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Asian Banking & Finance

INSIGHTS FROM SIBOS Take it from the central bankers

SWIFT IN CHINA Creating more synergy in the communication scales

LIQUIDITY IN ASIAPAC The banks are not in trouble after all

A POWERFUL SYNERGY Trade finance and trade credit insurance















14 Insights from central bankers at Sibos 2012

08 Sibos 2012 If you missed Sibos in Osaka this year, we give you some of the highlights from three of the biggest banks who attended the event.

FEATURE 12 How SWIFT integrates with

16 The real deal on Asia

Pacific banks and liquidity

China’s messaging system SWIFT could create more synergy in the communication scales in the domestic market.

18 The synergy between trade finance and trade credit insurance

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The Asian Banking and Finance team flew to Osaka to witness Sibos 2012, one of the biggest events in the global financial industry. The week-long conference sponsored by SWIFT saw yet another record number of exhibitors and attendees with more than 6,000 registrants. In this post-Sibos edition, we give you a special report on what you missed at Sibos 2012. With Sibos back in Asia this year, the Asian banking and finance community evidently had a good representation during the event. A great mix of players in the industry were present - banks, IT vendors, regulators, central bankers, and the list goes on.

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The Chinese community’s withdrawal of registrations at Sibos 2012 was barely felt as exhibitors and attendees alike made the most out of the vast networking opportunities during the conference.

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MICA (P) 249/07/2011 No. 67


Tim Charlton

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Here’s what you missed at Sibos 2012

If you missed Sibos in Osaka this year, we give you some of the highlights from three of the biggest banks that attended the event.


ibos did not fail to live up to its tag as the world’s premier event for the financial services industry for yet another year. SWIFT brought the event to Osaka this year, and more than 6,000 participants flocked into the city to take part in the event. Before Sibos took place, Sibos Head Kris Hendrieckx said they expect a lot of senior management from the local industry to attend and that they see a lot of interest coming from China. The Chinese financial community who were expected to exhibit at the event, however, did cancellations a few days before Sibos. Industrial and Commercial Bank 8 ASIAN BANKING AND FINANCE

“Eight in ten (87%) bankers are open to holding Renminbi for trade or investment purposes.”

of China, Agricultural Bank of China, Bank of China, China CITIC Bank, Baoshang Bank and Bank of Inner Mongolia have withdrawn from this year’s exhibition at Sibos. According to a media statement, delegates from China, both from local Chinese institutions, as well as foreign institutions operating in China, were expected to make up about 5% of the total Sibos audience in Osaka. Record-high registrations But despite the cancellations, the overall registrations still reached levels ahead of target. Exhibitors and attendees alike again enjoyed a week of networking and took home rich

insights from the global financial industry’s biggest hub for ideas and innovations. But for those who were not able to attend, we at Asian Banking and Finance give you this post-Sibos edition to give you a glimpse of what transpired during the event. Here’s what you missed from the three major banks that exhibited. Barclays’ poll Barclays carried out an opinion poll during Sibos 2012 and results show that banks still see exceptional growth potential in Asia. Out of the survey respondents who were composed of senior representatives from global financial institutions, 59% believe Asia offers the greatest opportunities outside of their home market with Africa identified by 24%. More than eight in ten (87%) bankers are open to holding Renminbi for trade or investment purposes while 68% said they have

SPECIAL REPORT: SIBOS 2012 already done business in RMB. But Barclays noted that the majority of respondents were sceptical on when RMB would become fully convertible with 46% stating by 2020 and only 7% believing by 2015. Of the respondents, 66% said regulation remains the banks’ biggest concern, followed by ‘lack of adequate capital’ (13%) and ‘loan loss of provisions’ (13%). This was also evident when asked whether changing Basel regulation was one of the major drivers for banks to deleverage, with 46% citing ‘yes, in a material way,’ noted Barclays. RMB in Asia “The poll results confirm that banks continue to focus on the opportunities in Asia with RMB continuing to grow in importance. It is also no surprise that regulation remains the biggest challenge and a theme of significant debate and discussion here at SIBOS,” said Matt Tuck, Global Head of Financial Institutions at Barclays. In terms of mobile payments, however, banks seem to shrug off competition as only 4% stated that other banks were the biggest threat in mobile payments. Forty-five percent said the biggest threats are ‘alternative payments players’ such as PayPal and Apple, while 36% said ‘telecommunications companies.’ In terms of when those surveyed believe that mobile payments will account for more than 10% of the total corporate payments volumes processed, 79% don’t expect this to happen in three years but 20% were more optimistic, citing in the next one to two years, revealed Barclays.

lessons learned from the European payments integration. The best practices for Renminbi implementation, on the other hand, were discussed by Christian Westerhaus, Global Head of Cash Management & EMEA Regional Head of Product Management, Global Transaction Banking along with other bankers. Apart from speaking on key industry topics, Deutsche Bank also showcased some of its new products at Sibos 2012, including its new Liquidity Manager App and over 150 other Apps. New apps launched The Liquidity Manager App is part of Deutsche Bank’s Autobahn App Market, the first ‘App-based’ electronic offering for clients in the financial services industry. With the Liquidity Manager App, clients can access and manage daily liquidity analysis, planning and management processes in one convenient location. The App also improves the accuracy of local and worldwide forecasting, improves the transparency into branch account

positions and centralises control of liquidity management through shared views and workflows, noted Deutsche Bank.

“The Liquidity Manager App is part of Deutsche Bank’s Autobahn App Market, the first ‘Appbased’ electronic offering for clients in the financial services industry.”

At the forefront of technology Rhomaios Ram, Global Head of Product Management, Global Transaction Banking, Deutsche Bank said the Bank has again demonstrated it is at the forefront of technology by launching its latest App in the Autobahn App Market, the Liquidity Manager. “This new App will benefit clients by allowing them to take advantage of the associated increase in transparency and reduction of risk from one convenient location,” he noted. According to David Watson, Head of Client Access, Global Transaction Banking, Deutsche Bank, meeting client needs in a rapidly changing market depends not only on what is delivered, but how it is delivered. “Deutsche Bank creates hightech, flexible solutions for clients with its Autobahn App Market. Taking an adaptable approach to implementation and customer service is part of the Bank’s commitment

Deutsche Bank’s discussions Senior managers at Deutsche Bank took part in several industry discussions at Sibos 2012. To name a few, Andrew Rand, Head of Direct Securities Services EMEA, Global Transaction Banking, participated in the session on Russian securities market changes. Hansjörg Nymphius, Chairman, Euro Banking Association & Head of Market Infrastructures, Product Management, Global Transaction Banking, shared his insights on ASIAN BANKING AND FINANCE 9

SPECIAL REPORT: SIBOS 2012 to innovation and a positive user experience,” he added. JP Morgan’s new products JP Morgan rolled out several products and services in Asia Pacific before Sibos took place in Osaka to magnify the firm’s global footprint. According to Don McCree, Head of Treasury Services, JP Morgan is consistently developing new solutions that its clients can use to streamline their business and respond to a changing regulatory and technological landscape. “Our team has the deep understanding of global markets to help financial institutions navigate this environment,” he added. The evolving global regulatory situation presents a host of challenges for financial institutions that must comply with changing collateral and custody requirements, said Dinkar Jetley, J.P. Morgan’s Head of Worldwide Securities Services. “As these requirements affect more and more financial institutions in all regions, a firm with a global footprint is the best partner in helping to understand and comply with the rules. J.P. Morgan is a global bank


recognized for its expertise, and we will continue to provide counsel and offer the products and services that our clients, and financial institutions generally require,” he said. Strengthening Asian presence One such product is the CrossCurrency Automated Clearing House or Cross-Currency ACH solution which attracted Thailand’s KASIKORNBANK as one of its first clients. The Cross-Currency ACH platform unites the different national clearing systems into a single regional payment network for high-volume, non-urgent payments. It also automates the end-to-end payments and FX processes, helping clients manage the significant cost and time constraints around executing a large volume of crossborder payments from multiple accounts across multiple currencies. JP Morgan also enhanced its U.S. Dollar Clearing – Asia Direct solution to further assist clients seeking fast and efficient means of making and receiving U.S dollar payments to and within Asia. The

“JP Morgan also enhanced its U.S. Dollar Clearing – Asia Direct solution.”

enhancements deploy J.P. Morgan’s state-of-the-art technology to optimize routing. Asia Direct, noted JP Morgan, automatically determines the quickest route to make payments to Asian beneficiary banks so clients enjoy greater reach for expedited payments to more than 25,000 subbranches across China, Hong Kong, Taiwan, Japan and the Philippines. Thomas Wiles, Head of Clearing and Foreign Exchange, Asia Pacific for J.P. Morgan Treasury Services, revealed that their clients are looking for efficiency and assurance of same-day settlement of payments to and within Asia. He noted that Asia Direct, which seamlessly integrates the leading reach of J.P. Morgan’s Book Transfer capabilities with local U.S. dollar clearing systems across Asia, is designed to provide a singularly effective and far-reaching way to meet these needs. “We have already seen great confidence in this product, with volumes ramping up almost 60% over the last year, and we expect the recent enhancements to accelerate this even further,” he said.


Maximizing benefits of card networks MasterCard doles out advice for companies on getting the pros and hedging the cons on key banking trends.


he potential of utilizing payment card networks in reducing friction in the financial supply chain remains untapped. This is the case as well with regard to purchase-to-pay procurement processes of enterprises of all types, sizes, domestic, and cross-border, according to Michael Angus, Group Head, Payments Strategy of MasterCard Advisors. Edge of using payment card networks There are always two sides to a coin, and such is the case with payment card networks. “The advantage is that it’s really global, it’s fast, and lastly, it’s a new network which means that we can attach and, at the same time, track a lot of information,” Angus explained. The advantages in the financial supply chain efficiency are two-fold. ‘’One, if you look at how cost is generated in the financial supply chain, the payment itself is a very small part of it,’’ he noted. Most of the costs flow into the initiation of the payment and into the reconciliation of the said payment after it is received. Although some exceptions occur, Angus remarked, like when it goes from being straight through electronic to manual interventions. Secondly, said Angus, the network that the cards have is a global one. It’s a global hub-and-spoke network, so it’s inherently simpler than many of the cross-border networks. Managing changes in treasury services “This is actually the question that a lot of banks are wrestling with right now,” Angus revealed. These banks are starting to hear from their customers that they

like products that are based on the card infrastructure, commercial cards, and T&E cards among others. And these are integrated with the offerings that the transaction banks are making at present, he added. In effect, a lot of banks around the world are trying to figure out how to offer these things. ‘’They realize very early on that it has to be a very integrated offering,” he further explained. Angus bared that the trick to this is that many of the card network solutions have grown up separately. “They have often grown up in the retail part of the bank, because that is where the scale is, thus, that’s where efficiencies can be gained so they sort of bloom in a certain way,” he elaborated. Card networks also make money in different ways than any other transaction banking products. Consequently, he said, bringing all those together can sometimes cause friction and some change that management skills are required to consolidate them. ‘ ’First thing that’s important is to get them to understand how they value each other,” he reminded companies. Second thing, he added, is to put a clear set of matrix in place that would allow them to both optimize their way of doing their businesses. Dangers of co-location More and more banks are locating their commercial card operations within their very own treasury services reporting line because, according to Angus, they have common clients and there is the thriving need to offer transaction solutions.

Michael Angus, Group Head, Payments Strategy of MasterCard Advisors

However, he warned that the culture and professional vocabulary of transaction banking and that of the cards business are very different. Angus admitted, “Some of the risks in doing it are putting people that both had successful businesses together when their businesses are different.” Unless these establishments understand how a successful sales process works, how each other makes money, how they affect each other, there can be some friction. Angus put it, ‘hiccups’ may get in the way for the corporate clients. He advised that eliminating these is the real issue and that banks must focus on it. MasterCard in Sibos 2012 As first-time participants, MasterCard’s primary aim, as Angus explained, is to hear from corporate banks and transaction banks on the ways with which they can work together for solutions. “We’re hoping for more to listen to and get ideas from, but we’re more importantly looking at network with mobile,” he said. A lot of energy is being spent on mobile point of sale, he added, and that there is a number of partners MasterCard is working with through simple and efficient ‘mobile point of sale.’ “It’s a long way, but we are hoping to develop it,” Angus admitted.

“First thing that’s important is to get card departments to understand how they value each other.” ASIAN BANKING AND FINANCE 11

FEATURE: SWIFT IN CHINA When it comes to quantifying the manner of investment Swift is making in Asia Pacific corporations, Raes gave the issue a miss. “I’m not in the position to quantify,” he said It has already grown a lot and is looking into building a shed center in Kuala Lumpur, Malaysia by next year. This move will certainly push the number of back-office positions that Swift has in other parts of the world. “Over time, we also need to prove that this is a wise investment for the company,” he said. Asia, as it turns out, is only 13% of SWIFT’s volumes.

How SWIFT integrates with China’s messaging system SWIFT can create more synergy in the communication scales in the domestic market.

In early October, Chinese banks started withdrawing their participation from Sibos due to reasons arising from the country’s political spat with Japan. “The world is becoming increasingly complex and politicized and there is nothing we can do about this given that we have a neutral position,” SWIFT’s Head of the EMEA Region Alain Raes explained. Swift currently has offices in Beijing and Shanghai to keep true to its goal of building closer ties with its clients in China. Domestic messaging system China has UnionPay, a massively successful domestic retail payments business that’s increasingly going international with travelers. What’s Swift doing to be able to integrate into the Chinese domestic messaging system? “Let’s put it this way: I see what’s happening in Asia when it comes to doing business,” he elaborated. As a case in point, he cited the Chinese domestic messaging system as a successful 12 ASIAN BANKING AND FINANCE

“We don’t have significant domestic presence, and we are looking to grow that with the flagship project we have called JAZDAC.”

retail business. He admitted that SWIFT does not have any intentions to be in this kind of business and that it has been exposed to similar strategies by competitors and market segments in Europe and United States. “The question is,” he reckoned, “is China willing to do more than that in going to the wholesales? I don’t know as of this point in time.” One of the issues nagging SWIFT is its ability to enmesh more domestic messaging payments. But where would its channel be: through security sides in Asia or through commercial banking and corresponding banking? “I think both is plausible,” Raes said, “the local payments system, too: high value, low value.” He said that it is really the domestic market from which Swift could create more synergy in the communication scales. “The more volume we have in our network, the cheaper the price will be per transaction,” he said. In comparison with JP Morgan’s $500 million investment in operation expansion, what is Swift’s plans?

Taking over AsiaPac At the end of this year, Raes will shoulder the responsibility of leading the Asia Pacific region from its Chief Executive, Ian Johnston. He hinted that in his term, his priorities will be similar to the ones SWIFT currently has. “Actually we have agreed with the SWIFT Board of Directors on the new strategy for Asia, as this strategy is really in the right way for us in the region” Raes revealed. These priorities are held up by four major pillars. One, he enumerated, is that the group is eyeing to become more local in India. “For that matter, we have a number of very much important projects going forward domestically in India,” he divulged. China is the group’s second target as a major market to anchor themselves in, most particularly when it comes to cross-border standard transactions between the rest of the world and the Chinese fashion industry, Raes noted. The third is Japan, which is already one of the group’s major Asian markets, representing approximately 30% of the volume in Asia. “But again, we don’t have significant domestic presence, and we are looking to grow that with the flagship project we have called JAZDAC,“ Raes pointed out. The project will be rolled out soon and the access to which will be via SWIFT. Lastly, he said that the group seeks to prioritize ASEAN countries as well where they are currently connecting banks in the fashion industry. Raes will still be keeping his post as the Chief Executive of Europe, Middle East and Africa. “It’s going to be a bit of a challenge. One thing: I will be relocating in Asia,” he revealed.


Adapting to changes in business demands while improving growth and operations

Infor understands that competition among enterprises has become ultra tough, thus it steps in to provide innovative systems and flexible solutions to give companies the leverage they need.


nfor is recognized as the third largest provider of enterprise applications and services. Over 70,000 customers in 194 countries subscribe to their offerings to improve their operations, boost growth, and swiftly bend along with changes in business demands. Infor offers industryspecific and innovative applications and suites that provide options for customers to run their businesses in either the cloud, on premises, or both. Infor’s advantageous DNA According to Byron Byrd, General Manager and Vice President of Banking and Billing Solutions, Infor boasts of revenue of over $2.8 billion per year. “We’ve demonstrated over 28% organic growth year over year. We have our billing solution that is present within the top 5 global institutions. We also have 10 of the top 30 US institutions, these in our solutions as well. We have solutions represented by staff and offices literally around the world,” he added. But what are the key advantages of working with Infor? Firstly, Byrd noted, the huge advantage of linking up with Infor is that their people are committed to financial services. “Our solutions are purposebuilt for financial services, and we also have a big consulting and development team that has enabled the success of our applications,” he commented. Secondly, their staffs, Byrd said, are committed to continuing professional education. “They are making sure

Infor’s Complete Billing System

Jose Monteagudo, Global Account Executive and Byron Byrd, General Manager and Vice President of Banking and Billing Solutions, Infor

that they have the certified treasury professional status, making sure that they have the PMI status for our project management professionals,” he assured. Infor ascertains that when it comes to the implementation of solutions, everything is 100% taken care of. “From development to support to consulting services to implementation, 100% of

“The Complete Billing System provides actionable information about the bank’s corporate clients with valuable analytical insight.”

that satisfaction is owned by a single team without the need for complexities of system integrators,” Byrd further explained. Aiding in business operations One of Infor’s solutions is called the Complete Billing System. Jose Monteagudo, Global Account Executive, elaborated that this system is the solution for billing and analysis of payment-related fee-based services. The key characteristic of the complete billing system that sets it apart from competitors’ similar offers is that it was purposely designed for one thing. “It is for supporting leading commercial institutions as it has been implemented in 140 countries and is a totally proven stable solution,” he pointed out. He added that through this and Infor’s other solutions, customers are helped in meeting their strategic business goals. “We help them to enhance revenue generation, to streamline operations, to attract new customers, and finally, to improve existing customer experience,” he explained. Monteagudo also revealed that in their participation at Sibos 2012, they introduced the billing in the cloud offer. “We are sure that it will impact the market,” he hinted. ASIAN BANKING AND FINANCE 13



Insights from central bankers at Sibos 2012

BY TAPAN AGARWAL Senior Vice President Polaris Financial Technology Limited


was at Sibos 2012 in Osaka, Japan, and it was a pleasure to meet several bankers across the world. Moreover, as the event was held in the Asia Pacific, there was a very good representation from the Asian banking and finance community a very good blend of banks, IT vendors, regulators, monetary agencies, Clearing and Settlement houses, depositories, and so on. I gathered some good insights from the central bankers present at sibos. While some were interested in payments and RTGS systems (Africa), some of them in the Asia Pacific were interested in complete core banking technology refresh, and quite a few in Europe were keen on strengthening their collateral and risk management frameworks to meet the new ECB norms. What I gathered was that in many countries, the central bankers have presently been busy forcing the commercial, retail and co-operative banks under their ambit to modernize their core banking systems and technology Infrastructure. They have tightened their payment systems and made regulatory reporting more streamlined/ automated. Also, many countries now do have automated ACH/RTGS systems. The last decade or so was spent by the central bankers with an external focus, and they have experienced good success. However, they have started to realize that their own in-house technology infrastructure is not as modern as those of the commercial banks. While they have started to get good quality data feeds in real time, their own in-house systems and processes are not yet ready to process this data in real time. The general consensus seemed to be that as the banking system is globally connected, and even a small event in one bank/one country could send shockwaves globally, even central banks need to respond to these changes in real time. Hence, the central banks would like to modernize their technology infrastructure and processes. Apart from core banking systems, the central banks across the globe seem quite keen on something like a “bank supervision module” Basically, a system that will take “financial feeds from banks” and then manipulate the feeds to generate reports/analytics/statistics such as: • Regions, where NPAs are high, • Capital Adequacy of Banks by Region/ Type, • Capital and Forex Flows by Region/Bank 14 ASIAN BANKING AND FINANCE

Type/Quarters, SLR/CRR ratios of banks and their corelation with Deposit growth, Asset growth, Capital Adequacy, Assets, Management Quality, Earnings and Liability measurement analysis (CAMEL) of the bank, is required. They may want this system to tell them, based on historical data, that in Quarter 3, the capital outflows are high, or that banks in the south have a very high loan-deposit ratio compared with the North, and take decisions based on that. They also need some simulation tools, so that the central bank can simulate, say a 20 bp increase in interest rates, and then see the impact on the economy and/or simulate a devaluation of the currency and assess the impact. Most of the central bankers I met, however, also mentioned that strong program management, governance and implementation approaches are essential before any technology refresh is done in a central bank. As they are the backbone of any economy, no one would want to put a central bank IT transformation project into the annals of “failed/ delayed projects”, as the ramifications can be disastrous. All in all, I think it was a great sibos, and I am sure that the wave of changes at central banks will only strengthen the Asian banking and financial infrastructure rolling over the debt. •

Inside the minds of the bankers


XSP takes cloud to a higher level with XSPrisa Find out more about XSPrisa, XSP’s new SaaS offering.


ince 1996, XSP has been providing automated end-to-end corporate actions solutions to various companies - from small hedge funds to large global financial services firms. The XSP platform mitigates operational risks and costs in corporate actions processing through combining stateof-the-art technology with feature-rich functionality. XSP achieved several major milestones this year, including being awarded the SWIFTReady Corporate Actions label for the eighth consecutive year. According to XSP Chief Executive Officer Brendan P. Farrell, Jr., they were the first firm to actually build an automated corporate actions solutions and license it. “Because we started off and specialized in corporate actions only, we very quickly established ourselves in the market,” says Farrell. Not your ordinary cloud XSP showcased its products at Sibos 2012 held in Osaka, including the XSP v5 platform and XSPrisa, a new SaaS offering that reduces the operational overhead and capital expenditure required for large-scale, enterprise software. XSP’s v5 platform delivers true endto-end straight-through processing and features an extensive workflow module, robust data management tools, and client notification and response capture. XSP has been the leader in corporate actions automation for over 16 years now and XSP v5 has established itself as the industry standard. But XSP takes yet another big leap forward with its new offering that builds on the v5 platform - the XSPrisa product. XSPrisa is a state-of-the-art cloud solution that has a pay-as-you-go, subscription-based mode that lets firms experience higher levels of productivity and efficiency at a cost that fits the way they operate. Within only three months of its launch, this solution had subscriptions with two clients – ICBCFS and Cantor Fitzgerald – with many other financial institutions in trial evaluations and in the process of subscribing.

Daniel E. Retzer, Managing Director and Chief Technology Officer at XSP

XSPrisa eliminates the burden caused by deploying, maintaining and operating software. It also transforms capital expenditures into operational expenses and enables customers to focus on their core business goals. With Sibos taking place in Osaka this year, XSP was able to quickly develop a Japanese front end to meet the growing demands of this market, giving users a better understanding of the product’s functionality and further reducing the risks associated with complex Corporate Actions processing. The fact that this flexible dashboard, developed on the cutting edge XSP GO! platform was so quickly customized to support a Kanji user interface (UI), clearly demonstrates that XSP can easily modify its product suite to support native languages across multiple different markets worldwide. XSP Managing Director and Chief Technology Officer Daniel E. Retzer notes that XSPrisa is built on top of the core XSP v5 solution. “That means we have support for both the extensibility of the product and the multi-tenancy as well. As we moved our corporate,

“XSP has been the leader in corporate actions automation for over 16 years now.”

Brendan P. Farrell Jr. Chief Executive Officer at XSP

production infrastructure into the cloud, we developed a very lightweight, userfriendly dashboard interface. This led to the natural evolution of XSP v5 into the XSPrisa Software as a Service product,” says Retzer. XSPrisa offers the same strengths of the proven XSP v5 platform, including the eTRAN/eTRAN+ response capture tool, that’s been deployed globally and is being used by over 90,000 users. XSP in Asia According to Retzer, studies indicate that corporate actions volume is expected to grow at 14-15% annually. Between the rise in volume of global events and the increasing complexity in the underlying corporate action announcements, there is now a compelling argument for an automated solution. So with this projected growth, what can we expect of XSP’s new ventures and localizations especially in Asia? Farrell says Asia is ready for automation but there are no automated solutions deployed yet in many parts of the Asia Pac region for corporate actions. “We believe that compared to the traditional deployed solution, access to our software’s robust, tried & tested functionality as a cloud offering will make it easier for us to penetrate these markets today,” concludes Farrell. ASIAN BANKING AND FINANCE 15



The real deal on Asia Pacific banks and liquidity

BY MOORAD CHOUDHRY Professor at the Department of Mathematical Sciences, Brunel University.


e speak of the “global” financial crash of 2008 but in many respects the crash was a trans-Atlantic one; certainly the bank crash was concentrated amongst US and European banks, although the economic impact was transmitted worldwide. If anything, Asian banks had already had their liquidity crisis, back in 1997, and learnt from it. The result was that the conservative liquidity and funding principles currently being laid down under Basel III were already enshrined in Asian banking culture by the time of the Lehman default. This approach to liquidity risk management is exemplified by the fact that the majority of banks in the Asia-Pacific region do not view the Basel III liquidity coverage ratio and net stable funding ratio metrics with any great trepidation: the new requirements are already being met in many cases. One might say that the newfound Western emphasis on liquidity is a distraction from a topical issue of greater relevance to the Asia-Pac region, namely that of surplus liabilities and what to do with them. Monetary policy of central banks The impact of central banks’ monetary policy easing has added to the surfeit of funds. Together with the existing liquidity management regime in Asia-Pac banks, it makes clear why the current issue is one of excess liabilities, not a shortage of them. The regional debate here is not of a risky over-reliance on short-term wholesale funds, but where to deploy funds for anything other than a minimum return at the central bank. No easy solution presents itself. There is little point in securing a best-practice risk culture on the liability side of the balance sheet only to negate this by extending the risk-reward line on the asset side. The debate appears to be one of seeing at what point, beyond AAA sovereign bonds, one remains comfortable, starting with investment-grade corporate bonds and ending up with equities and commodity finance. The latter is certainly viable, but may be too rich for some people’s blood, depending on the individual bank’s risk aversion. Where banks restrict themselves to investing in sovereign bonds to apply surplus funds, they may be tempted to hold long-dated assets; this creates greater market risk. 16 ASIAN BANKING AND FINANCE

But in a global economic environment that remains in nervous mode, perhaps the solution is to stay risk averse, and restrict new business ideas needed to soak up surplus liabilities to only gold, inflation–linked sovereign debt and cash at (the central) bank? It’s not necessarily a bad idea. Banks’ business model The other approach of course is to review the bank’s business model itself. An excess of liabilities can end up being too much of a good thing. Is the solution instead be to revamp the operating model so that these funds disappear? For example, by re-focusing deposit-raising strategy to concentrate in fewer sectors, or different sectors, such that the surplus slowly unwinds itself? It is certainly an option, especially when one remembers that certain types of liabilities result, under Basel III, in a higher liquidity buffer requirement. Excess cash can be expensive. But that doesn’t necessarily mean that one throws caution to the wind and extends the risk-reward profile, especially when the economic environment remains uncertain. The answer may well lie, over time, in engineering the surplus away.

Asia-Pac banks are not so troubled after all


MIT brings CREDOC and TRAC to Asia

Check out MIT’s premier products for Asia’s trade commodity finance industry.


n the early 1970s, bankers were doing all documentary credit operations manually. Three brothers then began to computerize the operations of their international commodity trading company and birthed the Micro Informatique & Technologies SA, also known as MIT. Their success started the idea of founding a software company to automate and streamline banking operations, and led to the creation of MIT in 1984. As one of the key players in the trade finance industry, MIT showcased two of its major products at sibos 2012 in Osaka - CREDOC and TRAC. The CREDOC technology CREDOC is an advanced software solution designed for the documentary credit departments of banks. It provides full processing of documentary credits and trade finance operations, domestic and international guarantees, collections, loans, advances, fund transfers, accounting entries, customized statistics, and connection between banks and

customers through the web. After more than 25 years, CREDOC has already been installed in more than 50 banks in Switzerland, Europe, and also the Middle East. CREDOC was first released in 1986 and the years that followed saw different enhancements and upgrades of the system. According to MIT General Manager Paul Cohen Dumani, they had to constantly design and redesign their product software for trade finance to keep their customers loyal to them. He adds that today, CREDOC exists in two technologies - a web-based version which is more suited for multi-branch deployment and a Windows-based version which is more suited for single department deployments. MIT’s TRAC In 2010, MIT launched yet another game changer - the Trade Risk Active Control, commonly known as TRAC. It is the first Thin-Client Web-based application for the trade commodity finance industry, available on several

“After more than 25 years, CREDOC has already been installed in more than 50 banks in Switzerland, Europe, and also the Middle East.”

Jean-luc Spinardi, Head of Sales and Marketing and Paul Cohen Dumani, MIT General Manager

platforms like Windows, Linux, and AIX with Oracle DB. TRAC is a trade risk and collateral management system supporting commodity finance and structured trade finance. TRAC is designed for commodity finance relationship managers, credit risk managers, and top managers who want to track and monitor theirs risks appropriately. According to Jean-luc Spinardi, head of sales and marketing at MIT, TRAC has identified a real gap in the market. The product has then attracted great interest from their customers. Spinardi notes that the usual way to treat trade commodity finance in banks is still Excel spreadsheet. And with the financial crisis as well as the pressure from the auditors and regulators, MIT realized the need to address these issues. “This is the reason why we decided to create this new application and there was a great answer from our customers,” reckons Spinardi. MIT in Asia Dumani notes that MIT wants to test, see and make sure that they address every issue for their clients by coming to Asia and talking with Asian banks. Last year, MIT inked a deal with Sterci SA, a financial messaging solutions company, to ensure product representation through an office in Singapore. Sterci is an expert in STP software development and has a strong foundation of 25 years in financial messaging. Its product Stelink transmits Swift messages coming from and to CREDOC. Spinardi notes that the partnership with Sterci is very important for MIT as it spurred great interest in Asia especially in Singapore for trade commodity finance. “We partnered with Sterci in Singapore because we noticed that there was a gap in the market for trade commodity finance. You can notice that in the market, there are many companies now which are going in this area to run their business,” says Spinardi. With more innovations underway, MIT’s presence in Asia is expected to expand in the next few years. “We look forward to be in Dubai for sibos 2013,” concludes Dumani. ASIAN BANKING AND FINANCE 17


TONY GEORGE The synergy between trade finance and trade credit insurance

BY TONY GEORGE Ex-Partner of, and now a Consultant at, Ince & Co LLP.


s I scanned my Insurance Day newsletter in London the day I wrote this article, three articles caught my eye “Market Update: trade credit claims rise in 2012 following 30% jump in 2011;” “Trade credit: uncollectable debts rising in North America;” and, “Credit insurers call for banks to ‘behave as they should to end financing gridlock [the International Credit Insurance & Surety Association] points at banking sector’s failure to extend credit as major obstacle to economic growth.” Despite the incongruity these headlines demonstrate the synergy between trade finance and trade credit insurance (TCI). TCI may be broadly defined as the insurance against ‘counterparty risk’: the risk of financial loss caused by the failure for commercial reasons of a cross-border trade partner to honour its contractual obligations, whether payment for (‘can’t pay/won’t pay’), or the supply of, goods or services. Provided specified parameters are met, such as ‘national benefit’ or overseas development, for some time this type of insurance had been provided by countries’ export credit agencies and multilaterals such as MIGA. Certain insurance companies had also specialised in writing it, but the private sector was given impetus in the mid-nineties when conquering Lloyd’s fear of credit insurance generally following disastrous experience in the 1920s, Lloyd’s regulations were changed and Lloyd’s syndicates were again allowed to underwrite credit risks, albeit only in an overseas trade context. The private political risk insurance market in London – whose CF, ‘Contract Frustration’ policies were beginning to overlap with trade credit insurance – were quick to take up this new class of business and to provide TCI to corporates engaged in international trade such as commodity traders, as well as exporters (and indeed importers with pre-payment or pre-export risks, such as the cost of aborted manufacturing and supply) perhaps involving their financiers as ‘loss payee’: the nominee for receipt of claims payments. These days, however, banks and other financial institutions have taken over as primary insureds. They account for the largest sector of the TCI market with coverage being provided to them against default on their loans and securities as well as protection for their own financial instruments. This is partly because wordings have been socrafted that they are sufficiently ‘unconditional’ 18 ASIAN BANKING AND FINANCE

to meet the requirements of the Basel II Accord to qualify as ‘credit risk mitigation’ (CRM) instruments acceptable to banks’ supervisory authorities. The wordings now avoid any provision which is outside the control of the insured bank and which could entitle insurers to refuse to pay a claim in a timely manner in the event of counterparty default. Basel III, if and when it is adopted around the World, may inhibit financial institutions’ involvement in trade finance, but TCI is likely to remain an acceptable CRM. The popularity of TCI with financial institutions has come at a cost to the Insurance Market. Following the collapse of Lehmann Brothers in 2008 and the resulting global recession, the Market has paid out an estimated US$2.5 billion in claims. Nevertheless, the Trade Credit Insurance Market remains relatively undaunted. There has been a slight reduction from 2011 to 2012, but over the last 10 years its capacity has increased fourfold. According to brokers’ figures, by the start of 2012 Trade Credit Insurance has a theoretical capacity of nearly US$1 billion with tenors ranging from 1 year to (exceptionally) 15 years. This is not to say that TCI does not generate problem claims: claims that require investigation and which are sometimes turned down requiring litigation to resolve.

A powerful synergy




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