International Finance Magazine Jan - Mar 2017: This year will be about Brexit and Donald Trump

www.internationalfinancemagazine.com

January - March 2017

Volume III Issue 2

UK ÂŁ4 | Europe â‚Ź5.35 | USA $6

pg.16

2017 Brexit and Trump will decide the way ahead

pg.32

Opinion Banks getting caught up in gimmicks

pg.100

Saudi Arabia gets serious about an entertainment industry

pg.22

Giving wings to rising aspirations Interview with Kabir Mulchandani, Group CEO of real estate company SKAI Holdings

Note FROM EDITOR

2

016 will be remembered for two things — Brexit and Trump. Mostly because both were unexpected.

However, since both were the result of direct voting, the results indicated that the people are fed up of sweet talk. It appears that they are fed up of politicians trying to come up with please-all solutions. They want action, even if it means antagonising a section of the population.

The UK is already grappling with this directive from the people.

Businesses will be affected, but have shown resilience so far. Being at the frontlines of change, it appears that they are willing to adapt to the changing ground realities. Over the next two years, as the UK works out the details of separation, opportunities and challenges will emerge.

Across the Atlantic, Trump seems

Dhiraj Shetty

to be going about implementing his mandate. All eyes are on the team that he is assembling. His decision not to pursue an investigation against Hillary Clinton can be seen as a good business decision. A businessperson would prefer to focus on making a profit as against burning money in the pursuit of vendetta. Considering the announcements that Trump made on the campaign trail, he will have enough work on his hands even if he leaves the Clintons alone. Whatever he does, or does not do, a Trump presidency will be a significant milestone in US history.

Talking of significant, Dubai has inspired many landmarks and one more is coming up in Jumeirah village. The project — Viceroy Dubai Jumeirah Village — by SKAI is already causing a buzz in the market. It is projects like these that are making Dubai a desirable place to live and work. Read the views of the CEO of SKAI on the investment opportunities in Dubai in our cover story.

We look forward to your feedback on our stories and suggestions on what you would like us to feature in IFM in our next issue. Best wishes for the New Year from the team at IFM.

Editor editor@ifinancemag.com

Director & Publisher Sunil Bhat Editor Dhiraj Shetty Production Sarah Williams, Mark Miller Editorial Adriana Coopens, Jessica Smith, Lacy De Schmidt, Suparna Goswami Bhattacharya Business Analysts Dave Jones, Adam Lobo, Sharon Mendis, Ashton Ray, Tanya Jones, Sean Thomas Business Development Manager Steve Martin Business Development Newton Gois, Sunny Shah, Ashish Shenoy, Sid Jain Accounts Angela Mathews Head of Events Basant Das Registered office INTERNATIONAL FINANCE MAGAZINE is the trading name of INTERNATIONAL FINANCE Publications Ltd 843 Finchley Road, London, NW11 8NA Phone +44 (0) 208 123 9436 Fax +44 (0) 208 181 6550 Email info@ifinancemag.com Press Contact press@ifinancemag.com Design & Layout Rahil Shaikh Miya

For advertisements, contact Adam Lobo Phone: +44 (0) 207 193 9451 | Email: alobo@ifinancemag.com

Jan - Mar 2017 International Finance Magazine

INDEX January - March 2017

Volume III Issue 2

COVER STORY

08

BYTE BY BYTE Cyber security: any gain with the pain?

Giving wings pg.22 to rising aspirations Interview with SKAI Holdings Group CEO Kabir Mulchandani

12 16 18

Rob Norris

As digital world grows, so does fraud

Bodhi Ganguli

2017: Brexit and Trump will decide the way ahead Interview Nigel Green ‘Trump’s victory, Duterte’s win and Brexit are all a major coup for populism’

International Finance Magazine Jan - Mar 2017

28 32 36

BANKING Barclays becomes first bank to use blockchain technology for $100,000 transaction

Daniel Döderlein

Banks getting caught up in gimmicks

Gene Pranger

Banking on Mobile Video: Personalisation for the Digital Age

Hal S Scott

44

Issues of the capacity to deal with contagion are not limited to the United States

SPECIAL FOCUS

Renewable sector is holding its own

P68-81

ENERGY

52

‘Bangladesh’s geographic position presents a clear advantage’

82 88

Interview with Abrar A Anwar, Chief Executive Officer, Standard Chartered Bank, Bangladesh

56 58 64

Banking China and India to drive global growth in ATMs

92

Brahmanand Hegde

Demonetisation will have long-term benefits for India

Clive Corcoran

Macro-economic factors and their impact on capital markets going into 2017 Investment Management

How HMC Capital is tapping the opportunities in Latam

Simon Streat

OUT OF OFFICE

Shift to multi-bank platforms… and take all the credit

Insurance The pain in low interest rates

pg.114

‘i aiM to run one Marathon on every continent’

Jan - Mar 2017 International Finance Magazine

Opinion Matters Rob Norris Rob Norris, Director of Enterprise & Cyber Security in EMEIA at Fujitsu, points out that the digital world is growing, and so is fraud. While cyber criminals grow in sophistication, consumers want more flexibility and speed with digital services

Brahmanand Hegde Bodhi Ganguli Bodhi Ganguli, Lead Economist at Dun & Bradstreet, has written on the overall outlook for 2017. He says 2017 will be a year of uncertainty. The two main themes will be Brexit and the policies of the next US president Donald Trump

Brahmanand Hegde, Executive Vice-Chairman of Vistaar Financial Services Pvt Ltd, has written on the demonetization exercise undertaken by the Indian government to remove money stashed away without paying tax and to push Indians towards cashless transactions

6

Daniel Döderlein Daniel Döderlein, the founder of Auka, believes that banks are getting caught up in gimmicks. When thinking about the kinds of innovations to offer customers, it’s necessary to also consider whether or not they will have a high frequency of usage

Clive Corcoran Hal S Scott Hal S Scott is the Nomura Professor and Director of the Program on International Financial Systems (PIFS) at Harvard Law School, where he has taught since 1975.

He teaches courses on Capital Markets Regulation and International Finance. He believes that Issues of the capacity to deal with contagion are not limited to the United States

International Finance Magazine Jan - Mar 2017

Clive Corcoran has been engaged in the finance and investment management sectors, on both sides of the Atlantic, for more than 25 years. An author of several books on international finance, focusing on asset allocation and risk management, he is also very actively involved in executive education for finance professionals worldwide. He writes on the macro-economic factors and their impact on capital markets going into 2017

{ {

COntributors

Tim Evershed

YOUR ADVERT HERE.

Suparna Goswami Bhattacharya

Tim Evershed is a freelance business journalist with over a decade’s experience of reporting on the world of business and finance.

As well as contributing to International Finance his work is published across a number of titles including Global Reinsurance, Insurance Post, The Journal, Financial Solutions and Global Trader.

Susanne Jakobsen Financial technology entrepreneur Gene Pranger has designed more than 500 bank branches since 1995.

In 2008, he pioneered the market of video banking with the uGenius platform, acquired by NCR in 2012.

His latest venture, BankOn Mobile

Financial technology entrepreneur Gene Pranger has designed more than 500 bank branches since 1995.

In 2008, he pioneered the market of video banking with the uGenius platform, acquired by NCR in 2012.

His latest venture, BankOn Mobile

It’s the best way to to reach our audience that is spread across over 100 countries Susanne Jakobsen

Susanne Jakobsen

Susanne Jakobsen

and to know what’s latest inFinancial technology entrepreneur Financialreads technology IFM entrepreneur Financial technologythe entrepreneur Gene Pranger has designed more Gene Pranger has designed more Gene Pranger has designed more Banking, than 500 bank branchesFintech, since 1995. thanInvestment 500 bank branches since 1995. than 500 bank branches since 1995.

In 2008, he pioneered the market In 2008, he pioneered the market In 2008, he pioneered the market Management, Insurance and of video banking with the uGenius of video banking with the uGenius of video banking with the uGenius platform, acquired by NCR in 2012. platform, acquired by NCR in 2012. platform, acquired by NCR in 2012.

Islamic Finance His latest venture, BankOn Mobile His latest venture, BankOn Mobile His latest venture, BankOn Mobile Contact: Adam Lobo Email: alobo@ifinancemag.com /InternationalFinanceMagazine

/IntlFinanceMag

/company/international-finance-magazine

byte by byte

Cyber security

any gain with

8

the pain?

PwC survey reveals that CEOs and Boards are starting to invest in data security not just to defend themselves, but also to achieve a competitive edge Tim Ring

International Finance Magazine Jan - Mar 2017

byte by byte

A

s Britain prepares to exit the European Union, there’s a lot of talk about ‘hard Brexit’ versus ‘soft Brexit’ – a full separation, or a toned-down version where tariff-free trade remains.

But in cyber security, there only ever seems to be one ‘hard’ option: it costs you a lot, and you still get hacked.

Now, though, a groundbreaking PwC survey of more than 10,000 senior executives from over 130 countries has highlighted a softer side to security: yes, it is still expensive, but at least you can get some gain with the pain. In PwC’s vision, CEOs and Boards are starting to invest in data security not just to defend themselves, but also to achieve a competitive edge - because better security means customers trust you more and stay loyal, and you may even win over new customers. Forward-

thinking CEOs have also realised that advanced data security can help them innovate and even launch new products and services.

PwC says it is a dramatic change. “There is a transformation in how business leaders are viewing cyber security – understanding that security is a vital component that must be adopted into the business framework,” says David Burg, global head of cyber security and privacy, PwC. “We’re seeing more and more that cyber security can actually become a remarkable way to help a company innovate and move faster. In certain kinds of digital innovation, the security capabilities are essential to the development of new products and services.”

This trend is gathering pace, according to the firm’s ‘Global State of Information Security Survey 2017’, released in October. Nearly

60% of organisations have upped their cyber security spending as a result of ‘digitisation’ - optimising their business for the digital era. As a result, slowermoving companies risk getting left behind: and the price companies pay for being purely reactive to cyber attacks can be heavy, as telecoms provider Talk Talk recently showed.

‘Competitive disadvantage’ Talk Talk offered an object lesson in how to get ‘competitive disadvantage’ from cyber security when hackers exploited a bug in its website security to seize the data of over 156,000 customers, including the bank details of over 15,000. As a result, the UK data regulator recently hit Talk Talk with a recordbreaking £400,000 fine.

But that might be the least of its worries: the company has admitted the cyber

You have to take risk as the chief executive, and therefore you have to know enough about what your choices are, and not delegate Dido Harding, CEO, Talk Talk

Jan - Mar 2017 International Finance Magazine

9

byte by byte

Cyber breach: Tough lesson for Talk Talk

Data of over

156,000

customers stolen Bank details of over

15,000

Share price tumbled Lost

95,000

customers Cost to company

£60 million Fine by data regulator: £400,000

customers stolen

10

breach cost £60 million, its online systems were shut down for three weeks, its share price tumbled and it haemorrhaged 95,000 customers.

Creditably, after the breach, Talk Talk CEO Dido Harding donated her annual bonus to charity and promised “fundamental change”, telling UK MPs: “Security is a board-level issue and a business decision. You have to take risk as the chief executive, and therefore you have to know enough about what your choices are, and not delegate.”

But UK regulator Elizabeth Denham was damning: “TalkTalk’s failure to implement the most basic cyber security measures allowed hackers to penetrate its systems with ease. Yes hacking is wrong, but that is not an excuse for companies to abdicate their security obligations.”

So if the old Talk Talk represented ‘bad’ cyber security, what does PwC think ‘good’ looks like? How can security help businesses innovate, especially in the financial services sector?

‘Security can be a competitive enabler’ PwC cyber partner Richard Horne has personal knowledge as the former head of cyber security at Barclays, and he says: “The big shift that needs to happen in many organisations is to stop seeing security as a standalone project; to see it as something that needs to drive change in how businesses work - security can be a competitive enabler.”

For example, Horne pointed out that the first banks to launch mobile banking apps were the ones who first worked out how to secure them. “If you can

International Finance Magazine Jan - Mar 2017

innovate and discover how to secure data when you send it out, then you can develop new products and services around that.”

Right now, Horne said, a key area for cyber securitybased innovation is around interacting with customers over new channels, like social media. “One possibility is identifying people and authenticating them using more biometrics [fingerprinting, face or voice recognition]. How do you scale that to get to the point where we’re not relying on passwords any more, but in a way that is customerfriendly and not clunky?”

Another opportunity is using encryption to secure access to data, both inside and outside the organisation. Without ‘plugging’ specific suppliers, Horne said, “There are different technologies out there that can enable that to be done which are quite

If you can innovate and discover how to secure data when you send it out, then you can develop new products and services around that Richard Horne, cyber partner, PwC

byte by byte

exciting as they come to market, and a lot of banks are piloting and looking at how they can use it.”

Do others in the C-suite share PwC’s view that more creative approaches to security can “achieve competitive edge, create market advantages and build brand trust”?

Paul Calatayud, now with security firm FireMon, has prior first-hand experience as chief information security officer (CISO) at Surescripts, a health information network that deals with billions of transactions a year and around 270 million patient records. He agrees that more companies are benefiting by approaching cyber security in a more progressive way.

For example, Calatayud said, his cyber security team actively helped Surescripts become more competitive and attractive to customers.

“As our business grew,

new competitors were beginning to spring up. As my security team became more efficient in managing new requirements, we had the self-realisation that each time we achieved a new security requirement, we were setting a higher bar for our competitors, and setting new levels of trust with our customers.”

Asked what being innovative with security actually consists of, Calatayud suggests, “The use of big data to address advanced cyber threats. Forward-thinking CISOs will quickly realise these investments can benefit other parts of the organisation, within IT and across the business.”

Good security will also make businesses more attractive to potential partners, he said, “Organisations are becoming more aware of who they partner with

and trust is often the sole differentiator between two competitively positioned companies.”

But Calatayud admits this can be a ‘very challenging change’ to achieve, requiring security leaders to show ‘strong communication and evangelism’.

“CISOs often like to hide from the stage, operate in security through obscurity.

But to earn trust, a CISO needs to become a business partner to sales, marketing and other parts of the organisation for the investments in security to become opportunities to retain customers through trust.” IFM

11

Each time we achieved a new security requirement, we were setting a higher bar for our competitors, and setting new levels of trust with our customers Paul Calatayud, cyber partner, PwC

editor@ifinancemag.com

Jan - Mar 2017 International Finance Magazine

OPINION

OPINION

Rob Norris

12

As digital world grows, so does fraud International Finance Magazine Jan - Mar 2017

While cyber criminals grow in sophistication, consumers want more flexibility and speed with digital services

OPINION

W

e are now living in a digital age where technology is now embedded in our daily lives. For the financial services industry in particular, digital services have revolutionised the industry, changing the way consumers access information and interact with organisations.

This has been driven, in part, by the rise of a digitalsavvy consumer who is now bold, progressive and open to radical changes in the industry. UK consumers want convenience, innovation and have never been more willing to share their data in return for added value. As such, it’s hardly a surprise that online banking is the most valued digital service by consumers.

But as the use of digital services grows, are consumers more at risk to fraud?

The risky business of fraud In September 2016, Financial Fraud Action UK (FFA UK) revealed that payment fraud had grown significantly. According to the study, in the first six months of the year, payment fraud shockingly took place once every 15 seconds. This is likely due to financial fraud offering a lucrative source of income for cyber criminals, totalling £755 million stolen in 2015

1

in the UK alone. What’s even more worrying is that according to Forbes, online transaction fraud is expected to hit $25.6 billion by 2020 globally1.

Fraud is not a new phenomenon and can occur in various different ways from identify fraud to computing hacking.

However one of the most common variations of fraud is when cyber criminals falsely create or divert customer payments without the customer realising, resulting in a direct cost to the business, which can be significant when considering the margins that many businesses operate within. The data organisations are holding onto can make businesses vulnerable and whether it

is home addresses, delivery addresses or bank details; personal data puts all businesses at risk, no matter the industry.

The rise of the fraud in ecommerce in particular offers a manifold of opportunities for fraud, such as attacks on supply chains or Point of Sale systems, as retailers look to diversify and innovate across a multi-channel model. Complicating this even further is the risk of fraud from both the outside world and employees. In addition, retailers now have complex supply chain webs whereby many goods and transactions happen digitally and, as a result, are almost completely automated and don’t need monitoring day-to-day.

With this in mind, the ‘fraud surface’ is expanding and is therefore currently a growing risk.

Modern cyber criminals One of the main reasons that fraud continues to rise is due to the complex attacks from cyber criminals. Many will go to extraordinary lengths to gain financial information.

For example, following the introduction of chip and PIN for credit and debit cards, criminals are increasing their efforts in other ways to defraud others of money or property such as online fraud and postal fraud, which involves cyber criminals setting up mail boxes to redirect mail.

In addition to this, cyber criminals are now exploiting

http://www.forbes.com/sites/kevinanderton/2016/05/27/the-future-of-fraud-infographic/#1a0a75ae682a

Jan - Mar 2017 International Finance Magazine

13

OPINION

Cyber criminals stole a total of

£755 million in 2015 in the UK alone

14

the human vulnerability factor by posing as banks or suppliers and then duping consumers into revealing their personal details, whether that is by phone or email. These scams have also proved effective in targeting commercial organisations, as senior executives are tricked into revealing sensitive information, which might enable access to a company network that stores sensitive data sets.

But while cyber criminal tactics have quickly grown in their sophistication, consumers want more flexibility and speed with

digital services, so the challenge for businesses is a balancing act; providing customers fast and simple digital services, but without risking the customer’s information or that of the organisation.

Cyber security is an issue that won’t disappear.

Fraudsters can be anyone from individuals to organised groups. There has been an increase in ‘professionalisation’ of fraudulent activity and computer-based crime over recent years, which means organisations and consumers will continue to be targets unless they

Online transaction fraud is expected to hit

$25.6 billion by 2020 globally

change their approach to cyber security.

Combatting the threat Fraudsters are always looking for gaps and grey areas within a process or system that allows them to enact a compromise. These often occur at ‘interfaces’ within the business system, including the sales and supply process. The multichannel nature of these interfaces also means that fraudsters often target the human elements.

To combat this threat, consumers should always report abnormal emails or calls to their banking

provider. No legitimate organisation will ask for security or banking details through these channels so consumers need to be suspicious of any email that requests this information. It’s also important for consumers to use a password manager to generate and manage secure passwords or use the built in password manager in iOS or OSX. Future of fraud As new digital technologies become increasingly more embedded in our everyday lives, cyber criminals will continue to find new ways to scam both organisations and consumers through fraud.

By preparing accordingly and taking proactive steps, organisations will be able to ensure that they keep on the front foot of any new fraud techniques. IFM editor@ifinancemag.com

Rob Norris is Director of Enterprise & Cyber Security in EMEIA at Fujitsu

International Finance Magazine Jan - Mar 2017

OPINION

What you can do For organisations, the challenge is to be able to spot the unusual when it is cloaked as ‘legitimate’ and as such there are several process that should be put in place 15 1.

Learn about the threat – by understanding how fraud occurs and an organisation’s specific exposure to the risk, businesses can look to improve their cyber resilience against fraud and be aware of any behaviour that might make them vulnerable.

This is especially important with the new EU GDPR legislation coming into effect in 2018.

2.

Implement data analytics and real-time threat reporting – this will help organisations be proactive and identify fraud before data becomes compromised. Apart from this, it will help businesses understand what ‘normal’ looks like to allow the anomalies to be spotted quickly.

3.

Work with suppliers and merchant services – by working with these parties, organisations will be able to improve their preventative measures against fraud by learning from one another.

4.

Update incident response plans – it is vital that incident management plans cover fraud scenarios, so that businesses are prepared to identify and close down events of fraud quickly and effectively. Testing systems from the perspective of a fraudster is also a useful activity to ensure that systems are working properly.

5.

Train staff appropriately – organisations must look at security education as part of a company’s overall training schedule, ensuring that the whole organisation is engaged and part of the overall cyber resilience against fraud. Each employee has their part to play in keeping assets safe so it is vital that security training and empowerment occurs from the top down.

Jan - Mar 2017 International Finance Magazine

OPINION

OPINION

Bodhi Ganguli

2017: A year of 16

uncertainty Brexit and Trump will decide the way ahead

International Finance Magazine Jan - Mar 2017

OPINION

Uncertainty will persist as businesses, consumers and policymakers seek to understand how the new US president will translate campaign promises into policy

T

he overall outlook for 2017 is for continued economic and political uncertainty in both the UK and the US. With levels of uncertainty remaining very high in the wake of the Brexit vote, Dun & Bradstreet is maintaining its ‘deteriorating’ outlook for the UK’s country risk rating. The two downgrades we have made to the UK’s rating since the referendum make the UK the worst performing economy in

2016, in terms of rating changes.

Although markets have appeared resilient following the vote, we anticipate that the UK economy is in the eye of the storm until the Brexit settlement is confirmed. We do not expect the UK economy to truly feel the reverberations of Brexit until negotiations with the EU are complete – a process that will start in early 2017 but which is unlikely to be finished before 2019. However, in

the meantime, businesses must make plans amid significant uncertainty, a fact recognised by the UK government, which announced a series of new measures designed to alleviate these challenges in its Autumn Statement.

The election of Donald Trump in the US has generated similar uncertainty. The US is the world’s fourth largest country and has remained unchallenged as the only superpower since the collapse of the Soviet Union in 1991. The economy is heavily market-orientated and is the most powerful and technologically advanced of its kind, but the immediate aftermath of the presidential election dramatically fuelled financial market volatility in the form of stock market gyrations and swings in the US dollar.

Uncertainty will persist into early 2017 as businesses, consumers and policymakers in the US – as well as globally – seek to understand how the new president will translate campaign promises into policy.

Given the Republican majorities in the House and the Senate, it’s likely to be easier for the new government to implement policies after taking office.

However, we expect

extended discussions to take place on key areas such as tax policy and international trade. The extent of co-operation by Congress will eventually depend on the details of the actual policies proposed and the new president’s ability to articulate his goals effectively. But the risk of policy gridlock is measurably lower, reducing political risk in the economy. Dun & Bradstreet’s proprietary data indicate that the economy is on track to end 2016 with 1.6% growth.

Businesses should be prepared for the potentially negative consequences of political developments in 2017. Firms looking to combat uncertainty and navigate fluctuating global markets should turn to data as the key to mitigating risks – and, importantly, for pursuing smart growth opportunities. It will be important for businesses to monitor developments closely, but executives should still look to progress and grow in 2017. IFM editor@ifinancemag.com

Bodhi Ganguli is Lead Economist at Dun & Bradstreet

Jan - Mar 2017 International Finance Magazine

17

INTERVIEW INTERVIEW

‘Trump’s victory, Duterte’s win and Brexit are all a major coup

for populism’

Interview with Nigel Green, founder and CEO of deVere Group

18

Were you rooting for Trump? Did you expect him to win?

I thought there were pros and cons with both the presidential candidates.

However, like most people in the world of financial services, I was leaning more towards Clinton, primarily due to the fact that when both candidates were so unpopular, it was a case of ‘better the devil you know’.

Clinton has held political office previously, including that of Secretary of State, but Trump has not and, as such, there are huge question marks over his presidency. Indeed, there has never in history been a president-elect of the United States who has lacked both political and military service entirely.

Despite the enormous turn out at his rallies throughout the campaign, I believed for much of the campaign that Clinton would, ultimately, trump Trump.

Hillary Clinton won the popular vote, but it did not help her beat Trump. Where do you think she

International Finance Magazine Jan - Mar 2017

went wrong?

Trump has recently tweeted that besides winning the electoral college ‘in a landslide’ that ‘I won the popular vote if you deduct the millions of people who voted illegally’. The claim has caused quite a stir, with many saying he has no evidence for his allegation. It comes as Clinton’s popular vote overtook Trump by two million votes and is expected to reach two and a half million as ballots in populous states, such as California, continue to be checked.

I think Trump won because people are, understandably, concerned about their jobs, their wages and stagnating economic growth. As a result, they are seeking alternatives. They wanted to shake-up the status quo that Clinton is perceived to represent. She is a controversial Establishment figure with a lot of baggage.

Seen in the context of the victory of Rodrigo Duterte in The Philippines and Brexit — people chose a radical shift from the

beaten path, what does Trump’s victory mean for the world at large?

Trump’s victory, Duterte’s win, and a vote for Brexit are all a major coup for populism, which has become an increasingly prominent force in global politics.

Italy, Holland, France and Germany all face crucial referendums and elections over the next 12 months with far right parties all seeking to establish themselves in government or as key coalition partners.

People, it seems, are wanting change and, therefore are looking for alternatives on the more radical left and the more radical right of the political spectrum.

Do businesspersons make better leaders than career politicians?

How have businessmen fared when they were elected leaders of their countries?

Varied ‘real-world’ business experience is always beneficial for a politician to give them a well-rounded

INTERVIEW

19

Nigel Green, founder and CEO of deVere Group

Jan - Mar 2017 International Finance Magazine

INTERVIEW INTERVIEW

view so that they can best represent their constituents’ interests.

However, there’s little evidence to suggest that whilst you may be the greatest CEO, you’d be the greatest president and vice versa. For instance, Warren Harding, America’s 29th President, was very successful in business but is generally regarded as one of the worst US presidents. On the flip side, Truman was such a poor businessman he sought public sector employment to survive and went onto became one of the most highly regarded presidents.

20

Based on the names announced till November end, what do you expect from a Trump presidency?

The more extreme approaches are likely to give way, to some extent at least, to pragmatism and geopolitical and economic realities. For example, for all his anti-globalisation, I believe that Trump will, in the end, be quite ‘pro’, as I believe he is by his nature and as an international businessman this way, but he was appealing to a certain sector of the electorate with his more radical protectionist policies. He knows the world is becoming ever smaller, we’re all more interdependent, and globalisation is happening whether we like it or not.

Having said nasty things about Iran and some other nations, do you think the Trump

administration will be able to influence world politics the way the US has been doing so far?

Trump being president for the next four years is not likely to considerably dent America’s enormous economic, political and military might. As such, the US will still have significant influence on world politics.

In January 2017, Trump will make more announcements. By middle of 2017, we will know the negotiating position of the UK regarding Brexit. What is your advice for investors looking for a short-term investment opportunity till the middle of next year?

The world has changed with Trump and with Brexit.

Change means volatility.

But this isn’t a bad thing.

In fact, it can be expected that many investors will be capitalising on the postBrexit/Trump volatility in global financial markets.

They will be poised to take advantage of the anticipated fluctuations.

Whilst some people are put-off investing because of volatility, many of the most successful investors welcome it. This is because profitable opportunities are found where there are fluctuations.

Fluctuations can cause panic-selling and mispricing. High quality equities can then, for example, become cheaper, meaning investors can top up their portfolios and/or take advantage of lower entry points. This all, in turn, means greater potential returns.

By their very nature, all markets are subject to volatility. A well-diversified portfolio and a good fund manager will help investors capitalise on the opportunities that volatility brings and sidestep potential risks as and when they are presented.

Savvy investors with the right professional advice will find ways to profit as the world readjusts to a post-Brexit referendum reality and a Trump presidency. IFM editor@ifinancemag.com

International Finance Magazine Jan - Mar 2017

COVER STORY

COVER STORY

22

‘We have combined the best of high-rise living with outdoor living’

International Finance Magazine Jan - Mar 2017

Kabir Mulchandani, Group CEO SKAI Holdings Jan - Mar 2017 International Finance Magazine

COVER STORY

Interview with SKAI Holdings Group CEO Kabir Mulchandani about the real estate company’s much-awaited project Viceroy Dubai Jumeirah Village IFM Correspondent

What is so unique about Viceroy Dubai Jumeriah Village that you have trademarked the design?

Firstly, let me explain a little bit about the property. Currently under construction and set for completion in 2018, the 60-storey Viceroy Dubai Jumeirah Village will feature 247 hotel rooms and suites, 221 one- and two-bedroom apartments and 36 fourbedroom apartments. Each apartment comes with a private swimming pool.

We are very proud of the design of the property, which was

conceptualised by our in-house architect Nabil Akiki, CEO of Real Estate Development. It features a distinctive star wing design, which allows for each room and apartment to include a landscaped garden. With a ratio of seven square feet of garden to every one square foot of land, guests will be able to step into a garden and swim while enjoying the views of the Dubai skyline.

We have trademarked the star wing design in eight categories and are now looking at replicating the design in

24

Âť

The Dubai skyline is visible from most of the rooms in the Viceroy Dubai Jumeirah Village

International Finance Magazine Jan - Mar 2017

other cities around the world.

What made you come up with such a unique design?

We wanted to create a luxury highrise tower that enables guests and residents to enjoy all the benefits of apartment living as well as an outdoor space. The star wing design means that they can enjoy panoramic views of Jebel Ali, a port town, to Downtown Dubai. We have also incorporated deep soil beds on the terraces to allow for the growth of real plants and trees to

COVER STORY

»

All of the apartments in the Viceroy Dubai Jumeirah Village will feature a swimming pool

25 create a real sense of outdoors.

What is the distance of Viceroy Dubai Jumeriah Village from the Central Business District?

The property is ideally located for both business and leisure travellers. It is just a short drive from a wide range of international tourist destinations, such as the World Expo 2020 site, which is set to attract more than 25 million visitors to Dubai between October 2020 and April 2021, and Dubai Parks and Resorts, home to three theme parks. It is also easily accessible to a wide range of transport links, including Dubai’s new Al Maktoum International Airport, and three of Dubai’s arterial roads; Al Khail Road, Sheikh Mohammad Bin Zayed Road and Hessa Street.

What facilities are you offering in the complex?

The Viceroy Dubai Jumeirah Village will include five dining venues hosted by world class chefs, including an

all-day dining concept, a lobby café, pool bar and grill, sports bar and a rooftop Chinese restaurant. Other amenities include paddle tennis, stateof-the-art gymnasium, fitness centre with outdoor yoga terrace and lavish swimming pool, sauna and steam room and boutique spa. The tower will also include 17,000 square feet of retail space, a five-level podium car park, meeting facilities and a kids club.

Who is it targeted at? Are they investors or end users?

Investors were quick to recognise the potential in this project. We secured AED927 million ($252.4m) worth of sales within a very short span of time and sold all of the available inventory in just a few days. Investors are from around world and include both end users and landlords.

What are the investment benefits?

What is particularly appealing about this project for investors is that hotel

rooms are also available for purchase.

Through a unique investment structure, SKAI Holdings provides a guaranteed proportional share of 40% of the net room revenue of the entire hotel regardless of whether the room is occupied. Owners are also given 14 free nights for them or a nominee a year.

SKAI Holdings is the first property developer in the UAE to offer this kind of investment model, which allows individuals to play a role in Dubai’s growing hospitality sector.

You mentioned that the property is energy efficient. Can you explain how?

The property will feature breathable architecture, allowing sunlight to shine through the core of the tower and a vertical microclimate design with over half a million square feet of flora, naturally helping maintain the temperature. We are extremely conscious of creating energy efficient buildings that not only keep running costs down long-term but are also

Jan - Mar 2017 International Finance Magazine

COVER STORY

SKAI Holdings, a real estate firm based in the UAE, has won the IFM 2016 awards for the Best Luxury Project (Viceroy Dubai Jumeriah Village), UAE and Most Innovative Development Company

safer for the environment.

Why are investors attracted to Dubai?

Dubai has a strong set of fundamentals, which provide tremendous opportunity for those looking to invest in its growing hospitality scene. It is strategically located between Asia, Europe and Africa, and has good transport links through Dubai International Airport and Al Maktoum International Airport.

The government has continued to invest in infrastructure to boost the tourism sector and has a clear tourism

vision. Emirates now has over 3,500 flights a week across six continents, the biggest beneficiary of which is the emirate’s hospitality sector. Most recently, the city launched Dubai Parks and Resorts, the largest multi-themed leisure and entertainment destination in the Middle East, with over 100 rides and attractions actions spread across 25 million square feet of land, making it the ideal tourist destination for families. IFM editor@ifinancemag.com

SKAI Holdings is also developing the Viceroy Dubai Palm Jumeirah, which is set to open in the first quarter of 2017

Âť

26

What are the advantages of highrise buildings?

I think the main advantage of the Viceroy Dubai Jumeirah Village is that we have been able to combine the best of high-rise living with outdoor living. Once complete, the private terraces will become an extension of the interior, enabling guests and residents to swim, host outdoor dining parties and enjoy life outside while still enjoying the panoramic views that an apartment is able to offer. Our operator, Viceroy, will also provide a luxury five-star hotel experience for

all of those living or staying in the property.

International Finance Magazine Jan - Mar 2017

First off

the block Barclays uses blockchain technology to guarantee the export of almost $100,000 worth of cheese and butter from an Irish firm to the Seychelles Trading Company Tom Jackson

International Finance Magazine Jan - Mar 2017

Banking

T

rade transactions are usually a time-consuming business, requiring manual processing and authentication through intermediaries in order to cut the risk between importers and exporters.

These transactions, which usually require international courier services, are vulnerable to fraud and can take between one week and a month to complete.

Yet, Barclays believes it has found a way to cut the processing time to less than four hours, using blockchain technology.

In what it describes as a groundbreaking first, Barclays Africa and Barclays Plc used the technology to guarantee the export of almost $100,000 worth of cheese and butter from an Irish firm to the Seychelles Trading Company in September 2016.

Using technology developed by Israeli startup Wave, both parties in the trade were able to

transfer cryptographically sealed documents via the blockchain, which is an electronic record-keeping system originally developed for bitcoin transactions.

Though Barclays is not the first to experiment in this space, with HSBC and R3 among other companies examining how to simplify trade processes using blockchain, it is the first to have pulled it off for real.

“Every company, startup or consultancy playing in the blockchain space is very quick to run to the press with stories of successful tests, trials and investigations. What makes this pilot so groundbreaking is that it was live, involved real clients, real merchandise and a real letter of credit,” said Kelly Parkhurst, Barclays Africa project manager for the pilot.

Experimenting to implementing Parkhurst said the trade signified a new phase in

blockchain application, with experimentation starting to be replaced with implementation. Wave will be running pilots with a number of banks and third parties across different regions in order to encourage adoption.

“The beauty of the Wave application is in its simplicity. It solves an ageold problem in a very easy to understand and practical way,” she said.

“Its application should streamline the supply chain process drastically and create a lot more efficiencies for the broader trade industry. For banking, this means that risks are reduced as documents will be harder to forge and financing of trades will be processed and executed in a much shorter time frame.

All parties will also save on courier fees, handling fees and storage.”

Vindication of the technology For Gadi Ruschin, chief

Its application should streamline the supply chain process drastically and create a lot more efficiencies for the broader trade industry.

For banking, this means that risks are reduced as documents will be harder to forge and financing of trades will be processed and executed in a much shorter time frame. All parties will also save on courier fees, handling fees and storage Kelly Parkhurst, Barclays Africa project manager

Jan - Mar 2017 International Finance Magazine

29

Banking

30

executive officer (CEO) of Wave, the first paperless trade transaction was a ‘major milestone’ as it proves blockchain tech is something that can be used now, and not just in the distant future.

“This pilot involved some of the biggest players in the industry and it was a great success — reducing transaction time from weeks to hours, saving thousands of dollars and reducing documentary risks for all parties,” he said.

“Just eliminating the paper documents that were being used in trade for the past 500 years will have a huge impact. I believe that in the near future there will be additional initiatives in the areas of provenance and trade finance tools that will use the blockchain technology for international trade.”

Encouraging adoption For the meantime, however, encouraging adoption is key. Parkhurst said for trade transactions using the blockchain to become a reality, the greater trade industry will need to adopt the application.

“This is no mean feat. There are literally

millions of players in this industry that operate across the globe,” she said.

“This sounds like a daunting task, but where there is a bottom line impact in an increasingly competitive world, there will be interest. The Global Alliance for Trade Facilitation estimates that seven per cent of the global value of trade is absorbed by the cost of documents alone, which means that these companies stand to make significant savings in cost and time, and should incentivise them to adopt the application.”

Preston Byrne, chief operating officer (COO) of US-based blockchain development firm Monax, said there are more basic barriers to uptake, though he expects them to be addressed over the next 18 months.

“Across the industry, generally speaking, the technology is still immature and there are significant user experience and governance issues, which still need to be overcome.

But these are not hard challenges,” he said.

Why it makes sense Byrne expects the use of blockchain in trade to take

International Finance Magazine Jan - Mar 2017

off, nonetheless. “For many of the same reasons that a blockchain makes sense in other areas of finance, it also makes sense in trade finance and supply chain workflows,” he said.

“Blockchains are, first and foremost, reconciliation engines.”

These engines of reconciliation also have the potential to be employed beyond trade, in sectors such as insurance. Wave may be focused on international trade, but there are other companies looking to build blockchain and smart contracts into other spaces.

In a recent report, McKinsey & Company found as many as 20 blockchain startups focusing on some aspect of the insurance market, finding the most

This pilot involved some of the biggest players in the industry and it was a great success — reducing transaction time from weeks to hours, saving thousands of dollars and reducing documentary risks for all parties Gadi Ruschin, CEO, Wave

Banking

In a recent report, McKinsey & Company found as many as 20 blockchain startups focusing on some aspect of the insurance market, finding the most promising use cases were in enabling growth, increasing effectiveness, and reducing cost through the automation of key processes promising use cases were in enabling growth, increasing effectiveness, and reducing cost through the automation of key processes. In insurance, aside from the benefits of greater security and easier verification, employing blockchain technology could also allow for more crowdfunded insurance to take place.

McKinsey concludes that blockchain is ‘ready for exploration’ by insurers.

Parkhurst is clear that though Barclays is pursuing blockchain and Wave from a trade scenario, there are plenty of other use

cases that could see the technology speed up and secure all sorts of business processes.

“It can be adapted for any form of documentation that needs to track and verify ownership, which opens it up to a plethora of use cases in not only banking, but insurance, law and beyond,” she said.

Byrne said financial transactions are actually some of the least interesting blockchain applications, yet they are the ones where the tech got the earliest attention and the prototypes tend to be more advanced.

Usage in other sectors is inevitable and increasingly, taking place.

“We are now seeing a rapid branching out into other areas with blockchains being treated as they should be, as a distributed database, rather than as a simple distributed ledger,” he said. IFM editor@ifinancemag.com

“

Across the industry, generally speaking, the technology is still immature and there are significant user experience and governance issues, which still need to be overcome.

But these are not hard challenges Preston Byrne, COO of US-based blockchain development firm Monax

Jan - Mar 2017 International Finance Magazine

31

Banking OPINION

OPINION

Daniel DĂśderlein

Banks getting caught up in gimmicks

32

When thinking about the kinds of innovations to offer customers, it’s necessary to also consider whether or not they will have a high frequency of usage

International Finance Magazine Jan - Mar 2017

Banking OPINION

W

e’ve seen a number of interesting

developments for customers of high street banks and financial services in recent months. Mastercard recently launched its payby-selfie concept whilst HSBC has said it will allow customers to use selfies to open bank accounts.

Samsung has also announced that it is planning to launch voice and facial recognition biometrics for mobile banking. Visa has developed augmented reality payment technology and Alibaba has stated that it is developing VR payment technology.

Most of these solutions are based on authentication and identification. While some might argue that they

will make the process of setting up or logging into accounts smoother, quicker, and more secure - though others would disagree - they seem to be little more than gimmicks to mask the true problems that retail banks face right now.

Primarily, banks are faced with the issue of retaining their customers and attracting new ones at a time when consumers have a plethora of choices as to where they do their banking.

Forthcoming regulations, in the shape of PSD2 - the second iteration of the EU Payment Service Directive are set to shake up the retail banking landscape further by enabling all kinds of companies to effectively set themselves up as the front end of a bank.

But more about that later

- for now, let’s focus on what banks need to do to ensure they can attract and retain customers. Firstly, they need to ensure that they are coming up with solutions to real problems, the kinds of issues that people have to deal with on a day-to-day basis.

What they don’t need to do is create gimmicks and solutions for problems that don’t exist. Take NFC-enabled smartphone payments as an example.

Four years ago, analysts were predicting that this would be the payment technology of the future.

Everyone, including the banks and retailers, were told to jump on this technology. But the reality is that these types of payments haven’t really caught on yet.

The fact of the matter

is, people weren’t really having problems paying merchants for small transactions. They had cash, they had chip-and-PIN, and latterly contactless debit cards - multiple options.

Banks and retailers were caught up in listening to the technologists’ predictions, rather than listening to their customers, figuring out the problems they have, and implementing solutions to those problems.

However, even if you are a bank that solves real issues - for example, the problem of being able to quickly and easily make small payments to friends and family to cover any number of things, including groceries, a meal, a cinema ticket and so on you can’t be guaranteed to win the hearts and minds of customers. This is because

Jan - Mar 2017 International Finance Magazine

33

Banking OPINION

34

there is an even greater challenge that you now face when it comes to attracting and retaining customers, and this revolves around the threat posed by PSD2 regulations.

As mentioned above, provisions within the new regulations mean that anyone - a rival bank, a technology company, a fintech startup - could effectively become the user interface for your money, aggregating information from all your bank accounts.

That app will effectively stand between the customer and the banks, making bank brands disappear from sight.

Imagine if a company like Facebook were to integrate banking services from a bank - utilising the API that they are now legally obliged to open up to them - so even though they hold the customer’s account, users would never see the bank’s brand, just Facebook’s. The bank’s back-end systems are still being used, but the

customer would likely forget all about them as a brand and as a company. What chance do they have of retaining existing customers or attracting new ones then?

Facebook is currently way ahead in the battle for eyeballs. While no bank is likely to ever rival Facebook’s reach, to stand the best chance of survival, and of keeping their brand front-and-centre as far as the customer is concerned, banks need to make an effort to compete in this battle.

So when thinking about the kinds of innovations to offer customers, it’s necessary to also consider whether or not they will have a high frequency of usage. The more the customer sees a product or uses a service, the more eyeball time they are giving it and the greater the brand visibility. This is why innovations such as a peer-to-peer payment platform could work well the number of times a week

International Finance Magazine Jan - Mar 2017

a user would come into contact with it would give the bank a better chance of persuading that user to sign up for other services.

Personally, if I were the head of innovation in a bank who is faced with the challenge of getting and retaining eyeballs, I would rather build a brilliant alarm clock app, a silly trivia game app or even a teabreak reminder app than to go down the path of an NFC wallet. At least the app would possibly drive higher frequency use.

In order to facilitate innovation, banks need to be addressing the outdated, legacy IT systems that many of them are still using.

Moving operations to the cloud will provide greater flexibility for innovation in the long term, as well as freeing up internal resources for the investment of time and people into projects that will meet customer retention and attraction objectives.

Using the cloud also

solves a number of other issues for banks. When third parties start to connect to banks as a result of PSD2, the amount of traffic will most probably bring down the legacy IT systems.

Besides the inherent problem of being offline the bank would suffer fines and compliance breaches.

Back-end capacity issues are a huge risk. And while some might raise questions about the security of the cloud, I would argue that the cloud is more secure than using existing legacy systems.

Companies like Google and Amazon have hundreds of the top tech brains in the world ensuring the security of their cloud-based systems for customers. How many banks can say that?

So in order to provide innovations that are of real benefit to customers - and that will ultimately ensure their survival - banks need to give themselves the freedom to innovate and ensure what they are doing solves the real problems that banking customers face today. IFM editor@ifinancemag.com

Daniel Döderlein is the founder of Auka

Banking OPINION

OPINION

Banking on Mobile Video Personalisation for the Digital Age Gene Pranger

36

International Finance Magazine Jan - Mar 2017

Banking OPINION

T

he shortest distance between businesses and their customers is almost never a straight line. In fact, it’s not a line at all. It’s more like a perilous, eight-lane freeway with swirling interchanges and billboard congestion.

Customers are traveling across town in rush-hour traffic, with little attention to spare. There’s nothing straight about it.

This is the scene of retail banking today, and one that highlights the complex challenge of meeting consumer demand for the fastest, easiest routes to financial products and services. Despite the chaos, technology is evolving to help financial institutions realign their retail and digital channels to address the needs of current and prospective customers at any given moment.

Now, with the merging of sophisticated mobile and video technologies, the paradigm of financial services is shifting significantly — so much so that a direct path between banks and their customers is becoming a reality.

The emergence of Mobile Video In 1996, a small student branch on the campus of University of California, Los Angeles, adopted the first bank installation of interactive video. Using this device, students could speak face-to-face with remote loan officers in nearby branches to discuss common questions about student and car loans. The technology was as useful

as it was innovative. Why spend precious time driving to another branch or making another dead-end phone call, when you can connect instantly through interactive video?

Nine years after the UCLA installation, I formed the company uGenius Video Banking, coining the latter term to describe the ability to engage with bank representatives through ATM-like devices called Personal Teller Machines (PTMs). uGenius was the first mass-market product of its kind and gathered more than 60 clients before its acquisition by NCR in late 2012. NCR’s customer base now includes more than 300 financial institutions utilising video banking through Interactive Teller Machines (ITMs), allowing tellers to conduct face-toface transactions while stationed in central call centers around the world.

Consumer acceptance and global expansion of ITMs have provided the perfect conduit to introduce other forms of interactive video channels. In fact, video banking was always intended to be a much broader solution than merely an application within banking hardware.

Video banking was meant to expand through the internet, within branches, on smart televisions and on mobile devices.

than just a pretty piece of hardware. These devices now represent an integral part of the way we connect, learn and interact with the world. The pervasiveness of this technology is astounding. According to Pew Research, with 91 percent of Americans now owning cellphones, and the majority of mobile phone owners (63 percent) using their phones to go online, this means at least 57 percent are “cell internet users”.

What’s more, Mobile Statistics found that the average smartphone user spends over 90 minutes a day on their phones, amounting to 23 days per year, or 3.9 years over a lifetime — numbers we can bet will only keep climbing.

With the introduction of mobile video, and increasing processing speed, the next generation of mobile devices is destined to become the primary computer,

interpersonal communication device, management hub, retail outlet, entertainment console and social network of choice. By 2020, workforces are likely to be structured in video call centers where they can engage customers from these personal mobile devices anytime, anywhere, and for any product, service or engagement they choose.

The branch reimagined The irony of financial technology innovation over the past century is that nearly all solutions provide

Smartphone absorption among consumers With the powerful ability to retrieve and send information from virtually anywhere, the smartphone has become far more

Jan - Mar 2017 International Finance Magazine

37

Banking OPINION

»

CEO Gene Pranger discusses the impact of mobile video on financial services with CUbroadcast at the World Credit Union Council 2016.

personal consultation. By creating hubs in prominent marquee locations that look like branded retail stores, and moving the majority of their services to the internet, mobile channels or ITM-like devices, branch management can dedicate more attention to initiatives customers crave, like well-informed assistance at the moment of need.

If a financial institution has been slow to evolve its web presence, mobile applications or branch infrastructure, mobile video may be a viable strategic alternative to leapfrog any deficiencies within channel delivery.

The role of the bank branch is rapidly changing.

»

38

a reason for consumers not to come into the branch.

Advancements like call centers, ATMs and internet services led to breakthrough conveniences and cost reductions. As technology was adopted, fewer consumers came into the branch. As a result, today 85 percent fewer transactions occur in branches than in 1995, according to Brett King, author of Branch Today, Gone Tomorrow.

Though the purpose of the branch is shifting, these brick and mortar locations will continue to play a significant role in retail banking, one of experience-driven sales and

International Finance Magazine Jan - Mar 2017

As the “Bank of the Future” continues to evolve, mobile video is poised to play a major role in this re-organisation. Mini-hubs of mobile video call centers within every major branch are already developing, with financial consultants answering calls from consumers all around the world. Whether in or out of the branch, seamless omnichannel experience is the goal, and mobile is taking us there.

Bringing back the personal touch The banking world sits on the edge of a new era.

As consumers increasingly

make the transition to self-service channels, businesses will need to address the inevitable lack of face-to-face interaction and personalisation by maintaining this element of a meaningful relationship.

Emerging technologies like mobile video now enable financial institutions to customise and address these critical issues, creating a stickiness that benefits both the institution and the consumer.

Now that mobile video has placed a branch in everyone’s pocket, perhaps there is finally a straight line between financial institutions and their customers that can provide both convenience and realtime solutions, all with a personal touch. IFM editor@ifinancemag.com

About the author Financial technology entrepreneur Gene Pranger has designed more than 500 bank branches since 1995.

In 2008, he pioneered the market of video banking with the uGenius platform, acquired by NCR in 2012. His latest venture, BankOn Mobile by Financial Town, is the world’s first interactive mobile video platform for bringing banks and credit unions a tap away from customercentric strategy, streamlined operations and unprecedented personalisation. Learn more at financialtown. com.

INVEST THE WAY YOU THINK We are delighted to announce that we have been awarded Best Broker Latinamerica for the second year running!

This award is giving us the power to keep on building a unique company based on the highest standards offered in the industry.

Thank you for choosing us.

IFM

IFM

IFM

BEST NEW BROKER LATINAMERICA

BEST BROKER ONLINE LATINAMERICA

BEST ASSET MANAGEMENT COMPANY CHILE

AWARDS

AWARDS

AWARDS

2015

2016

2016

Follow us on

Av. Vitacura 2736, Of. 201 - Las Condes, Santiago - Chile contacto@continentalfx.com | Phone +56 2 2487 6600

Banking

Overcoming headwinds Azizi Bank posts commendable performance despite adverse economic conditions in Afghanistan

40

International Finance Magazine Jan - Mar 2017

Banking

A slowing global economy added to the difficulties. Annual growth in gross domestic product (GDP) in 2015 has been a meagre 1.9 percent – up from just over 1.0 percent in 2014 – and is projected to rise slightly to 2.8 percent in 2016 before levelling off around 5.0 percent in 2018

T

he performance of any bank is dependent on various ecopolitical factors. Azizi Bank has seen sustained growth during the period 20062013. Following certain economical downward trends, the economy has been going through depressionary trends.

Azizi Bank has however performed creditably, notwithstanding the unfavorable trend in the economy. Although the profit margin in 2015 has reduced, as compared to previous years, the bank is very hopeful that margins are set for improvements.

Azizi Bank has recorded a commendable performance

in 2015 despite adverse economic conditions. The Gross Domestic Product increased marginally in 2015 from 2014. However, the bank with its extensive layout of branches and remote banking devices, i.e.

POS terminals & ATMs, did not experience a significant drop in deposits.

The economy continues to be stable, however without any notable investments except in certain infrastructure sectors.

There have been substantial investments through world bodies in areas of road construction and electrical transmission lines. The economic depression apart, an estimated $1 billion of investments

have been planned in road infrastructure, power sector, power transmission lines, power generations, electricity generation, agriculture sector, oil and gas sector, and the IT sector.

The economic benefits of these investments are expected to trickle down to the entire population.

Growth of deposits of the bank is thus projected (conservatively) to be around 5% to 6% and targeted to increase to 10% in 2020, with all the initiatives proposed by the bank and the projected economic growth of the country (as per estimates received from World Bank).

A sustainable recovery is expected for 2016. Real

GDP growth is projected to increase to within 2.50% to 3.10% and 3.90 % in 2016 and 2017, respectively, Azizi Bank is targeting financial inclusion for the primarily unbanked population, which is 12% presently. It is starting full-fledged Islamic banking activity through its wholly owned subsidiary Bakhtar Bank, scheduled by the end of 2016. It would be the first Islamic bank of Afghanistan.

Azizi Bank has more than 140 branches, along with Bakhtar Bank, to provide doorstep banking services to customers. The bank covers more than 38% of the market in commercial lending.

The bank has invested heavily in technology. These endeavors are taken so that the bank becomes customer friendly and tech savvy. It is estimated that although 37% of the population lives below the poverty line, a large segment is mobile savvy with compatible internet facility, especially amongst the young generation. With the introduction of M-Paisa and e-wallets, a large share of the money transactions in the country is expected to be routed through the bank.

The bank has planned an aggressive growth strategy through reconstitution of the sales team and various

Jan - Mar 2017 International Finance Magazine

41

Banking

The heady days of double-digit economic growth, fuelled by foreign aid and military spending that followed the fall of the Taliban regime, appear to be gone for the foreseeable future.

The exchange rate – a bell-weather economic indicator – continued to lose value in 2015, falling by about 18 percent over the year and putting upward pressure on prices

42

marketing strategies, i.e. tie-ups with corporates, various joint ventures for investment in the country etc. Accordingly, Azizi Bank has drawn up the financial plan projecting strategies for growth. In its Vision 2020 initiative, the bank will witness significant growth in all sectors thereby maintaining its position as clear market leader and catering to customer requirements and expectations. The bank has plans to venture overseas by opening offices in neighboring countries in 2017 and 2018.

In a country of Afghanistan’s stature

with political insecurity and instability looming in the minds of all, large exodus, less capital inflow as donors are uncertain of the investment outcomes, it is difficult to predict the future. However, given the prevailing situation and World Bank survey reports, the optimism prevailing in selected infrastructural sectors of the economy, there are prospects for substantial growth. There is promise for much Foreign Direct Investments (FDIs), much scope for developmental of mining and quarrying in one of the countries rich in natural resources, low inflation,

improving education rates, increasing integration of the provinces with the capital, more sponsored infrastructure and more economic benefits trickling down owing to economic integration with other countries.

Azizi Bank is having a very healthy capital adequacy ratio of more than 21% against the regulatory capital requirement of 12%, which indicates the inherent strength of the organisation. It has secured a healthy Camel Rating this year. It follows a secure and effective policy for growth with maximization of returns

Testimonial I am thankful to International Finance Magazine, London for this glamorous award of the Best Bank Customer Service in Afghanistan. Also being recognized as the best CEO is a great accomplishment in our endeavour to make the best quality Afghanistan bank with world class services. I appreciate our employees’ dedication towards this achievement and we truly believe that providing valuable service to our customer begins with creating an atmosphere where employees are genuinely happy and excited about where they work and what they do Dr. Mohammad Salem Omaid President & CEO, Azizi Bank, Afghanistan

International Finance Magazine Jan - Mar 2017

and cost effectiveness, and minimisation of risks. It is highly capitalized and offers to depositors sound and effective banking options.

On these premises, Azizi Bank has developed its strategic plan, in collaboration with one of the top US-based consulting agency, with an eye on progress and development.

In the past one year, the bank has received several international accreditations from across the globe on its endeavor to create a wonderful customer service experience and strong corporate governance.

We are hereby committed to make Azizi Bank a onestop shop for all of clients’ financial requirements and in the process of building the best quality Afghanistan Bank with world class services. IFM editor@ifinancemag.com

OPINION

Hal S Scott

Connectedness and Contagion:

A Global Perspective Issues of the capacity to deal with contagion are not limited to the United States

T

he heart of the US 2008 financial crisis and others in the past, here and worldwide, has been systemic risk in the form of contagion.

As detailed in my book, Connectedness and Contagion (M.I.T. Press 2016), the US crisis was successfully stemmed with three weapons: (1) lender of last resort; (2) liability guarantees and (3) capital injections.

Post crisis, all of these weapons have been limited or eliminated, primarily by the Dodd-Frank Act, as undesirable “bailouts”. Dodd-Frank purports to solve the contagion problem with what I call two wings and a prayer: (1) heightened capital and new liquidity requirements as the wings, and (2)

International Finance Magazine Jan - Mar 2017

new resolution procedures as the prayer. It is questionable how effective these policies have been to decrease the risk of contagion. But you don’t abolish the fire department even if you believe you have more fire resistant buildings. Thus, we need to restore and indeed strengthen the three powers to fight contagion that we weakened or took away. But the chances of doing so in the “anti-bailout” environment are very low, so we are dangerously exposed to future crises. The reality is, as Secretary Geithner recently stated in his Per Jacobsen Lecture (October 8, 2016): “There is no way to protect the economy from a failing financial system without deploying public resources — without temporarily

substituting sovereign for private credit.”

The strength of US weapons to fight contagion is clearly of great concern to the world, not just the United States.

Unchecked, US contagion will swiftly spread abroad through the primacy of the dollar as a reserve currency, asset fire sales and the presence of global financial institutions based in the US. Moreover, a severe recession, depression or even political unrest in the US, the world’s leading economic power, would shake global stability to its very foundations.

The ability of major financial powers to deal with contagion should be a major, if not the top, priority of the International Monetary Fund.

Banking OPINION

Issues of the capacity to deal with contagion are not limited to the United States. For example, in the Eurozone, while the ECB provides general liquidity to the banking system through its monetary operations, national central banks are entrusted with providing Emergency Liquidity Assistance (ELA) to a particular institution facing liquidity problems.

But the failure of a major Eurozone central bank to act as lender of last resort, whether due to legal or political constraints, would not only affect its Eurozone neighbours but the rest of the world. And while the ECB Governing Council can restrict a national central bank’s provision of ELA, under Article 14.4 of the ESCB Statute (as it did in the Greek crisis), the decision to provide ELA lies with the national central bank. While my book and talk here focuses on the US, the concerns extend to all major economies.

Elements of Systemic Risk The main point of financial system regulation is to prevent systemic risk, of which there are three varieties, what I call the three C’s: correlation, connectedness and contagion. These types of systemic risk are not mutually exclusive, they may occur together.

Correlation refers to the situation where the same external event

1

creates losses for a large number of important financial institutions, e.g. housing price collapse.

Connectedness comes in two flavors: (1) asset connectedness where the losses of one financial institution causes losses of other financial institutions, in a chain reaction, or (2) liability connectedness where the failure of one financial institution endangers funding of others, for example if a bank settling tri-party repos were to fail. The third C is contagion where the actual failure or fear of failure of a financial institution causes short-term creditorsinvestors to withdraw and withhold funding for financial institutions generally out of lack of information or irrational panic.

My distinction between connectedness and contagion is quite similar to that used by the IMF in assessing the possible channels of spillover of a sovereign debt default, when the IMF uses the concepts of direct exposures, on the one hand, and risk aversion and lack of confidence, on the other hand1.

Contagion not Connectedness was the Systemic Risk Problem in 2008 Correlated losses due to falling housing prices set the scene for the crisis of 2008 but did not by itself lead to a financial panic.

Contagion — not asset or liability interconnectedness —was the primary driver of the 2008 US financial crisis.

Leading up to Lehman’s fall, major banks saw some deposit runs, including National City, Wachovia, IndyMac, and Washington Mutual. But the Lehman Brothers insolvency filing on September 15, 2008 put contagion in overdrive in the non-bank sector. The Reserve Primary Fund “broke the buck” on the next day, owing to massive investor redemptions due to losses from the fund’s significant direct exposure to Lehman commercial paper. The run spread quickly across the money market fund industry, including to institutions with no significant exposure to Lehman, and then spread more widely to all shortterm financial liabilities.

And while I do not deal with the Eurozone crisis in my book, there was a large concern during the crisis that sovereign debt defaults could trigger a contagious run. This was stopped by prompt and firm action by public authorities.

EU market conditions improved following Mario Draghi’s July 2012 famous declaration that the ECB was prepared to do “whatever it takes to preserve the euro” and the announcement of the Outright Monetary Transactions program shortly thereafter.

Many believe that asset connectedness,

not contagion, was the major problem during the US crisis. My book examines this claim in detail. Investors in the Lehman-connected Reserve Primary Fund lost less than a penny on the dollar, and no financial institution connected to Lehman failed as a result of the failure of Lehman.

Moreover, no financial institution exposed to AIG would have failed if AIG had failed. For example, Goldman Sachs would have experienced a maximum 18% loss of capital from its CDS collateralised positions with Lehman, less than the conventional 25% loan loss secured lending limits for banks, and this does not take account of the CDSs Goldman had on AIG. Interestingly, the IMF analysis of the threat of spillovers from a sovereign default finds contagion (a confidence crisis) much more important than connectedness (direct effects). In thinking about our ability to deal with contagion, keep in mind that panic can be set off by causes that have little or nothing to do with financial institution failures. The IMF has focused on this issue in the context of sovereign debt defaults and last June we briefly flirted with possible panic when the unexpected vote in favor of Brexit was announced.

Major terrorist events or natural disasters could also set off panic. So, limiting contagion weapons across

International Monetary Fund, The Fund’s Lending Framework and Sovereign Debt—Further Considerations, April 9, 2015 (Further Considerations).

Jan - Mar 2017 International Finance Magazine

45

Banking OPINION Banking: Opinion

A severe recession, depression or even political unrest in the US, would shake global stability…

The ability of major financial powers to deal with contagion should be a major, if not the top, priority of the International Monetary Fund the board out of concern for moral hazard in the financial system is myopic.

46

Dodd-Frank Reforms Were Focused on Asset Connectedness Nonetheless, the DoddFrank reforms and much of the G-20 agenda is focused on asset connectedness.

SIFI designation by FSOC is largely built around connectedness, as is central clearing for OTC derivatives, and bilateral exposure limits. While these reforms may be desirable in any event, if only to alleviate the fear of connectedness, connectedness was not the problem in 2008.

Measures to Stop Contagion in 2008 My book describes the three measures that were deployed during the crisis to stop the contagious run on banks and non-banks: (1) lender of last resort; (2) liability guarantees; and (3) capital injections into weak banks. a. Lender of Last Resort The Fed was created in 1913 to stop financial panic,

2

the latest of which had been in 1907. Of course, older central banks like the Bank of England and the Banque de France already had experience managing financial crises in their own countries by that time. Interestingly, the 1907 US panic started in the non-bank sector at Knickerbocker Trust Company. Even then the contagion caused by the failure of a non-bank was of concern. During the 2008 crisis, the Fed amply discharged its lender of last resort responsibility, on the run as it were, through a variety of means. A lower penalty rate, wider access for primary dealers, and a Term Auction Facility were major changes in the discount window.

And a multitude of new facilities were created for non-banks, including the Commercial Paper Funding Facility (CPFF) to purchase unsecured and ABCP from corporate issuers, and the Money Market Investor Funding Facility (MMIFF) to purchase assets from money market funds to provide them liquidity.

This supply of liquidity to the financial sector doubled the Fed’s balance sheet to $2 trillion by 2009. In 2007, 91% of its balance sheet was invested in US Treasuries; by 2009, this was only 25%.

Supplying liquidity to the non-bank system was very important. It provided nonbanks with $930.6 billion in loans and general market liquidity. More importantly, the very availability of these facilities helped stop the run.

The Fed, and in turn the taxpayer, actually benefited from the new lending.

Balance sheet expansion generated Fed profits and thus higher remittances to the Treasury. In 2008, these remittances were over $40 billion. I might add that in 2015, they were $117 billion due to QE expansion.

As I said, a key part of Fed lending was to non-banks where the contagious run was largely centered. I estimate that as of November 7, 2016, there is about $8 trillion in uninsured short-term funding in the US financial system, with 66% of this $8 trillion in non-banks,

primarily money market funds and broker-dealers.

The ability to lend to nonbanks in a crisis is essential.

I would expect this percentage to increase as lending and capital market activities, with short-term funding, are increasingly driven out of the intenselyregulated banking system2.

The legal authority for this lending to non-banks was the then quite broad Section 13(3) of the Federal Reserve Act. It provided that in “unusual and exigent circumstances”, the Board could authorise a Reserve Bank to make loans to a non-bank where such loans were “secured to the satisfaction of the Federal Reserve bank.” This authority to loan to nonbanks is quite separate from discount window authority.

After-the-fact this authority was and continues to be widely attacked as bailing out Wall Street.

This is despite the fact that taxpayers benefited from these loans through additional Fed remittances of profits and, much more importantly, the country avoided what would

Total short-term funding in 2008 was $9.6 trillion, which then fell to $6.7 trillion by 2012, reflecting a drop in money-market funds, repos and secured

lending. But it has bounced back to $8 trillion in 2016. The percentage of short-term funding in the non-banks actually decreased over the period from 78% in 2008 to 66% in 2016. This is because of the growth of uninsured bank deposits. As indicated in the text, I would expect this percentage to increase over time.

International Finance Magazine Jan - Mar 2017

Banking: Banking Opinion OPINION

Correlated losses due to falling housing prices set the scene for the crisis of 2008 but did not by itself lead to a financial panic. Contagion — not asset or liability interconnectedness —was the primary driver of the 2008 US financial crisis have been a much more serious crisis. But that counterfactual is difficult to prove. Legitimate moral hazard concerns have been raised about this lending, but the beneficiaries of the lending were largely victims of a panic; without panicked withdrawals from these institutions, they would have been solvent — the notable exception to this was probably AIG. This anti-bailout concern triggered radical calls for changes in 13(3) lending authority for non-banks; oddly enough such concerns did not generally translate to the Fed’s use of the discount window. As a result, the Dodd-Frank Act placed significant constraints on the Fed’s 13(3) lending authority.

What are they? First, the Federal Reserve can now only lend to non-banks with the approval of the Secretary of Treasury under procedures adopted in consultation with the Treasury. Interestingly, this requirement for approval was put forward by the Treasury Secretary Timothy Geithner. Perhaps, this was just another chapter in the

3 4

Fed-Treasury turf war, or maybe Geithner thought this was a way to protect the Fed from even greater restrictions, which indeed were then actively being considered in Congress. In his book Stress Test and in his Per Jacobsen lecture, Geithner fails to even mention this restriction.

It is important to note, however, that when the Fed decided to help finance the acquisition by Bear Stearns in March 2008, Geithner, then the President of the New York Fed, asked for Treasury support for “cover”, so perhaps he believed that writing this requirement into law would help protect the Fed from criticism3.

One can argue with the importance of this restriction, though it is clearly taking independent authority away from the Fed in a way not applicable to banks. Some point correctly to the fact that Paulson was generally Bernanke’s cheerleader during the crisis, but it has also been reported that Paulson refused to let the Fed lend to Lehman in September of 2008 because he did

not want to be known as Mr. Bailout (even though Lehman had adequate collateral). Of course, at that time he had no legal right to bar Fed lending4.

Secretaries of the Treasury are by nature political and may again deny funding in the future to avoid political criticism, particularly when their approval is now formally required. And the markets will know Fed support may not be assured, which itself could trigger or accelerate a run.

The use of Emergency Liquidity Assistance for banks and non-banks by the Bank of England in the UK does require Treasury approval; and under certain circumstances the UK Treasury can even direct the Bank to provide ELA. However, any emergency lending undertaken by the Bank of England at the Treasury’s direction is indemnified by the Treasury. Thus, it becomes a government and fiscal decision. Such coordination of fiscal and central bank authority in cases of lending to banks and non-banks that may be experiencing solvency problems (but

are not insolvent) offers a possible model for the United States and other countries.

Second, the amendments to 13(3) provide that the Fed can no longer make one-off loans to single beneficiaries, such as it did in 2008 to AIG; it must instead do so under a “broad” program. A Fed regulation implementing this provision provides that at least five institutions must be “eligible” for any Fed program. If this means eligible at the time the Fed provides the first loan, it may make it harder to nip a contagious run in the bud — the Fed would have to wait for five institutions to be under attack. If it means ever eligible, then it is not much a restriction, and its use would generate cries of illegality and congressional scrutiny. No other major central bank has such a “broad” program requirement.

Third, Dodd-Frank requires that all loans must be collateralised, and a lendable value assigned to all collateral. This appears to rein in the Fed’s authority to buy unsecured

Laurence Ball, The Fed and Lehman Brothers, Paper prepared for the NBER Monetary Economics Program, July 14, 2016 (Lehman Brothers), p. 184-185.

Id., at 186.

Jan - Mar 2017 International Finance Magazine

47

Banking OPINION

While contagion fighting powers have been curtailed, some defenders of Dodd-Frank point to what I call two wings and a prayer, the wings being capital and liquidity requirements, the prayer being new resolution procedures. The premise is since contagion is much less likely, we need not worry much about fighting it

48

commercial paper, which it did for major non-financial issuers in the crisis, and more generally deprives the Fed of the discretion they previously had to set collateral requirements.

These same legislative restraints on collateral do not exist elsewhere.

Fourth, the Fed can now only loan to solvent non-bank institutions, a requirement not imposed on lending to banks. The solvency requirement is a cardinal principle in Bagehot’s 19th century formulation of the appropriate role of the lender of last resort, but historically it has often been honoured only in the breach. One reason to avoid such a legal requirement is that judging solvency is extremely difficult. Should assets be valued at market value, a price which might already reflect fire sale prices caused by a panic, or at values they might revert to after Fed lending is deployed? Or somewhere in-between? An underlying argument for a solvency requirement is that lending to an insolvent institution should be a fiscal issue, in which the Congress should play the major role through appropriations, as

it did with TARP. This is because Fed losses could reduce Fed remittances and thus the general revenue. I wholeheartedly agree with this concern. But we should then establish an ex-ante framework for coordination between the fiscal authority and the lender of last resort, as in the UK. This would ensure that needed action could be taken promptly.

A fifth provision of Dodd-Frank provides for disclosure. The details of all loans to non-banks must be reported within seven days to the two Chairmen of the House and Senate financial institution committees, and then must be disclosed to the public within a year. On the banking side, the details of all discount window loans must now be publicly reported within two years.

The concern with such disclosure requirements, more stringent than those facing other major central banks, is that the prospect of disclosure, certainly within seven days, and even within two years, will discourage borrowers concerned with stigma from seeking needed support, thus worsening the problem. Indeed, in the crisis, banks in need of funding avoided the

International Finance Magazine Jan - Mar 2017

discount window out of fear that their borrowing might be leaked or uncovered by analysts, thus leading the Fed to create the Term Auction Facility, where all banks could obtain cheap funding. No other major central bank has such strict disclosure requirements.

Sixth, Dodd-Frank provides that banks can no longer pass on discount window loans to their non-bank affiliates, such as broker-dealers, without being subject to the normal Section 23A limits on interaffiliate lending. This means that substantial borrowing by bank affiliated brokerdealers would have to occur under the new restrictions of 13(3). This restriction is not relevant to other major central banks, since their LLR authorities are not organised according to a “bank/non-bank” distinction.

Some in the Fed, including Governor Powell and ex-Chairman Bernanke, have said they can live with these Dodd-Frank restrictions. But they have taken this position, in my view, to avoid the potential adverse market impact of portraying the Fed as a weak lender of last resort and to stave off yet further

restrictions. On November 15 of 2015, the House passed the so-called FORM Act, 241-185, along party lines. The bill has not been enacted into law. This Act provided that the Federal Reserve could only loan to non-banks if at least 9 of the 12 Reserve Bank Presidents voted in the affirmative.

Further, all federal regulators of the potential borrower, which would often include the SEC or CFPB, would have to certify that the borrower was not insolvent. Chair Yellen correctly said at the time that these provisions would essentially end Federal Reserve lending to nonbanks. The FORM Act has now been incorporated into the House Financial Reform package, the Choice Act. These concerns with the Fed’s role of lender of last resort are not recent.

My book recounts how opposition to any role for a “federal” bank, whether lending to commercial or bank borrowers, goes back to the early controversies in our history over the First and Second National Banks.

Andrew Jackson vetoed the renewal of the charter of the Second National Bank in 1832. That debate is a major reason it took us until 1913

Banking OPINION

Unlike the EU and Japan, which have standing authority for capital injections, if the US needs such injections in the future, authority may have to be obtained in the midst of the crisis itself, as it was in 2008

to establish the Fed. As I have observed, it is somewhat curious that the US has different standards, unlike other major central banks, for emergency lending to banks and nonbanks. Some argue that this is justified to the extent that the Fed does not generally regulate non-banks. But the failure to stem a run in the non-bank sector can be just as devastating as the failure to do so in the banking sector, so support cannot be denied. At the same time, we should, as Secretary Geithner suggests, impose some form of prudential supervision on non-banks that receive government support, if we have not done so already, while being cognizant of the fact that the prospect of such supervision could deter needy borrowers from seeking such support in the first place, thereby making the situation worse. b. Guarantees Let me now turn to the second weapon used to fight contagion, deposit insurance and other guarantees. In October of 2008, the FDIC removed any limits on deposit insurance for

5 6

transaction accounts (key to the payment system), increased the insurance limit on other accounts from $100,000 to $250,000, and guaranteed certain senior debt offerings. While Dodd-Frank permanently increased deposit insurance limits to $250,000, it removed the existing authority of the FDIC to raise any limits in the future or guarantee senior debt.

In addition, in September 2008, following the breakout of the run on the money market funds, the Treasury used its Exchange Stabilization Fund authority to guarantee the money market funds. This had a major impact in stopping the runs on the funds. This power was taken away before Dodd-Frank, by the TARP legislation in 2008.

Again the issue of guarantee power is not unique to the US. We need to review the power of other countries to establish or expand needed guarantees in a crisis.

This could be of particular concern in the Eurozone, which only has common country standards but no unified deposit insurance system.

c. TARP The final tool used to combat contagion was TARP, which authorised the injection of up to $700 billion in capital into insolvent banks. The Treasury’s authority to make new TARP capital commitments expired in 2010. As of September 2016, $204.89 billion of capital injections into banks made (not lost) $16.30 billion. A recent Federal Reserve Bank of Kansas City paper shows these capital injections reduced systemic risk5. Unlike the EU and Japan, which have standing authority for capital injections, if the US needs such injections in the future, authority may have to be obtained in the midst of the crisis itself, as it was in 2008. What is needed is the standing capacity to make capital injections if no other private solution exists; the use of this weapon should be rare, particularly if the rest of the system is protected from the contagion that could follow a financial institution default.

Two Wings and a Prayer While contagion fighting powers have been curtailed, some defenders of DoddFrank point to what I call two wings and a prayer, the wings being capital and liquidity requirements, the prayer being new resolution procedures. The premise is since contagion is much less likely, we need not worry much about fighting it. I might observe that the recent Sarin and Summers Brookings Paper suggests the system is not safer6.

If so, contagion fighting measures are even more important. a. Capital Requirements (Wing One) For the largest banks, based on the work of the Basel Committee, post-crisis capital for US banks has been significantly increased and in the US and elsewhere new stress tests have been devised. But no realistic level of capital can prevent a run on banks. Due to fire sales, capital is quickly eroded where funding is no longer available. And, capital requirements only apply to banking organisations, not to the

A. Berger, R. Roman and J. Sedunov, Do Bank Bailouts Reduce or Increase Systemic Risk? The Effects of TARP on Financial System Stability, The Federal Reserve Bank of Kansas City Research Working Papers (September 2016).

Have Banks Gotten Safer (September 15-16, 2016).

Jan - Mar 2017 International Finance Magazine

49

Banking OPINION Banking: Opinion

The reality is that creditors of financial institutions will run if a large financial institution is put into resolution — better safe than sorry, and we need to be prepared to deal with that. Indeed the very weakness of our contagion fighting weapons may make us more inclined to bail out a major bank

50

ever increasingly important non-banks. b. Liquidity Requirements (Wing Two) After the 2008 crisis, again based on the work of the Basel Committee, liquidity requirements have been imposed on banks.

Thus the Liquidity Coverage Ratio (LCR) requires banks to hold High Quality Liquid Assets (HQLA) to cover expected funding run-offs for 30 days. As with capital requirements, there are significant methodological issues with LCR, largely around run-off assumptions and what counts as HQLA. Fundamentally, the new adoption of private liquidity requirements represents a retreat by the Fed from providing public liquidity as the LLR. Ironically, the individual private liquidity requirements may actually reduce collective private liquidity because they require each bank to hoard its own liquidity rather than making it available to others when not needed. And

7

again, the LCR only applies to banks. c.

Resolution Procedures (the Prayer) Dodd-Frank’s Orderly Liquidation Authority (OLA) gives the FDIC new powers to resolve nonbank financial firms that, upon a proper finding, pose serious adverse effects to the financial stability of the United States. If such a systemic risk determination is not made, non-bank financial institutions will continue to be resolved in bankruptcy.

Such new procedures are unlikely to deter contagion.

At the outset, without the requisite approvals, the procedures may never be used. If OLA is used, the FDIC has designed a singlepoint-of entry procedure requiring restructuring at the holding company level, a major consequence of which is that short-term funding at the operating subsidiary level (where almost all short-term funding resides), mainly banks and brokerdealers, will be unaffected.

Further Considerations, supra note 1.

International Finance Magazine Jan - Mar 2017

Thus, some hope this will stop contagion.

But whether such restructuring will actually work, particularly for major multinational banks, is problematic and the procedure has never been tested. Similar procedures adopted in Europe are open to the same skepticism.

Thus, this is a prayer.

The reality is that creditors of financial institutions will run if a large financial institution is put into resolution — better safe than sorry, and we need to be prepared to deal with that. Indeed the very weakness of our contagion fighting weapons may make us more inclined to bail out a major bank. In this context, it is interesting to note that the IMF singles out the importance of contagion limiting actions in countries that face possible spillovers from a sovereign default7. Without the ability to limit contagion, it would be more difficult to allow needed sovereign as well as financial institution

restructuring. Indeed, not letting an insolvent financial institution fail out of fear of panic raises much more important moral hazard issues than protecting financial institutions that are victims of irrational or uninformed panic.

Conclusions from my book a. Contagion is the major systemic risk concern but Dodd-Frank focused on protecting us from connectedness, while making it much harder to stop contagion. And we will have undoubtedly new contagion episodes in the future. b. We know how to stop contagion, through the use of LLR, guarantees and capital injections, but due to the fear of “bailouts” these powers won’t easily be restored. If these powers exist and are clearly deployed in advance, as they were not in 2008, we very likely would not have contagion in the first place. c. Capital, liquidity and

Banking: Banking Opinion OPINION

resolution will not safe proof the system from contagion.

And even if homes are better fireproofed, you still need a fire department. d. Let’s just hope we do not have another crisis, before we can move beyond the populist fears of bailing out Wall Street to deal with reality and rectify the situation.

A Way Forward While my book and remarks today have been mainly focused on the United States, the ability of all major countries to deal with contagion is important to the world, and the IMF should make this a priority as part of its FSAP and Global Financial Stability assessments.

The IMF staff has already laid a foundation for such focus through its excellent IMF Working Paper on the Lender of Last Resort Function after the Global Financial Crisis8. And IMF work on issues of

8 9

systemic risk in the context of sovereign debt defaults is also highly relevant.

These efforts should be coordinated with the important work done on the issue of lender of last resort by the BIS9.

Focusing on Lender of Last Resort — although the effort must also extend to guarantees and capital injections, I would recommend that the United States and other countries follow these five principles: a.

Have a strong lender of last resort. In the US, this means restoring that system to what it was in 2008, and even strengthening it10. b.

Enhance disclosure of financial institution exposures to limit contagion based on market uncertainty about what such exposures actually are. However, one must recognise that disclosures will always be somewhat out of date (conditions can rapidly change) and never

complete, and worrisome disclosures could fuel panic. Perhaps someday technology can provide continuous and complete real time disclosure. But creditors will still fear that matters could shortly turn much worse. This is why a floating NAV for money market funds cannot stop panicked withdrawals. c.

Have a coordinated fiscal (Treasury) and lending (Fed) approach clearly established in advance — the UK model could be a reference point; d.

Have a rule of law requirement for the central bank — in the sense that the bank articulates its LLR policies in advance on matters, including solvency, a broad program, penalty rates, collateral etc. Not only is ambiguity not constructive, it is positively harmful. Critics legitimately criticise the Fed for operating without articulated constraints and doing so in a non-

transparent way — this is not tenable if the Fed is to exercise the powers that they need. A rule of law need not unduly confine discretion but should articulate principles for exercising such discretion; e.

And require that those institutions borrowing from the central bank or receiving fiscal support pay a sensible price, where their own losses trigger the need for support. This price might range from penalty rates to enhanced supervision or replacement of management. The failure to impose a cost on institutions benefiting from public support is largely responsible for popular opposition to bailouts. IFM editor@ifinancemag.com

51 (Speech to the International Monetary Fund on November 7, 2016)

IMF Working Paper, The Lender of Last Resort Function after the Global Financial Crisis, WP/16/10 (January 2016)

Bank for International Settlements, BIS Papers No. 79, Re-thinking the lender of last resort (September 2014).

10 One point of strengthening, suggested by Geithner, would be to permit the Fed to purchase non-government assets to supply liquidity to financial institutions. The Fed may already effectively have such power—during the crisis the Fed created an SPV through which it effectively purchased commercial paper issued by U.S. companies. The legality of such purchases should be made clear.

Hal S Scott is the Nomura Professor and Director of the Program on International Financial Systems (PIFS) at Harvard Law School, where he has taught since 1975. He teaches courses on Capital Markets Regulation and International Finance. Professor Scott’s books include the law school textbook International Finance: Transactions, Policy and Regulation (21st ed. Foundation Press 2016); and The Global Financial Crisis (Foundation Press 2009); and Connectedness and Contagion: Protecting the Financial System from Panics (MIT Press 2016). Professor Scott is the Director of the Committee on Capital Markets Regulation, a bi-partisan non-profit organisation dedicated to enhancing the competitiveness of US capital markets and ensuring the stability of the US financial system via research and advocacy.

Jan - Mar 2017 International Finance Magazine

INTERVIEW Banking INTERVIEW

‘Bangladesh’s 52

geographic

position presents a

clear advantage’ Interview with Abrar A Anwar, Chief Executive Officer, Standard Chartered Bank, Bangladesh

Congratulations on Standard Chartered Bank, Bangladesh winning the ‘Best Foreign Exchange Bank’ award at the IFM Awards 2016. Tell us about your operations in Bangladesh.

I am delighted to have received this award on behalf of the bank, which bears testimony to our commitment to serve our clients in this market consistently over so many years. We are proud to be a partner in progress for Bangladesh, and to be recognised internationally as such.

International Finance Magazine Jan - Mar 2017

Standard Chartered Bank is the oldest and largest foreign bank in Bangladesh, with a legacy of 111 years. We are a market leader in providing Corporate and Institutional Banking solutions to both local and international companies, government and developmental organisations.

We also have a strong presence in the Retail Banking space, with the widest product suite offerings to individuals and employees of institutional clients in the market.

We are a client-centric organisation

and are committed to banking our clients’ full ecosystems, with fully integrated cash and trade business solutions. Backed by our worldclass product propositions and team of banking professionals, we have managed to provide our clients with end-to-end working capital solutions that help them conduct their business seamlessly across the globe.

We have a legacy of providing the best financial services and products in Bangladesh, and we hope to remain the bank of choice for our valuable

Abrar A Anwar, Chief Executive Officer, Standard Chartered Bank, Bangladesh

Jan - Mar 2017 International Finance Magazine

INTERVIEW Banking INTERVIEW

clients and customers in the years to come.

54

How significant is Bangladesh for Standard Chartered?

Bangladesh has always been a key component of Standard Chartered’s business strategy, which aims to consolidate and grow its position as market leader in the emerging economies of Asia, Africa and the Middle East. As the economy expands and investment increases, the market continues to grow in significance. We have substantial presence in Bangladesh, which goes to show our confidence in this market. Our Group Chairman, Group CEO and Group CFO along with other senior leaders have been visiting Bangladesh, which is another example of how important Bangladesh is for Standard Chartered.

How has the bank positioned itself in Bangladesh?

Standard Chartered Bank has been operating in the country for over 111 years.

We are the oldest foreign bank in Bangladesh, and can proudly claim that we have never closed our doors during the whole time we have been here. We are also the largest international bank in Bangladesh, with 26 branches and booths, 98 ATMs, employing over 2,000 people. We are the only foreign bank in the country with an extensive network in six cities, including offshore banking units inside Dhaka Export Processing Zone and Chittagong Export Processing Zone.

An independent study led

by Professor Ethan Kapstein of Georgetown University in Washington DC, which was commissioned by the bank to assess our social

International Finance Magazine Jan - Mar 2017

and economic impact in Bangladesh, explored what we have already done and what we can do even more, in terms of contributing towards increasing GDP, employment, trade, various business sectors and the community at large. Projects such as these underlines our commitment to be Here for good for Bangladesh.

The report can be found via the following link: https://www.sc.com/en/ sustainability/performanceand-policies/impactreports/bangladesh-report. html How do you differentiate the bank from your competitors?

Our long history in this market along with bringing our global best practices to Bangladesh clearly distinguishes us from the competition. We are the bank that opened the First

Letter of Credit (L/C) from independent Bangladesh, and since this country’s independence, we have successfully brought in many ‘firsts’ in the banking industry – ranging from the first ATM, first internet banking product, the first Credit Card, the first Project Finance, to the first commodity derivatives in Bangladesh. Continuous investment in technology and control systems has enabled the bank to offer new and improved services, such as Phone banking, Tablet banking, I-banking, and Straight to Bank. We are a ‘Universal Bank’ here and can deliver a comprehensive product suite to our clientele in both corporate and retail banking spaces.

We are the most trusted brand in the Bangladesh financial industry. We work closely with the regulator to help disseminate best practices through training and education, and leading by example. Our contribution is evident in the way we have helped nurture many of the banks operating in the country -- to whom we often act as bankers anyway, by providing solutions to their foreign exchange, interest rate and commodities requirements -- and also at the sovereign level.

The bank directly and indirectly supports nearly 12% of country’s trade; in 2015, $9bn of the country’s trade flows were routed or confirmed by our bank. We are the most active player in the Project and Export Finance space (more than 50% of

INTERVIEW Banking

We are the largest international bank in Bangladesh, with 26 branches and booths, 98 ATMs, employing over 2,000 people deals mandated to SCB in last five years), and have supported mobilisation of substantial foreign currency financing for large projects in critically important sectors i.e. power, telecom, airlines etc. Standard Chartered Bangladesh is the first foreign bank to launch ‘Supply Chain Finance’ program (SCF) in Bangladesh, a financing solution for the dealers and suppliers of its corporate clients. With continuous innovation in products and solutions, Standard Chartered Bank Bangladesh has proven itself to be a pioneer in the country’s banking sector.

How do you support the local communities and stakeholders?

Investing in local communities, contributing to sustainable economic growth, and being a responsible company are key components of our brand promise: Here for good. The major areas of focus for the bank’s sustainability and community initiatives in Bangladesh are Health, Sports, Education, Arts and Culture, Environment and Climate Change.

Through our ‘Seeing is Believing’ Project, Standard Chartered helps restore eyesight of the underprivileged. ‘Seeing is Believing’, the Standard

Chartered Group’s flagship CSR initiative, was born right here in Bangladesh, and continues to restore millions of eyesight every year. In 2016, we launched Phase V of Seeing Is Believing initiative in Bangladesh, titled ‘Building Gender Equitable Eye Health Systems in Barisal Division’. The primary goal of this project is to increase access to and utilisation of quality, sustainable and accessible eye care services in the most underserved communities of Barisal Division through the implementation of gender sensitive programming approaches.

Another of the bank’s key initiative is Goal. A unique community program, launched in partnership with BRAC and Women Win, Goal aims to empower young women for personal and economic development using sport and education as vehicles for change.

In 2016, the bank launched three sustainability initiatives in Bangladesh: a Financial Literacy projects in Chittagong, a Livelihood project for the marginalised population in Lalmonirhat; a comprehensive education and health program for the marginalised population in Sirajganj with Manab Mukti Sangstha.

Bangladesh has been on a growth trajectory for a decade. Both the development and economic indicators are quite strong. What is Standard Chartered’s outlook on Bangladesh?

Bangladesh has demonstrated rapid progress since independence and, despite its fair share of challenges, continues on its resilient growth trajectory. The nation has been able to withstand several global downturns like Asian crisis in the 1990s, financial crisis in 2008 and also country specific impact of withdrawal of quotas in 2005, impacting its most important export sector i.e.

Ready Made Garments.

We believe there are enormous opportunities to accelerate the growth momentum further and reach 7% growth rate from the 6% growth rate achieved over the last decade, given some of the positive fundamentals that are inherent to the economy.

With a young population of 160 million, looking for opportunities to work and realise their dream, there exists a large talent pool waiting to be harnessed.

Bangladesh is now one of the Top 5 Frontier Markets with stable macro economic growth in country, showing excellent opportunity for business growth. It is one

of the few countries to have maintained a 6%+ average GDP growth consistently over a decade with the least amount of growth volatility.

Bangladesh’s geographic position presents a clear advantage. It is virtually located as a bridge between the emerging markets of South Asia and fastest growing markets of South East Asia and ASEAN countries. It is very close to India and China, and the growth taking place in these two large countries will have a positive spill-over effect.

There are big opportunities to work in the infrastructure, power, energy and real estate sector. Bangladesh is also looking to tap into foreign markets for equity, debt financing as well as foreign direct investments in various projects. We are a firm believer that the opportunities for investment and economic growth in Bangladesh far outweigh the challenges.

We are able to say this because we are a major investor in the country ourselves, and are moving forward confidently to continue building a sustainable business for our shareholders. IFM editor@ifinancemag.com

Jan - Mar 2017 International Finance Magazine

55

BANKING

56

China and India

to drive global growth in ATMs International Finance Magazine Jan - Mar 2017

The growth will be driven by large sections of the population that will open bank accounts for the first time IFM Correspondent

BANKING

G

lobally, the number of ATMs rose by 5% in 2015, to touch 3.2 million units by the end of the year. The majority of growth in the global ATM market in the next few years will come from China and India, according to Retail Banking Research’s new study Global ATM Market and Forecasts to 2021. The largest contribution to this growth comes from large sections of the population that will be opening bank accounts for the first time.

Encouraging this move are the authorities in these countries who are pushing banks to roll out more ATMs with a view towards providing increased access to financial products and services.

Rowan Berridge, who led the Retail Banking Research (RBR) study, said: “China and India have seen enormous growth in ATM numbers over the last few years and RBR forecasts this will continue as

authorities in these markets are determined to use ATM deployment to spread access to financial services as far and as wide as possible.”

Growth in the ATM market by region According to RBR’s forecasts, by 2021, there will be 4 million ATMs installed globally. The report also said that the Asia-Pacific region will grow at a whopping 46% over this period and account for the lion’s share of this projected total.

The Middle East and Africa region too will see similar percentage growth driven by much of the same factors. However, in the latter region, the number of ATMs in question is in itself fewer by far.

Contrarily, mature markets, which make up a bulk of the other regions of the world, will see lower growth rates to the tune of 7% or less such that the total number in North America, for instance, which will continue to come in at

second place with regard to the total number of ATMs present, will be a mere fifth of the total in the AsiaPacific region. To appreciate the rate of growth in the latter region, it must be borne in mind that as recently as the early 2000s, these regions had a similar number of ATMs. All regions of the world saw an expansion of the ATM market in 2015, barring Central and Eastern Europe (CEE). Here, the number of ATMs fell, although only by a count of 7,000, owing to Russia and Ukraine dropping terminals due to economic woes.

Use of cash continues to grow Despite significant growth in sales through card and mobile transactions, cash withdrawals continue to see an increase even in mature markets, such as Western Europe and North America, suggesting the resilience of cash usage. IFM editor@ifinancemag.com

“

China and India have seen enormous growth in ATM numbers over the last few years and RBR forecasts this will continue as authorities in these markets are determined to use ATM deployment to spread access to financial services as far and as wide as possible Rowan Berridge, who led the Retail Banking Research (RBR) study

Jan - Mar 2017 International Finance Magazine

57

OPINION

58

Shift to multi-bank platforms‌ and take all the credit Multiple bank relationships are difficult to maintain, but essential Simon Streat

L

arge corporate organisations engaged in international trade face many difficulties when managing credit lines and guarantees provided by multiple banks.

Costs and fees can soon mount up as central visibility and control over thousands of instruments are

International Finance Magazine Jan - Mar 2017

lost in a maze of processes and proprietary systems. A corporate with international involvement may have many credit lines and thousands of guarantees open at any one time.

Keeping them updated and managing them to avoid unnecessary bank fees, costs and duplication becomes extremely difficult in the

absence of a consolidated overview provided by a single platform interfacing with all required banks.

There are, however, many valid reasons for having multiple bank relationships.

Firstly, banks have different areas of expertise, whether in products, trading zones or particular countries and

BANKING OPINION

home jurisdictions, which corporates need to make use of. Secondly, having commercial relationships with several banks gives a corporate the opportunity to negotiate the optimum terms and conditions for a transaction. Thirdly, the involvement of several banks spreads the risk and reduces premiums when financing high-value transactions.

These are the advantages – but the distinct disadvantages of dealing with banks through traditional methods are now very apparent.

For a start, each bank will have its own distinct IT system, requiring corporate customers to go through the tedious, time-consuming and potentially confusing process of logging into a different portal and going through security checks and passwords in each case.

More significantly, when there are thousands of documentary credits and guarantees, it becomes incredibly difficult for a corporate to keep on top of every instrument – to be able to see them and ensure they are updated and employed in the most costeffective manner possible.

A large organisation, for example, may have local offices or subsidiaries that obtain their own bank guarantees, which makes it very difficult for treasuries to see and manage centrally.

It is still the case that in many corporates, spreadsheets are employed for this function to operate effectively. Yet, even where organisations have their own treasury management systems, reconciliation and establishing degrees of exposure can be very problematic when there may be so many instruments

behind deals worth billions of pounds. Interfacing with bank systems is fraught with difficulty and can be very manual and timeconsuming.

However, corporates are increasingly consolidating their handling of all these processes and instruments on a single third-party platform, handing themselves huge gains in man-hours, visibility and importantly – substantial savings in bank fees and costs.

Vastly increased visibility of credit lines, documentary credits and guarantees on a web-based platform gives a consistent view regardless of location. The result is the more efficient use of credit lines and big savings, to a degree that can never be achieved by any other means.

It gives a treasury the chance to call down credit

much earlier, potentially benefiting the organisation by 10 or 20 basis-points – a significant saving on large numbers. The clear level of visibility provided by a multi-bank platform also means existing credit lines can be utilised without all the fees and processes required to set up new ones.

Full or even partial integration with backoffice systems, seamless communication with panel banks and an effective system of alerts, all make the single multi-bank platform the future for hard-pressed treasuries toiling to improve cashflow management and the efficient deployment of working capital.

As the global banking network expands, the treasury of any successful corporate involved in major trade transactions will have to shift to a single, multi-bank platform built and supplied by a thirdparty provider with an established reputation for total reliability, security and efficiency in international trade finance and banking.

The advantages in a globalised world of roundthe-clock operations are simply going to be too obvious to ignore. IFM editor@ifinancemag.com

Simon Streat is VP Product Strategy at Bolero

Jan - Mar 2017 International Finance Magazine

59

60

LANDBANK

starts a revolution with digital banking International Finance Magazine Jan - Mar 2017

BANKING

W

ith the Philippines often dubbed as the ‘SMS capital of the world’ for its substantial mobile phone penetration, the Land Bank of the Philippines (LANDBANK) saw an opportunity to reach out to customers with their loan products via the mobile phone.

This was how they came up with the LANDBANK Mobile Loan Saver, or LMLS, in partnership with Voyager Innovations Inc.

Its Mobile Loan Saver programme has become the most awarded digital banking innovation globally

From traditional to digital The lending industry in the Philippines has traditionally operated manually – from the application, documentation, submission of loan applications, to release of loan proceeds, end-to-end. Most banks also require numerous forms and income documentation before one can apply for a loan, making the process tedious and time-consuming.

In focus group discussions, as much as 83% of respondents expressed their desire for a more convenient, seamless, transparent, and faster process for loan applications.

Their aspirations leaned towards having immediate loan processing, notification of approval, up to crediting of loan proceeds without having to leave their homes or offices.

This gave birth to the LMLS, which addressed key consumer pain-points the inconvenience and long processing time - by shifting the traditional and highly-manual loan process to a fully automated and mobile-enabled service.

LMLS was launched in January 2015, which primarily targeted government employees. It was expanded later to cover employees of private companies.

How it works LMLS eliminates the average two-week loan processing time from application, approval notification to actual pay-out, as borrowers get their loan proceeds in as fast as 24 hours, via their registered payroll account.

Jan - Mar 2017 International Finance Magazine

61

BANKING

62

All account credits may also be accessed through the ATM payroll account and borrowers can check their loan account details anytime, anywhere by sending an SMS through their mobile phones.

Being fully electronic, LMLS is cost-effective, as it saves administrative costs and allows borrowers to enjoy reduced interest rate and service fee.

LMLS also promotes savings consciousness through its auto-savings feature, which enables the borrower to save any amount from PhP100.00 per pay period, which is auto-debited from their account. This additional feature is in line with the thrust of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) to promote saving among adult Filipino borrowers.

Measure of success Since its launch, the LMLS program has disbursed PhP12 billion

in salary loans to more than 80,000 borrowers from over 1,200 accredited government agencies and their branches nationwide.

In June 2016 alone, loans booked through LMLS reached close to PhP1 billion, following its expansion to subscribers of all mobile networks as well as to employees from the private sector.

In the same period, loan applications from Luzon rose threefold while remarkable growth was also recorded in Visayas and Mindanao, which grew over 100% and almost 300%, respectively.

Almost two-thirds of the borrowers came from outside Metro Manila, which supports the Bank’s thrust to reach out to more clients in far-flung areas.

Around 47% also lodged their loan application outside banking hours, attesting to the anytime, anywhere convenience that consumers now enjoy thru LMLS.

L

MLS is a showcase of how branchless banking could be optimised by leveraging mobile devices as the bank’s digital branch consumer touch point. Its success has paved the way for a whole plethora of possibilities in terms of financial technology and digital lending.

In less than a year, LMLS has become the most awarded digital banking innovation globally, garnering several global accolades and recognition for its pioneering

International Finance Magazine Jan - Mar 2017

Towards greater financial inclusion Encouraged by the success of LMLS, LANDBANK is working towards the expansion of the program to make it available to micro, small, and medium enterprises; individual farmers and fishers, and Overseas Filipinos under the government’s Overseas Filipino Workers Reintegration Program.

Through this expansion, LANDBANK hopes to further reach the grassroots and multiply the number of borrowers, especially from far-flung cities and municipalities in Visayas and Mindanao.

This is in line with the Bank’s continuing thrust to bring more Filipinos under the umbrella of financial services and wean them away from loan sharks and unorganized moneylenders. By providing them with access to the formal financial system on a platform that is convenient

and familiar, LANDBANK hopes to promote greater financial literacy and savings consciousness among more Filipinos.

LANDBANK also recently tied up with United Laboratories, through its subsidiary RiteMed, for the ‘Tamang Alaga TxTMED Program’, which allows LMLS borrowers to allocate a portion of their approved net loan proceeds for the purchase of maintenance medicines at discounted prices. By enabling the order and purchase of medicines through mobile phones, the program expands LMLS as a digital tool for delivering a basic social service. This showcases the endless possibilities in terms of financial technology, as LANDBANK hopes to reach out and provide financial and other services to more Filipinos across the country. IFM editor@ifinancemag.com

Accolades and successful deployment of digital lending in an emerging market.

Among other awards, it has been recognised by the GSMA Mobile Money Programme as the first of its kind in the world for being a three-in-one mobile loan application service with insurance and auto-savings build-up features.

The Asian Banking & Finance magazine also named LMLS as “Mobile Banking Initiative of the Year” and “Core Banking System

Initiative of the Year” for the Philippines at the Retail Banking Awards 2015. It was likewise awarded “Best Innovation in Retail Banking” by International Banker and was recognized for “Process Excellence in Loan Origination”

by Retail Banker International in 2015.

More recently, LMLS was awarded as “Best Customer Experience-Mobile” at the Customer Experience in Financial Services Asia Awards 2016 in Singapore.

64

The pain in low

interest rates IMF says that insurance companies and pension funds are at risk of becoming insolvent if ultra-low interest rates persist for a prolonged period Tim Evershed

International Finance Magazine Jan - Mar 2017

insurance

T

he slashing of interest rates to historic lows was one of the solutions provided by central bankers and politicians to the financial crisis of 2008. It was hoped that this measure would help boost spending and aid economies in getting back on track quickly. However, eight years later, interest rates remain anchored firmly close to zero, something that has taken its toll on the financial world and savers alike.

A recent report from the International Monetary Fund (IMF) warns of unwanted side effects to an over-reliance on loose monetary policy. In particular, the IMF says that insurance companies and pension funds are at risk of becoming insolvent if ultralow interest rates persist for a prolonged period.

The IMF also says that the fragility of banks, rapid credit growth in China and the heavy indebtedness of the corporate sector in emerging countries are all worrying factors.

“The solvency of many life insurance companies and pension funds is threatened by a prolonged period of low interest rates,” the IMF says in its global financial stability report (GFSR).

“Low interest rates add to the legacy challenges facing many insurance companies and pension funds, along with those from ageing populations and low or volatile asset returns.

Heightened concern over these important long-term saving and investment institutions could encourage even greater saving, adding to financial and economic stagnation pressures.”

The GFSR said regulators and supervisors needed to take prompt action to sustain the strength of insurance company and pension fund balance sheets, including identifying risks of insolvency and funding gaps. “Many pension funds face funding gaps where the present value of future liabilities exceeds the market value of their assets,” the IMF says.

Low interest rates raised the present value of existing

long-term liabilities, steadily eroding capital and solvency buffers the longer the low-rate environment persists.

“A protracted period of low and negative policy rates and yields could undermine financial resilience in the medium term, but the risks of increased headwinds may materialise more immediately,” the IMF concludes.

Further warnings came from the banks and the bond markets with Mario Draghi, President of the European Central Bank, pledging that it would respond ‘with the proper instruments’ if it saw signs of financial instability.

“A long period, a protracted period of very low interest rates, causes a series of problems, including a risk to financial stability,” says Draghi. “If we were to undertake the wrong monetary policy to address the problems of these specific sectors, we actually would do them a disservice.”

Scrapping the barrel Veteran investor Bill Gross, Portfolio Manager for Global Macro Fixed Income at Janus Capital Group, says, “Our financial markets have become a Vegas/ Macau/Monte Carlo casino, wagering that an unlimited supply of credit generated by central banks can successfully reflate global economies and reinvigorate nominal GDP growth to lower but acceptable norms in today’s highly levered world.

“At some point investors

Our financial markets have become a Vegas/ Macau/Monte Carlo casino, wagering that an unlimited supply of credit generated by central banks can successfully reflate global economies and reinvigorate nominal GDP growth to lower but acceptable norms in today’s highly levered world Bill Gross, Portfolio Manager for Global Macro Fixed Income at Janus Capital Group

Jan - Mar 2017 International Finance Magazine

65

insurance

66

– leery and indeed weary of receiving negative or near zero returns on their money, may at the margin desert the standard financial complex, for higher returning or better yet, less risky alternatives.”

Gross, who is a long time critic of loose monetary policy says zero and negative interest rates not only fail to provide an easing cushion should recession occur, but they destroy capitalism’s business models.

He adds, “A commonsensical observation made by yours truly and increasing numbers of economists, Fed members, and corporate CEOs is that low/negative yields erode and in some cases destroy historical business models which foster savings/investment and ultimately economic growth.

“Our argument is that NIMs (net interest margins) for banks, and the solvency of insurance companies and pension funds with long

dated and underfunded liabilities, have been negatively affected and that ultimately, the continuation of current monetary policies will lead to capital destruction as opposed to capital creation.”

Gross concludes that central bankers have fostered an atmosphere akin to that of a casino within the financial markets. “There’s a Hobson’s Choice, or perhaps a more damaging Sophie’s Choice of participating (or not) in markets previously beyond prior imagination.

Investors/savers are now scrappin’ like mongrel dogs for tidbits of return at the zero bound. This cannot end well.”

Risk insurers at risk Low interest rates are taking their toll on life insurers too with US carrier MetLife allowing Yen Whole Life to decline 60% in the first quarter of 2016.

MetLife CEO Steven Kandarian said, “This sales decline was intentional, as it is difficult for this product to

International Finance Magazine Jan - Mar 2017

generate attractive returns and acceptable cash payback periods in a negative interest rate environment.”

Low rates are primarily a problem for life insurers who have offered long-term interest rate guarantees or have priced business assuming that they will earn a particular yield on the assets backing that business.

If they have not bought assets of the required yield and maturity, they are subject to reinvestment risk.

The low interest rate environment also affects the profitability and pricing for most types of life insurance business.

Helmut Grundl, Managing Director of the International Center for Insurance Regulation (ICIR), says: “Low interest rates are becoming a threat to the stability of the life insurance industry, especially in those countries where products with relative high guaranteed returns sold in the past still represent a prominent share of the total portfolio.

“

Low interest rates are becoming a threat to the stability of the life insurance industry, especially in those countries where products with relative high guaranteed returns sold in the past still represent a prominent share of the total portfolio Helmut Grundl, Managing Director, International Center for Insurance Regulation

insurance

Low interest rates are taking their toll on life insurers too with US carrier MetLife allowing Yen Whole Life to decline 60% in the first quarter of 2016 This contribution aims at assessing the effects of the current low interest rate phase on the balance sheet of a representative life insurer, given the current asset allocation and the outstanding liabilities.

“Our results suggest that a prolonged period of low interest rates would remarkably affect the solvency situation of life insurers, especially for less capitalised companies,

leading to a relatively high probability of default for a sub set of companies.”

It would appear that the longer interest rates stay so low, the more margin pressure banks and insurance companies will come under. Although there will be opportunities to buy financials at bargain basement prices, the lowrate environment will also cause changes in behaviour that pose poses additional

risks with unknown and unpredictable outcomes. IFM editor@ifinancemag.com

“

This sales decline was intentional, as it is difficult for this product to generate attractive returns and acceptable cash payback periods in a negative interest rate environment Steven Kandarian, CEO, MetLife

Organised by

IFM AWARDS 2016

IFM AWARDS 2016

IFM AWARDS 2016

CO-HOSTED BY

26th January 2017 ASSOCIATE SPONSORS

Jan - Mar 2017 International Finance Magazine

SPECIAL FOCUS: ENERGY

Renewable sector is holding its own The fall in oil prices has had an impact, but the market continues to be robust Peter Taberner

68

International Finance Magazine Jan - Mar 2017

SPECIAL FOCUS: ENERGY

T

he competition in the energy market is intense for renewable energy, with many factors, such as the recent low oil prices, having the capacity to hamper the sector’s progress.

Throughout last year, annual World Energy Investment Report of the International Energy Agency (IEA) showed that renewables were robust in the financing market even though oil prices have depreciated since midway

through 2014.

Overall, the IEA found that global energy investment had fallen by 8%, but the volume of renewable energy speculation reached $313 billion, nearly a fifth of the total spending last year.

Electricity generation from renewable energy increased by one third, a reflection of the decline in prices for wind turbines and solar PV. Additionally, technology innovations in connecting renewable energy to the smart grid and storage were huge factors in the integration of wind and solar energy.

Paolo Frankl, the head of the IEA’s Renewable

Energy Division, explained the current situation. “In total, electricity is largely sheltered by existing policies. Bio fuels are also partly sheltered by mandates. There are also knock on effects for the price of fertilisers, which depends on the price of oil. It varies from country to country. What is clear is that prolonged low oil prices are worsening the investment climate, which is bad for advanced bio fuels,” he said.

“For this year, on one hand there are very positive signs after a record year of investment in 2015, including the policy momentum around the Paris agreement, but at the same time, there are

“

In total, electricity is largely sheltered by existing policies. Bio fuels are also partly sheltered by mandates.

There are also knock on effects for the price of fertilisers, which depends on the price of oil. It varies from country to country.

What is clear is that prolonged low oil prices are worsening the investment climate, which is bad for advanced bio fuels Paolo Frankl, the head of the IEA’s Renewable Energy Division

69

Jan - Mar 2017 International Finance Magazine

SPECIAL FOCUS: ENERGY

In Iceland, 650 MW has been installed from the geothermal sector alone. Heating is a big industry, producing about 95% of the power of residential properties

70

a number of uncertainties around the world, which are barriers to investment.

“They comprise an uncertain climate in Europe over renewable directives and market design. The situation is unclear while legislation is pending, leaving many countries uncertain about their commitment to renewable energy.”

Also, the system integration of wind and solar is not totally solved, with the biggest issue in China, which transports renewable energy across the country, but in a situation of over-supply, much like as in Japan and South Africa.

The other major issue is in developing countries, where financing continues to be a problem, even though there are very good

resources available. For example, in Egypt there was an auction for a wind farm, but the project is not closed and the reason is the structure of the financing.

Foreign banks do not place money in infrastructure, where there are huge currency exchange rate risks, and long term contracts are not sheltered against inflation.

Looking to the future, progress of wind and solar will continue, and that will result in technology advancement, the IEA asserts.

Offshore wind will excel in cost reduction to become more economical, alongside concentrated solar power progress, in South Africa especially.

Although, there is a need for more of this

The US installed MWdc of solar PV in Q2 2016 increasing

2,051

43% over Q2 2015

International Finance Magazine Jan - Mar 2017

despatchable power to be fed in to the grid.

Fast growth areas A case study of the progress of renewable energy would be how solar has fared in the United States during the second quarter of this year. A total of 2,051 MW was installed, according to the Solar Energy Industries Association (SEIA), resulting in the industry growing by a phenomenal 43% year-on-year.

The residential market has been a huge factor in the increase, a trend that the SEIA believes is set to continue into the next decade.

“As much as any other industry, the solar industry is always looking for low-cost capital. Solar capacity brought online

“

As much as any other industry, the solar industry is always looking for low-cost capital. Solar capacity brought online in the US in the first half of 2016 represents about $7.8 billion in capital expenditure. Providers of both debt and tax equity compete with each other for this solar business Justin Baca, vice president of SEIA’s market and research

In the first half of 2016, solar accounted for of all new electric generating capacity brought on-line in the US

26%

SPECIAL FOCUS: ENERGY

in the US in the first half of 2016 represents about $7.8 billion in capital expenditure. Providers of both debt and tax equity compete with each other for this solar business,” said Justin Baca, vice president of SEIA’s market and research.

More extreme examples of the proliferation of renewable energy are in countries where all of the electricity is produced from renewable sources, such as Iceland with hydro and geothermal energy being the main areas of supply.

Gunnar Gunnarsson, chief operating office of Reykjavik Geothermal, which was founded in 2008, said, “Most of the geothermal industry was built by the central government and the municipalities. Since then,

some companies have been privatised.”

At first, the industry was aimed at heating purposes, which mushroomed into power production, proving to be a very lucrative sector.

Most of the industry has been developed in the last 15 years, although the geothermal industry dates back to the aftermath of World War II. “In Iceland, 650 MW has been installed from the geothermal sector alone.

Heating is a big industry, producing about 95% of the power of residential properties,” Gunnarsson added.

“There is a build-up of power intensive industries in Iceland. Issues like oil prices going up and down are there, but geothermal and hydro power will

remain competitive. There is evidence of increased activity in the silicon industry, which could propel the use of solar photovoltaic energy further.”

Renewable as baseload Reykjavik Geothermal is also involved in projects outside Iceland, where lower oil prices could hit them, but overall they believe that the advancement of renewable power is moving forward their international interests.

The company has been involved in the development of over 3,000 MW across 30 countries.

“One of the main problems for geothermal energy is that it’s not easy to finance as the start-up cost is high,” Gunnarsson said.

“This is because it takes

“

Most of the geothermal industry was built by the central government and the municipalities.

Since then, some companies have been privatised Gunnar Gunnarsson, chief operating office of Reykjavik Geothermal

Jan - Mar 2017 International Finance Magazine

71

SPECIAL FOCUS: ENERGY

The IEA found that global energy investment had fallen by 8%, but the volume of renewable energy speculation reached $313 billion, nearly a fifth of the total spending last year

tens of millions of dollars of research just to prove the resource is there in the earth in the first place. If projects are very successful, they are fruitful for investors.

They do not rely on climate as such and are used to accumulate baseload power.”

Iceland has commanded respect for having a 100% renewable energy electricity

base, and is a role model in many ways.

After the oil crises of the ’80s, due to a lot of foresight involved, the build-up of geothermal was exacerbated, which benefited the economy.

Gunnarsson says, “In total, Iceland is saving up to around 10% of its GDP, which is the difference in cost compared to importing

fossil fuels. A lot of countries look at what we are doing.”

Iceland is also showing the world what can be done, as there is the United Nations University sponsored geothermal training programme which is favoured by students from all over the developing world.

Among others, scientists

and engineers from Kenya trained at the university and now the country is at the forefront of building geothermal projects in Africa. IFM editor@ifinancemag.com

Annual US Solar PV Installations Q1 2010-Q2 2016

72

Source: SEIA

International Finance Magazine Jan - Mar 2017

SPECIAL FOCUS: ENERGY

US PV Installation Forecast 2010-2021E

Source: SEIA

US PV Installation Forecast by Segment 2010-2021E

Source: SEIA

Jan - Mar 2017 International Finance Magazine

73

SPECIAL FOCUS: ENERGY

And, the money

is coming from‌ Pension funds to international investment banks are willing contributors to the burgeoning renewable energy sector Peter Taberner

74

S

pecialised renewable energy finance companies are taking advantage of the growing necessity for the production of carbon free energy, which has created an investable market.

Financiers from pension funds to international investment banks are willing contributors to the burgeoning sector.

Research company Technavio believes that the total investment in the global renewable investment market is set to climb over $353 billion by 2020, with a compound annual growth rate of 6%.

The most recent market trends, they said,

International Finance Magazine Jan - Mar 2017

SPECIAL FOCUS: ENERGY

included the spending on utility-scale renewable energy projects, provision of equity capital for renewable energy companies, plus the transition to a low carbon economy.

Novatio Capital Limited is a debt investment advisor specialist in renewable energies. They work with institutional investors for sourcing, structuring and arranging debt financing for renewable assets. This resulted in a conduit vehicle called The Renewable Financing Company, administrated by Novatio, being set up in 2013.

Novatio possess a geographical remit which includes the UK, Benelux, France, Germany, Italy and Nordic countries, alongside the United States and Canada.

They have been strong advocates of solar energy in the US, UK and Italy.

Now they wish to create a similar influence in offshore wind, waste to energy, and anaerobic digestion plants.

Overall, most their investors are insurance companies, reaching 70% of their financial backing, of which 75% are from life insurance. Plus, there are investments from pension funds.

All of Novatio’s deals are structured to offer a premium of 50 to 75 interest rate basis points over similar credit risk in the bond market, and offer good protection rates, being low risk investment grade bonds.

Jean-Christophe Oberto, executive director of Novatio, said, “We are originating potential projects, following our internal due diligence, we prepare an Investment Committee which we present to our investors.

Should the deal be accepted, we are then mandated to structure and arrange the financing, and lead the due diligence on the assets and portfolio, to which we receive an annual financial incentive, based on our performance. The key terms of our financing are long term investment, fully amortising and possibility to provide index-linked debt and fixed rate debt, removing any hedging requirement.”

Peregrine Finance has been a high level renewable energy investor in the UK for 25 years. Managing Director Adam Spenceley said, “We have been involved in all renewable sectors. At the moment, we are more into biomass as consumer tastes have changed. Wind has died, as they are offshore projects and the grids are quite full.

Currently, there is hesitation

“

We are originating potential projects, following our internal due diligence, we prepare an Investment Committee which we present to our investors. Should the deal be accepted, we are then mandated to structure and arrange the financing, and lead the due diligence on the assets and portfolio, to which we receive an annual financial incentive, based on our performance.

The key terms of our financing are long term investment, fully amortising and possibility to provide index-linked debt and fixed rate debt, removing any hedging requirement Jean-Christophe Oberto, executive director of Novatio

Jan - Mar 2017 International Finance Magazine

75

SPECIAL FOCUS: ENERGY

The global renewable investment market is set to climb over

$353 Billion

with a compound annual growth rate of

6%

76

over wind turbines. Solar is the one that is on the backburner. The panel prices have not decreased as tariff conditions have changed, although solar panels are liked as there is not so much maintenance involved. We deal with international banks, and use frontline lenders like BNB Paribas. We don’t use pension schemes or venture capital firms.”

The company’s business model is based on targeting partners who

can demonstrate that they can pay back what has been borrowed, from core and ongoing revenue streams. Owner occupiers with a need for power are preferred to installations being constructed on rented land.

Peregrine also have a policy of using unsecured loans, although they do not believe that this raises the risk profile, as knowing customers ensures that investments are safe. “At the top end of the scale, venture

capital companies will be attracted by large-scale projects. The lower end will also receive investment in the future, although there will need to be familiarity with technologies to get the returns. Conversely, the medium-size project market in renewable energy, I would expect, to get squeezed.” IFM editor@ifinancemag.com

We have been involved in all renewable sectors.

At the moment, we are more into biomass as consumer tastes have changed. Wind has died, as they are offshore projects and the grids are quite full. Currently, there is hesitation over wind turbines. Solar is the one that is on the backburner. The panel prices have not decreased as tariff conditions have changed, although solar panels are liked as there is not so much maintenance involved. We deal with international banks, and use frontline lenders like BNB Paribas.

We don’t use pension schemes or venture capital firms Adam Spenceley, Managing Director, Peregrine Finance

International Finance Magazine Jan - Mar 2017

SPECIAL FOCUS: ENERGY

Floating solar scheme

O

ne major development for the renewable energy sector has been the August announcement of investment for Europe’s largest floating photovoltaic (PV) solar project.

The array, which will be situated in the west of London on the River Thames, will peak at providing 6.3 megawatts, and is the first floating solar scheme to secure investment across Europe.

The full deal is a power purchasing agreement, with Thames Water buying all of the energy supplied from the

solar project from Lightsource Renewable Energy, who provide engineering and construction solutions for solar energy designs.

In total, the project comprises more than 23,000 PV panels mounted on 61,720 individual floats. Lightsource will continue to operate and maintain the site for the lifetime of the project. The company has received financial backing for the project from the Royal Bank of Scotland.

In order to minimise associated risks, OST Energy, who are renewable energy consultants, were brought in assess long-

term energy yields, technology choices, plus energy performance, and operation and maintenance contracts.

This is alongside a review of technical inputs to the financial model, and the arrangements to connect to the grid.

After these stages were completed, OST were able to demonstrate the long term commercial viability of the array ahead of the investment.

All parties involved are convinced that the investment will set a fresh and positive precedent for floating solar.

Growth in capital invested

A

plethora of data that has been released recently, such as research from the United Nations Environment Programme, has pointed to a hike in the amount of capital invested in renewable energy projects.

They revealed that investments in renewable energy totalled $286 billion in 2015, some 3% higher than the previous record in 2011.

In their Global Climate Finance report for 2014, The Climate Policy Initiative concluded that there was growth in both public and private finance for renewable energy.

For all sectors, global climate finance reached $392 billion.

Public finance claimed 39% of the total, growing steadily to provide $151 billion.

Public finance plays an important role in driving private investment by addressing information gaps, reducing costs and increasing returns, the organisation said.

Private investment surged 21% to $241 billion, 61% of the total, and remained the largest source of global climate finance.

Dr Barbara Buchner, executive director, Climate Finance, Climate

Policy Initiative, said, “Investment in renewable energy accounted for over 70% of global climate finance captured every year from 2012 to 2014. This is partly due to difficulties tracking some finance heading to sectors such as energy efficiency or adaptation, but it shows the renewable energy sector is doing well. Over the same period, renewable energy technology costs decreased quickly. In 2014, the same level of investment installed 10 GW more solar PV and onshore wind than in 2012.�

Jan - Mar 2017 International Finance Magazine

SPECIAL FOCUS: ENERGY

The resurgence of Atlantis Post-apartheid, the town lost its industries, but is now becoming a key manufacturing hub for the renewable energy sector Miriam Mannak

78

International Finance Magazine Jan - Mar 2017

S

ituated 50km north of Cape Town, on the southern edge of the West Coast, lies Atlantis. Developed in the 1970s as a self-contained industrial backwater annex residential area for people of colour, the impoverished apartheid township resembles anything but the mythical utopian island subcontinent we know from our childhood books.

Life in Atlantis has been tough, pretty much since its inception.

Ironically, when international sanctions against South Africa were lifted in the 1990s, things in a way took a turn for the worse. With democracy settling in 1994, many black-owned manufacturing companies pulled out in search of more competitive locations closer to Cape Town, simply because they were legally allowed to.

As a result, unemployment surged, fuelling a toxic concoction of poverty, inequality, crime and other social ills.

Things are cautiously looking up, thanks to an emerging green economy and renewable energy sector. Since South Africa’s Renewable Energy Independent Power Producers’ Procurement Programme (REIPPP) was launched, 8.1 GW of green power has been procured from independent producers.

“In 2015, the country had the world’s fastest growing green economy,” says the South African Wind Energy Association in a written statement, citing the most recent Moody’s Corporation report. “We’ve built a $500 million

SPECIAL FOCUS: ENERGY

infrastructure sector in four years with private money, creating significant new manufacturing capability while increasing local content beyond 45%.”

Because renewable energy tenders in South Africa are by law required to foster local content creation, the establishment of a local renewables components manufacturing hub was a priority. Eyes were set on the Western Cape, because of the province’s wind energy and solar potential, its solid road network, two ports and close proximity to other renewable energy locations.

The province’s grid infrastructure too plays a role.

“The Western Cape grid can take 270GW extra capacity without constraints. This is not the case elsewhere, in the country” says Mike Mulcahy, CEO of green economy development

agency Green Cape.

With all of this in mind, two locations stood out: Saldanha because of its deep-water port, and Atlantis.

“Both are suitable for the manufacturing of big, bulky, and abnormal components, utility-scale renewable energy projects such as wind turbine towers and blades.

These require good road access and big greenfield sites,” Mulcahy says.

Ultimately, Atlantis emerged victorious.

“Most of the available industrial land here is owned by the City of Cape Town, whilst most suitable sites in Saldanha were privately owned,” Mulcahy explained.

The fact that most sites in Atlantis were already connected to the electricity grid, water infrastructure and road networks was another bonus.

Peter Venn, Managing Director of wind energy

developer Windlab Africa, confirms Atlantis’ drawcards as a renewable energy manufacturing hub.

“The area is well positioned, near to Saldanha’s steel manufacturing sector and deep-water port, and close to the West Coast,” he says.

“Half of South Africa’s utility-scale wind farms that are in operation can be found here. More large projects in the pipeline.”

“In 2012, Atlantis was declared a Special Economic Zone (SEZ), focused on green technology,” says Tim Harris, CEO of Wesgro, which is the official tourism, trade and investment promotion agency for the Western Cape. “The Western Cape government and its municipalities have worked hard to create a local economic environment that’s welcoming and supportive of green technology development,” he says, explaining that a SEZ is a geographically

“

Both are suitable for the manufacturing of big, bulky, and abnormal components, utilityscale renewable energy projects such as wind turbine towers and blades. These require good road access and big greenfield sites Mike Mulcahy, CEO of green economy development agency Green Cape

»

Gestamp’s unit in Atlantis

Jan - Mar 2017 International Finance Magazine

79

SPECIAL FOCUS: ENERGY

»

66 MW Hopefield wind farm, South Africa

80

designated area within a country that is dedicated to specific economic activities; in this case, green tech.

Such infrastructure is supported through specific labour, import, expert and tax incentives. Benefits in Atlantis include access to a controlled customs area, lower company tax rates (15% as opposed to 28%), and various attractive rebates.

Attracts $50 million investment Over the past three years, Atlantis has attracted over $50 million worth of green tech investment, mainly

I

from abroad. Investments worth $72 million are in the pipeline, and some 350 direct, full-time, and permanent jobs and many indirect employment opportunities have been created.

“Wesgro and GreenCape have a collaborative relationship to attract investment into the proposed Atlantis Greentech Special Economic Zone,” Harris notes. “We are also driving the Cape Invest Centre, which has the objective to provide support to potential investors who want to settle in Atlantis.”

The biggest investment

in Atlantis thus far has come from Spanish-owned Gestamp Renewable Industries, which produces 1200 wind turbine towers per year in four factories around the world. Other players include Resolux Africa, a 51% black womenowned manufacturer of wind tower internal components.

Mulcahy says, “Soon, we hope to welcome a wind turbine blade producer, as well as companies specialised in smart meters and solar PV panels.

Besides its location, its resource quality and grid infrastructure, the region’s

The West Coast

n terms of wind energy in South Africa, the West Coast is one of the hotspots.

Besides wind farm

construction and electricity generation, the production of turbine components seems to be a growing opportunity.

This is where Atlantis

International Finance Magazine Jan - Mar 2017

comes in. Built by the apartheid-era regime, this township is fast becoming a key renewable energy manufacturing hub

“

Wesgro and GreenCape have a collaborative relationship to attract investment into the proposed Atlantis Greentech Special Economic Zone Tim Harris, CEO of Wesgro

SPECIAL FOCUS: ENERGY

»

Gestamp’s unit in Atlantis

underlying skills base was a factor why Atlantis was chosen over Saldanha. The area has a legacy of heavy engineering through the Atlantis Foundry. There is a legacy of boat building, textiles, electronics, and manufacturing, too. Each of these sub-sectors has produced skills that are crucial in the manufacturing of renewable energy components.

“The manufacturing

of wind turbine towers involves heavy steel rolling, cutting, welding, bending, and painting, and producing wind turbine blades involves carbon fibre and glass fibre work. These are skills you’ll find in the local boatbuilding sector.

In essence, wind turbine blades are made of the same material as boats. The only thing that is different is the manufacturing process.”

The uncertainty Despite Atlantis’s potential, a number of recent developments are putting a slight damper on what has been achieved in the area and on the South African renewable energy sector in general.

“There is a lot uncertainty in terms of the future, as we don’t have a REIPPP at the moment,” Venn says, referring to a recent announcement by state-

owned utility Eskom that it won’t sign any new power purchase agreements with private producers in the foreseeable future. “This means that no new projects are being developed or coming off the ground.

This is hurting the entire renewables sector, including manufacturing.”

Mulcahy agrees. “A statement by President Jacob Zuma, which insisted nothing has changed and remain government policy, expressed some confidence in the future in terms of renewables. However, that hasn’t taken away from the uncertainty,” he says.

“Eskom’s announcements earlier this year really have created a lot of anxiety within the industry.” IFM editor@ifinancemag.com

Atlantis in a nutshell

The SEZ

Surface area: 28.84 km2 Distance from Cape Town: 45km (north) Population: 67,491 in 15,564 households (2011) Density: 2,300/km2 (Average density for Cape Town is 1500/km2) Unemployment rate: 30.22% (2011) Roads: Atlantis is close to four major highways (N1, N7 and R27) Commuting: Connected to public transport system since 2014

Area: 68 hectares (0.68 km2) Direct jobs created so far: 350 (full-time, permanent) Investment: $50 million Investment in pipeline: $72 million Major investors & players (green economy): Gestamp Renewable Industries (wind turbine towers), Kaytech (geotextiles), Resolux (wind turbine internals), South African Renewable Energy Business Incubator (SAREBI) Other players: Skyward Windows, Hisense (electronics), Admiral Yachts

Jan - Mar 2017 International Finance Magazine

81

OPINION economy

OPINION

Brahmanand Hegde

Demonetisation 82

Long-term benefits for India

But short-term impact could be mixed for different segments and businesses

V

istaar Finance is a NonBanking Finance Company (NBFC), based out of Bengaluru, India, serving the MSME segment, primarily in rural and semi-urban areas. We believe that by supporting and creating new economic opportunities for deserving small business women and men, lives can be enriched and communities can be transformed.

The company focuses on the missing middle segment, which is not effectively served by the formal financial system. The objective is to make finance available at a reasonable

International Finance Magazine Jan - Mar 2017

cost and deliver in a transparent manner. In the process, Vistaar aims to continuously attract mainstream capital and human resources to serve these chosen segments who are the backbone of India’s vibrant economy.

There are over 40 million MSME in the country contributing to over 40% of the manufacturing output.

The total unmet demand is close to Rs. 2.9 trillion, which offers a unique opportunity for Vistaar across micro, small and medium sized enterprises.

While banks and NBFCs try and address some of the sector’s credit demand, majority of the total MSME

business units constitute Vistaar’s target segment. In spite of being significant segment, less than 10% of them access to formal financial services access.

The views on demonetisation is based on current understanding of market, our customer feedback and feedback from other players including a few banks, NBFCs and rating agencies. Demonetisation of higher denomination notes of Rs. 500 & Rs. 1000 in India from the mid-night of November 8 is a significant step and is expected to impact the economy both in the short and long term. While

OPINION economy

short-term impact could be mixed for different segments and businesses, we expect long term impact to be positive for the country.

Immediate short-term impact • Increase in bank deposits, increase in bank liquidity • Increased supply of funds; we expect RBI to announce cut in interest rate and reduction of lending rates by banks to customers • India being predominantly cash economy, at the lower end of the pyramid, demonetisation is likely to impact business and revenues of these customers significantly. Extent of impact could be different for different businesses • Likely to impact repayment of loans by cash segment – primarily

microfinance, MSME customers • Expect lower credit growth and lower loan off take during next 2-3 months However, in the medium term, we expect a boost to the economy. Also, as a country it should have bias in favour of digital money and resultant increase in economic activity, revenues, tax collection etc. Also, government investment in infrastructure should significantly go up and prices of goods and properties could come down. In the medium term, we expect prices will ease, inflation, to come down which should benefit all segments of the society.

As a company, we primarily operate in rural and semi-urban parts of the country, and serve MSME customers. We feel our customers will most likely be affected in the short term. Hence, to understand this, we carried out a survey on November 15 and 16 across eight states and more than six sectors or business

activities. These inputs have come from over 100 of our customers.

The survey report from the ground zero depicts that post the decision of demonetisation: • Close to three-fourth of our respondents have seen immediate drop in sales • About 77% of them expect sales to come back to normal in the next 2 months • About 70% feel, it will make them think of an alternative to cash in the medium term, including mobile payment and e-wallets, and willingness to explore digital money as an option • 75% of them also feel they will go back to cash once the situation normalises • Most of them (90% plus) are optimistic that it will be business as usual in the medium term (3-4 months)

As a company, we expect loan disbursement to slow down in the coming few weeks but expect to normalise in 3-4 months.

However, this will force all financial services players to rework their business strategy based on electronic platform. Use of technology and digital money will get a fillip in the medium term and we also expect resultant reduction in cost. All these should be a reality over the next 1-3 years.

Demonetisation will also enhance opportunities to banks and other financial services company. The government of India is also pushing things to move away from cash and encouraging establishments to accept digital money.

For example, the national highway authority is working on a unified card system for payment of toll across the country. This is an opportunity for banks to deepen the penetration of card, wallet etc. Also, many of the establishment will be more than willing to shift to electronic platform. All these things will change the dynamics of the financial services market for the better in the next 1-3 years. The cost of transaction and cost of cash management etc. will go down significantly. IFM editor@ifinancemag.com

Brahmanand Hegde is Executive ViceChairman of Vistaar Financial Services Pvt Ltd

Jan - Mar 2017 International Finance Magazine

83

economy

The bright side of a

recession Nigeria’s economic challenges are offering opportunities for investors Samuel Okocha

N

igeria officially entered a recession in August for the first time in more than two decades, halting the run in several years of economic growth largely driven by the oil boom. But analysts say opportunities abound for investors who see beyond the gloom.

Growth shrank in Africa’s largest economy for two consecutive quarters in the first six months of 2016. A contraction of 0.4 percent in the first quarter was followed by another 2.1 percent mid-year.

By the third quarter, the recession deepened as GDP contracted by 2.24%.

The challenging economic climate has seen a record double digit inflation rate on the rise since the beginning of the year, hitting a high of 18.3 percent in October.

The crisis in Africa’s top oil producer began after the slump in oil prices.

84

International Finance Magazine Jan - Mar 2017

economy

Nigeria relies on proceeds from oil for 70 percent of government revenues and 90 percent of export earnings. But as oil prices crashed from over $100 to below $50, worsened by reduced oil production due to renewed militant attacks in the Niger Delta, foreign exchange earnings drastically reduced. Foreign reserves also suffered a decline. Nigeria, an import dependent nation, then began to struggle with a rising import bill aggravated by a weakened naira.

Nigeria’s economic recession is rooted in a shortage of foreign exchange, as manufacturers and businesses struggle to access forex needed to buy inputs from abroad that would maintain and grow their businesses.

But amidst the economic headwind, lie opportunities.

Potential in agriculture “We are not blind to Nigeria’s problems,” notes Melissa Cook in her Insight Nigeria: Finding gems in

the rough. “Policy mistakes, currency and oil revenue collapse, lack of electricity, and corruption are well known. We (however) strongly disagree with those who state that ‘the Nigeria growth story is over’.”

She highlighted agriculture as one of the growth areas. “The push to produce rice, sugar, and palm locally, is bearing fruit.

Agribusiness sector growth should boost jobs growth and consumption, in our view, while reducing forex outflows.’’

Nigeria, once an agricultural power house, but now a major importer of food, wants to revamp the sector with much needed investment.

“Nigeria used to be a highly complex economy,” Cook told IFM on the sidelines of a CFA breakfast meeting in Lagos. “We used to make a lot of things here, but oil came in and everyone stopped. So it’s easier probably to resuscitate something that used to work than it is to start completely

from scratch.’’

Nigeria is now working to boost investment in agriculture. ‘’We are investing heavily in rice production in 12 major rice producing states,” Nigeria’s Vice President Yemi Osinbajo told an economic summit in Abuja. ‘’The whole agroallied value chain is one that is just waiting to happen.’’

Opportunity in forex Analysts believe Nigeria’s move to diversify the source of hard currency earnings and curb the outflow of forex holds opportunities for investors.

“We have seen some foreign investors who are investing in agriculture in Nigeria,” Robert Omotunde, head of research at Afrinvest West Africa, told IFM in Lagos. “They know that the market is there and the demand is there for agricultural products.

Omotunde added that the food confectionery segment, for instance, remains attractive for strategic

85

We have seen some foreign investors who are investing in agriculture in Nigeria Robert Omotunde, head of Research, Afrinvest West Africa

Jan - Mar 2017 International Finance Magazine

economy

Growth shrank in Africa’s largest economy for two consecutive quarters in the first six months of 2016. A contraction of 0.4 percent in the first quarter was followed by another 2.1 percent mid-year investments. That’s because ‘people must eat, whether or not an economy is in recession’.

Export and currency The export component of

Beloxxi’s market strategy appears to underlie the opportunity that comes with Nigeria’s economic challenge.

“At this time, export is very good business,” Muda Yusuf, who heads the Lagos Chamber of Commerce and Industry, said. Weak currency is favourable to exports. So there are a lot of opportunities now for exports, given the fact that the currency is very weak.”

For Muda, the liquidity challenge in the foreign exchange market presents an opportunity for foreign investors in Nigeria. “It is a golden advantage,’’ he said.

“It is easy to invest now if you are bringing in foreign currency because it’s like

Policy mistakes, currency and oil revenue collapse, lack of electricity, and corruption are well known. We (however) strongly disagree with those who state that ‘the Nigeria growth story is over’ Melissa Cook, founder and Managing Director, African Sunrise Partners LLC and member US President’s Advisory Council on Doing Business in Africa

Last August, a consortium of three international private equity firms bought a minority stake in Nigeria’s largest biscuit maker Beloxxi for $80m.

»

86

And the investment is happening.

Last August, a consortium of three international private equity firms – 8 Miles of London, KFWDEG Bank of Germany and African Capital Alliance of Nigeria – bought a minority stake in Nigeria’s largest biscuit maker Beloxxi for $80m. The deal, described as the largest transaction in Nigeria’s biscuit sector since independence in 1960, will allow Beloxxi to expand its operations. ‘’The snacks segment is a fast growing part of the

consumer sector in Nigeria,” Nathan Mintah, co-founder and co-managing partner at 8 Miles, told UK’s Private Equity Wire.

“Our investment will build on Beloxxi’s strong brand and help accelerate the company’s expansion in Nigeria, in the wider West Africa region and beyond.’’

Beloxxi founder and CEO Obi Ezeude said, ‘’Our long term focus is to be one of the leading biscuit companies in the EMEA region. The investment will enable us increase our capacity significantly and grow in both our domestic and export markets.”

International Finance Magazine Jan - Mar 2017

economy

the equivalent in domestic currency has doubled virtually. So the capacity to invest and the impact of foreign currency in the economy now is almost double.”

As part of efforts to reduce imports and conserve hard currency, the government is promoting a ‘Made-in-Nigeria’ campaign to encourage quality production and consumption of locally manufactured products and services. This campaign encourages the production of import substitute goods and services, signaling new opportunities for investors.

The campaign appears to be yielding results.

Last October, Nigeria’s Innoson Group secured financial foreign investment credit facility of $300 million for local production of Set-Top Boxes in support of the country’s Digital Switch Over (DSO) project for TV broadcasting. The deal puts Nigeria on the path to becoming the manufacturing hub for Set-

Top-Boxes in Africa.

The $300 million facility forms part of Innoson Group’s partnership with a consortium of Chinese investors willing to invest $1billion in Nigeria’s information technology sector.

Promising sectors In a report highlighting the most promising FDI opportunities for UK businesses, global consulting firm PricewaterhouseCoopers (PwC) identified technology, media and communications as one of three key sectors that offer opportunities for investors.

“On the enterprise side, multinational companies demand international standards of technology and services with strong local presence,” the report titled Seizing the Opportunity: An Economic Assessment of Key Sectors of Opportunity for UK Business in Nigeria noted. ‘’On the retail side, investment in new spectrum and infrastructure will be

essential for continuous growth of the sector as well as growing the customer choice in the media sector.”

The other two key sectors of opportunity, according to the report, are retail and consumer products (RCP), and business and financial services.

Time to buy in Meanwhile, analysts familiar with Nigeria think this is the time to buy into Africa’s largest market at a discount.

“First of all, many assets are very cheap,” Melissa Cook said.

“There may be companies that need to refinance debt but can’t do it. So for companies that may be looking to make acquisitions or joint ventures, this is the time to do it. They (however) have to get comfortable that the downside risk is manageable and that they know what’s going to happen next.” IFM editor@ifinancemag.com

87

There are a lot of opportunities now for exports, given the fact that the currency is very weak Muda Yusuf, Director General, Lagos Chamber of Commerce and Industry

Jan - Mar 2017 International Finance Magazine

OPINION Investment Management

OPINION

Clive Corcoran

Adjusting to change Macro-economic factors and their impact on capital markets going into 2017 88

International Finance Magazine Jan - Mar 2017

Investment Management OPINION

G

eopolitical issues have moved to the foreground during 2016 with respect to their impact on the perceived macro risk conditions in capital markets. Following the sell-off in equities and commodities in February on concerns about weakness in global GDP growth, especially in China and the Eurozone, there was a subsequent recovery of sentiment as the world’s central bankers stepped up monetary accommodation.

The Brexit decision was not widely anticipated by market participants, disturbing developments in parts of the Middle East, and the unexpected election result in the USA have all contributed to the consensus view that there is a backdrop of considerable uncertainty surrounding the economic and financial

outlook in 2017 and beyond in the medium term.

For risk managers, the focus has been on increased volatility in asset markets, especially around the Brexit decision and more recently, the surprising outcome of the US presidential election.

Significant questions are now being asked regarding how best to protect asset portfolios from a rapidly changing macro-economic landscape.

Following the electoral success of Donald Trump, capital markets are being confronted with a number of potential inflection points.

Some are arguing that the new administration’s commitment to major infrastructure investments, fiscal reforms – including a possible reduction to 15% for US corporation tax – and a need for increased US Treasury issuance will likely lead to a significant change in the underlying trend of interest rates.

It has even been claimed

that the 30-year bull market in bond yields has ended. At this point, it would seem premature to reach such a conclusion as the exact policy of the Trump administration has not been articulated and there are conflicting tendencies – including a more protectionist stance toward global trade – that might not translate into the increased GDP growth that many in the markets expect.

Going into the Thanksgiving holiday, US equity markets were at record highs, 10-year US Treasury note yields had moved up to around 2.3% and the US dollar had strengthened. The consequences for the Asia Pacific region and Mexico have been far less bullish.

Asian currencies were under pressure and capital was flowing out of many EM markets. Concerns that China may be approaching a dangerous degree of leverage within its banking

system – some have even claimed that China is facing a Minsky moment – are likely to lead to continuing risk aversion with respect to potential capital inflows to the Asia Pacific region For institutional asset managers in developed markets, all of the previously discussed issues have contributed even further to the challenging macro financial environment, which already has extraordinarily low yields – in many cases negative – on fixed income instruments.

Recent evidence suggests that more than $10 trillion of bonds (especially those issued by highly rated sovereigns in the Eurozone) are trading with a negative yield. This poses significant challenges to pension funds and insurance companies in particular as their liabilities continue to grow whereas the yield from their asset deployment continues to decline. It is worth pointing out that the ECB is prolonging its asset purchase program well into 2017 and is currently able to purchase sovereign debt as long as its yield does not fall below its current threshold of negative 40 basis points.

Indeed to understand how yields will continue to remain negative for some time, one should consider the role of the ECB in the markets over the next year or so while it continues to purchase about €80 billion of bonds per month. Market participants clearly have an incentive to purchase negative yielding bonds on an interim basis in the knowledge that they can

Jan - Mar 2017 International Finance Magazine

89

Investment Management

Going into the Thanksgiving holiday, US equity markets were at record highs, 10-year US Treasury note yields had moved up to around 2.3% and the US dollar had strengthened

90

then sell them to the ECB when their yields become even more negative. For example, 10-year bonds issued by the German government have been auctioned at prices above par - guaranteeing a loss if held to maturity. However, if traders were to buy such issues, they are expecting that eventually the ECB might buy those very bonds with an even higher premium to par.

Negative interest rates also pose significant problems to those engaged in risk management and quantitative finance in that modelling tools used for derivatives and by

treasurers are not readily equipped to handle negative inputs for discount factors and returns. The learning curve for dealing with these new risk challenges continues to remain steep.

In conclusion, I would suggest that a key indicator to monitor closely as we move into 2017 will be forward inflation expectations.

Before the US election, the five-year forward inflation expectations were suggesting that the average inflation rates moving up to 10 years out were very subdued – about 1.6%.

Since the US election, the expectation has risen by

International Finance Magazine Jan - Mar 2017

more than 50 basis points to 2.1%. Given the fact that many investors have been buying large amounts of long term bonds with relatively low coupons, duration risk must be upper most in the minds of asset managers, banks and regulators. IFM editor@ifinancemag.com

Clive Corcoran has been engaged in the finance and investment management sectors, on both sides of the Atlantic, for more than 25 years. An author of several books on international finance, focusing on asset allocation and risk management, he is also very actively involved in executive education for finance professionals worldwide

INTERVIEW INTERVIEW investment Management

‘There needs to be more agility, flexibility, promotion and support from regulators’ Interview with Daniel Dancourt, Partner and Head of Asset Management HMC Capital

92

Claudio Guglielmetti, Partner and Head of Private Banking

Daniel Dancourt, Partner and Head of Asset Management

International Finance Magazine Jan - Mar 2017

Felipe Held, Partner and CEO of HMC Capital

Ricardo Morales, Partner and Chairman of HMC Capital

Francisco Dianderas, Partner and CFO

Daniel Dancourt, Partner and Head of Asset Management HMC Capital

Jan - Mar 2017 International Finance Magazine

INTERVIEW INTERVIEW investment Management

94

What is HMC Capital?

HMC Capital is a Latin American investment and financial advisory firm, with offices in Chile, Brazil, Peru, Colombia and United States in order to effectively approach the most important markets and investment opportunities in the region. With $5 billion under distribution (third party funds) and $1 billion under management, HMC provides investment opportunities to institutional and HNW clients. The firm has more than 60 professionals with local experience and market knowledge. Main businesses are Third Party Distribution, Asset Management, Private Banking and Advisory, & Placement.

HMC’s vision for Latam markets involves the creation of solutions for

investors, and contribution in the development and scalability of asset classes in the alternatives investment spectrum, with focus on Credit, Real Estate and Private Equity. HMC has developed a complete platform of third party products and strategies, and proprietary Latam products maximising the risk/return for its clients in the region.

In essence, HMC believes in innovating and generating value added strategies, which requires in-depth knowledge of the local markets and understanding investor’s portfolio needs and restrictions.

What has been HMC’s approach to the region?

Latin America has been very challenging these past few years for investors. Uncertainties

International Finance Magazine Jan - Mar 2017

around macroeconomics and politics have affected economic growth, and have had an impact in markets performance.

Also, considering a lower global growth scenario, we have experienced lower interest rates, generating a challenging environment for investors looking for returns and yields. We expect this scenario will continue for the foreseeable future.

HMC has been able to quickly identify emerging opportunities arising from the changing environment, not only economic and financial, but also regulatory and legal. We have developed attractive investment strategies on a risk-return adjusted basis, focusing in areas where traditional sources of capital have not played a significant role. Despite

a challenging environment in the region, there are significant opportunities in the development of capital markets, improvement of access to financing, and connecting investor’s capital to different segments of the economy.

When you mention improvement of access to financing, what opportunities and trends do you see?

Financing in Latam countries has been mostly provided by banks.

Although banks have played an important role in our economies, their presence has been unequal depending on the size of the companies. Particularly, SMEs have faced more restrictions in terms of types and maturities of loans they can access, which could become even more restrictive given regulatory trends. Moreover, banks tend to be pro-cyclical, which leaves a financing void for these types of companies during economic downturns.

In developed markets, such as US and Europe, alternative sources of financing have taken an increasingly higher role throughout the years. Asset managers have been among the biggest participants, with strategies such as Direct Lending, Mezzanine, Credit Opportunities, among others. These types of alternative sources are significantly less developed in Latam markets, but we see a great opportunity given the need for yield from investors, and the appetite for companies

INTERVIEW investment Management

to diversify their sources of financing, particularly SMEs. Another critical difference is that developed countries have well-functioning capital markets, which can be a major source of capital for companies. This area is seriously lacking in Latam countries, where only large corporations have real access to capital markets.

There is no breadth in our markets, which compounds issues like illiquidity and diversity of investors.

We think that the asset management industry can play an important role in the development of capital markets.

What has HMC done regarding these opportunities?

From the asset management side, we have developed a regional credit platform. We have strategies related to Mezzanine Real Estate in Chile, and a Credit Fund in Peru, which has a significant focus in capital markets development. This Credit Fund, called HMC High Yield Peru, was possible with the participation of the main local institutional clients and the International Finance Corporation (IFC) as investors in the Fund.

The Fund focuses on investments in fixed income securities from Peruvian mid-sized companies, with local ratings below AA-. There was a lack of companies with this profile issuing bonds, so this segment of the credit spectrum had not been developed before. One of the main reasons was a

disconnection between these types of companies and institutional investors, who could not access this segment efficiently or due to regulatory constraints.

Our Fund has been able to bridge the gap between institutional capital and mid-sized companies, serving as potential anchor investor for some single ‘A’ local rating bond issues, which had not been in the market before.

For investors, this has presented an opportunity to access attractive riskadjusted returns, and for companies it has provided an additional source of capital to improve their capital structures, diversify their funding sources, and free lines of credit with banks. This is also good for the economy itself, as it is helping develop the local fixed income market, bringing new issuers and increasing market breadth, which we believe in the medium term, will lead to higher liquidity and attract more investors. The focus has been in Peru, but we believe there’s a similar situation and opportunity in other parts of the region.

What are the main elements you look for in companies you finance?

Being a credit fund, the main focus has to be on an in-depth analysis of financial credit risk. We have processes and internal methodologies that allow us to assess the main risk factors of each company, in order to avoid not only potential defaults, but to be able to adequately price these risks in a market that

had no previous reference.

However, there are two key considerations that are embedded in our credit analysis, and that we think are vital for the sustainability of the capital markets and the companies themselves, particularly in the mid-sized segment.

We look for good corporate governance, and for companies that are socially and environmentally responsible. This includes qualitative variables, such as independent directors, audited financial statements by a recognised firm, proven ownership and management experience, labour formality and security for workers, among other things.

What do you see as the main barriers for a capital markets development strategy?

We have identified three main difficulties.

The first one is regulation.

Although there are efforts being made, like the ‘Mercado Alternativo de Valores’, to make access to the market simpler and cheaper for mid-sized companies, the approval processes still take very long and sometimes with unnecessary restrictions to the bond structures due to standardised formats.

The second is education about capital markets.

Several companies are aware of the bond market, but have never thought it was a possibility for them and are not fully aware of the benefits. Also, certain concepts are not easy to grasp for companies that are seeing the market for the first time, which is the

case for many family-owned businesses.

The third one is cultural.

Some business owners are not used to disclosing information to the public, and don’t feel comfortable adhering to the standards of corporate governance and reporting of the markets. Although there are cases were there has been resistance, in general this difficulty can be addressed once the company understands the benefits of the market.

We have seen improvement, and we actively work with the companies to address these barriers. However, for a true development of the capital markets, there needs to be more agility, flexibility, promotion and support from regulators.

Also, the educational process should come from across the board because it involves every entity that is involved in the market, including investment banks, securities brokers, rating agencies, media, investors and regulators. IFM editor@ifinancemag.com

Jan - Mar 2017 International Finance Magazine

95

investment Management

P

BPH TFI – The investment

partner for Poland & CEE countries 96

oland is the biggest country amongst other CEE countries. It is the sixth largest country in the European Union. Between 2005 and 2015, its economy grew by 45.7% (3.8% CAGR) compared with EU28 growth of 9.6% (0.9% CAGR).

Poland is the only EU country that avoided recession after the global financial crisis due to resilient private consumption and strong inflows from EU structural funds.

The country has successfully bridged the gap to the old EU countries with GDP per capita rising from 49% of EU28 average in 2003 to 68% in 2014.

Polish contribution in MSCI Emerging Markets Eastern Europe Index amounts to 22.3%. €86 billion will strengthen Polish economy During the period from 2007 to 2013, 105,000 contracts for EU co-financing were signed for the total amount of €95 billion and the amount of co-founding on the part of EU equaled to €67 billion. But more important is the future of the country.

Poland takes the biggest share of 19% in the new perspective of EU Cohesion Policy budget. It means that

» International Finance Magazine Jan - Mar 2017

Piotr Karnkowski, CEO, BPH TFI

investment Management

€85.9 billion was allocated to Poland for the period 2014-2020. The funds are mainly allocated to the projects like European Regional Development Fund, Cohesion Fund, European Social Fund, European Agricultural Fund for Rural Developments and some others.

According to estimations by the World Bank and by the International Monetary Fund, Polish GDP should grow by 3.2% in 2016, by 3.4% in 2017 and 3.5% in 2018.

On the other hand, recently published report by the National Bank of Poland assumes GDP growth in 2016 at the level of 3%, stronger growth by 3.6% in 2017 and lower in 2018 of 3.3%.

Warsaw Stock Exchange The Warsaw Stock Exchange (WSE) is celebrating this year its

3,00%

2,50%

2,00%

1,50%

1,00%

0,50%

0,00%

0,50%

25th anniversary. WSE is the largest equity market in Central & Eastern Europe, measured by market capitalisation – (approximately €127 million), equity turnover (app. €394 million) and

33 IPOs in 2015. There are almost 500 listed companies, not only Polish but also some foreign like Ukrainian. Important factor that presents exchange’s investment flexibility is free float that varies from 40% to 48% through last eight years.

Out of number of indices that assess performance of the WSE like WIG (wide index) or WIG20, covering the largest Polish companies representing banks, oil and energy companies, interesting index is MWIG40. It truly reflects conditions of Polish economy due to selection of privately-owned Polish small and medium companies. For the last 12 months, MWIG40 has grown by almost 12%, while WIG20 decreased for 11.9% and WIG remained almost flat.

Helping growth BPH Investment Fund

Company (BPH TFI), part of GE Group, is an asset management company that has been operating in Central and Eastern European Countries (CEE) and the Polish capital markets for close to 20 years. This gives knowledge of local markets that frequently can be perceived as interesting one but due to lack of the expertise and entrance barriers is being omitted.

BPH Investment Fund Company is serving individual as well as institutional clients, having €1 billion of assets under management. The company is also known for its pension schemes and savings plans, which are available for both Polish and foreign companies present in Poland.

Their strategy is to be a ‘Fair Play’ investment company that demonstrates continuous and sustainable growth of assets under

Jan - Mar 2017 International Finance Magazine

97

investment Management

14,00%

12,00%

10,00%

8,00%

6,00%

4,00%

2,00%

0,00%

-2,00%

98

management through prudent risk management, operational excellence, effective co-operation with partners & regulators and a strong emphasis on customer care.

The company is aiming at ‘upper affluent’ consumers and investment businesses

focusing on a risk/reward philosophy that seeks funds’ performance above market average combined with strict approach to risk management.

BPH TFI is recognized as reliable business partner implementing innovative solutions and responding

About the company Name: BPH Investment Fund Company Website: www.bphtfi.pl/en/ Location: Poland HQ: Warsaw

Business: Asset management

Products: Investment funds, discretionary portfolio management AUM: € 1 billion Employees: 50

Contact: Marcin Bednarek, CMO& CSO E-mail: marcin.bednarek@bphtfi.pl Mobile: + 48 695 788 693

International Finance Magazine Jan - Mar 2017

promptly to market expectations.

New product While capital markets are changing, BPH TFI analyses developments of global and European markets on a daily basis in order to offer customers

worldwide solutions. The recent results prompted the company to introduce a new fund – BPH Superior. The main competitive advantage of the fund is management fees. In general, Polish funds are far more expensive than in case of US or EU markets. Generally, Polish funds are twice more expensive than European funds and four times more expensive when compared to US solutions.

BPH Superior offers customers 0.7% pa management fee for equity fund, while average Polish equity fund charges 4% pa.

In terms of BPH Superior Money Market fund, it means 0.3% pa while market average is 1 pa. IFM editor@ifinancemag.com

statement of the CEO Winning the “Most Innovative Asset Management Company, Poland 2016” award with International Finance Magazine is very important for our customers, employees and stakeholders. It confirms that the effort we put into development of our offer by implementing best patterns of developed markets into Poland is appreciated abroad. It is worth to underline that BPH Investment Fund Company is not only focused on Polish market but also serves foreign customers seeking the reliable and trustworthy business partner specializing in the emerging markets

investment Management

5,00%

0,00%

-5,00%

-10,00%

-15,00%

-20,00%

-25,50%

99 7,00%

6,00%

5,00%

4,00%

3,00%

2,00%

1,00%

0,00%

-1,50%

Jan - Mar 2017 International Finance Magazine

Saudis get

serious about AN

entertainment industry To focus on films, theatre, art, museums and fun parks Suparna Goswami Bhattacharya

W

100

hen Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman Al Saud spelled out Vision 2030, a move to steer the economy away from overdependence on oil, one announcement came as a pleasant surprise to many — the establishment of an independent body for entertainment.

The General Authority for Entertainment, headed by former royal court adviser Ahmed al-Khatib, may see the relaunch of cinemas, entertainment hubs and cultural events in a country that, despite being one of the biggest economies in the Arab world, lacks an entertainment industry.

The Authority will focus on promoting entertainment projects and facilitating services to companies in the private sector working in this industry. Art exhibitions, movie theatres, festivals, amusement parks, water parks, music institutes, music concerts, public parks are some of the things that the Saudi government

International Finance Magazine Jan - Mar 2017

Country Focus: Saudi Arabia

intends to develop by 2030.

The Deputy Crown Prince admitted that most locals are forced to travel abroad in their leisure time for entertainment.

Hence, it does not come as a surprise that Saudis happen to be among the biggest spending tourists in the world. According to Saudi American Public Relation Affairs Committee (SAPRAC), ‘they spend more than $100 billion annually on tourism abroad and hence the effort to develop options at home’.

Many investors from the US, UK, Australia and China are looking at Saudi as a new destination in the Middle East for theme parks, zoos and museums, as well as art and music.

Following the announcement of the reforms, the Deputy Crown Prince has met the CEOs of Six Flags, Sea World and other large corporations in

the entertainment segment.

Tapping into a large opportunity “The move is not surprising,” says Salman al Ansari, founder & president, Saudi American Public Relation Affairs Committee (SAPRAC). In 2010, the size of the entertainment industry was around $15 billion. According to SAPRAC, the volume of investment in the sector is projected to reach $30-$35 billion by 2025.

Yousef Al Naimi, research analyst at SAPRAC, says, “I have been in Saudi Arabia all my life. To be honest, I have never seen reforms taking place at such a fast pace. There is a clear initiative to expand freedom of expression,” he says adding that Vision 2030 seeks to support and expand local talent in order to benefit the economy. Many young Saudis are taking up art and stand-up comedy as

a career.

The kingdom is slowly establishing an art scene.

Ziyad Al Buainain, creative director and a visual artist in Khobar, says, “Many Saudi artists are able to exhibit their work in various galleries and exhibitions around the kingdom. The government is also opening up centres and institutions where young Saudis can learn more about art and culture.”

The Art and Design College under King Abdullah University is not only one of the best in the kingdom, but in the world.

The government is inviting artists from abroad to showcase their work.

At the same time, it is sponsoring exhibitions of Saudi artists in other countries. Turki Al Rumaih, a local Saudi artist, opines that the government is doing a lot to promote talent. “From an artistic

“

I have been in Saudi Arabia all my life. To be honest, I have never seen reforms taking place at such a fast pace. There is a clear initiative to expand freedom of expression Yousef Al Naimi, research analyst at SAPRAC

Jan - Mar 2017 International Finance Magazine

101

Country Focus: Saudi Arabia

In 2010, the size of the entertainment industry was around $15 billion. According to SAPRAC, the volume of investment in the sector is projected to reach $30-$35 billion by 2025 Small steps A few years ago, the kingdom established Arts and Skills Institute (ASI), a private women’s college in downtown Riyadh. It was the country’s first ever fashion institute. ASI has managed to circumvent Wahhabi Islam restrictions on self-expression and aims to become the Saudi equivalent of London’s Central Saint Martin’s college. Saudi women are among the world’s most affluent consumers — they spend more than $11.5 billion annually on fashion, according to the marketing research firm Euromonitor

International.

The country recently opened a cultural centre in the Eastern Province, which many believe will be a big step in achieving recognition in the arts and entertainment world. Many Saudi artists have come out of their shells, producing artwork that is expressive and free.

“I have been talking with the government over outdoor murals in the Eastern region. Hopefully, we will start before the end of 2016. I am very positive about the future of art in the kingdom due to the many developments taking place

“

Many Saudi artists are able to exhibit their work in various galleries and exhibitions around the kingdom.

The government is also opening up centres and institutions where young Saudis can learn more about art and culture Ziyad Al Buainain, creative director and a visual artist in Khobar

Deputy Crown Prince of Saudi Arabia Mohammad bin Salman Al Saud delivers a speech during a press conference in Riyadh, Saudi Arabia Photo by Pool / Bandar Algaloud/Anadolu Agency/Getty Images

»

102

point of view, I think the art exhibitions held internationally for Saudi artists speak for themselves.

I think the government is working to improve itself with the new 2030 vision,” he says. When asked the perception of Saudi Arabia as a conservative society poses a hurdle to artists in general, he says, “I believe we should not work on changing the perception, but rather on changing ourselves for the better and becoming the best version of ourselves. The rest will follow, and perception will only change by achieving actual goals.”

International Finance Magazine Jan - Mar 2017

Country Focus: Saudi Arabia

here,” says Al Rumaih.

The most important work of the Authority will be to bring cinema back to Saudi Arabia after a gap of 40 years. Though Saudis are eager consumers of online videos, ranking among the world’s top YouTube viewers, they often head to neighbouring countries to watch the latest movies.

The country has only three private movie theatres, for ARAMCO employees, which screen world and local cinema.

In March this year, the kingdom hosted a film festival in Dammam featuring 66 short films.

It included workshops on cinematography, acting and screenplay writing.

Among the movies screened was Half Chicken, directed

by Abdullah Ahmed. One movie that captivated the audience was Mariam, directed by Abdullah Hamad Al Zaid. It portrays a couple attempting to resolve their marital problems.

Rain Play, by Yasser Ali,

revolved around the lives and feelings of people after a heavy rainfall. Among other interesting films was one by Shahd Amin, which tells the story of a 10-year-old child living in a fishing village on the coast of the Arabian Peninsula and another by Osama Saleh about a young Muslim man in America and his struggle between love and religion.

“Unlike popular perception, movies are not banned in Saudi Arabia.

Theatres exist as well, and more and more people are taking an interest in them. There are some content makers who work on ‘straight to YouTube’ films and content,” says Mohammed Al Turki, a researcher on Saudi tourism.

Though things are changing for the better, artists feel it will take time to see a sea change in the mindset of people. Many feel that change should not be disruptive. Too much change at one go might lead

to chaos.

“Today, there is better understanding of what it means to be a part of the global community.

The Saudi government will lead the change in its perception abroad through heavy PR and by providing Saudis with the right tools to appear on the global stage and discuss issues regarding their kingdom, but it is ultimately up to Saudi society to correct false perceptions,” says Al Naimi. IFM editor@ifinancemag.com

“

I believe we should not work on changing the perception, but rather on changing ourselves for the better and becoming the best version of ourselves. The rest will follow, and perception will only change by achieving actual goals Turki Al Rumaih, a local Saudi artist

Jan - Mar 2017 International Finance Magazine

103

fintech

The business of

matchmaking Old-fashioned networking gets a new format Giovanni Puglisi

104

International Finance Magazine Jan - Mar 2017

fintech

T

he development of online business matchmaking as part of the ‘Fintech revolution’ has gathered pace on a global scale. It has huge potential in terms of shaping the future of banking and business partnerships across the world. Some global online matchmaking services can be seen as ‘accelerators’ rather than ‘disruptors’, as they have quickly emerged as meeting places for traditional banks and companies.

Financial institutions are increasingly finding ways to collaborate with fintech companies. However, with over $20 billion invested in over 12,000 fintech startups worldwide, finding the right partner could be a daunting task.

Hence, they turn to

companies like Matchi, which is a fintech matchmaking firm that connects financial institutions with vetted, relevant and implementable fintech solutions from a global pool.

Matchi has a presence in Hong Kong, the UK, Europe, South Africa, India and North America, as well as access to KPMG resources in other countries. David Milligan, CEO of Matchi, says, “We are going to make real the goal of partnerships between fintech firms and financial institutions, enabling collaboration that will bring real benefits to all.”

The company aims to help consumers through smarter services and high quality fintech firms by helping them grow globally and achieve scale, and financial

institutions by helping them deliver the kind of leading edge solutions their customers expect.

Matchi works with over 100 banks and insurance companies around the world, and has more than 2,000 fintech solution providers in its portfolio.

Among those who have signed up for its services are Barclays, Citi and Standard Bank.

The company has a database of curated, high quality fintech solutions, not just startups, but firms with a working solution and customers, and in many cases, which have already partnered with financial institutions. Moreover, Matchi deals with the innovation departments of banks

We are going to make real the goal of partnerships between fintech firms and financial institutions, enabling collaboration that will bring real benefits to all David Milligan, CEO, Matchi

Jan - Mar 2017 International Finance Magazine

105

fintech

rather than their IT teams.

Banks, which need to connect with other banks around innovation, can foster further banking innovations as well as revenues from licensing innovations with other noncompeting banks.

On the other hand, the downside for fintech startups wanting to partner with banks is that they face increasingly fierce competition.

Matchi, basically, brings the two sides together, taking a slice of the commission on any deal that is struck. The bottom line is that both sides reach their market in less time and cost.

106

Better networking Another example of a successful startup is online business matchmaking platform Opportunity Network, which has a valuation of around $150m.

It has already created partnerships with the London Stock Exchange

and other top financial institutions in Europe, such as Intesa Sanpaolo in Italy and CaixaBank in Spain.

Opportunity Network helps facilitate cross-border business ventures, paving the way for banks to assist customers to expand globally through access to an extended network of business development opportunities, while providing them with the financial resources needed to succeed in an increasingly competitive international environment.

CEOs and ultra-high net worth individuals (UHNWIs) as well as other vetted members from top financial institutions can share business opportunities worth $1m or more anonymously by becoming members.

Deals vary from M&A, commercial partnerships and investments to joint ventures, which allow banks to grow their market share.

Opportunity Network facilitates leads to deals,

which then generate revenue for banks from advisory fees: a win-win situation for all sides. In fact, Opportunity Network also helps companies which lack the tools and network of contacts needed to grow, invest and compete in a global market, in particular SMEs and those in emerging markets, which have longterm funding needs, by giving them access to deals which otherwise would be out of their reach.

Clients can search deals on the network. If interested in doing business with another member, Opportunity Network makes the introduction.

Founder and CEO Brian Pallas says, “CEOs have met over personal introductions for decades. Opportunity Network uses 21st century technology to make that process more efficient and reliable, enabling CEOs to connect over strategic business needs in a network pre-vetted by reputable financial institutions.�

CEOs have met over personal introductions for decades. Opportunity Network uses 21st century technology to make that process more efficient and reliable Brian Pallas, founder and CEO, Opportunity Network

International Finance Magazine Jan - Mar 2017

fintech

Financial institutions are increasingly finding ways to collaborate with fintech companies. However, with over $20 billion invested in over 12,000 fintech startups worldwide, finding the right partner could be a daunting task Finquest is another startup which seeks to create a more efficient marketplace for businesses and investors to meet and strike deals. It works with most categories of institutional investors looking at investing directly in or buying companies, which include Private Equity funds, investment holdings and family offices.

It has already worked with and helped thousands of investors, advisors and companies.

Co-founder and CEO Tanguy Lesselin says, “Finquest not only leverages existing deals by connecting institutional investors/acquirers to the advisors that carry the sale mandates, thus enlarging the circle of potential

buyers and accelerating deal closing, but also generates new opportunities and deals by connecting CEOs with M&A advisors, institutional investors and acquirers.

Our value proposition is to establish new high value and curated connections for our clients.”

Finquest uses a first-ofits-kind platform which combines the use of smart predictive algorithms technology, web crawlers, data entered by clients as well as behavioural data to create a database of M&A and investment professionals with analytic technology and industry expertise. The end result is an optimised channel for global investors, M&A advisors and mid-market companies to find each

other.

“We enable advisors to expand their selection of potential buyers for a sell-side mandate by connecting them to people and organisations that are outside their current network. We see ourselves as facilitators and accelerators, definitely not as disruptors,” Lesselin added.

Finquest is an example of business matching solution that scans multiple markets for potential acquisitions in a cost-effective way and provides a convenient gateway to an untapped investment universe, especially in Asia-Pacific economies. IFM editor@ifinancemag.com

107

We see ourselves as facilitators and accelerators, definitely not as disruptors Tanguy Lesselin, co-founder and CEO, Finquest

Jan - Mar 2017 International Finance Magazine

108

Nathan Blecharczyk, CTO & Co-Founder, Joe Gebbia, CPO & Co-Founder and Brian Chesky, CEO & Co-founder, of Air BnB

International Finance Magazine Jan - Mar 2017

Entrepreneurs

The

big daddy of

home stays

Airbnb took off when the founders couldn’t afford the rent on their apartment and decided to turn their loft into a lodging space Rahil Shaikh

109

Jan - Mar 2017 International Finance Magazine

Entrepreneurs

T

their loft-turned-lodging space. The idea was to offer visitors a place to sleep and breakfast in the morning.

The idea succeeded and thus came the first Airbnb guests: a 30-year-old Indian man, a 35-year-old woman from Boston and a 45-yearold father of four from Utah.

Each paid $80.

After that first weekend, they began receiving emails from people around the world asking when the site would be available for destinations like Buenos Aires, London, and Japan.

The duo enlisted former roommate and engineer Nathan Blecharczyk to get Air Bed & Breakfast off the ground. In the initial stages, they focused on high-profile events which resulted in a demand for lodging space. www.Airbedandbreakfast.

com was officially launched on August 11, 2008, just before the Democratic National Convention in Denver. The idea was to cater to the thousands of people expected at the convention. Over 600 people stayed at Airbnb places, but the success was short lived.

First funding As they were starting out, the founders needed a way to raise money. They bought a ton of cereal and designed special edition election-themed boxes, with presidential candidates Barack Obama and John McCain as the inspiration for ‘Obama O’s’ and ‘Cap’n McCains’.

Initially, the site did not gain much traction forcing the founders to live off

Tanya Rosenberg from Toronto is among those who have rented their house through Airbnb.

Photo: Rick Madonik/Toronto Star via Getty Images

»

110

he story of Airbnb is one of the most inspiring of the 21st century. With no investors and thousands of dollars of credit card debt, the founders had to sell cereal to keep the company afloat. It was almost two years before Airbnb saw some traction.

The story began in 2007 when designers Brian Chesky and Joe Gebbia couldn’t afford the rent on their San Francisco apartment. To make ends meet, they decided to turn their loft into a lodging space.

The town was to host a design conference and hotel space was limited.

The youngsters saw an opportunity. They set up a website called Air Bed and Breakfast with pictures of

International Finance Magazine Jan - Mar 2017

leftover Cap’n McCain’s (the Obama O’s sold out) — a time they refer to as a real ‘low point’.

But the low point did not last long. In two months, 800 boxes of cereal were sold at $40 each, which generated more than $30,000 for the company’s incubation and attracted Y Combinator’s Paul Graham.

Airbnb raised $20,000 from Y Combinator. They were still making only $200 a week and decided to use the money to travel to New York, their biggest market, to meet their users. They discovered that the main problem is that the pictures of most listings aren’t good.

So they bought a camera and went door-to-door to take better pictures of the listings. They returned to San Francisco with a

Entrepreneurs

profitable business model to present to investors on the West Coast.

In March 2009, the name Airbedandbreakfast.com was changed to Airbnb. com, and the site’s content expanded from air beds and shared spaces to a variety of properties, including entire homes and apartments, private rooms, castles, boats, manors, tree houses, tipis, igloos, private islands and other properties.

In November 2010, the company raised $7.2 million in Series A funding from Greylock Partners and Sequoia Capital, and announced that out of 700,000 nights booked, 80% had occurred in the past six months.

On May 25, 2011, actor and partner at A-Grade Investments Ashton Kutcher announced a significant

investment and a role as a strategic brand advisor for the company.

In January 2012, Airbnb announced its 5 millionth night booked internationally through the service. In June 2012, the company announced 10 million nights booked. Of these bookings, 75% of the business came from markets outside of the continental United States.

In October 2015, Jersey City in New Jersey became the first city in the New York metropolitan area to legalise Airbnb, and add it to the existing body of hotels and motels that pay transient occupancy tax.

International expansion In May 2011, Airbnb acquired a German competitor Accoleo. It led to the first international Airbnb office in Hamburg,

Germany. In October 2011, Airbnb established its second international office in London, UK. Due to the growth of international users, in early 2012, Airbnb opened offices in Paris, Milan, Barcelona, Copenhagen, Moscow and São Paulo.

Revenue Airbnb’s primary source of revenue is service fee from hosts and guests on every booking. Fees paid by guests range between 6% and 12% depending on the price of the booking. Airbnb also charges the host 3% from each guest booking for credit card processing.

local passions and interests, discover things that only a local knows. The goal is to broaden the range of services Airbnb hosts can offer. That way, more travellers think of Airbnb as a destination for finding cool stuff to do in a new city and not just a place to sleep. IFM editor@ifinancemag.com

Going beyond home stay Airbnb recently moved beyond home stays. It launched Trips, which will enable travellers access to

Jan - Mar 2017 International Finance Magazine

111

CALENDAR INTERVIEW

01-17 March 2017 Chief Digital Officer Summit Sydney (Technology) Sydney, Australia

06-07 April 2017 India International Smart & Sustainable Cities (Infrastructure/ Technology) New Delhi, India

MARK YOUR

112

Calendar

08-09 March 2017 Nuclear Power Summit in Istanbul (Energy) Istanbul, Turkey

Abu Dhabi, UAE

International Finance Magazine Jan - Mar 2017

Tortilla Industry Association Convention & Trade Expostion (Food) Las Vegas, USA

30 March -02 April 2017 Auto Maintenance & Repair (Auto) Beijing, China

03-04 May 2017 Australasian Hotel Industry Conference & Exhibition (Hospitality) Melbourne, Australia

31 March -01 April 2017 Education Labour Relations & Human Resources Symposium (Human Resource/Education) Toronto, Canada

31 March -01 April 2017 London Job Show (Human Resource) London, UK

03-04 May 2017 Improving Performance of EPC(M) Projects for the Mining Sector (Mining) Toronto, Canada

29 May -02 June 2017 International Conference & Exhibition (Engineering) Hannover, Germany

31 March -02 April 2017 Auto Trends (Auto)

Rostock, Germany

31 May -01 June 2017 Sales Management & Leadership (Leadership) West Lafayette, USA

02-04 April 2017

26 February -01 March 2017 Abu Dhabi International Technology Exhibition (Technology)

01-02 May 2017

International Property Show-Dubai (Real Estate) Dubai, UAE

01 June 2017 Infrastructure Investors Summit (Infrastructure) London, UK

Access the best stories in the world of business at your convenience

Read the digital version of IFM magazine

Scan to get your digital edition

To stay updated daily on interesting developments in the world of business, visit www.internationalfinancemagazine.com For advertisements and subscriptions, Contact: Adam Lobo (alobo@ifinancemag.com) /InternationalFinanceMagazine

/IntlFinanceMag

/company/international-finance-magazine

OUT OF OFFICE

‘I aim to run one marathon on every continent’ Frank Rhode, president and CEO at Nomis, is passionate about many things in life. One of them is marathons How do you like to spend your time outside of office?

Time with the family is extremely important to me.

We make a big effort for family holidays each year.

I am also a keen runner, cyclist and triathlete.

Do you go out for a movie/shopping? Or would you rather sit at home?

I avoid shopping wherever possible.

Why browse instore when you can find everything you need online!

114

What are your hobbies?

Marathons are my big passion.

I’m aiming to run one on every continent. So far, I’ve completed North and South America, the Antarctic, the North Pole, Africa and Europe. London was absolutely beautiful with great crowds and landmarks. Soon, I’ll be running in the Himalayas on the Indian-Nepalese border as part of a five-day 100-mile run.

Do you buy the latest gadgets?

Which was the last gadget that you bought?

I buy pretty much anything from Apple - every iPhone, iPad, iPad mini, Apple Watch. The last gadget I bought though was Amazon Echo. At Nomis, we’ve been playing around with a prototype in the office, hooked up to a pricing engine to negotiate a mortgage - it’s been fun to play around with a neat gadget and an intriguing piece of software.

Do you find time to read?

One of my main hobbies is reading.

For 27 years, since I was 16, I’ve read a book a week. It’s great to learn and continually develop new areas of expertise and insights that you can only get from reading. I’d say around 70% of what I read is business-related, with 30% non-fiction.

How often do you take holidays with your family? Your favourite destination?

We take an extended holiday in winter and another in summer. My 10-year-old son has recently shown a keen interest in choosing destinations like Lake Garda, Italy, but our favourite spot is probably Lake Tahoe in the Sierra Nevada. We built a selfsufficient cabin there, all by ourselves, which is entirely off-grid, but with running water and solar power.

As told to Suparna Goswami Bhattacharya

International Finance Magazine Jan - Mar 2017