biometric security, the last line of defense in ATM security and potentially the hardest to skim. But first, here is what is not working in ATM biometrics.

Evolving regulatory reform According to a recent joint KPMG and Oracle survey of executives from financial institutions across the region, the newly proposed reforms Basel III are likely to have a significant impacts on banks in Asia-Pacific.

About three in four, or 76% of respondents said regulatory reforms would have an impact on their business. More than half said these regulatory reforms would likely mean changes to their banks’ business models.

Almost half or 48 percent expected the need for their banks to raise additional capital.

Despite this, 72.5% of those surveyed said they supported the application of new regulations such as Basel III to financial institutions in the Asia-Pacific region.

Some areas of concern highlighted were to address the expected higher compliance costs. This could mean a reduction in their banks’ competitiveness and a higher cost of capital, which may also become harder to access.

The bottom line is that these regulatory reforms that new regulations will hit banks’ top and bottom lines, and more costs may be transferred to customers.

Most respondents thought their banks would require additional risk management infrastructure. Over 96% said they considered that an integrated approach to risk, performance, compliance and capital was either critical or important/very important to “Future Proof” themselves.

More than 70% said they have had to refine the terms of references of their risk management committees.

10 ASIAN BANKING AND FINANCE | JUNE 2011

Biometric ATM’s top priority for banks Asian Banking & Finance Magazine was recently in Ho Chi Minh city, on behalf of GRG Banking, talking with the Vietnamese banking community about trends in ATM Machines and Technology. The outcome of that research is summarized in our report on page. If you haven’t heard of GRG Banking yet, you soon will.

They are the China-based maker of ATM machines. But more than that, they have the largest market share in China, which in itself is now the world’s largest market for ATM Machines. So it makes a lot of sense to listen to what this emerging giant has to say. As a side note, the company chiefs told our correspondent that whilst they only have a staff of 200 in manufacturing, they have a much larger and stronger staff of 400 in the research and development team and are coming up with some interesting innovations in the field of biometrics. This is a big issue in Asia and the developing world where it is easier and cheaper to skim from an ATM machine than to actually rob from a bank.

One observation was that generally, the ATM machines most prone to skimming attacks are those that are based off branch premises,

“

“Many people feel uncomfortable peering down a microscope and have a laser beam shot their eye for a scan.”

The eyes don’t have it The eye scanner is ruled out because, according to cultural constraints, many people in Asia and perhaps elsewhere feel very uncomfortable peering down a microscope only to have a laser beam shot back into their eye for a scan.

It may look cool in ‘The Terminator’, but the practicalities of having queues of people all looking in the same device is off-putting to say the least. Then comes the standard biometric standby– the thumb or finger print. But this is also problematic in the real world environment of Asia for two reasons.

Firstly, many people who may want to use such an ATM may have manual labour jobs which damage the skin and hence the thumbprint, leaving them unable to use the machine. Secondly, and this is what our correspondent was told at the GRG Banking day in Vietnam, some Asians do not have as pronounced thumb prints as Caucasians, making it harder to read prints. So when you take these two together, the thumb print as a biometric identifier is ruled out. So what work?

The latest thinking is that palm vein scanners are the best as they are reliable, unobtrusive, and are not affected by quality problems with the skin.

It is a novel solution that is getting a real world try out in Turkey with bank Ziraat where 1500 machines will be fitted with the device. So what how work? Palm vein authentication technology uses the vascular patterns of an individual’s palm as personal identification data. Compared with a finger, a palm has a broader and more complicated vascular pattern and thus contains a wealth of differentiating features for personal identification.

FIRST

Malaysia gets an edge in Islamic banking For any market to be successful it doesn’t just need good rules, it needs liquidity. Which is where Malaysia has strengthened its hand in the race to become the dominant centre for Islamic Finance by setting up the International Islamic Liquidity Management Corporation in October last year which was backed by 12 central banks.

Its aim is to ensure there is enough liquidity, especially in cross-border transactions. This is another sign that Malaysia is breaking away from other wanna-be Islamic Financial centres.

For Malaysia, the financial services sector is one of the 12 National Key Economic Areas, and the relevance and importance of Islamic finance is outlined in one of the four strategic thrusts where the government has made clear its aspiration to be the global hub.

Anita Menon from accountancy firm KPMG notes that the recent developments have also highlighted that while there was enormous interest in the sector post-crisis, the rise of Islamic finance was not in line

with the interest mainly due to the limitations in the regulatory and legal infrastructure in many markets.

Indonesia tidak boleh “Indonesia which is being touted as the next key growth market has shown cautious growth partly due to the lack of awareness and promotion by players but also due to the nascent regulatory regime.

While markets are pushing for parity in their tax laws to encourage the structuring of products, a leaf taken out of the Malaysian page would indicate that the take up would only arise as a result of incentives such as tax breaks and other stamp duty waivers that have been key to the growth of this sector.” In Malaysia the local banks continue to dominate in terms of profitability, and the foreign Islamic banks seem not to have fully recovered from the crisis, and some banks show recovery of high initial capital investments while others demonstrate the effects of growing too fast and write-offs required recently.

“

“For Malaysia, the financial services sector is one of the 12 National Key Economic Areas”

Anita Menon, Executive Director, Financial Risk Management, KPMG Advisory ASIAN BANKING AND FINANCE | JUNE 2011 11

FIRST

Offshore RMB market takes off in Hong Kong as Singapore poised in pursuit It has not even been a year since the Chinese government allowed its currency, the RMB to be traded and settles outside its borders. But since the opening of that window in August last year, the amount of Yuan on deposit outside China has swelled to CNH450 bn, and should reach a CNH 1 trillion by the end of the year.

It has by all measure been a phenomenal success, but not one that is totally unsurprising. This ofcourse is fuelling a massive market in trading the US dollar with the CNH, a spot market that now has a turnover of an excess of US$1 billion daily, according to estimates from HSBC. The futures market is also active with around US$800 million of contracts traded daily, making this a lucrative new market for traders and investors. The CNH market is set to overate the NDF market, which currently turns over around US$4 billion daily, sometime in 2012.

This is logical, as HSBC notes, as the functional uses of the CNH market such as funding, trade settlement, investment, and placing deposits far outweigh that of the NDF market which is primarily used as a directional currency play.

Accordingly analysts expect the number of market participants in the generalized CNH market will soon outnumber that of the far more specialized CNY NDF market, helping maintain the pace of growth.

So just how big will the market grow ? CNH is still small compared

to the daily turnover of other Asian currencies, which means rapid growth will continue for a while yet. One thing that may precipitate a move from the NDF to the CNH market is already happening. Many longer-term investors in Yuan are switching their holdings from the NDF market to the CNH market, not only because the asset-class has advantageous characteristics such as better yield and is a real rather than derivative asset), but because, as HSBC notes, as the CNH market develops and matures, it appears inevitable that it will sap the activity and liquidity of the NDF market.

Enter Singapore ?

At first glance Hong Kong would seem the natural centre for trading in CNH as much of China’s trade goes through there and people are natural holders of Chinese currency.

However Singapore is upping the anti and is trying to establish itself as a serious player in the CNH trading market. Several Singaporean-based banks including Standard Chartered and Maybank revealed plans to this publication to establish a CNH/RMB business.

And China announced itself that it would establish a third RMB clearing bank to be based in Singapore, the other two being Bank of China in Hong Kong and Bank of China Macau. Presumably the Bank of China will get the green light to do the same in Singapore and they may

China’s total bilateral trade is still larger with HK than Singapore

12 ASIAN BANKING AND FINANCE | JUNE 2011

“A deliverable RMB market in Singapore possible as early as 2012.”

even need a bigger office than their current older building on Battery Road.

As HSBC notes, a local RMB clearing bank would be an important foundational element for an eventual offshore RMB trading platform, as it would allow local banks to deposit RMB reserves locally, as well as more directly facilitate cross-border RMB trade settlement, both of which currently require use of the Hong Kong platform. So can Singapore challenge Hong Kong or indeed become a serious player ? Maybe not so fast, notes HSBC, which says that the establishment of a clearing bank is relatively straightforward compared to coming to an agreement on regulation and management of other aspects of a potential deliverable RMB market, something that was a relatively easier hurdle for Hong Kong, which is ultimately implicitly overseen by the mainland.

“However, with both sides likely to be highly motivated to push this forward, we will likely see significant development this year, with a deliverable RMB market in Singapore possible as early as 2012.”

This development would expand the CNH regime currently in place in Hong Kong, rather than create separate competing systems, as CNH is already freely transferable offshore.

Hence, the offshore RMB exchange rate, known unofficially as CNH, will be applicable in Singapore and other eventual trading centres as well.

RMB deposit base has grown exponentially in Hong Kong

interview

Standard Chartered ‘Here for Good’ Basker Rangachari, Chief Marketing Officer, Consumer Banking, Standard Chartered Hong Kong took time to speak to Simon Hyatt.

Basker Rangachari, Chief Marketing Officer, Consumer Banking, Hong Kong

How do you intend to stay ahead of your competitors?

Okay. Sun Tzu, in the art of war, the famous general said that the army that wins the war is not the one with the biggest fire power, but it’s the one with the best people and best innovative people. Second, how would Ferrari as a car, keeps its market dominance in sports cars even when others come? Two things make a difference in order for that to work. First is the silo mentality on investing; you got to break the silence. That’s not easy because in some banks you know each silo is very powerful. And they would go ‘why should I participate in what is for common good, right?’ It’s a bit tough. Second is platform -- technology. When you want to do customer-centric loyalty you’ll need to have a customer-centric view. Capability. People. If you put the right people, enable them in the right space and give them the right technology, that’s when they’ll be successful. So I think we are already ahead in that game. That would already give us a head start.

The Ferrari example. Ferrari is perfectionist in their design. They try to design every element perfected. We ofcourse have started this and you know couple of years ago in Hong Kong, in Singapore, and now five markets. We are in a continuous journey of trying to fine tune that other little piece that we may need to fine tune to make the experience better. We are continuously trying to innovate to the next level.

What do you think are the primary factors that led Standard Chartered from winning the Excellence in Customer Centricity award?

It’s nice to know we were able to beat a number of competitors in winning the award. That’s very good news. But if I kind of analyze why we won, I would say there are a few factors that made the difference -- the whole, the way, the concepts that were put together. They were not put together because someone in the bank thought “Hey it’s a cool idea, let’s go do it and run a marketing campaign.” We actually took over a year to build out a loyalty strategy. We asked: Which relationships matter? Which ones do customers want to be rewarded for? So there’s a whole range of work underneath that was done to prepare ourselves for what would a total relationship reward program look like and how it should look.

We started within Singapore, with a campaign that talks about ‘Shouldn’t a bank reward you for doing nothing’ and that is a very interesting way of

getting attention.

Grabbing attention. In Hong Kong we launched with a whole range of advertising which is about ‘Why shouldn’t you get rewarded for basically just having the relationship with the bank and letting the bank make money for you?’ It’s a very unique way because if you look at traditional loyalty programs in a bank, it’s always around your credit card spent.

Credit card spent. When you’re young and starting life you spend a lot and getting rewards feels nice. But actually as you mature through your relationship with the bank, it’s actually a lot more on your assets side – your deposits, your wealth, your investments. So to get absolutely nothing on that and just get on the smaller portion of your balance sheet doesn’t make any sense. So that led us to firstly getting it. I actually think that in Hong Kong it was executed extremely well.

What internal cultural aspect or even unique external marketing aspects do you think led Standard Chartered fronting the field in terms of customer satisfaction?

See, the loyalty program is just one component of becoming customer-centric.

It’s not the ‘Panadol’ answer to all your pains. It cannot just solve all the problems.

So getting the loyalty program was one piece. You have to move authority lines, goal posts have to change.

So there’s a fair bit of culture that needs to be handled and that should be through transformation, workshops, and teaching people what it

means to be customer-centric, etc.

At the external marketing aspect, we actually tagged that a lot with our new brand slogan which is “Here for good.” There’s a level of ingenuity that needs to be built in to it. So it’s not about the highest point that gives you or the longest air miles that matter.

We didn’t try to play just one element of the loyalty game. But it was more about this: we reward you on your full relationship on everything you do with us even when you’re not transacting.

Now, that kind of a promise appears more genuine and it resonated with our customers. It’s the internal culture and the external marketing message that needs to come across as very solid.

Why do you think it’s taken the banking sector so long to recognize the power of the customer’s relationship?

I think what happens is that, banks are no longer run by just bankers, or career bankers. More people from other industries are coming into banking and I think that created a culture change. So when you come into banking for the first time, you would ask? ‘Why wouldn’t we reward the customer?

Why wouldn’t we do this?’

So that kind of gentle pressure I think helps banking evolved.

Now, banks also look at what other banks do. So you needed someone to start the dance, or get on the dance floor first. So banks are very good in replicating what other banks and that’s what happened – to the benefits of the customers.

ASIAN BANKING AND FINANCE | JUNE 2011 13

opinion

OPINION

Christophe Souquet Payment situation of Chinese companies: how will it affect Asian companies?

Christophe Souquet Executive Vice President Risk Department Asia Pacific

C

oface conducted a corporate credit risk management survey in China, in the fourth quarter of 2010. Over 1000 companies in mainland China participated in the survey.

It reveals that great improvement in both credit sales and overdue payment among mainland China companies has been observed in industries such as building & construction, textile and clothing, automotive/transportation and household electric/ electronics, which is largely due to the government’s stimulus package after over 1 year’s implementation.

But this might not necessarily be good news for Singaporean companies intending to extend their businesses to mainland China. The survey also revealed enterprise’ concern on 2011 economic outlook.

Thanks to the high cost of raw material, industries such as building and construction, textile and clothing might face difficulties in the coming year. In the meanwhile, on the threshold of a new Five-Year Plan, the Chinese government will implement a new stimulus package, subsequently lead to a shift of the preferential policies among different industries, making the investment landscape in China a different story.

The 12th Five-Year Plan will be implemented in 2011. More than 4 trillion Yuan will be spent in the coming five-year period to provide financial support, including tax cuts and exemptions, to nine key industries - new energy, new materials, information technology, biology and new medicine, energy conservation and environmental protection, aerospace, marine, advanced manufacturing, and hi-tech services industries. The government aims to shift China from “the global factory” to “the global market”.

Therefore, the new plan accents on creativity and advanced technology, to help Chinese companies depend less on foreign technology.

Companies with a focus on advanced technology rather than the traditional outsourcing manufacturing model will enjoy more benefits from the new Five-Year Plan.

The Chinese government also plans to speed up urban infrastructure construction during its 12th Five-Year Plan, which in theory should benefit industries such as building and construction, transportation, iron and steel, and industrial machinery. But Jean-Claude Speitel, CEO of Asia-Pacific for Coface, warns “we should be cautious on the impact of overcapacity and rising materials cost in these sectors.”

On the other hand, “with increased income of Chinese households and government’s continuous efforts to boost domestic consumption, sectors of household electronic appliances and pharmaceuticals will continue to enjoy strong 14 ASIAN BANKING AND FINANCE | JUNE 2011

growth in 2011.”

However, Japan’s recent mega earthquake adds another twist to the outlook. Large auto makers like Toyota and Nissan are suffering a shortage of automotive parts.

China represents 19% of Japanese exports, thus China will be affected by the situation, especially those industries that heavily rely on components produced in Japan, such as automotive, electronics and IT. The impact of the crisis may be limited if over-capacities in advanced economies could soften the shock and Japan manages to bounce back quickly.

With the new plan in place, the industries that “behaved” well last year may not be as reliable in the next year, which explains why over 30% of the surveyed companies expressed concern over the future overdue payment situation. According to Coface’s survey, industrial machinery is the least positive on the improvement of overdue payment situation in China while pharmaceutical is the most positive one.

In light of the new Five-Year Plan, it is reasonable to believe that the nine industries mentioned above are more promising in the coming years.

Therefore, Singaporean companies should be cautious when trading with industries such as construction, textile and clothing, but should lean more towards advanced technology, new energy, and pharmaceuticals.

Under current circumstances, the automotive and IT industries should be treated with caution as well.

Cover the world over Credit insurance is the most effective tool against payment default and the protection it provides for unrecoverable trade receivables is essential to any effective credit management process.

And in times of economic uncertainty that protection and peace of mind is a particularly precious commodity.

But at Atradius, with more than 80 years experience of credit management and with over 22,000 credit limit decisions made daily around the world, weÕve taken cover to another level.

A level at which protection isnÕt the end game Ð itÕs the foundation of a better enabled and visionary business.

With access to information on over 52 million buyers worldwide, our knowledge and our resources in 40 countries across the globe can set your business free.

YouÕll gain insight into companies and markets which enable you to balance exposures and achieve secure growth, however challenging the conditions.

To take your business further contact Rosamund Loh, Commercial Manager, +65 6372 5303 or visit us online.

www.atradius.com ASIAN BANKING AND FINANCE | JUNE 2011 15

OPINION

Tanya Sinha Empty thrones as banks refuse to hire

Tanya sinha Manager, Financial Services Robert Walters

T

hroughout the last two quarters, most hiring managers in banks were grappling with multiple offers and counter offers, thinking the worst of them.

However, the dust has now settled. After all the hustle and bustle, the themes gradually emerging in most banks’ hiring are internal mobility and internal referrals – two factors not entirely new to the financial services hiring scene, they recur in definitive and repetitive cycles.

Following speculation that banks hired in significant numbers last year in proportion to their businesses and appetites, this phase of internal consolidation may not be surprising. However, what seems to be slightly out of the ordinary this time around is the fact that banks are willing to let vacancies continue even at senior levels of the organisation.

It is obvious that all banks have lost people across their businesses to competitors in the past year. There were immediate attempts often made to replace the losses at junior, transactional and individual contributor levels. These days however, replacements have often been sought internally before the role is opened up to the market. This trend applies to consumer banking, corporate banking and wealth management alike.

Simple logic The logic is simple: someone who transfers internally from another part of the bank’s business and who already knows the bank’s systems and the main stakeholders is as good as – if not sometimes better than – someone with the sought-after experience, but different expectations from another bank who has to familiarise himself/herself with the environment from scratch.

However much has changed these days as banks are more willing to let empty chairs be even after

“Singapore is becoming a hub for the commodities area, arising from global commodities markets.” a considerable time if no real internal successor has been identified. Interestingly, this trend seems to predominantly apply to senior roles – either in management or otherwise. Under normal circumstances, if a high-profile resignation has taken place and the market is abuzz with it, the affected bank would be quick to work out an interim solution 16 ASIAN BANKING AND FINANCE | JUNE 2011

and declare it. This is not the case nowadays as some organisations are content in maintaining the status quo with the intention of hiring the best candidate for the role or not hiring at all. At junior levels, a prolonged vacancy often means that the existing teams might be a little stretched and under slightly increased performance pressures. However, given the impression that banks have hired sufficient junior staff to give them some sort of bench strength, it does not seem to cause much ripples of dissent.

However, with senior level role vacancies, spotlight is placed on the next layer of talent and they come under pressure to prove that they can forge their way to deliver or manage big deals on their own. In addition, with the senior layer gone, getting even a minor replacement head count becomes an arduous task.

In such cases, senior bankers often have to grapple with the frustration of needing to hire but not being allowed to simply because every hire needs to be made into a case study and approved by the highest authority. Thence, it is not uncommon these days to have a team comprising of all but one member – the team leader at a Director/MD level – with most of the team gone and the MD unable to get approvals to hire more than the absolute necessary head count.

“Major banks now hiring”

ASIAN BANKING AND FINANCE | JUNE 2011 17

OPINION

BY Chris Mead Chris Mead General Manager Hays in Singapore

Asian Banking & Finance hiring hot spots

I

ncreasing market strength and new government regulation will see new permanent roles created this quarter in China.

With most of the major banks looking to expand their front office, Relationship Managers and candidates with corporate banking and product sales experience will be in high demand.

In Beijing, many banks are opening non-banking financial institutions to target insurance firms and brokers. Thus candidates with good banking experience and insurance knowledge are also highly sought after.

New regulatory controls on property purchasing will see consumers exploring alternative investment options such as bonds and equities.

This will create demand for candidates with relevant specialist experience.

Finally, experienced risk professionals within the insurance industry will be an area of demand given the severe shortage of such candidates in this relatively new field in China.

Turning to Hong Kong, many employers have indicated that their expansion plans include new head counts, while some of the major banks have undertaken a total restructure. Add lower bonus payments than employees were expecting, and the resulting candidate movement will add to the already active market.

Demand will be highest this quarter for Product Controllers with exotic product knowledge and Internal Auditors with capital markets product knowledge. Financial Reporting and also Regulatory Reporting skills are also in short supply.

IPO Demand Meanwhile, a number of Chinese firms are working towards IPO and this creates vacancies on the advisory side. As debt markets continue to recover, there are requirements for candidates experienced in Structured Finance, Fixed Income, Corporate Finance and Equities.

In Japan, the focus over the next few months is likely to be on replacement roles as companies rebuild their teams. The approval process for recruitment plans is somewhat slower than usual, but some new roles have been approved and will be filled this quarter.

For example, experienced Fixed Income professionals are in demand and there is a constant requirement for experienced bilingual Research 18 ASIAN BANKING AND FINANCE | JUNE 2011

Analysts in some trading areas. Bilingual Product Controllers are in short supply and are highly regarded by any house with a derivative trading business.

Many companies will also begin to recruit for Financial Planning and Analysis professionals after budgets are finalised in April.

Bilingual Japanese/English skills will remain a focus of demand, as will bi-cultural candidates to work in international companies. There is also a high demand for Japanese who have experience working overseas.

Turning to Singapore, the anticipated postbonus fall out has started, creating replacement roles. But despite head count being high on the agenda, there is unlikely to be many newly created roles; the intention to hire is there but there is no rush to proceed.

As large corporate firms go through a growth period following strong financial results, many of the Singapore banks are trying to gain a competitive edge by winning their business.

Individuals experienced in transaction banking, wealth management, commodities, specialised finance and credit risk management are all in demand as many of the world’s major players announce growth and development plans in this sector.

In addition, Singapore is fast becoming a hub for the commodities area, with firms recognising significant opportunities arising from global commodities markets.

“Major banks now hiring”

“

“Employers are engaging with international recruiters to ensure they can source and recruit top quality professionals.”

ASIAN BANKING AND FINANCE | JUNE 2011 19

opinion

OPINION

Julia Smith The future of banker compensation

T

he compensation landscape at financial institutions is undergoing a dramatic change. New approaches to remuneration are being implemented to comply with changing regulations and drive long-term business success. In recent years, banker compensation has been under unprecedented scrutiny. While few believe that compensation was a major cause of the global financial crisis in 2009, banker bonuses continue to be widely debated. Two key forces are driving the change in the landscape for banker compensation. Firstly, regulators are focused on the structure of rewards and want to ensure that excessive risk-taking is not rewarded. Regulators note that broad risk reform must be supported through compensation plans.

Secondly, politicians are focused on finding ways to rein in what they, and the general public, consider to be excessive pay levels. In particular, high pay is not tolerated in the wake of the global financial crisis, considering the huge cost to the public treasury to underwrite banks that they had to save.

Financial Institutions (FIs) face challenges in achieving the right balance between profit, growth and risk management. They need to define their risk appetite and work with employees to maximize growth and profit within this framework.

Historically, there has been very little awareness among employees of how individual decisions could impact the organization. Most would not get actively involved in risk management.

Post-crisis, there is awareness that everyone in the organization has a role to play. New ways of thinking are required to take advantage of all possible synergies. One key synergy is compensation. An FI’s compensation approach must support its risk control processes. As the Basel Committee on Banking Supervision said, “For a broad and deep risk management culture to develop and be maintained over time, compensation policies must not be unduly

The Financial Stability Board (FSB) regulations require performance measurements to include risk adjustments that reflect the cost and quantity of capital consumption and liquidity risk. FIs implement this through a risk-adjusted profit measure or a discretionary overlay to adjust bonus pools.

Regardless which performance measure is selected, boards are retaining more discretion in bonus payout - pay practices that support smarter risk-taking. The FSB principles and implementation standards are changing the rules on compensation globally.

Fixed remuneration There is now pressure to ensure a right level of remuneration mix between fix and variable components. New restrictions on variable ‘Financial institutions (FIs) face challenges in remuneration require higher levels of deferral. This, together with bonus reduction achieving the right balance between profit, in 2009, has made many FIs relook at their remuneration mix. growth and risk management.’ linked to short-term accounting profit generation.” To do so, FIs must ensure that bonus pools reflect the cost of capital used to generate returns and pay practices support smart risk-taking.

Capital-charging business and bonus pool profits earned through high-risk activities are less favorable than those earned from low-risk activities. However, in many incentive plans, all profits are treated equal.

20 ASIAN BANKING AND FINANCE | JUNE 2011

Short-term incentives The biggest change to short-term incentive plan structures is the requirement for claw back or malus clauses. Claw back policies vary between companies, but most allow for discretionary adjustments to reflect significant financial misstatements and some forms of ethical misbehavior. In addition, many FIs provide deferred compensation in the form of equity.

JULIA SMITH Executive Director Human Capital, Ernst & Young Solutions LLP

“Banker compensation”

ASIAN

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opinion

OPINION

Lisa O’Connor Investment operations get back to the gym

Lisa O’Connor Director, Securities Market Asia Pacific, SWIFT

A

new wave of fitness training for investment operations is getting underway. Straight Through Processing (STP) systems achieved a certain level of effectiveness over the last 20 years, but they have been thrown a new set of challenges in recent months. These challenges will inadvertently cause a wholesale review of operating models in asset management business worldwide.

With the increasing demand from securities firms for end-to-end STP reviews, SWIFT’s rapidly-growing consulting unit has developed some insight in response to this trend.

Today’s challenges: The first challenge is the ever-increasing pressure on margins. Since the STP chain is all cost and no revenue, from the investment manager’s perspective, the objective here is simply to reduce total costs of the entire process, including the “vanilla” equity or fixed income trade that throws up no exceptions at all, as well as the cost of handling trades going through nonSTP channels.

The second challenge is the preparation of processes for outsourcing. Wholesale lift-outs are decreasing in number now, but smaller-scale outsourcing of smaller packages of the operations process are becoming much more popular – but after several years of experience, it has become clear that only those processes which are already highly automated can be scaled, and therefore outsourced, profitably.

Finally, the retirement of Omgeo’s OASYS Global Electronic Trade Confirmation (ETC) platform forces a major change to Investment Management systems; the challenge for many firms is about what to migrate to, and how to make that migration cost-effective.

outsourcing; is answered by the ubiquitous use of standardised communications, which can help a lot with implementation, and the reduction of risks.

Even more important is the elimination of foreseeable manual intervention with trade processes, as these often lead to unsatisfactory or uneconomic outsourcing relationships. Standardising message flow also makes instrumentation of these processes much easier – which is important for firms who want to continually assess the cost-effectiveness of outsourcers, as best market practice demands.

The final challenge, caused by the need to replace How investment firms are responding: Omgeo OASYS Global before November 2012, is To address the first challenge, investment firms typically met in one of two ways. across the globe should look to see what are the One which really depends on the attitude of an investment manager to the idea of moving from an ETC system based on messaging “Standardising is important for firms who (OASYS Global) to a centralised trade want to continually assess the cost-effectiveness matching system (CTM). A CTM is for those firms who like the idea of outsourcing trade of outsourcers.” matching. most cost-effective ways of confirming, matching, For those firms who would prefer to continue settling, reconciling and servicing securities trades; the use of ETC messaging and to preserve the and some of these firms are coming up with very functionality of their in-house STP system, a “Global interesting (and unexpected) data. In most cases, ETC” offering can be very beneficial, in fact, several what is necessary is an alternative that is extremely investment managers have already decided to use it as competitively-priced for trade confirmation and their primary ETC channel. The relatively low project matching. cost and risk of migration help to justify why this The second challenge, about preparation for offering works.

22 ASIAN BANKING AND FINANCE | MARCH 2011

“No need for a handshake with STP”

co-published

Bringing Asia’s Financial Services Industry to the Cloud misconfiguration, informal or uncoordinated tools and procedures, and error or abuse by in-house staff.

Organisations are coming to recognize that the security and operational assurance of their cloud services are better than they can cost-effectively provide for their own locally operated facilities.

“At Salesforce.com, because security is a top priority for us, all of our customers benefit from the diverse requirements of our 87,200+ customers, and these include large financial institutions and government organisations,” adds Monaghan.

Asia’s financial services leaders head to the cloud (no matter what their size) Let’s take a quick look at 2 different-sized organisations in Asia who use enterprise cloud computing to streamline their business processes and improve productivity.

Over 1,600 financial institutions around the world benefit from salesforce.com’s cloud-based model

I

T has suffered from an image problem across much of the financial services world. It is often seen as expensive and difficult to manage, with opinions reinforced by experiences of buying technology that has not delivered expected value and ROI. But according to enterprise cloud computing company, Salesforce.com, this doesn’t have to be the case.

The Financial Services Industry Looks to Reinvent Itself with the Cloud On the back of the last financial crisis, the financial services industry is being forced to reinvent itself into a more efficient and agile industry. Now institutions in wealth management, capital markets, banking, and other business segments are looking to enterprise cloud solutions to help shift computing burdens from their data centres into the cloud.

“With enterprise cloud computing, businesses of any size get access to massive computing power, sophisticated computer programmes, and the best data security money can buy on a simple pay-as-yougo model without any of the headaches of traditional IT,” explains Renny Monaghan, Senior Director of Financial Services, Salesforce.com.

Currently, over 1,600 global financial services customers put their trust in the Salesforce.com cloud-based model with many of these organisations based in Asia.

Salesforce.com’s financial services customers in Asia include the likes of Japan Post, Ffreedom Financial Planners, Bajaj Auto Finance, Siam Commercial Bank, Prudential Vietnam, and Commonwealth Bank

Australia.

Multi-tenancy is the key Multi-tenancy is a fundamental technology value of cloud computing. Similar to Facebook and Google, multi-tenancy means that all customers run off the same system, where they experience the benefits of a shared system. It also ensures that Salesforce customers do not have to rebuild their customizations or integrations every time the service is upgraded to the next version.

“Think of multi-tenancy like an office building where tenants share all the infrastructure such as the elevator, power and water services. Each has their own offices to serve their distinct purposes,” explains Monaghan.

“But the benefit is that they share the same infrastructure. They can upgrade the elevators and make it high speed and everybody can benefit.”

Multi-tenancy provides instant capacity for growth, on-demand. Customers need not re-architect their systems, they just add on more users.

Is cloud computing safe?

Security of data and the potential risk of data loss is probably one of the biggest concerns the financial services industry has when it comes to considering cloud computing. But according to IDC Financial Insight’s analyst, Michael Araneta: “As banks take on the newer models of IT delivery they can rely on the best practices they have been using for outsourcing. The principles are the same.”

In fact, enterprise cloud computing can actually reduce the major IT security risks of

Large – The Japan Post Network The Japan Post Network has 24,000 post offices nationwide and is Japan’s largest bank, with 100+ million clients. Recently privatised, Japan Post needed a new technology platform to streamline business processes. It also had to support 6+ million insurance policies for Japan Post Insurance and 14 billion mail packages annually for Japan Post Service.

The solution: Japan Post chose the Force. com cloud platform for its ability to adapt to their business. Japan Post then built 15 custom apps for 75,000 users at 24,000 post offices on this cloud platform.

“We developed a system that fully met our cost and functionality needs in 2 months; Force.com was the only way we could accomplish this,” said Japan Post management Small – Ffreedom Financial Planners Ffreedom Financial Planners is India’s upcoming financial institution. The company was growing quickly, and they needed a solution that could provide scalability and flexibility.

The solution: Combining elements of Sales Cloud and customisation based on the Force.com Enterprise Edition Ffreedom has created its own business system it calls “Advisory Factory”.

“Without Salesforce we wouldn’t have the business we have today. The model would have been different and the business smaller because we wouldn’t have been able to afford the technology, or the time to customize it.,” says Sumeet Vaid, founder and CEO, Ffreedom Financial Planners ASIAN BANKING AND FINANCE | MARCH 2011 23

How ANZ innovates ANZ’s head of innovation Felimy Greene was interviewed by Simon Hyett on innovation and other bank initiatives.

Simon: The Innovation and Mobile Banking Award – If there is one fundamental reason that led ANZ to winning this award and thereby trumping your competitors, what would this be?

Felimy: I would have to say there are many elements to it, but probably one is having a customer-centric focus.

This was something that you know we are really looking at bringing to a new level in terms of the design of the particular product. I would say an addition, a degree of rigor around on how we execute it. There are lots of products out there and if you think back to the cars in the 1980s – beautiful design but poorly executed, it falls apart, and it costs you a lot to run.

Execution is very important as well. So it’s customer-centric design and then a lot of focus on rigorous execution.

24 ASIAN BANKING AND FINANCE | JUNE 2011

“Treating yourselves as customers, ‘cause of course you’re banking customers as well as banking professionals, helps in reaching that end.”

Simon: Let’s talk about a customercentric approach. What would be the leading element that will separate you from your competitors in terms of having such a customercentric approach? What differentiates you?

Felimy: I think everyone understands, the customer’s view is very important.

Large organizations whether it’s a bank, it’s hard to actually do that. We put a lot of thought into it. Apart from using our own experiences – whether this will be a product I would like to use as an individual – we also solicit a lot of feedback from customers.

We’ve done a lot of research. We’ve observed people using our products with video cameras… And it’s bringing all those elements together into a design... and that we ask ourselves “Is this the product that I would use. Is

this the product that addresses what the customer wants.” And we are guided by a couple of simple mantras, which are part of our bank promise: To make banking simpler.

To make it more people-shaped.

And while they are very simple statements, if you keep on repeating them, and ask yourself in every stage of the design and execution, “Is this really simple? Is there any other way I can make it simpler? And is it really people-shaped? As opposed to being bank-shaped? Because we’ve a history in the industry of doing it our way instead of the customer’s way. And I think those two things as well are very important.

I assume that treating yourselves as customers, ‘cause of course you’re banking customers as well as banking professionals, helps in reaching that end.

I think it does. Yeah yeah. We got to eat what we grow. And I think it’s fair to say we’re reasonably enthusiastic. If not fanatic about what we’ve done with the money and we’re very pleased with the feedback. And what we’ve gotten from the customers.

FEATURE That’s another piece, this is, listening to the customers. And listening to their feedback and incorporate that into our plans as we go forward.

Doesn’t stop here.

Simon: Particularly focusing on mobile banking, why do you think ANZ is such a leader in the particular field?

Felimy: I think it links back to the first question, customer-centricity.

But then, it’s a little bit more than that.

We’ve set a process which is on one hand creative, you know, observing customers. Looking at the softer issues around.

How people want to use their money on a day-to-day basis. And couple that with rigor in terms of the process.

We design results and basis. Test our concepts on customers.

Test them on ourselves. And we’ve got some pretty hard requirements before we go to the next stage and ultimately deliver something to the market. I think it’s a combination of a creative process, kind of like art, and a rigorous process, which is more science.

Simon: A mix of art and science.

If you could name one differentiator between ANZ’s Go Money and your competitors’, your equivalent competitors’ products, or your near competitors’ products, what would that chief differentiator be?

Felimy: I think apart from the comments already made around how we design and so on, I think there are clear differentiators right now. One is that this is a custom-built application from the ground up. There’s a lot of banks, not just our competitors around the world, will take the initial banking platforms and repurpose those pages for mobile device.

And it works. But it doesn’t work as well as if you built something from scratch. We’ve built ours from scratch and it talks directly to our core banking systems and provides a very intuitive response that you’re not in a browser.

We can maximize the capabilities of this particular device. In case the iPhone for touching and rotating and so on. So I guess that’s the first differentiator.

It also makes different in terms of performance and speeds as well because you’re not loading a lot of

Felimy Greene, Head of Innovation Pipeline, ANZ BANK

graphics over the wireless connection, it’s all local on the phone. That’s one I think the second is very simple but powerful, the notion of getting into your banking on your mobile device which is a four-digit pin. This is an old metaphor. We’ve been using ATM for decades.

You put the card in and you put the four-digit pin. And in this case, your iPhone, your phone, which is now a registered device we know the number of your phone, and once you’ve gone to the registration process, there has to be a four-digit pin to get in.

That means that you don’t have to type in your user name, means that you can bank with one hand, with Go Money.

Versus two on other products because you gotta type. With Go Money, you just type your pin with your thumb and your in. I think that’s quite significant.

Thirdly, we want to do something that was really people-shaped. We got to de-personalise their accounts.

We’ve done that by taking the photographic capabilities on your phone, it enabled people to pick photos either from the stock photos we provide, or maybe a family photo, or a house, maybe something of an aspiration.

Maybe a savings account for a nice house or a car.

Take a photograph for it, and attach

“We design results and basis. Test our concepts on customers.

Test them on ourselves.”

it to that account and see that when you’re going to accounts on your phone. That’s a nice touch.

I think lastly, enabling people to spend money in simple ways. We’ve been putting money on the feature, so anyone in the country, whether they bank with ANZ or not. It’s very powerful.

You can literally send someone. All you need is their mobile phone. It will enable them to collect securely.

It’s a hard line to walk where like many bank were very careful and cautious about anything that might compromise the security of our customers’ accounts. There are a number of many factors that we’ve employed to ensure the security of the client’s access.

One is that the phone is a registered device; they pre-register with us.

So when they first register, they have to provide more information, more credentials and when the phone was stolen, they can just ring our call central and we’ll disable it immediately.

Secondly, we store no sensitive data on the phone, so even if it was stolen, there’s no risk there. It’s a fine line.

If you go too far, if you make it too hard, then either the customer won’t use it or worse, they’ll start writing password and things down and that compromises the whole approach to security, so we think we got the right mix here.

ASIAN BANKING AND FINANCE | JUNE 2011 25

OPINION

Christian Edelmann Compensation policies as a strategic value creator

Christian Edelmann Partner and Head of Oliver Wyman’s Corporate & Institutional Banking

I

n the aftermath of the global financial crisis, compensation practices in the Financial Services industry have come under significant scrutiny by regulators and politicians, particularly in Europe and the US. The Financial Stability Board (FSB) and the Committee of European Banking Supervisors (CEBS) have been at the forefront of issuing a series of implementation standards on compensation with the ultimate goal of designing appropriate incentive structures that seek to align bankers’ compensation to the nature and degree of risks undertaken.

In line with their overall response to regulatory initiatives post the global financial crisis, Asian regulators have taken much more of a back seat approach regarding compensation reform, to some extent driven by substantially less visible excesses and hence less political pressure. Consequently, most Asian banks have taken a fairly passive stance to strategically reviewing their compensation frameworks, practices and governance.

However, a few Asian regulators, particularly the HKMA and the MAS, have now started to enforce their standards, which are in line with the overall FSB standards. As a result, many financial institutions operating in these markets, have recently been asked to submit compensation policy statements, in which they outline to what extent the standards are met, and if not, how they plan to address the gaps going forward.

Despite this regulatory trigger, most banks remain passive with a focus on meeting minimum compliance requirements. In our view they fail to realize that as their global competitors start to change their compensation approaches, this will directly

regulatory requirements and allows attracting top industry talent.

Key changes for Asian financial institutions to consider include: Strengthening compensation governance: Stronger involvement of Risk Management in the compensation process and higher degree of independence of the compensation committee

Improved bonus pool calculation and funding: Compensation should be risk-adjusted taking into account risks such as market, credit, liquidity, operational and reputational risk.

“Compensation practices define culture and Overall bonus pool calculation should be organizational behaviour, making them linked to group / business unit performance with a focus on the achievement of longer unique to every organization.” term-term strategic goals impact and change the talent market in Asia. We therefore believe that Asian banks now face a unique Stronger linkage of individual compensation to opportunity to strategically review their approach desired performance and behaviour: towards compensation by making a step-change in Increased use of deferred payout structures and their current compensation structures. They should schedules: “Material risk takers” should be identified seek to differentiate themselves from competitors and appropriate cash/non-cash bonus mix and with a compensation framework that meets both deferral structures should be put in place.

26 ASIAN BANKING AND FINANCE | JUNE 2011

“Compensation policies now under scrutiny”

co-PUBLISHED corporate profile

Are you losing GEMS? Companies must not lose emails from their customers, suppliers and partners positive standard for email security filtering services is one (1) lost email in every 400,000.

Most vendors publicly claim their anti-spam filters are accurate to this level. However, independent research has shown that the actual false positive rate for most anti-spam filters is often several hundred times worse than the acceptable standard. The false positive rate among vendors can range between 1 in 100 and 1 in 1000 of legitimate email. Statistically, this failure results in over 50 million emails everyday that are not being delivered to end users.

How many GEMS are you losing per month?

Manish Goel, CEO of TrustSphere

T

oday, email replaces most other forms of business communications (eg. fax, telex); it is the lifeblood of communication flow for most organizations. Currently, around 250 billion emails are sent worldwide daily. This is estimated to grow to over 500 billion by 2013.

As a consequence of email’s popularity, spam and malware have become key threat vectors to an organization’s network infrastructure, accounting for 80 – 90% of incoming email traffic. “To combat this, email filters have to be more aggressive. The higher the vigilance of email filter, the more spam is caught. However, this also results in users losing genuine emails.

This problem of genuine emails marked as spam [GEMS] is also known as ‘false positives’.

This dilemma is experienced across most organizations every day. Yet alarmingly, many are unaware of the actual level of risk that their spam filters are causing,” said Manish Goel, CEO of TrustSphere.

What losing GEMS is costing you GEMS add unintended operational risk to those business processes which rely on email messaging. They threaten the integrity of such processes. The more important though harder to quantify consequences of GEMS include: • Opportunity cost for sales and business development teams who miss time sensitive enquiries from prospects; • Reducing customer service delivery

standards – by not responding on a timely basis (or in some cases not at all) to a customer enquiry; Missing a time-sensitive email (eg. a change to a meeting or an electronic airline boarding pass) because it was trapped in the “junk” folder and not sent to an executive’s blackberry; • Creating vast and varying impact on several other stakeholders’ reputation and customer relationships right across a business’s value chain.

The impact of these failures affect risk management governance, revenue and operational processes within an organization. It is estimated that losing GEMS costs businesses over $20 Billion annually.

Meeting Gartner’s standard According to Gartner, an “acceptable” false

“A contract from a customer was lost in the email filter which resulted in us missing key project deliverables. This caused confusion and embarrassment .”

- Sales Director, IT Software Provider

“Lost an account for not replying to RFP because it was in my junk folder. Our competitor beat us to the post.”

- Director, Publishing Company

Fighting for Email Integrity TrustSphere aims to redefine the agenda for email security by creating a new category of email security solution – Email Integrity.

Their technology focuses on adding an email integrity layer that works towards active false positive prevention, while complementing organizations’ existing email security solution.

TrustSphere’s technology is designed to balance the two parts of the spam filtering problem by first protecting legitimate, authenticated traffic and then blocking spam.

It quickly and automatically builds an organization’s correspondence graph in order to “protect” and “fast track” traffic from its network of ‘known’, authenticated correspondents.

TrustSphere has developed a unique audit tool to help organizations measure the number of GEMS they are losing. Companies can request for an email integrity audit by sending an email to info@trustsphere.com.

TrustSphere solutions are available worldwide through a network of leading IT solution providers.

TrustSphere’s major partner across Asia Pacific is SingTel Alatum, the leading “in-thecloud” commercial grid computing solution provider to businesses and the public sector across the Asia-Pacific region.

CONTACT TrustSphere 3 Phillip Street #13-03 Commerce Point Singapore 048693 email: info@trustsphere.com Fax: +65 6536 5203 ASIAN BANKING AND FINANCE | JUNE 2011 27

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OPINION OPINION

Pascal Gautheron Pascal gautheron Managing Director Accenture’s Banking Practice in Asia Pacific

I

High-performance IT in financial services

n the financial services industry, the business agenda has firmly moved from survival and cost containment to growth, as firms look to rebuild their earnings models.

As well as supporting this new agenda, CIOs from these industries also must adapt their IT systems rapidly to respond to the changing habits of consumers and the increasing and urgent regulatory changes that were implemented to stabilize the financial system and protect consumers.

This three-pronged threat – supporting a multichannel growth agenda while simultaneously managing costs and responding to regulatory change – is enough to test even the savviest CIO. Can financial services companies step up to the challenge?

Results from Accenture’s third global IT performance research study indicate that some IT organizations across industries have managed to raise their games in the face of similarly daunting obstacles. These high-performing IT organizations have overcome cost cutting mandates and demonstrated excellence in three key areas – execution, agility and innovation – which enable them not only to manage IT like a business, but to run IT for the business and with the business. CIOs at these organizations are engaged in their company’s business strategies and are able to truly map out how IT supports those strategies.

How do financial services firms match up against these high-performing IT organizations? Making up over a quarter of the participants in our 2010 research, they generally outperformed their peers from other sectors but lagged behind high performers in several key areas. For example: • They are behind high performers in web-enabling their interactions with customers and suppliers (two times more high performers’ suppliers interactions are web-enabled), and they are slightly behind other industries in mobile-enabling customer, partner and employee transactions; • They spend 57% annually on developing and implementing applications, in other words 18% more than cross industry organizations, but less than high performers who spend 62% of their budget; • They are ahead of other organizations in the realization of benefits from integrating their business processes, information and IT systems, but behind high performers as it relates to providing executives with real-time dashboards and visibility into key processes.

These financial services companies are focused on a few key business objectives, in particular the need to increase customer satisfaction. Channel is an

important focus in the financial services technology agenda at present, being key to both better customer management and to the next wave of cost reduction, but many organizations are starting from a long way back: recent Accenture research found that only 37% of insurers believe their current distribution model allows them to perform at a higher level than their competitors, and in a 2008 Accenture global survey, 42% of consumers said they had switched banks because of poor service.

Accenture’s High Performance IT research shows that in order to deliver on these customercentric objectives, financial services institutions are shifting significantly from being followers of innovation to driving innovation throughout the business. More than half (53%) of respondents from financial services firms said they expect to be an early adopter of innovative technologies – compared with 38% of the financial services executives who had similar goals in our 2008 survey.

The CIOs we worked with on the study expect to play a key role in driving ideas into the business, leveraging core IT capabilities across the three areas of execution, agility and innovation.

“IT in financial services”

Execution While the economic downturn forced many IT organizations to cut spending in proportion to the reduced revenues of the business, high performers have shown resiliency in securing new investments.

Their success can be attributed in large part to their excellence in IT governance and their ability to reinvest cost savings and efficiency improvements in IT in order to add value.

These patterns are apparent among financial services respondents, which have been able to maintain a focus on investing while managing costs more efficiently. IT staff at these companies are spending more than two-thirds (69%) of their time enhancing, building, integrating, testing and deploying new IT infrastructure – comparable to the cross-industry high performers.

ASIAN BANKING AND FINANCE | JUNE 2011 29

FEATURE

Asian Banking & Finance Magazine ATM Trends Survey

Asian Banking & Finance Magazine recently surveyed CXOs of Asia’s top 100 banks to find out their issues and priorities when it comes to ATMs.

Here are the answers from multiple banks to some key questions as well as some graphs rating their perceptions of importance when it comes to new equipment. Not surprisingly biometrics and cash recycling were among the most important attributes.

Q. What is the most critical change your organization or your customers’ organization needs to make to its ATM network in 2011/2012?

• Expand the ATM network • Study cash recycling technology to reduce operating costs • Create more functionalities (cash reload, more merchants for bills merchants, cash and check deposits) • Upgrade the Base24 host system

to a newer version • Upgrade aging infrastructure (from SNA to TCP/IP) to increase monitoring capability Q. How important a delivery channel do you see your ATM network as a customer touch point that allows you to compete effectively with other banks?

Our ATM network is already considered a basic service. It is mainly used as a 24X7 inquiry and cash out machine, with some sprinkling of special functionalities which are not really highly patronized. It has to be complemented by a robust internet banking solution to allow our clients the complete independence to run their own finances without the need

“There must be a development of a robust internet banking solution to create complete independence from banking personnel Increased interconnection of all the ATM network.”

Three most desired new features of ATM hardware and/or software

30 ASIAN BANKING AND FINANCE | JUNE 2011

for a bank personnel.

• Being a basic service, it needs upgrading of functionalities • There must be a development of a robust internet banking solution to create complete independence from banking personnel • Increased interconnection of all the ATM network • Bigger ATM network • Larger branch network – this follows the customers’ perception that it’s safer to use the ATM at the branch office Q. Are there plans to replace your organization’s current ATM hardware and/or?

• None • Not for this year awaiting changes from BancNet, SCB is a memeber of

FEATURE the BancNet ATM consortium • Yes, due to Base24 system Endof-Life support issue for obsolete platform version.

• Only aging platforms Of the four respondents, one stated the need to change their current ATM hardware due to Base24 system End-of-Life support issue for obsolete platform version.

One of the determinants of the possible change in the ATM hardware is the changes from a local network of banks.

IN SHORT: Changing the ATM’s hardware depends on the versions of the platform. The need to

upgrade like in the case of one of the respondents is due to the obsolence of the platform version it uses.

Any other reason for changes will be dependent on the banking network it’s a member of as well.

Q. What value added functionality are you most likely to implemented over the next three years at the ATM? • Targeted marketing, enhanced functionality • Personalised ATM service with CRM one-to-one marketing functionality.

• Cash and check deposit for full

“One of the determinants of the possible change in the ATM hardware is the changes from a local network of banks.”

ATM functionality • Biometrics and Cash Recycling.

Q. Are there plans to adopt Managed Services to monitor your ATM network with a third party provider? If yes, why?, If no, why?

• None, we are thus far satisfied with our ATM network monitoring infrastructure from a cost effectiveness standpoint.

• Yes, for cost efficiency and being a non-core business of the bank • Yes, as this would provide faster turn-around time to resolve problems and 24-hours monitoring.

• No - not required.

Ranking on the primary driver (or drivers) for changing ATM hardware and software

Rating on bank service delivery channels as a customer touch point based on importance

ASIAN BANKING AND FINANCE | JUNE 2011 31

13 BUSINESS | APRIL 2011 32 HONG ASIANKONG BANKING AND FINANCE | JUNE 2011

opinion

OPINION

Goran Fors Goran Fors Global Head of GTS Banks SEB

Y

Solutions for global banking dilemma

ou would have thought we’d have gotten further.

Ever since the East India Companies of the 17th century, business around the world has been growing more and more international.

Customer and supplier relationships are to an ever increasing extent occurring across the borders, often with very broad patterns linking into several markets, the result of modern multinational corporations.

Still many of the multinationals are given no choice but to handle their global payment needs either as plain international payments or on multi banking/ referral basis unless they take a quantum leap and go local.

We, the international banking industry, have not followed the advance of our corporate customers in a global context anywhere near the level we have done so in a domestic context. We need to realise that our customers have global payment needs that deserve domestic attention.

On the bank side we are all experiencing income pressure on the transactional business. We can no longer afford to give our multinational customers away to local banks and lose out on making the most out of it. Just handing over the transaction margin as well as the liquidity is a waste of money, which cannot be justified.

All of the above points in the same direction banks need to take the game to a new level. We need to go global in order to satisfy our customers’ new requirements. It is no longer enough to be able to simply refer our customers to a partner with a good luck. The MT101/MT940 setups of the past just do not cut it anymore. The value delivered is weak both on the referring bank side and for the customer.

set up as a white label solution.

The solution adds both width and depth to the customer proposition. Account opening can be made in just a few days instead of the weeks required for traditional referrals.

The customer can get access to a completely different range of products than with traditional multi banking /referral setups. This, while being able to stay in a consolidated banking relationship with their main bank that is educated and fed local market information through a tight partnership with the provider bank.

In addition to the obvious benefits for the Better options are available customer, there is also a substantial upside for the The alternative is not new; it has been in the market user bank as liquidity, pricing, interest “Banks need to take the game to a new level - terms and customer ownership stays with them. The only comparison really is a go global in order to satisfy the customers’ new fully fledged branch network, but even that will not guarantee the same quality, as requirements.” it is neither easy nor cheap to mimic the experience gained by a local bank with decades of for quite a few years living a quiet and unrefined experience in a region life. It is often referred to as the re: account-model, basically meaning that customer accounts are opened Adding even more width in the name of user banks but in reference of the Partnerships between banks, especially for the customers. cross-border business has always been a natural way Several banks offer it throughout the European of supporting the clients with the needs that global landscape. Banks offer services in partnerships business demands and we will see more and more with other banks in a region where they might have developments in this area going forward. limited presence themselves. The partnership can be

“Partnerships between banks, especially for the cross-border business has always been a natural way of supporting the clients with the needs that global business demands.”

ASIAN BANKING AND FINANCE | JUNE 2011 33

Last word Philippe Jaccard

Leveraging new opportunities for managing investments Companies across Asia are seeing significant increases in the amount of cash they are holding.

This creates a growing dilemma for treasurers and finance managers who need to find ways to invest cash that are secure and liquid. In the United States and Europe, the use of money market funds (MMFs) or liquidity funds is well-established, with many companies recognizing the benefits of a diversified, highly rated pooled investment with same-day liquidity. These products are not new in Asia, particularly for Asian subsidiaries of American or European companies. However, as this article outlines, the use of high quality, diversified funds, that offer same-day access to liquidity, has considerable potential for all companies with surplus cash.

Addressing Investment Challenges Corporates of all sizes have become more focused on risk since the financial crisis; furthermore, as these companies have often reduced their counter party credit limits due to credit rating downgrades, existing deposit limits are often fully utilized. Consequently, treasurers are seeking alternative investments that combine credit

“Corporates of all sizes have become more focused on risk.” quality, diversification and access to liquidity.

MMFs fulfill these criteria in a variety of ways: • Inherently diversified due to the variety of assets that make up the portfolio, with typically no more than 5% of total holdings invested in one asset.

•Highly rated, typically only investing in money market securities of the highest credit quality (A1/P1 or higher), and excluding commodities, equities or derivatives.

• Offer same-day access to liquidity.

• Subject to a rigorous investment process with dedicated credit research.

• Constant net asset value (NAV) 34 ASIAN BANKING AND FINANCE | JUNE 2011

(although variable NAV funds are also permitted).

Although yield is no longer a priority, treasurers are still seeking a reasonable return on their cash, and MMFs typically offer a yield equivalent to other investment types, such as bank deposits.

Transacting MMFs in Practice There are two potential difficulties for treasurers seeking to leverage these products. Firstly, they need to identify funds that are most appropriate for their company’s needs and subject to the most robust investment processes. Secondly, they need an efficient and convenient means of transacting MMFs to comply with internal control requirements. To address these issues, we see online dealing platforms becoming more widely available in Asia. Treasurers can transact investments online in a controlled and convenient way, with access to multiple funds from large, established providers through a single channel, covered by a single set of documentation. When such services are provided by banks such as Citi transaction and settlement can be integrated into a “one step” process, and integrated with internal systems.

Regulation for reliability MMFs are regulated products which have proved highly resilient during the market fluctuations of recent years. However, the industry recognizes that further improvements can be made to give investors full confidence in the funds in which they are investing, as well as transparency over their holdings. Consequently, the Securities and Exchange Commission (for U.S. domiciled MMFs) and the Institutional Money Market Fund Association (IMMFA) (for European domiciled triple-A rated MMFs), have introduced changes to strengthen existing standards. Additionally, the Committee of European Securities Regulators (CESR) has taken steps to standardize the definition of an MMF. These changes are also being observed widely in Asia to standardize the industry internationally, and provide transparency and confidence to investors.

Philippe Jaccard, MD, Asia Pacific Head of Liquidity & Investment, Citi Global Transaction Services

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