Asian Banking and Finance (Oct-Dec 2014)

ISSUE NO. 77 DISPLAY TO DECEMBER 31, 2014

Asian Banking & Finance

abf awards 2014 honouring the best banks in asia eu regulation’s impact

on asian bankers’ pay

hong kong banks play a dangerous credit game

reaching asia’s

unbanked Award winners inside

people profile ANZ’s new international banking CEO Farhan Faruqui

sector report How can Islamic banks master diversity?

OPINION Singapore and the United States shake hands on FATCA

analysis Basel III and previous capital frameworks’ failures

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FROM THE EDITOR Publisher & EDITOR-IN-CHIEF ASSOCIATE PUBLISHER production editor Assistant Editor GRAPHIC ARTIST

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Asian Banking and Finance continues its unwavering support for outstanding Asian banks by recognizing their best products and solutions at the Retail Banking Awards and Wholesale Banking Awards 2014. The ABF Awards received nominations from 24 countries for the WBA and 28 countries for the RBA. With a total of 99 winning banks, 2014 proved to be a record year for nominations and winners, beating the previous years’ figures.

Find out more about the winning banks and take a sneak peek at what happened during the awards night in Singapore as we bring you a special post-event coverage in this issue.

This issue is also packed with sector reports on Islamic banking, business banking, and foreign exchange. We talked to several bankers and analysts and found out that Islamic banking is on the cusp of a demand boom as millions of Muslim consumers in Asia begin to switch from traditional banking to Sharia-compliant banking. However, the lack of universal agreement and application of Sharia law in target markets is hampering its surge. Analysts also note that Asian banks should now think of ways to transition from a product-focused to a customer-focused organization in order to serve customers comprehensively in the business banking segment.

We sought to explore the impact of EU regulation on Asian bankers’ compensation. Foremost among the regulatory moves was to put a firm cap on bankers’ performance-linked bonuses to dissuade them from short-sighted actions, but this has also had the unintended effect of making Asia that much more attractive to top western talent. Find out how this affects the banking industry in Asia.

Enjoy!

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All editorial is copyright and may not be reproduced without consent. Contributions are invited but copies of all work should be kept as Asian Banking and Finance can accept no responsibility for loss. We will however take the gains. *If you’re reading the small print you may be missing the big picture    

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

ASIAN BANKING AND FINANCE | DECEMBER 2014 1

CONTENTS

STORY 48 COVER ABF Awards 2014 winners revealed

FIRST

OPINION

38 Why Basel III is not the perfect

07 Will gold-to-go glitter in Asia?

07 The Chartist: Regionalization of

Asian banks

answer to previous capital frameworks’ failures

46 Why reaching Asia’s unbanked has

become less of a pipe dream

margin pressures

10 Why Asian banks can no longer shrug off Bitcoin as a novelty

12 Reforms address Chinese bank NPLs

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 06-09 E, Maxwell House 20 Maxwell Road Singapore 069113

2 ASIAN BANKING AND FINANCE | DECEMBER 2014

72 Asia’s most in-demand banking

SECTOR REPORTS 30 Customer centricity key to

business banking in Asia

and finance jobs right now

74 How to keep banking & finance

go-getters from jumping ship

76 How Asia Pacific’s treasurers should

08 Singapore banks brace for

36

sector report How can Islamic banks master diversity?

ANALYSIS

06 Should banks outsource their compliance tasks?

44

analysis EU regulation turns Asian banks into greener pastures

think about Basel III

78 Singapore and US shake hands

on FATCA

80 Why less is more in management

42 Between forex and macro-change

For the latest banking news from Asia visit the website

www.asianbankingandfinance.net

News from asianbankingandfinance.net Daily news from Asia most read

BANKING TECHNOLOGY

Deutsche Bank launches new transaction banking apps in India Deutsche Bank has announced the launch of new transaction banking apps on its award-winning Autobahn App Market in India.

According to a release from Deutsche Bank, leveraging a global payment processing engine, the Cash Manager app facilitates straight-through processing of payments and collections for corporates in India, including e-Tax payments.

RETAIL BANKING

Check out the largest Indian banks’ lending spree Total unconsolidated loans at the six largest Indian banks by total assets as of the end of fiscal 2014 have more than doubled to 29.633t Indian rupees as of June 30, compared to 14.690t rupees in 2010.

According to a research note from SNL Financial, in this growth trajectory, India’s largest private sector banks have outgrown most of their state-owned peers in terms of financial and stock performance.

RETAIL BANKING

Hong Leong Bank pushing for 10% loan growth in FY15F For FY15F, the management of Hong Leong Bank aims to improve loan growth to 10%, led mainly by residential mortgages. According to Nomura, the bank will continue to sustain margins at the current level through active liability management and/or allowing a higher LDR. Furthermore, through cost discipline, the cost income ratio is expected to trend lower towards the 42% mark.

most read commentary Why banking and finance firms should treat the talent pool as a portfolio

BY RAED S. HADDAD Over a decade ago, factors such as globalisation, deepening of financial product usage, and demographic change led the banking and financial sector on a dynamic trajectory.

Essentially, the financial services industry (FSI) built its growth and returns model around these drivers.

4 ASIAN BANKING AND FINANCE | DECEMBER 2014

C

M

Y

CM

Turning the spotlight on the backstage office

BY NICK QUIN The front office in financial institutions often hogs the limelight when the firm excels. But in recent research has shed more light on the overshadowed back office and shown a direct and positive relationship between the benefits of robust technology in the back office and the impact on portfolio performance.

Trade finance woes in emerging Myanmar - Part 1

BY DAVID PAN “Moving forward in unity to a peaceful and prosperous community,” the Myanmar slogan echoed as it chaired the 2014 ASEAN summit. This was the first time Myanmar has chaired ASEAN since 1997 and the latest step in a series of events that Myanmar is taking to join the international community.

MY

CY

CMY

K

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FIRST to breeze through these critical early stages since more time spent deliberating proposals, vendors and transition programs will likely result in a stronger compliance outsourcing system. Buyers and vendors have a tendency to rush through the transaction, which can lead to downstream problems, a Deloitte global outsourcing survey in 2014 revealed. “Spending adequate time during request for proposal, vendor selection and transition is another critical success factor for outsourcing deals,” according to the survey, which polled global executives including roughly a quarter from the financial services industry.

Female-FRIENDLY

While the rest of the world thinks girls run the world, female Singapore finance professionals strongly disagree as half of them believe they are not fairly paid.

A survey by eFinancial Careers reveals that while Singapore is one of the most female-friendly city states, it’s struggling to achieve equality in compensation and representation at senior levels. Two in three women say men are paid more in equivalent positions, but only 29% of men believe so.

According to eFinancialCareers, of those who believed men are paid more than women in equivalent positions in the financial industry, most respondents (44%) perceive there to be an 11% to 20% gap; while just over a third (34%) evaluate the gap at 21% to 30%. The survey results also show that finance professionals have split views when it comes to the situation of the pay gap improving in the future: 44% think it will narrow, 41% say it will stay the same and 15% believe the gap will increase. While 89% of financial services professionals believe that women are equally represented at junior levels, only two thirds (66%) believe that women are fairly represented at senior positions.

Pro-women But despite the apparent inequality in compensation and representation, majority (87%) of finance professionals in Singapore would still recommend their company to a female friend.

This was the most positive response globally, with Australia (83%) the UK and the US (82%) close behind.

The lowest responses came from professionals working in the Middle East (66%), Germany (69%), France (76%) and Hong Kong (77%).

6 ASIAN BANKING AND FINANCE | DECEMBER 2014

Preventing compliance outsourcing disaster

Should banks outsource their compliance tasks?

T

he moment a bank bulldozes the implementation of compliance outsourcing is also when it exposes itself to great risks – maybe even greater than if it had chosen to keep the process inhouse. Because for all the purported benefits of compliance outsourcing, rolling it out in a haphazard manner can result in compromised customer data, regulatory infractions and reporting inaccuracies.

To avoid these costly mishaps, the first thing banks must do is scrutinize their compliance outsourcing motivations, says Judy Vas, Asia Pacific financial services regulatory leader at EY. “Management must be clear on the reason to outsource.

Outsourcing compliance help to deal with a temporary regulatory issue, such as to comply with an enforcement settlement, is very different from outsourcing on a permanent basis,” she says. Picking a proven and reputable service provider also goes a long way to prevent a compliance outsourcing disaster. “It is important to do proper due diligence of the track record, ability and quality of the service provider and set a clear agreement as to accountability, responsibility and reporting,” says Vas. Banks must avoid the temptation

Spending adequate time during request for proposal, vendor selection and transition is another critical success factor for outsourcing deals.

Cover all bases Having chosen a qualified and compatible service provider, banks must then forge stringent rules on operations. A comprehensive compliance outsourcing agreement will address challenges such as regulatory complexities, reporting timeliness and accuracy and customer data privacy, says Liew Nam Soon, Asia-Pacific and Singapore financial services advisory leader at EY. Banks should err on the side of caution and install more ironclad oversight and control mechanisms to ensure the provider meets the high performance standard set by the bank and regulators. “A bank would still need to provide and demonstrate sufficient and robust oversight of the outsourcing and ensure that the outsourced tasks are sufficiently integrated with existing controls and processes within the bank,” says Giam Ei Leen, partner, global financial services industry at Deloitte.

Anticipated and achieved cost reductions due to outsourcing

Source: Deloitte 2012 Global Outsourcing and Insourcing Survey

FIRST The gold ATMs in Singapore dispense between one to 20 grams of gold, with a single gram costing more than $100, with prices changing daily based on benchmark prices.

The machine that lays the golden ingots

Will gold-to-go glitter in Asia?

W

hen tourists step into Resorts World Sentosa and Marina Bay Sands, they will be greeted by the first golddispensing automated teller machines (ATMs) in Asia – and while they may end up buying a gold bar, banks remain unfazed by this glittering new concept due to its risk-heavy scalability.

“If it is physical gold bar, it is more like a gimmick,” says Steven Chan, head of regional banking and financial research at Maybank Kim Eng. “This should not affect bank earnings given physical bullion trading is not a key earnings driver of

banks.” Operated by Asia Gold, these Smart Gold ATMs dispense 24-karat pure gold items, including bars and customised coins from top Swiss gold refining company PAMP. Kong Kok Chee, CEO & Director of Asia Gold ATM, says the concept of Gold ATMs first originated in Abu Dhabi and are available in Europe and the US. “SMART Gold ATM, however, is the first in Asia. Our differentiation lies in the interactive aspect whereby we provide a total customer interactive experience through our touch screen and userfriendly interface,” he adds.

The ATMs assist buyers with

Kong Kok Chee

on-screen 3D product images that preview the gold products; provides multiple language options to accommodate the international visitors that frequent Singapore’s top luxury resort-casinos; and accepts credit card or cash payment.

Security risks in greater Asia Asia Gold has said that after debuting the gold ATMs in Singapore, it will scout for additional locations in Asia.

This will be quite an uphill battle, says Chan, since operating in other Asian countries will come with greater security risks. “This may be feasible in Singapore given that the crime rate of robbery could be low. This may not be applicable in other parts of Asia, especially for areas of high crime rate; otherwise the security expense will be very high,” he says.

According to Kong, the SMART Gold ATM is built with the latest Security and Telemetry capability which provides remote accessibility operation status such as alerts when the machine is stuck, vandalized, torched or out of stock. It is also builtin with the latest security features which include live GPS tracking, integrated sensors for doors opening, machine movement, and temperature reading for security, remote monitoring and diagnostics.

The gold ATMs in Singapore dispense between one to 20 grams of gold, with a single gram costing more than $100, with prices changing daily based on benchmark prices.

The Chartist: regionalization of asian banks The regional expansion among Asian banks brings diversification benefits, but may also present greater uncertainties to growth strategies.

“Regional expansion for Asian banks is typically accompanied by greater complexity in operations, different regulatory environments, and varying operating conditions,” says Simon Chen, a Moody’s assistant vice president.

According to Moody’s, three reasons support the regional expansion, namely (1) highest growth potential in Asia; (2) continued momentum of intra-regional trade; and (3) a reduction in the lending market share of Western banks in Asia since the global financial crisis.

Larger regional presence than five years ago

More rapid expansion in developing markets

Source: Moody’s Investors Service

Source: Moody’s Investors Service

ASIAN BANKING AND FINANCE | DECEMBER 2014 7

FIRST

Singapore banks brace for margin pressures

Beware the credit card fraud monster

S

ingapore’s top three banks have been beating earnings estimates, but dipping margins and slowing non-interest income (NII) could end up dragging them down in the nearterm. The first challenge for Singapore banks is dipping margins for the second half of 2014 (2H14), says OSK DMG, which could dampen gains made in the first half.

Singapore banks so far have been posting flattish net interest margins (NIMs) and intense competition for deposits may exert further downward pressure. The looming implementation of liquidity capital ratio on January 2015 will make it even tougher to attract deposits at lower rates, says Kenneth Ng, analyst at CIMB, although he notes that Singapore banks do not seem too concerned about funding cost pressures.

“There is an environment to price out the funding cost pressures… the banks are less concerned with Singapore dollar competition and point to the task of fighting for deposits in Indonesia, Malaysia and US dollars in Singapore as the trickier tasks,” he adds.

News of reported loan fraud in

Deposits will be tougher to attract

Qingdao port in China triggered a wave of worry about the exposure of Singapore banks the Mainland, but analysts say that a more worrying factor is the downswing in or NII among the banks.

Ng says that Singapore banks had smaller-than-expected exposure to China trade loans, which may turn fears on rising non-performing loans in China into a non-issue. He instead expresses concern over the dip in NII. “Even though China NPLs may be a non-issue, the slowdown in noninterest income from reduced client activities is real,” he says, citing the tepid growth in trade fees, loan fees and treasury income.

The first challenge for Singapore banks is dipping margins for the second half of 2014.

survey

Financial firms raise wages for risk-taking employees Employees in Asia Pacific can expect a 7% rise in their salaries in 2015, but rising inflation means pay increases in real terms will drop slightly in the coming year.

A survey by Towers Watson reveals that financial services employees will experience salary hikes with China (8.5%) and Hong Kong (5%) leading the way in 2015. Singapore’s financial services employees, meanwhile, will experience a 4.5% raise.

“Compensation at financial institutions has become a major concern for governments and the general public as a consequence of the recent global financial crises,” says Sambhav Rakyan, data services practice leader, Asia Pacific at Towers Watson.

Rakyan adds that discussions have been raised to regulate bankers’ compensation, especially for those whose daily job tasks include risk taking.

8 ASIAN BANKING AND FINANCE | DECEMBER 2014

Shoppers are slowly growing out of the usual brick and mortar stores and moving into the digital space where fraud is lurking and growing in parallel with them.

A FICO survey revealed that 94% of senior heads of fraud from across the Asia Pacific region reported a rise in card not present (CNP) fraud, a purchase a consumer makes without physically presenting his or her credit or debit card at the time of purchase.

FICO emphasises that mitigating CNP fraud is especially critical in APAC, with the region set to overtake North America as the largest e-commerce market in the world.

“As this shift occurs, we see criminals using social engineering, application fraud, data breaches and more to obtain card details,” says Dan McConaghy, president for FICO in Asia Pacific, who hosted the APAC Fraud Forum in Singapore.

Crunching the costs FICO estimates that card fraud now costs APAC financial institutions some US$360-420 million each year, and losses are growing at an annual rate of 20-25%.

McConaghy says that in order to maintain a positive customer experience, banks need to enhance such physical measures as chip and PIN cards, secured ATMs and one-time-passwords with solutions like predictive analytics.

More than a third of the respondents have already started using predictive analytics to combat fraud. That number is on the rise as banks seek to avoid losing money to fraudulent schemes and avoid the potentially greater loss of departing customers.

FIRST

Why Asian banks can no longer shrug off Bitcoin as a passing novelty

E

ven after Bitcoin launched and spent five years amassing fans and key allies like the online giant PayPal, banks continue to act coolly towards the crypto-currency as if it were not a potent threat. Whether this is due to apathy or inadequate understanding, analysts bemoan that banks can no longer shrug off Bitcoin as a passing novelty – it is here to stay and will likely play a key role in charting the future of retail banking.

Financial Services Senior Partner. “Are virtual currencies the only profitable way forward? No. But do they offer value to the payment players of the future? Absolutely, even just as a way to learn about tracking transactions,” he adds.

Bitcoin’s sustained rise puts vulnerability into what was once thought to be an impregnable stronghold of the banking industry – payments and transactions, says Scott Likens, PwC China & Hong Kong analytics consulting leader. “If Powering payment providers Bitcoin does take off to any great extent, it As regulation drives payment providers to could pose a real threat to credit card and become more like utilities for the common remittance companies, who have recently good operating at a massive scale, virtual seen major security and fraud issues occur currencies like Bitcoin can help expand with their legacy credit card scheme.” their markets rapidly while still keeping in line with compliance regulations.

Just a fad?

“Virtual currencies offer not only With all the promise Bitcoin holds in the ability to move away from physical revolutionizing retail banking payments jurisdictions as are commonly connected and transactions, its growing acceptance to physical currencies, and hence allow around the world, and the perceived threat bigger markets to be covered by players, it imposes, why is the banking community but also often include more sophisticated relatively unperturbed? “Perhaps the audit trails, that may be a real asset in banking community still sees Bitcoin as a dealing with the increasing compliance fad,” says Likens. “They would arguably be burden of dealing with Anti-Money justified to point to its limited acceptability Laundering, Know-Your-Customer -- there still aren’t many things you can and Anti Terrorism Financing rules buy with Bitcoin. And then of course around the world,” says Keith Pogson, EY there will be some – even in the banking

No longer just a coin A more proactive stance is required as e-banking rises

community - who simply can’t understand what Bitcoin is.”

Banks may also draw confidence from the fact that Bitcoin’s concept of a crypto-currency still makes many people squirm, “as if it seems purely speculative with nothing behind it,” says Likens.

Proponents may argue that Bitcoin is better than real currency because it is backed by solid mathematics and encryption theory yet not everyone can accept or even comprehend that argument.

office watch

See OCBC’s second largest branch in Orchard Road OCBC Bank’s 10,330 square feet, threestorey orchardgateway branch showcases three distinct banking concepts dedicated to three different customer segments: the affluent segment, the youth and new-toworkforce segment, and the mass segment.

The $5 million branch also has for the first time stationed OCBC Premier Banking offshore relationship managers. It also boasts of a hybrid bank gallery concept.

Sunny Quek, head of Branch and Premier Banking, says, “Customers’ needs are constantly evolving. This challenges banks to remodel the retail banking structure to meet those needs.”

“A successful branch must be established from both the locale’s footfall mix and a firm grasp of consumer lifestyle patterns.

That is why we invested $5 million to put all three of our retail banking concepts under one roof,” he adds.

10 ASIAN BANKING AND FINANCE | DECEMBER 2014

FRANK store for the youth segment

Hybrid bank gallery concept

Counters for the mass segment

Premiere Banking Offshore

FIRST NUMBERS

Finance experts in Singapore Singapore -

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1 Q: Which of the following best describes your current employment situation? A: Actively seeking. Open to opportunities. Not interested in changing jobs.

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SG

52%

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3

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52%

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Please note total may not add up to 100 due to rounding

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2 Q: Is your current employer an enjoyable place to work at? A: Yes. No. 3 Q: Regardless of your level of satisfaction with your job, on a scale of 1-3 how burnt out do you feel? A: 1. Not at all. 2. Somewhat. 3. Totally burnt out.

45%

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SG

72%

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SG

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35%

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DE 13%

FR

39%

68%

28%

23%

Please note total may not add up to 100 due to rounding

UK

26%

UK

53%

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77%

39%

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77%

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32%

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US

23%

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39%

77%

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53%

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26%

1 Q: Which of the following best describes your current employment situation? A: Actively seeking. Open to opportunities. Not interested in changing jobs.

2 Q: Is your current employer an enjoyable place to work at? A: Yes. No. 3 Q: Regardless of your level of satisfaction with your job, on a scale of 1-3 how burnt out do you feel? A: 1. Not at all. 2. Somewhat. 3. Totally burnt out.

HK

12 ASIAN BANKING AND FINANCE | DECEMBER 2014

24%

52%

DE 13%

52%

77 1

77

77% UK 74% US 62% SG 65% HK 77% Aus 61% GU 68% FR 72% DE

US

43%

1

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53%

37%

34%

43%

41%

34%

Aus FR

41%

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26% FR

GU

HK

Aus

SG

HK

GU

34%

93%

26

US

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SG

36

HK

SG

US 53%

UK

37%

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UK US

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SG

UK

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GU 34% FR 26% 43% DE 13% 41%

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% 93 93%

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most actively on-performing loans (NPLs) trading pattern,” says Yan. looking for a % new position ... they are may swing upward, but a She explains that new fiscal reforms What looking for?

Career prospects slew of reforms meant to will likely increase transparencyof Singapore Around the world alleviate asset quality pressure should local governments’ balance sheets and Financeaccess professionals in 2014: keep fears in check. In recent years, broaden financing most ... of through finance professionals Finance professionals andopportunist the Career driven, loyalists in Singapore are actively in the Gulf are Chinese banks have had very low bond financing.

It will also diversify Singapore - looking or openortoopportunists?

Around the world are in Germany most actively reported new NPL formation and revenue streams through new Finance professionals in 2014:taxes opportunities Finance professionals looking for a % Career driven, loyalists or opportunists? net credit costs. This could rise going and reduced reliance on land sales.

Increased the Gulf are new position ... Professionals What they are %in Finance compensation most actively in the UK and Australia looking for? forward for all banks, warns Ismael Successful implementation could also Career looking % find their workplace prospects for a What keeps Pili, analyst at Macquarie. new position ... partly mitigate concerns over What they are local most enjoyable2 1. Goldman Singapore’s finance looking for?

Career Their colleagues in But May Yan, analyst at Barclays, government financeprofessionals vehicle debts and Sachs prospects % 2. JP Morgan the Gulf and Fran most happy has a more optimistic view, expecting propertyofNPLs. are most moo ...the and theburnt finance professionals at work? a moderate rise in NPLs at around 5% The reduced risk surrounding opportu actively in Singapore are most ... and the of finance professionals 3. DBS Bank are in Ger to People they looking opportunist quarter-on-quarter, an improvement actively inthe Singapore are property sectororisopen significant work with are in Germany.1 or open to looking opportunities Singapore Around the world on the 7.3% increase in 1Q14. She for Chinese banks, given their opportunities Finance professionals in 2014: believes short-term asset quality substantial exposure.

Jonathan % IncreasedFinance Finance Professionals Top 3 employers professionals Increased % Finance Professionals Career driven,managing loyalists or opportunists? compensation pressure should continue to be Gulf are in the of Cornish, director, financialcompensation choice in the UK and Australiain the UK and Australia most actively Singapore find their workplace alleviated as a result of the targeted What institutions at Fitch Ratings, says find in their workplace keeps looking for a What keeps % enjoyable2 most enjoyable2 1. Goldman new position most ...

What they are monetary loosening measures 1.

Goldman property development and mortgages Singapore’s finance Singapore’s finance Their colleagues in Sachs Their collea looking for?

Career Sachs professionals % 2. JP Morgan introduced earlier in the year. reportedly account for more than the Gulf and France professionals prospects 2. JP Morgan most happy the Gulf and are the most burnt out most happy 20% of the loans of the banks covered are the most at work?

UK 77% 24% at work?

3. DBS Bank Reducing uncertainty by the ratings agency.

UK 77% 24% People they most ... and the of finance professionals US 74% 26% 3. DBS Bank US 74% 26% In the long-term, recently approvedin Singapore Total work with People exposure could even opportunist are actively theybe SG 62% 39% SG 62% 39%1 are in Germany. or open to looking fiscal reform should further add NPL higher when taking into account HK 65% 35% work with HK 65% 35% opportunities Aus 77% 23% Top 3 employers visibility and reduce uncertainty for possible misclassification of loans Aus 77% 23% GU 61% 39% of Increased % compensation Finance Professionals GU choice Top 3 employers 61% 39% investors eyeing Chinese banks, says and exposures that reside off-balance FR Australia 68% 32% in Singapore in the UK and FR 68% 32% Yan. Among these reform measures sheet.

DE 72% 28% of choice find their workplace DE 72% 28% What keeps 2 These reform is the state-owned Assets Supervision Concern over NPLs comes at a most enjoyable 1. Goldman in Singapore Singapore’s finance Their colleagues in Sachs plans, if and Administration Commission’ s time when banks are fighting to professionals % 2. JP Morgan the Gulf and France most happy successfully are the most burnt out plan to institute reforms in six large earn enough profits. In the first half at work? implemented, state-owned enterprises. of 2014, Chinese 3.banks reported DBS Bank People they could improve “These reform plans, if successfully ‘decent’ average profit growth of 10% work with the visibility implemented, could improve the year-on-year. This was due to strong of Chinese visibility of Chinese banks’ NPLs loan growth and steady net interest Top 3 employers banks’ NPLs in in the medium to long term, which margin, although aofspike in nonchoice Source: eFinancial Careers could in turn help Chinese bank performing loans could drag it down the medium to in Singapore long term. shares to break out of their rangeto more tepid levels.

Recognizing You Fiserv congratulates our clients for their outstanding achievements in the Asian Banking & Finance Wholesale Banking Awards.

Domestic Technology & Operations Banks of the Year Panin Bank – Indonesia Bangkok Bank – Thailand ANZ Pacific (PNG) Ltd. – Papua New Guinea 30 Cecil Street Singapore, 049712 Singapore AustraliaNewZealand@fiserv.com Asia@fiserv.com © 2014 Fiserv Inc. or its affiliates. All rights reserved.

FIRST also get to enjoy the privilege of instant recognition at the most luxurious hotels and resorts worldwide. Priority Pass is also given to card owners for unlimited free access to over 600 VIP airport lounges worldwide.

6 American Express Peninsula Platinum Card, by invitation, annual fee of HKD7,800.

Special discounts and privileges at The Peninsula Hotels await cardholders.

Cardholders enjoy the Complimentary Priority Pass for unlimited free access to over 600 VIP airport lounges worldwide.

Check out Hong Kong’s most expensive and exclusive credit cards

A

sian Banking and Finance has partnered with MoneyHero, billed as HK’s first financial comparison site, to bring you 10 of the most expensive and exclusive credit cards that may be found in only the wallets of Hong Kong’s wealthiest. Many of these plastics are by invitation only, offered only to high networth individuals and those who spend millions of dollars on credit.

1 American Express Centurion Card, by invitation, annual fee of HKD38,800.

This is the near-mythical black credit card that only a rare few are granted the privilege of owning. There’s an air of mystery about the specific benefits of the card as AMEX doesn’t make this information known to the public – but of course, that only adds to its appeal.

There’s also an initiation fee of HKD5,000. The Centurion card gives access to some of the most exclusive private clubs in HK and other parts of the world. It has no pre-set limit, in theory.

The largest purchase ever made on this card was reportedly USD36 million for a rare, antique porcelain chicken cup.

2 Citibank Ultima Card, by invitation, annual fee of HKD23,800.

There are only about 1,000 people in the city who have the privilege of flashing this card, which is offered according to a mysterious annual salary requirement.

While invitations are no longer

14 ASIAN BANKING AND FINANCE | DECEMBER 2014

sent out since the beginning of the year, its highlighted features include a dedicated Lifestyle Relationship Manager handling your lifestyle needs, great rates for yacht charter services and airport transfer limousine services. The privileged cardholder also gets 120,000 complimentary Asia Miles each year.

7 Standard Chartered Priority Banking Credit Card.

The annual fee is waived perpetually, while the annual salary requirement is around HKD500,000, as reported by current card owners. The card features a unique rewards programme for cardholders. Priority Banking 360° Rewards allows them to earn points not only on card expenditure, but also with all account balances to earn up to 50,000 points every month. Principal cardholders are granted complimentary access to over 600 airport lounges with the Priority Pass.

3 HSBC Premier Card, by invitation.

The HSBC Premier card requires an annual income of HKD1.5 million. The Card gives bonus rewards from the MasterCard Traveler Rewards program and advanced booking for luxury cruise and vacation packages. A Premier Relationship Manager is always ready to assist cardholders when they travel around the world.

8 BOC Visa Infinite Card Bank of China’s (BOC) by invitation only Visa Infinite credit card provides a concierge service that assist cardholders with planning trips and restaurant reservations. BOC’s jet-setter customers earn triple reward points when they use their card overseas, and at restaurants here in Hong Kong. By simply presenting BOC Visa Infinite Card, cardholder can enjoy a host of facilities available at specific Plaza Premium Lounges.

4 Citibank Prestige Card.

The card has one of the highest minimum annual income requirements at HKD600,000 or above. Cardholders can enjoy complimentary nights at more than 700 luxury hotels in some of the most fabulous cities in the world, as well as complimentary green fees at over 2,400 golf courses around the world.

9 Dah Sing VIP Banking Visa Infinite Card, by invitation, no annual fee.

This card provides an extra-high credit limit. Users can earn up to 4x reward points when using the card for select investment and insurance services.

Cardholders can also earn up to 1.2 million bonus points quarterly with this card.

5 American Express Platinum Card, by invitation, annual fee of HKD7,800.

The card automatically enrols cardholders in the AMEX Membership Rewards Turbo Program, where they can earn 2 points for every HKD1 spent. Cardholders

10 Hang Seng Visa Infinite, by invitation. The lucky shopper who flashes this card doesn’t have to worry about preset spending limits. This card also serves as an all-access ticket to several membersonly private clubs in the city.

FIRST The Analysts’ call

What could threaten BOC?

BOC leveraging on global low-cost funding

Find out why Bank of China finds its growth groove overseas

B

ank of China is increasingly looking overseas to power its growth in the coming years, a strategy that has so far helped raise earnings past market expectations. Wilson Li, analyst at CCB International, says BOC’s overseas strategy involves leveraging its franchise in the overseas renminbi business beyond Hong Kong into Singapore, London, Paris and Luxembourg. Its strategy also hinges on leveraging on global low-cost funding by

driver is the resurgence of overseas business expansion.

Given sustained overseas expansion and net interest margin (NIM) improvement, BOC could see pre-tax profit contribution from overseas businesses rise to over 25% in the next couple of years, up from 22.2% in the first half of 2014 and 19.4% in 2013, says Steven ST Chan, analyst, banking and financials at Maybank Kim Eng. Yan believes that NIM expansion in overseas and onshore foreign currency operations continue to help partially offset the narrowing of NIM Its strategy also hinges on in the domestic RMB operation. “We are positive on BOC’s strategy to leveraging on global low-cost funding. utilize global low-cost funding to deal with added NIM pressure,” she says.

Chan reckons BOC should offshore bond issuances. continue to provide lending facilities for Aggressive expansion and improvements mainland enterprises expanding overseas in the net interest margin of overseas as part of its overseas loan growth strategy. operations bolstered BOC’s bottom line in It should also focus on enhancing NIM on the first half of 2014 (1H14), and is poised to overseas business to offset the rising RMB take up an increasingly larger share of profits. funding costs.

BOC’s earnings for the period grew More broadly, Chan foresees BOC cutting 11.15% to RMB89.7 billion, beating the fee charges and a continued tightening of consensus estimate of RMB88.6 billion. costs. Diversification should also play a big Core earnings were also stellar. The bank’s part in its near-term plans, with expansions pre-provision profit rose by 20.1% from into asset management, investment banking the previous year due to stable net interest and cross-border RMB settlement fees. Chan income and fee income, both of which grew also warns about accelerating formation in the 13-14% range year-on-year, says May of non-performing loans, although total Yan, analyst at Barclays. More efficient cost provisions are more than sufficient to cover controls also contributed to the healthy all overdue loans. Credit costs are expected earnings results, but a more notable growth to remain stable well into next year.

16 ASIAN BANKING AND FINANCE | DECEMBER 2014

Steven ST Chan – Maybank Kim Eng There is a mixed picture in asset quality. The new NPL formation increased from CNY8b in 1Q14 to CNY9.5b in 2Q14 (CNY17.5b in 1H14 vs CNY10.5b in 2H13).

Total provisions are more than sufficient to cover all overdue loans.

Excess provisions were CNY100b, covering 52% of its special mention loans. We maintain our forecast credit costs of 0.63-0.72% for 201415 (0.69% for 1H14).

Wilson Li – CCB International BOC’s group provisioning level is lower than peers. Credit cost in 1H14 rose 30bp yoy to reach 69bp, higher than the level in FY10-13 (29-32bp).

There is now more pressure from NPLs as the new NPL formation ratio rose 93bp (annualized) after adding back NPL disposals, write-offs and cash recoveries.

Meanwhile, asset growth in Hong Kong was 1.9% HoH. For non-Hong Kong overseas operations, this figure was 34.8% HoH. There are two reasons for the large discrepancy: (1) BOC leveraged its franchise in the overseas renminbi business in Singapore, London, Paris and Luxemburg; and (2) it took advantage of global low-cost funding by offshore bond issuances May Yan – Barclays By our estimation, its group level NIM dropped by 4bps q/q to 2.25% in 2Q14 (vs -2bps q/q in 1Q14), which was mainly driven by lower domestic RMB NIM (2.42% in 2Q14, -8bps q/q).

On an h/h basis, domestic RMB NIM was down by 3bps h/h to 2.46% in 1H. Loan pricing power slightly increased by 4bps h/h in 1H14, and interbank asset yield saw continued increase of 62bps in 1H14 (vs +29bps h/h in 2H13).

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FINANCIAL INSIGHT: debt capital markets

Dimsum bonds more appetizing for investors

Dim sum bonds soar at the expense of HKD bonds

What’s whetting the US$40.3b appetite for offshore renminbi bonds?

T

hese days when foreign investors browse through the menu that is the Hong Kong debt market, their mouths water at the sight of the hottest deal of the moment: Offshore renminbi bonds also known as Dim Sum bonds. These relatively bite-size bonds are proving irresistible for their high yields, more than doubling to a record volume of RMB248 billion (US$40.3 billion) so far this year, according to Thomson Reuters data, due to their easy access, strong demand momentum for the currency, and continued confidence in the still-growing Chinese economy.

Aside from record volume peaking to a new high, number of Dim Sum bond issuances grew rapidly as well at a 77.2% clip.

These kept Hong Kong on top as the largest offshore renminbi clearing centre in the world.

18 ASIAN BANKING AND FINANCE | DECEMBER 2014

Dim Sum bonds reached a record volume worth RMB248 billion (US$40.3 billion) so far this year, a 109.8% increase from the same period in 2013.

Dim Sum bonds in the Financials industry have particularly flourished in the first half of the year, including a US$653.8 million issuance from China Construction Bank in March. Telecommunications firms also drove up the offshore issuance of renminbidenominated notes led by China Unicom raising US$643.9 million in April.

Dim Sum bonds have soared in popularity due to their easy access to foreign investors, says Becky Liu, senior rates strategist at Standard Chartered. “Dim sum bonds are international bonds similar to Eurodollar bonds, and subject to no restriction of foreign participation. As a greater share of global trades are now settled in renminbi, the currency’s usage has gradually increased, and so does the amount of renminbi funding held by foreign investors,”

she says. “Thus it is a natural step forward to look for assets and investments to deploy such holdings, and Dim Sum bonds are now the best candidate.”

Liu expects demand for Dim Sum bonds and other renminbi assets such as onshore bonds and equities to increase rapidly in the coming years on the strong momentum of the currency’s internationalization. Global investors, including central banks, are looking to diversify their current assets and they are naturally drawn to renminbi assets since they boast much higher nominal yields compared to most developed country assets.

There is also little to dampen investor confidence as China’s economy continues to grow.

HKD bonds decline While Dim Sum bonds have ballooned, Hong Kong dollar (HKD)-denominated bonds are losing steam, raising just HK$61.5 billion in proceeds (US$7.9 billion), or a 3.1% decline despite a 4.8% increase in number of primary bond issuance. Thomson Reuters notes that this is the

FINANCIAL INSIGHT: debt capital markets lowest first nine months period for HKD-denominated bonds since 1999 when proceeds amounted to HK$59.9 billion (US$7.7 billion). The HKD bond market also saw marginal growth in proceeds with HK$57.2 billion (US$7.4 billion), a mere 0.9% y-o-y increase in proceeds as number of primary bond issuance grew 8.9%. “Ever since the offshore renminbi market started to pick up, Dim Sum bonds have been drawing the attention of foreign borrowers away from the HKD bond market, resulting in proceeds raised by issuers, based outside China and HK, continuing to decline,” says Elaine Tan, senior analyst, Deals Intelligence at Thomson Reuters.

The HKD bond market’s flagging appeal among foreign investors can be linked to the territory’s smaller economy. “HKD can hardly be an international asset class or international reserve,” says Ivan Chung, senior vice president, Greater China credit research and analysis at Moody’s Investor Service. Contrast this with the popular Dim Sum bonds, which draws strength from the massive Chinese economy and share in international trade.

Chung says investors are snapping up Dim Sum bonds – and will continue to do notwithstanding changes in RMB appreciation expectation – as they expect RMB to become an important asset class and even an international reserve currency when China open its capital account and RMB becomes fully convertible. “The expectation of RMB appreciation in the past few years also encouraged investors to hold offshore RMB assets. As there are limited supply and choices of offshore RMB assets relative to pool of offshore RMB funds, Dim Sum bonds is the major investment products relative to low yield RMB deposits,” says Chung.

Because of these reasons, foreign investors will not likely flock to HKD bonds as they have done to Dim Sum bonds anytime soon. Instead local investors will

continue dominate the HKD bond market, says Liu, with banks and pension funds holding a majority.

Which banks ruled the HKD bond market in the first nine months of 2014? HSBC led the HKD Bonds league table with US$3.8 billion in proceeds for 126 issues, representing a 47.8% market share, according to the Thomson Reuters. This is lower than US$4.7 billion in proceeds for 135 issues HSBC raised in the same period last year.

Standard Chartered came in second in the league table, with US$1.3 billion in proceeds for 42 issues, representing a 16.5% market share. This is likewise weaker than the US$2.2 billion in proceeds for 45 issues Standard Chartered raised in the same period last year.

Looking at the broader bonds market, total bond proceeds from Hong Kong issues reached US$41 billion this year, up an impressive 44.8% from last year. The majority of the bond sales or 75.3% market share during the period was denominated in US dollar as issuers took advantage of deep liquidity in the US dollar market before rates are expected to rise in 2015, says Tan. Liquidity preference Looking to the near future, the theme of liquidity that has so far defined the HK and wider Asian bonds markets should persist.

Another major theme will be bigger deals.

“What you see is a larger component of this year’s volume is investment grade, and that really underscores the theme of liquidity,” reckons Devesh Ashra, head of debt capital markets syndicate at Bank of America Merrill Lynch. “Investors prefer to be in larger, more liquid corporate issuers and sovereigns and banks vis-a-vis the higher BETA, lowerrated debut issuers.”

Ashra says the Financials sector should continue to capture the largest market share, which aligns with increased preference for large cap issuers. “Certainly the theme

Elaine Tan

Becky Liu

Devesh Ashra

Ivan Chung

for the rest of this year is going to remain around the larger large cap issuers. And we’re actually seeing it come through right now with the theme of near-term issuance being big from the financial institution group sector,” says Ashra.

Look to China, Southeast Asia He anticipates that the headlinemakers in the next two months among primary issuers will be Japan, Australia, China and Korea. Chinese borrowers in particular have been devouring debt at an astounding rate. In the first nine months of the year, they represented the majority of Asia’s bond offering at 36.7% or worth US$210.6 billion in proceeds driven by issuance from sovereigns and financial institutions, says Tan. Compare this with Southeast Asian borrowers which raised US$75.8 billion – or roughly a third of that raised by Chinese borrowers. Still, the growth potential in the Southeast Asia region has analysts buzzing with the US$75.8 billion year-to-date total increasing 19.6% from the comparative period last year.

“With investors looking to diversify their portfolios, Southeast Asian bonds will likely continue to attract good interest,” says Tan. Other factors that will drive up bond issuance in Asia are continued investor demand for yield and increased refinancing pressure as US$130 billion worth of bonds are due to mature for the rest of the year.

Offshore Renminbi bonds

Source: Thomson Reuters

ASIAN BANKING AND FINANCE | DECEMBER 2014 19

PEOPLE PROFILE

Farhan Faruqui reveals how ANZ benefits from other banks’ inability to invest and grow in Asia Find out what Citi’s veteran for nearly a quarter of a century will do differently in his new position as CEO for international banking at ANZ. What changes are you planning for?

Two points on that. One is that the world is getting a lot more specialised. So there is a great deal of value in having multiple banking relationships across the various verticals where the clients are seeking excellence.

The second point is that clients today prefer to diversify their own risk, counterparty risk, etc, hence the emphasis that banking with strong regional banking partners such as ANZ is increasingly important.

investing in both product capabilities and in growing geographic reach.

ANZ benefits from Citi’s and other international banks’ inability at this time to continue to invest and grow in the region. We are still relatively smaller but have a lot of room to grow - and that makes ANZ a more interesting place to work if your aspiration is to work for an organisation where growth is high on the agenda.

Farhan Faruqui CEO, International Banking ANZ Bank

T

he appointment of Farhan Faruqui as ANZ’s CEO International Banking earlier this year caused plenty of chatter in the close knit banking circles of Hong Kong, Singapore and Shanghai. The Citi veteran of nearly a quarter of a century is one of the highest profile hires in Asia since Mike Smith launched ANZ’s super regional strategy in 2007.

Faruqui believes that when Smith started the whole super-regional strategy, what ANZ had in Asia was not even a shadow of what it has today. According to him, ANZ has come a long way in this period and needs to continue to market that as well as the fact the bank has a clear strategy and plan for the future.

What makes you excited about your new position?

It’s much more exciting to be at ANZ at this juncture. We are extremely well positioned to take advantage of the Asian opportunity - we can be more nimble than our international competitors and while they seek to rationalise geographies and business lines, ANZ is

20 ASIAN BANKING AND FINANCE | DECEMBER 2014

What three goals are you focused on?

We need to get focused on delivering our network and platform to our clients and make sure that we’re banking a set of clients who value what we bring to the table.

We need to ensure we are growing responsibly with them and executing our strategy. Attracting talent to where ANZ’s platform in Asia is today is much easier than it probably was seven years ago.

To my mind ANZ has made the most gains in Asia over the last few years.

What will you do differently in this position?

We need to ensure we’re banking clients who value what we have to offer. We also need to ensure that we leverage our product platform across lending, capital markets, FX and rates, and transaction banking to ensure our clients benefit from the scale of our platform.

All of this goes down to how well we execute. What I mean by that is whether we are providing that intellectual content and that intellectual capital in a manner which allows us to leverage that content for our business? But critically it has to have value for the client. It’s not just having a product offering.

We have a lot of room to grow - and that makes ANZ a more interesting place to work if your aspiration is to work for an organisation where growth is high on the agenda.

What are your key business philosophies?

We need everyone across our organisation to be thinking network all the time. Everyone must know the network and the value of our network so that we can connect our clients along the key corridors as effectively and seamlessly as possible - and certainly better than any of our competitors can - we simply need to be the best in this space. It needs to be part of our DNA. Everybody has to feel that every time we put out a dollar of financial capital and every time we provide intellectual capital, we should know what it is leading to, how can we monetise that and how does the client get a return?

What previous positions prepared you for this one and how?

I had a number of senior executive roles in my time at Citi, including Head of Asia Corporate and Investment Banking, head of Global Loans and Leveraged Finance, Asia Pacific, and Corporate Banking Head, Central Europe in addition to several country CEO roles.

By ANZ BlueNotes

WHOLESALE BANKING AWARDS 2014

WHOLESALE BANKING AWARDS 2014

THAILAND DOMESTIC PROJECT FINANCE BANK OF THE YEAR

Inspiring us to even higher standards of service

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PEOPLE PROFILE

OCBC Malaysia’s Ong Eng Bin aims to chart new frontiers in SME and Islamic banking Boasting of a 26-year career growth in OCBC, Eng Bin believes in building an internal talent pool while developing greater cross-selling strategies. and chart new frontiers especially in areas such as SME banking, wealth and investment products and Islamic banking through our subsidiary OCBC Al-Amin. It’s the opportunity and challenge to elevate the Bank to new horizons, working through a set of great colleagues, and growing our customer base meaningfully that excites me in my new role.

Ong Eng Bin Chief Executive Officer OCBC Malaysia

H

omegrown talent Ong Eng Bin began as a management trainee with OCBC Malaysia back in 1988. He has gone through numerous positions since then and has led the bank to a lot of new frontiers.

In Eng Bin’s most recent position as head of business banking, the division accounted for 55% of OCBC Malaysia’s revenues and 65% of its pre-tax profits in 2013. Being in OCBC for 26 years has held him in good stead to take on the new role of chief executive officer. Eng Bin hopes to bring OCBC to higher ground, without compromising its core values.

What makes you excited about your new position?

I was appointed Chief Executive Officer on 8 August 2014, after 26 years with the Bank, having started off as a management trainee in 1988. So, I think OCBC Bank is pretty much in my blood and the company remains more than just a workplace to me – it has become a second home of sorts to me. I’m certainly keen to grow the Bank 22 ASIAN BANKING AND FINANCE | DECEMBER 2014

What three goals are you focused on?

The immediate goal would be to refocus, build and harness. Refocus, in the sense of developing a fuller appreciation of the core values that have helped us stand the test of time. This means looking anew at our quest to “help people succeed” through a fuller resolve to live out our six values of people, customers, teamwork, integrity, prudent risk-taking and effectiveness.

As a bank whose history in Malaysia can be traced back almost a century – and as one of the top five foreign banks in the country – we are in position to draw on a legacy that few others have . We will also look to build our internal talent pool and develop strategies for greater cross-selling efforts within the Bank.

And, finally, we will seek to harness our branch network capabilities more effectively to reach our customers and impact them meaningfully.

What will you do differently in this position?

As CEO, doing things differently for the sake of change will not be my primary aim. I firmly believe our bank has got the fundamentals firmly right, which is perhaps one of the reasons we are recognised as

one of the strongest banks in the world.

So, my task ahead would be to seek to make these fundamentals work even harder for us. How? By listening more carefully to the voices around me, building a spirit of consensus where it does not necessarily have to be an eitheror but a both-and, tearing down unnecessary barriers that prevent the effective flow of quality, and encouraging anything at all that would improve and unleash our institution’s full potential.

What are your key business philosophies?

To get everyone here to focus anew on the common good and inspire as many people as possible along the way. On the opposite end, it would be to ensure no one is distracted by the little things that really don’t add up to anything.

My own philosophy of work and life ties in very closely with the overarching OCBC Bank mantra of “helping people succeed.”

My own philosophy of work and life ties in very closely with the overarching OCBC Bank mantra of “helping people succeed.”

What previous positions prepared you for this one and how?

In the early 1990s, I served as Head of Credit & Marketing of a branch before joining the corporate banking division. In 2012, I was appointed Head of Business Banking, which covered corporate and commercial, emerging business and transaction banking.

Anything else you’d like to add?

Being a God-fearing person, I would be remiss not to add that when we learn to be thankful to the Almighty who gives us rich blessings, we begin to view everything afresh, in a new light. This would ultimately lead us to do more for the success of others.

ASIAN BANKING AND FINANCE | DECEMBER 2014 23

PEOPLE PROFILE

BNP Paribas Thailand’s new country head brings flair for cross-border transaction structures Merging management expertise and business knowledge, Antoine Gustin is readying the bank’s clients for a more active global presence.

Antoine Gustin Country Head, Thailand CEO, BNP Paribas SA, Bangkok

B

NP Paribas Thailand is poised for more growth with its new Country Head and Chief Executive Officer of BNP Paribas, Bangkok branch.

Antoine Gustin, 40, brings with him a wealth of managerial experience and business knowledge. Prior to this new appointment, Antoine was the Managing Director – Head of Export Finance for Middle East and Africa (MEA) for BNP Paribas Fortis, based in Brussels.

Antoine joined the Group in 1996 and has held different positions in credit risk and export finance both in France and Qatar.

In 2008, he moved to Beijing where he was both the Head of Export Finance for Greater China and General Manager of BNP Paribas China Limited, Beijing branch, until 2013.

During his time in China, Antoine had been instrumental in growing the business and enhancing the bank’s franchise in the market. Pierre Veyres, Regional Head of Southeast Asia and Chief Executive Officer of Singapore, says: “BNP Paribas has grown sig-

24 ASIAN BANKING AND FINANCE | DECEMBER 2014

nificantly in Thailand under Monique’s leadership. Her dedication and contribution over the past six years have been deeply appreciated by all of us. We are confident that Antoine’s experience and enthusiasm will help steer our presence in the region into new and exciting growth areas.”

Gustin takes over the role from Monique Vialatou, who will move to head up BNP Paribas Canada.

He will report to regional head of Southeast Asia and CEO of BNP Paribas Singapore, Pierre Veyres.

BNP Paribas established its presence in Thailand in 1979 and has been operating as a full branch since 1997. BNP Paribas Thailand offers corporate banking services in Thai Baht (THB) and foreign currencies for domestic and international corporations and financial institutions.

What makes you excited about your new position?

I welcome change and I do really enjoy evolving in a new business environment, discovering new culture and facing new challenges.

BNP Paribas is growing in Asia Pacific and it is quite exciting to play an active role in this development. Looking into transversal issues, servicing the client needs to the best we can and working with my new Thai colleagues are a great source of motivation.

What three goals are you focused on?

My primary goal is to grow the business and keep clients at the center of our business model.

Leveraging on our European and global organisation, we are able to provide our clients in Thailand and the region with a full range of innovative solutions so as to

help them grow and expand globally.

As employees are also key to the growth of any organisation, my next goal would be to empower my staff so as to grow their expertise and wellness. Lastly, one must not forget to have fun while working hard!

What will you do differently in this position?

As earlier mentioned, clients are at the center of our business model.

We should always innovate and seek ways to do things differently.

One such way is to be proactive and intensify our interaction with our clients. The closer we are, the better we can serve them.

What are your key business philosophies?

I have always believed in being transparent and listening to people, which are important pillars of building a successful and longterm business partnership. Above all, be reactive to the needs of the client.

Leveraging on our European and global organisation, we are able to provide our clients in Thailand and the region with a full range of innovative solutions so as to help them grow and expand globally.

What previous positions prepared you for this one and how?

I am not new to Asia, having spent 4.5 years as General Manager of BNP Paribas Limited, Beijing branch. I did face many issues, many challenges that I will face here. People and culture are of course different but clients needs remain similar.

Besides, working for a specialized business line for 13 years, export finance, did also provide me with a deep knowledge of crossborder transactions structures; certainly useful when you consider the number of exporting groups in Thailand whether they are locals or multi-national companies.

PEOPLE PROFILE

Jacqueline Chang eyes expanding the bank’s international clients group in commodities What are Chang’s strategic plans after ABN AMRO promoted her to its newly-created role of regional head of commodities in Asia?

Jacqueline Chang Regional Head of Commodities ABN AMRO, Asia

A

BN AMRO has been a leading institution in the financing of international flows of various commodities across global and regional supply chains particularly in the Agriculture, Energy and Metals sectors.

This unique leverage calls the bank to maintain reliable and focused leadership that will take it to even greater heights in Asia’s commodities sector.

As part of an expansion of the bank’s global commodities activities within its Energy, Commodities & Transportation (ECT) business, ABN AMRO promoted Jacqueline Chang to its newly created role Regional Head of Commodities Asia.

Chang was previously Head of Commodities Singapore and will report to Jan-Maarten Mulder, Global Head of Commodities and regionally to Maureen DeRooij, CEO Asia Large Corporates & Merchant Banking.

With more than 20 years of specialist experience in commodity financing, Chang is responsible for the commercial and operational ac26 ASIAN BANKING AND FINANCE | DECEMBER 2014

tivities of the Agriculture, Energy and Metals commodities teams.

In her new role, she will also oversee ABN AMRO’s Hong Kong commodities desk headed by Ben Cheung, as well as the recently established regional Structured Inventory Product desk in Singapore led by Julien Moreau-Pernet, which supports the combined commodities teams.

Jacqueline’s deep experience of the Asian commodities business, coupled with her strong relationships with commodity players across the supply value chain, make her the ideal candidate to drive and grow ABN AMRO’s regional business.

What makes you excited about your new position?

ABN AMRO has a strong tradition in the financing of Commodities, and this new position will mean a more centralized and coordinated approach to shape the strategies of one of the Bank’s most successful business units in the region. Given that Commodities is a highly interconnected business globally with a large component of intra-Asian trade, the creation of this role reflects the Bank’s commitment and recognition of its importance.

Therefore it is a great opportunity to drive this business.

What three goals are you focused on?

Bringing about the long term strategic plan of the Bank are amongst first considerations, especially in furthering the footprint of the Bank’s International Clients group in the business cluster of Energy, Commodities and Transportation.

Asia is a very important region for the bank. From the demand angle, demographics, urbanization,

and rising middle class are drivers for the tremendous need for commodity raw material in the region.

At the same time, the region is also a key area for production supply, with a number of key commodities leading global production globally.

Our key goal is therefore to be ever relevant to the various industries as each evolves, and to capitalize on our current platform, tap on all the best opportunities, and work towards achieving the next stage of growth.

What will you do differently in this position?

The current core competence of the business line will be continued and enhanced. The new role will be much more about being an enabler and leader to the various teams, as well as using the elevated perspective in the region to make different parts gel together better thereby optimising higher returns and better positioning for the Bank.

The new role will be much more about being an enabler and leader to the various teams, as well as using the elevated perspective in the region to make different parts gel together.

What changes are you planning for?

On the personnel side the teams have been refreshed with new talent and there has been beefing up of the teams with the addition of a number of senior hires. With the rapid growth of the business, current work flow is being reviewed and changes are being introduced to improve on the structural aspects of our department set-up.

Similarly, pressure points have been identified, and additional resources will be deployed to better support the teams.

There will also be greater emphasis on cross-fertilisation of ideas not only vertically but also across adjacent teams, all with the client’s needs as the focal point.

ASIAN BANKING AND FINANCE | DECEMBER 2014 27

ASEAN Finance company of the YeaR

Hong Leong Finance: At the forefront of innovation in financial services

W

hilst being the largest finance company in Singapore, Hong Leong Finance always keeps competition on their toes through innovation and unparalleled support for small and medium enterprises (SMEs) and individuals.

It is a three-time consecutive winner of the “Singapore Finance Company of the Year” award for the years 2011, 2012 and 2013 and is recently conferred “ASEAN Finance Company of the Year 2014” award at the Asian Banking and Finance Retail Banking Awards.

Hong Leong Finance stands out for its extensive suite of creative and customercentric products and services to help businesses and individuals to unlock and maximise their potential.

deposits.

Its SME loans are further broken down to more than a dozen types of loans and financing schemes while its corporate finance services comprise Catalist full sponsor, equity fund raising and corporate advisory.

Committed to the business community Besides working closely with government agencies to support various financing initiatives and programmes for SMEs, Hong Leong also sets up strategic alliances with partners who commonly serve the SME market.

At the same time, Hong Leong Finance offers productivity-enhancing loans to help SMEs reduce their operational costs and seize business opportunities. These include customisable Equipment Financing and Building on its strength flexible Commercial Property Loans.

The company has been in this market for To help businesses upgrade and in more than 50 years and is well-known as line with Singapore’s Quality Growth Singapore’s SME Specialist. It is rightly so Programme, Hong Leong Finance since it started as an SME in 1961 and has launched its Productivity Loan Promotion since grown and listed on in the Singapore which awards incentives to SMEs that Stock Exchange in 1974. avail themselves to the government Today, it has an extensive network of 28 assistance and take up its productivitybranches and is the only finance company enhancing loans. Such efforts not only in the country that has SME Centres – or help spur economic growth but also one-stop shops offering financial solutions promote the creation of better jobs. As a and services to their full Catalist Sponsor, Hong SME clients. From only Leong Finance supports “The company has 5 SME Centres @ Hong businesses that aspire to been in this market Leong Finance in 2012, it for more than 50 years list on the Singapore Stock now boasts of 8 Centres Exchange and also provide and is well-known strategically located in financial advisory service as Singapore’s SME Singapore, spanning from and capital raising options.

Specialist.”

North, South, East, West and Central. Hong Leong Finance has Equally dedicated in consumer services proudly announced that its extensive fullTo reach out to more than 80 percent of service SME Centres footprint is one of the Singaporeans who reside in the Housing largest in Singapore.

Development Board (HDB) flats, Hong Leong Finance designs a variety of HDB Comprehensive suite of solutions loan packages to promote affordable home and services ownership while offering flexible housing Hong Leong Finance serves the financial loans to private property owners. needs of both companies and individuals.

Another notable service of Hong Among the services it offers are SME Leong Finance is its “Pioneer Generation” loans, corporate finance, development and fixed deposit campaign targeted at the construction loans and property loans for pioneers of Singapore age 65 and above, to companies; and car loans, home loans and recognise and reward their contributions share financing for consumers. Further, in the nation building. it also offers both corporate and personal Furthermore, it has introduced Silver 28 ASIAN BANKING AND FINANCE | DECEMBER 2014

Ian Macdonald President, Hong Leong Finance

40 fixed deposits and Golden 55 plus fixed deposits to cater to needs of different customer segments.

Hong Leong Finance continues to collaborate with its business partners to offer exclusive benefits and privileges to its retail customers.

For consistently making it to the Asian Banking & Finance Retail Banking Awards as the best finance company in Singapore and now best finance company in ASEAN, Hong Leong Finance President, Mr Ian Macdonald had this to say, “We are honoured to win this prestigious ASEAN Finance Company Award as we were up against companies in the region. We are humbled by the recognition, and will continue to strive and serve our customers and the community with dedication. This award certainly gives us added incentive to achieve even more for our customers.”

CONTACT Company Name: Hong Leong Finance Ltd Address: 16 Raffles Quay #01-05 Hong Leong Building, Singapore 048581 Phone Number: 64159433 Fax Number: 62279963 Email: customerservice@hlf.com.sg Website: www.hlf.com.sg

ASIAN BANKING AND FINANCE | DECEMBER 2014 29

SECTOR REPORT 1: business banking

Bye-bye brick-and-mortar models?

Customer-centricity key to business banking in Asia

Is it time to say goodbye to one-size-fits-all services and brick-and-mortar models which lack market flexibility across Asia?

I

n today’s world of business banking, one-size-fits-all products and bricks-and-mortar models no longer work. With technology allowing companies to gather comprehensive customer information and market services through different channels, banks all over the world – and especially those in Asia – have constantly been shifting towards customer-focused services to get ahead of the competition and snag a larger market share.

Customer-focused Liew Nam Soon, Asia-Pacific and Singapore financial services advisory leader at Ernst & Young, says banks should now think of ways to transition from a product-focused to a customer-focused organization.

“Such a transition allows banks to serve customers comprehensively, ideally delivering a full suite of 30 ASIAN BANKING AND FINANCE | DECEMBER 2014

Liew Nam Soon

Jeffrey Tjoeng

products and services that is relevant to the customer,” he says.

Jeffrey Tjoeng, national emerging business head at OCBC NISP, says a simple way of understanding what a customer-focused company is to focus on issues that matter to customers. “What keeps them awake at night? What challenges (do) they face in their business/operations?

How can we help them win in their space?” he says, enumerating the questions that bank officials should always ask. He adds that among the important questions to ask is what their “pain points” are when dealing with banks. Different people and businesses have different priorities so it is important to learn more about and satisfy the needs and wants of various kinds of customers.

Soon adds, however, that “the reality is that banks face challenges in this transition, particularly in the

implementation of processes and systems that can support the change.”

He explains that many banks deliver products and services that are not that relevant to the individual customer.

“Systems, processes and particularly data also lack the integration that is required to deliver full customercentricity,” Soon adds.

Tjoeng says other challenges include the need to balance between initial cost and return of investment, especially if the necessary changes require a higher upfront cost. A clear measuring stick is required to see how long or how fast revenue generation outpaces costs. “Another delicate balance is required to ensure being customer-focused without compromising bank regulations.

Internally, alignment with different product or customer groups and functions are required to also ensure that the proper balance between cost and return is achieved,” he adds.

Mohit Mehrotra, executive director of Deloitte Consulting, says a way to address such issues is to enhance client-centric infrastructure and create clear success measures for the transition, as well as a client-centric culture, which is “critical to transform the bank from being product-focused

SECTOR REPORT 1: business banking

Standard Chartered Bank, Hong Kong

to being client-focused.” A clear-cut way to measure success will keep the company on the right track, with eyes on the prize. Success should be measured in both qualitative and quantitative ways that show customer satisfaction and return of investment.

Going global In addition to focusing on the needs and wants of customers, Asian banks are also encouraged to cater to business clients who want to expand abroad, and are looking for hedging products and access to international capital markets.

Soon says this may be a challenge for domestic banks. “However, partnerships and outsourcing can help bridge the gap,” he explains. He adds that many banks are already expanding their networks by partnering with financial institutions abroad, as well as setting up their own franchises, to work towards such possibilities.

On the other hand, OCBC NISP’s Tjoeng says it’s easier said than done. “SMEs expanding to overseas markets will initially require access to new market: buyers, regulatory advice, international trade/transactions, and local market practices or knowledge. An international bank with a strong regional presence is best positioned to offer such services – which encompass foreign exchange with simple forex hedging, trade finance capabilities, and speed of transactional capacity,” he says.

Mehrotra is more optimistic, saying domestic banks have the opportunity to support the “rise of the local champions.” “A partnership-

led approach by local banks will be key in supporting the development of a profitable capital and global markets business,” he explains.

Digital banking Soon says that while most Asian banks already have social media marketing capabilities, gaps exist in providing an integrated service offering that can offer a tailored customer experience and also serve to enhance revenue for the bank. “The biggest challenge is in the availability of data, and large investments are being made by leading banks in these areas,” he explains.

Darryl Ye, lead analyst at East & Partners Asia, says the Big Three banks in Asia – HSBC, SCB and Citi – are doing well on the digital front. According to East & Partners’ research program called the Asia Institutional Transaction Banking for May’14, the Big Three banks take the top 3 spots in the satisfaction rating for Electronic Service Delivery. They have an average satisfaction score of 1.13, on a scale of 1 to 5, with 1 being very satisfied.

OCBC NISP’s Tjoeng agrees that banks should seriously consider investing in technology. “Given the advances of technologies and proliferation of smart phones, banks need to follow these trends and ensure their infrastructure, products, services, systems, etc, are geared towards these new lifestyles,” he adds.

“Banking transaction is no longer confined to a bricks-and-mortar model, but virtually through apps.

The issue obviously is to balance between convenience, security, and

Darryl Ye

Mohit Mehrotra

customer touch. We do not see yet any bank that is following the trend in a holistic way,” he adds.

Because of the changing landscape in the banking industry, Asia’s banks, especially those already lagging behind, may soon consider organizational restructuring. This will not only help banks adapt to new policies addressing industry changes but also to comply with regulatory changes imposed by government institutions.

Soon says the readiness of banks for organizational restructuring differs from country to country, but those in more mature markets, where strong regulations are at play, will find it easier to adjust. In Singapore, Malaysia, Indonesia, and Thailand in Southeast Asia, the leading banks are geared up for these changes, he says.

“In the latest regulation by MAS regarding liquidity coverage ratio requirements announced in June this year, requiring banks to hold sufficient ‘high quality’ liquid assets to withstand a 30-day crisis

by January 2015, it was reported that all Singapore banks were already in compliance with the new requirements for local currency,” Ye points out.

OCBC NISP’s Tjoeng says that since the crisis of 1998 and 2008, the “Indonesian banking architecture is fairly robust,” allowing it to follow regulatory changes.

He cautions that those who adopt the regulations first may lose market share as those who do not follow can chip away at their share. “However, over time, banks that adopt the regulatory changes earlier will reap the benefit of being more solid and secure,” he adds.

Cost and income per customer

Source: Ernst & Young

ASIAN BANKING AND FINANCE | DECEMBER 2014 31

Country report: hong kong

HK banks’ exposure to China worries analysts

HK banks play a dangerous credit game Mounting Mainland-bound credit could see risks stack up to unmanageable levels.

H

ong Kong banks are lending furiously to Mainland Chinese companies with further acceleration expected in the next few years, raising concerns among analysts on whether their liquidity and asset quality will hold up. While Hong Kong’s banking industry remains relatively solid and well-managed compared with regional peers, it could go off-kilter when banks take on too much risk too fast.

One of the Big Three credit rating agencies, Moody’s Investors Service, warns of rising Mainland credit and banking activities as a potential pain point for Hong Kong banks. This has led Moody’s to maintain a negative credit outlook for the Hong Kong banking system until 2015.

“The key risks that underpin the negative outlook are the banks’ growing exposures to Mainland China, deteriorating credit conditions on the Mainland, asset market imbalances in Hong Kong’s economy, high levels of private sector debt, and the implications for support for creditors from 32 ASIAN BANKING AND FINANCE | DECEMBER 2014

The explosion in Mainland exposures will pose challenges to some Hong Kong banks’ liquidity profiles and capitalization levels.

the impending new resolution regime,” says Sonny Hsu, vice president – senior analyst at Moody’s.

Growing Mainland exposures Hsu says Hong Kong banks grew their Mainland exposures by 29% in 2013, and these accounted for 20% of their total assets at end-2013 versus 16% at end-2012. Mainland exposures should expand further in the coming 12 to 18 months.

This rapid growth was and will be driven by Mainland and overseas corporates’ expanding cross-border trade and investment activities. Firms are opting to borrow from Hong Kong banks given their relatively low funding costs and higher liquidity conditions compared with Mainland China alternatives.

China’s State Administration of Foreign Exchange have also imposed a new policy to allow Chinese corporates to provide credit guarantees to overseas subsidiaries wishing to borrow offshore. This will likely increase overseas borrowing by Mainland

corporates in the near future.

The explosion in Mainland exposures will pose challenges to some Hong Kong banks’ liquidity profiles and capitalization levels, warns Hsu. Asset quality levels can also deteriorate when factoring in the slowdown in the Mainland’s economic growth, overcapacity in certain industries, and increase in corporate balance sheet leverage.

“Hong Kong banks have so far maintained conservative credit standards on their Mainland-related lending and report good asset quality metrics. However, the rapid growth in their Mainland-related business and the transformation in their financial profile entail risks, as the banking system evolves into an important offshore financial conduit for Mainland China,” says Hsu. “In addition, we expect asset quality trends in China to remain under pressure in the next one to two years from the country’s economic rebalancing and slowing growth.”

Hong Kong banks will also need to

Country report: hong kong be wary of contagion risks resulting from increased vulnerabilities in China’s financial system, as reflected in increasing non-bank intermediation.

“Volatilities in China’s interbank markets may spill over into Hong Kong, as linkages between the banking systems increase. Although we maintain a stable banking system outlook on China, the average standalone rating on Chinese banks is lower than that of Hong Kong, reflecting our assessment of the weaker intrinsic financial profile of Chinese banks,” says Hsu. “Even though we think that Hong Kong’s banking system will remain stronger than China’s for some time, even a modest degree of convergence has credit negative implications for Hong Kong banks.”

1H14 Performance Echoing concerns by Moody’s, Steven ST Chan, analyst, banking and financials at Maybank Kim Eng, says most banks should see a slight increase in non-performing loans for their China loans during the first half of 2014 (1H14). This was due to slower economic growth and external trade activities, and will result in higherthan-average credit costs for most banks in 1H14 than last year.

Still, it can be argued that fears of overexposure could be overblown, based on the Hong Kong banking industry’s decent net profit performance in1H14.

Based on Bloomberg forecasts, the net profit of most Hong Kong-listed banks should have grown 3-14% year-on-year (yoy) in 1H14, powered by solid loan growth, widening net interest margin (NIM) and tight cost control, says Chan.

Chan estimates core net profit for most Hong Kong-listed banks will grow more than 10% this year.

Meanwhile, loan growth in most banks likely ranged from the mid-tohigh single digit in 1H14. They also should have posted stable-to-slightlyrising NIM compared with the previous period, with the exception of the Hongkong and Shanghai Banking Corporation (HSBC), Standard Chartered Bank (SCB) and the Bank of East Asia (BEA). “While BEA should suffer from rising funding costs in

China, both HSBC and SCB continued to run down their high-yield consumer loans during 1H14.”

Net fees growth of most banks should have also moderated in 1H14, given weaker securities brokerage and fund distribution fees.

Deteriorating operating environment As Hong Kong banks play with fire when it comes to their Mainland exposures, they are also feeling the heat on the domestic front due to a deteriorating operating environment.

Hsu says 2015 will see a spike in interest rates, making it that much harder for the Hong Kong economy, and in turn banks, to sustain their solid performance.

Hong Kong is poised to tighten monetary conditions in conjunction with the US Federal Reserve’s move to raise policy interest rates in 2015. Hsu says Hong Kong’s pegged exchange rate regime forces the territory’s monetary policy to nearly mirror that of US monetary policy. This threat of interest rate increases offsets the small respite offered by the recent stability in property prices and credit market conditions.

It is well known that property prices in Hong Kong have stabilized after more than doubling between 2009 and 2012, but Hsu says they are still elevated relative to household income and rent, and still pose a lot of risks to the territory’s economy and banks.

Falling property prices hurt bank credit worthiness to some degree, says Hsu: “While our assessment is that the banks can withstand the direct impact of a substantial fall in property prices, such a fall will have negative effects on the economy, which could in turn prove disruptive to the banks’ credit profile.”

When dissecting what makes Hong Kong’s operating environment particularly risky these days, Hsu points to two groups of local customers that pose the highest credit risks for banks: unsecured consumer loan borrowers and small and medium enterprise (SME) borrowers.

Non-mortgage consumer lending extended to these groups grew 17%, and they are especially more sensitive

2015 will see a spike in interest rates, making it that much harder for the Hong Kong economy.

to economic cycles than mortgage consumer loans. Hong Kong banks should be particularly concerned with SME borrowers in southern China, which have been, and will be, hit hard by the economic slowdown and face climbing land and labour costs.

“Mid-sized banks, which have higher exposures to SME borrowers relative to their size, are especially sensitive to the financial conditions of such borrowers,” says Hsu. Hong Kong banks depending on strong systemic support will also find this is weakened as of late. The government recently unveiled plans to adopt revised bank resolution regimes in line with the Financial Stability Board’s Key Attributes for Effective Resolution Regimes for Financial Institutions.

“This development is credit negative for bank creditors as they are less likely to benefit from public sector support and more likely to have losses

Country CAMELS ratings

Source: Macquarie Research, Aug 2014

Hong Kong banks’ mainland exposures continue to grow

Source: Hong Kong Monetary Authority

ASIAN BANKING AND FINANCE | DECEMBER 2014 33

Country report: hong kong imposed on them during times of stress,” says Hsu. “It is unlikely we would remove all systemic support uplift in the five Hong Kong banks whose ratings incorporate elements of systemic support, but a change in our assumptions would imply lower ratings for some of the banks.”

If there is one thing going for banks, it is that they are coming off a period of strength, says Hsu. Hong Kong banks reported good financial results last year and the first half of 2014, asset quality metrics remain sound, and problem loans kept at notably low levels. Moreover, capitalization levels have been strong and will serve as a buffer to absorb any rise in problem loans.

“These buffers explain why Hong Kong banks continue to have high credit ratings,” says Hsu, noting that Moody’s extends Hong Kong banks the second highest baseline credit assessments on a weighted average

In terms of earnings, Hong Kong banks will continue to post slim profits amid a more competitive environment that has pushed down overall profitability to historical lows.

Growth in property prices has moderated, but prices remain elevated (Jan 2009 = 100)

Source: Ratings and Valuation Department, Hong Kong Government

Net interest margins improved in 2013

Source: Hong Kong Monetary Authority

34 ASIAN BANKING AND FINANCE | DECEMBER 2014

basis, just a few tiny steps behind Singapore. “Our negative system outlook needs to be understood in the context of this very high starting point; we are signalling the potential for a modest deterioration in credit profiles from a strong base,” says Hsu.

Hang Seng Bank.

In terms of earnings, Hong Kong banks will continue to post slim profits amid a more competitive environment that, according to Pili, has pushed down overall profitability to historical lows.

Regional comparison Looking at the Asian region, the Hong Kong banking industry still holds up well but not very much relative to the more competitive countries. “Our overall rating of Hong Kong banks under the CAMELS system is 2.5,” says Ismael Pili, research analyst at Macquarie, with 1 being the highest rating score and 5 the lowest.

The CAMELS system assess a banking system’s overall health.

Macquarie rates the territory’s banking system with the following component scores: Capital at 2, asset quality at 1, management at 2, earnings at 4, liquidity at 3, and sensitivity at 3. Hong Kong’s overall CAMELS rating falls in the middle of the pack in Asia, weaker than the ratings of Singapore (1.5), Japan (2.2) and Indonesia (2.3), but slightly stronger than those of China (2.6), Korea (3.0) and India (3.3).

Hong Kong shines in asset quality, boasting the lowest impaired loan incidence in the region, although trouble could be brewing on the horizon. “The Hong Kong domestic book remains in stellar condition.

Risk rests with the banks’ China related exposure, given we expect an economic slowdown in the Mainland.

Those with greater China exposure would thus be perceived to be more at risk,” says Pili.

Hong Kong banks also showed strength by being well capitalized and conservatively managed. “We do not see the falling profitability trend as reflective of management abilities, but rather a function of an increasingly more competitive operating environment,” says Pili.

But Hong Kong banks have room to improve when it comes to liquidity and earnings. The banks are facing a liquidity issue due to accelerated loan growth, and this has led to rising funding cost pressures, says Pili. This gives an advantage to bigger banks with greater deposit franchise, such as

Russian sanctions While it seems that Hong Kong banks might benefit from increased profitability and liquidity following fresh sanctions on Russia, this development will have minimal actual impact on the sector, says May Yan, analyst, Asia Ex-Japan banks at Barclays.

Yan says the US and EU broadened sanctions on Russia in late July. The US added Bank of Moscow, Russian Agriculture Bank and VTB to its Sectoral Sanctions Identification List and prohibited US persons from “transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity for these persons, their property, or their interests in property.” The EU also banned financing with maturities of more than 90 days for state-owned Russian banks, development banks and their subsidiaries effective 1 August.

In response to the sanctions, Russian corporates and banks may be reducing risks by shifting cash to Hong Kong and other Asian markets, says Yan. Media reports suggest large companies such as MegaFon OAO, the second-largest mobile-phone operator in Russia, are converting a big chunk of their cash reserves into HKD and keeping them as deposits in several Chinese banks in Hong Kong.

Yan says these funds flowing from Russian companies into Hong Kong dollar (HKD) deposits would likely be equivalent to HKD67 billion at most, or only roughly 1.5% of the HKD system deposits in Hong Kong.

This assumes that 20% of Russian companies are international and convert 40% of their cash balances into HKD. “Russian corporate will only constitute a small deposit inflow for Hong Kong’s banking system, by our estimates. Thus we believe such inflows would likely only marginally improve system liquidity,” says Yan.

SECTOR REPORT 2: islamic banking

Asia to lead Islamic banking’s growth

How can Islamic banks master diversity?

Find out why building an Asian bastion requires expertly handling differences in Sharia law.

I

slamic banking is on the cusp of a demand boom as millions of Muslim consumers in Asia begin to switch from traditional banking to Sharia-compliant banking and financing services. But the lack of universal agreement and application of Sharia law in target markets is hampering its surge, argue analysts.

Diverse and often-conflicting rules between Sharia authorities will need to studied, and, if not settled, addressed with unique products for each market jurisdiction. In this sense, while demand is huge for Islamic products, banks should avoid getting ahead of themselves and focus first on laying down a strong foundation for operations.

One size does not fit all Asia is expected to lead the next era of growth in Islamic banking and finance, represented by the so-called QISMUT countries, says Abdulaziz Al-Sowailim, regional managing partner, MENA region at EY. QISMUT includes Qatar, Indonesia, 36 ASIAN BANKING AND FINANCE | DECEMBER 2014

Asia is expected to lead the next era of growth in Islamic banking and finance, represented by the socalled QISMUT countries.

Saudi Arabia, Malaysia, UAE and Turkey. This six-country group commanded 78% of the international banking assets in 2012, expanding at a 5-year CAGR of 16.4%, driven by their expanding economies and fastgrowing customer base. Indonesia in particular holds tremendous promise with its large Muslim population and potential to develop Sharia banking, says Koko T. Rachmadi, head of the Sharia business unit at OCBC NISP. There is no questioning the enormous Asian appetite for Islamic banking, but converting this demand into sustainable revenue streams requires a full rollout of locally approved and accepted products in these markets.

“There are over 70 different sects in the entire Muslim world, each with their own school of thought and application of Islamic banking in their own country. This leads to different interpretations of Sharia law and other issues such as regulations and law in non-Muslim counties. This is an obstacle which the Islamic banking system will need to overcome before

we see mass scalability of Islamic banking solutions across various countries,” says Darryl Ye, lead analyst at East & Partners Asia.

Given this scenario, banks will need to understand the application of Sharia law in each country. Rachmadi says the rise of Sharia banking will likely depend on how well banks create innovative products to meet the unique needs of Muslim banking customers. This will understandably require time and investment, and put pressure on margins.

On top of all this, Islamic banks will also need to court strong government support. In Indonesia, for example, the lack of accommodating government policy is proving to be a stumbling block for expansion, says Muhammad Syarizal Rahim, senior executive director, assurance, Islamic financial services at EY. The stringent demands to scale in Asia, including the need to build custom-fit systems and offer unique products for each fragmented market, will likely force Islamic banks into

SECTOR REPORT 2: islamic banking regional consolidation. “We will ultimately see a consolidation of the industry and the emergence of a group of large Islamic banks which operate on a regional basis. Those that are not involved in the consolidation would most likely evolve to become a specialized institution,” says Rafe Haneef, CEO of HSBC Amanah, Malaysia.

Malaysia model According to Badlisyah Abdul Ghani, executive director and chief executive officer, CIMB Islamic Bank, the key thing that needs to be done for jurisdictions that are serious in building a robust and stable financial market in Asia is to provide an enabling operating environment. “This can be achieved simply by doing very minimal amendments to current banking legislation and regulation as well as a few other legislations such as tax and land laws.” he adds.

Islamic banking and finance is treading shaky ground when it enters new markets, even those teeming with potential, which is why banks and governments are looking increasingly to the relatively successful Malaysia model.

Islamic banking assets in Malaysia have doubled over the past five years to USD137 billion (MYR434 billion) and comprised 21% of total banking-system assets as of May 2014, according to Simon Chen, assistant vice president – analyst at Moody’s Investors Service. The country’s ringgit-denominated Sukuk issue also breached $1 billion (MYR3.25 billion) for the first half of 2014, the largest in any year so far.

Ghani notes that a few Malaysian

Islamic banks issued sukuk recently as part of their respective capital management exercise to meet prudential requirements as found under Basell III. This is very similar to many other conventional banks that need to manage their own compliance with Basel III. “In Malaysia we adopt a simple philosophy in the undertaking of Islamic finance, ‘just do, less talk,” he says.

“Malaysia is a perfect example of how a complete ecosystem can provide the required platform for the Islamic banking industry to flourish,” says Rahim. He recounts how local banks started their Islamic banking operations via ‘Islamic banking windows’ and once the scale was established, the operations were then carried out by full-fledged subsidiaries.

This is why countries like Hong Kong, Thailand and the Philippines have been in consultation with key Malaysian regulatory bodies and industry players to share best practices and assist in the development process, says Sally Lye, head, Islamic banking at Maybank Singapore.

She notes that Singapore’s Monetary Authority has recently enabled Islamic finance by ensuring that it is on a level playing ground with the conventional alternatives in terms of taxation. The regulatory agency also stimulated the Islamic capital market through an annual benchmarked sukuk offering.

“Primary considerations into fuelling growth in Asia would be to have a cohesive taxation regime while the sovereign entity. The United Kingdom as an example, has issued a GBP 200 million Sovereign Sukuk, which

Muhammad Syarizal Rahim

was oversubscribed by more than 10 times, to create a benchmark for market participants and to serve as a liquidity managing tool for Shariahcompliant financial institutions. Having globally accepted Shariah structures and principles is also imperative in having a ‘border-less’ environment for the industry that would benefit the cross-border transaction success,” adds Lye.

Challenges ahead Islamic microfinance and the idea of non-interest loans is seen by some analysts like HSBC’s Haneef as a potentially effective vehicle to reduce Rafe Haneef poverty within the wider community and ensure financial inclusion.

According to CIMB’s Ghani, Islamic microfinance is the missing component of Islamic finance in many jurisdictions. Even in Malaysia, Islamic microfinance is done mostly outside of the regulated banking Koko T. Rachmadi sector in a limited manner. “In fact, microfinance in general (conventional and Islamic) across Asia is still rather limited because of the regulated regime of the financial market.

Banking regulation would need to be amended to enable it to be done more effectively as a niche market in Asia,” Darryl Ye he adds.

But Haneef notes that banks may find it difficult to develop Islamic banking and microfinance without accurate financing assessment tools.

Currently tools available from third party providers have sparked interest among banks, but it will take time for them to assess their effectiveness.

Haneef gave as an example risk participation type contracts, whose evaluation and monitoring infrastructure support systems need to be further developed.

Islamic banking’s push into Asia will also require huge human Islamic banking capital development such as training assets in professionals and practitioners with Malaysia have adequate Sharia expertise, says Radoubled over him. Malaysia has already pioneered the past five years to USD137 the establishment of various learning institutions specializing in Islamic billion (MYR434 banking and Sharia knowledge, but billion) and other countries will need to play comprised 21% of total banking- catch-up if they hope to ride the profsystem assets as itable and potentially socially transformative wave of Islamic banking. of May 2014.

ASIAN BANKING AND FINANCE | DECEMBER 2014 37

ANALYSIS 1: BASEL III

Basel III pressures firms to increase capital

Why Basel III is not the perfect answer to previous capital frameworks’ failures

Many banks remain challenged in meeting full requirements while sustaining profitable business models.

W

hen the Global Financial Crisis opened a can of worms in 2008, it revealed a lot of faults in the banking industry.

Basel III attempts to address these shortcomings and should improve the ability of banks to absorb losses to their capital and shocks to their funding. However, the banking industry is not yet in a steady state for a variety of reasons. Substantial improvements have occurred in bank fundamentals, such as reductions in leverage, higher capital levels, and the implementation of firm-wide stress testing and more robust liquidity and funding profiles.

Nevertheless, capital requirements under Basel III will continue to pressure many firms to increase capital further, as buffers begin to phase in starting 2016. In addition, firm-wide stress testing still requires substantial investment at many firms. Moreover, constraints on leverage pose a par38 ASIAN BANKING AND FINANCE | DECEMBER 2014

“The Basel III framework introduces the concept of buffers above regulatory minimums that range from an additional 2.5% of riskweighted assets up to 8.5%.”

ticular challenge for firms which have been focused on optimizing returns on risk-adjusted capital under Basel II. Finally, tail risks, especially relating to the increasing cost of litigation in regard to legacy businesses, still expose many firms to sizeable losses.

Capital, leverage, and liquid asset levels are all likely to improve as a result of full Basel III implementation, and some jurisdictions, positively, have accelerated Basel III phase-in requirements.

At this stage of the capital reform process, many banks are challenged to meet requirements and have not yet found sustainable, profitable business models in the new environment, finding it difficult to generate earnings in excess of their cost of capital. While some banks are already better positioned to meet the Basel III requirements and will be less challenged, resulting in greater strategic flexibility, they are already relatively

higher rated.

Basel III background The Basel III framework, which was introduced in 2010, is the latest bank capital framework produced by the Basel Committee on Banking Supervision, and provides the basis for significant bank capital reforms which are now being implemented globally. The reforms aim to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, reducing the risk of spillover from the financial sector to the real economy.

The Basel II framework updated the 1988 Basel I capital framework that had standardized risk weights for credit and market risk exposures.

Basel II continued the focus on the asset side of the balance sheet and attempted to capture more nuanced risk-based capital requirements for credit, market, operational and coun-

ANALYSIS 1: BASEL III “Despite banks being wellcapitalized, they may still need to replace non-qualifying capital instruments with those that meet the eligibility requirements.”

Basel III focuses on balance sheet’s liability side

terparty credit risk, with the latter two being included for the first time.

Basel III largely focuses on the liability side of the balance sheet, modifying requirements for both quantity and quality of loss-absorbing capital, and introduces requirements for a leverage ratio, as well as liquidity and stable funding requirements (a short-term 30-day liquidity coverage ratio and a 1-year net stable funding ratio). Basel III requires more high-quality common equity Tier 1 (CET1) capital relative to total Tier 1 and Tier 2 capital, and adds a number of capital buffers which can only be met with CET1 capital.

Finally, the Basel III framework also includes revisions to riskweighted assets (RWAs) relating to counterparty credit risk, including the treatment of “wrong-way” risk.

The Basel III framework introduces the concept of buffers above regulatory minimums that range from an additional 2.5% of risk-weighted assets up to 8.5%, and even higher in some regions. The buffers must be met with loss-absorbing CET1 capital.

When buffers are breached, they progressively restrict the amount of capital distributions (dividends and discretionary Tier 1 payments) and discretionary bonus payments that can be made out of earnings. Basel recommends that minimum capital conservation standards are based on a combined buffer, which is divided into quartiles to determine payout

restrictions.

The purpose and design of Pillar 2 requirements are important to understand in the context of Basel III buffer standards. Pillar 2, which requires an internal capital adequacy assessment process (ICAAP) and a supervisory review and evaluation process (SREP), entails an incremental assessment of capital for risks not sufficiently or not covered in Pillar I. Pillar 2 is divided into capital held against risks not captured or not fully captured by the regulations and risks to which a firm may become exposed, as assessed under forward-looking stress tests, over a 3-5 year horizon.

In some jurisdictions, regulatory authorities may retain the discretion under Basel III to assess additional Pillar 2 buffer requirements for specific banks in cases where they deem the standardized Basel III buffers are insufficient, given a firm’s risk profile and potential exposure to losses under stressed conditions.

Quality of capital and capital deductions Basel III improves the quality of capital by adding new types of deductions from capital (such as deferred tax assets that rely on future profitability) and moving existing deductions into higher quality tiers of capital, which will be phased in by 20% a year between 2014 and 2018.8 Basel III also recommends that unrealized gains and losses be included in CET1 capi-

tal (they were excluded under Basel II), with unrealized losses eligible for phase-in.

In terms of implementation, many countries in Asia and some in the Middle East have tightened the deduction rules by eliminating a phasein period or by modifying Basel’s threshold (limited) deductions to full deductions, which are credit positive. In Europe, there are more cases of rules that are less stringent than Basel’s recommendations that have been driven by financial crisis effects, including a slower phase-in period for deferred tax asset deductions.

Minimum required capital levels in Europe and the Americas are generally being adopted and phased in according to BCBS recommendations under Basel III (end-point CET1 ratio of 4.5%, Tier 1 ratio of 6%, and total capital ratio of 8%), but minimum capital requirements in Asia, the Middle East and Africa are significantly higher.

This is likely due to the fact that firms’ capital ratios are already very high in these regions. However, even in these regions, despite banks being well-capitalized, they may still need to replace non-qualifying capital instruments with those that meet the eligibility requirements for CET1, T1 and T2 under Basel III. While most jurisdictions are allowing the use of total capital to meet Pillar 2 add-on requirements, though some regulators are modifying the required quality of capital to be more restrictive, requiring at least 56% CET1, in line with the proportions of CET1, Tier 1 and T2 in the 8% total capital requirement.

However, jurisdictions have inconsistent application of Pillar 2

Tangible common equity / risk-weighted assets for Moody’s-rated banks

Note: Basel II basis unless system reports under Basel I Source: Moody’s Banking Financial Metrics

ASIAN BANKING AND FINANCE | DECEMBER 2014 39

ANALYSIS 1: BASEL III additional capital assessments as well as inconsistent disclosures, which are problems that remain from Basel II. Many jurisdictions do not formally assess additional capital for risks not captured or not fully captured under Pillar 1, or when they do, these are often not disclosed by regulators or the banks themselves.

Capital buffers Most regions are following the BCBS buffer phase-in schedule, which begins in 2016, although some Asian and Middle Eastern countries are requiring faster compliance or have added the buffers into minimum requirements. BCBS has recommended the combined buffer (capital conservation buffer, countercyclical buffer plus other applicable buffers) represent the capital buffer used for determining restrictions on capital distributions when buffers are breached, but buffer definitions across jurisdictions vary.

With the introduction of explicit buffers and restrictions on distributions when buffers are breached,

“Banks in regions most affected by the GFC are experiencing low profitability; making their transition to Basel III more challenging.”

Basel III end-point capital requirements Asia-Pacific

Note that the D-SIB/G-SIB buffers represent the top end of the range.

Source: Moody’s Investors Service, national regulators

(Market funds - liquid assets) / total assets

Note: Market funds consist of all long- and short-term debt, including amounts due to other banks. This ratio captures the degree to which a bank relies on non-core funding (i.e., funding other than customer deposits) to support its asset base.

Source: Moody’s-rated banks; Banking Financial Metrics

40 ASIAN BANKING AND FINANCE | DECEMBER 2014

regulators will intervene earlier than was the case under Basel II, posing additional risks for bond holders, while preserving greater value, potentially resulting in lower losses given default. Issuers of AT1 instruments will have incentives to maintain capital cushions above regulatory requirements to minimize the risk of coupon impairment or trigger breach, a credit positive.

According to BCBS guidelines, securities that no longer qualify as non-common equity Tier 1 capital or Tier 2 capital under Basel III have been in the phase-out process since 1 January 2013, with their aggregate recognition capped at 90% from 1 January 2013, and the cap reducing by 10% each year. Most jurisdictions are adopting the Basel-recommended timeline, with a few instances of phase-out being implemented in five years. Determining how constraining these phase-out arrangements are for a particular institution requires a comparison of the normal amortization of existing non-qualifying securities versus the phase-out arrangements for those with longer maturities. For banks in regions such as Asia and Latin America, managing the non-qualifying capital phase-out process may be their most active Basel III management actions, as they will not likely be constrained by the increased capital and new leverage and liquidity requirements.

In 2014, many regulators will be determining D-SIB buffer levels for banks in their systems. Countercyclical buffers have not yet been imposed, but could add up to 3% to these requirements. While Basel III should improve the ability of banks to absorb losses, and reduce their need to revert to deleveraging in a downturn, banks in regions most affected by the global financial crisis are experiencing low profitability and continued reliance on monetary authority funding; making their transition to the Basel III end-point requirements more challenging.

Leverage ratio The leverage ratio requirement is in early stages of rulemaking in most countries, as many countries are waiting for BCBS to finalize definitions

and calibrations before implementing rules. The BCBS leverage ratio definition includes both on- and off-balance-sheet exposures in the denominator and Tier 1 transitional capital in the numerator. Most jurisdictions that have rules or proposals are in line with or stricter than Basel standards. Despite its early stages, the rule is already a binding constraint, impacting the strategies of many banks due to market pressure.

To help meet the leverage ratio requirement, banks could increase their risk profiles to boost weak profitability or reduce holdings of high quality liquid assets, which could be credit negative. On the other hand, how banks seek to address the Basel III leverage constraints could be credit positive if they reduce complexity and risk or dispose of underperforming assets. Banks that are leverage constrained are highly likely to issue AT1 securities to meet this requirement. However, it is possible that some regulators may decide to restrict the portion of Tier 1 that can be comprised of AT1 for purposes of calculating the leverage ratio.

Liquidity coverage ratio Basel III introduces the Liquidity Coverage Ratio (LCR), a short-term liquidity standard to ensure that banks have sufficiently high levels of liquid assets to overcome an urgent stress scenario lasting for 30 days.

Liquidity coverage ratio rules remain in early stages, with many parts of the rules still undetermined, including categorization of assets, calibration of required levels, and phase-in timelines. Nevertheless, we already see examples of stricter LCR rules than BCBS, or a faster phase-in, in both developed and emerging countries.

Excess liquidity is allowing some jurisdictions to phase-in requirements early, such as in Asia and North America, trapping excess liquidity in the systems, a credit positive. Earlier or stricter implementation avoids regulatory back-stepping, particularly where liquidity requirements were already strict, such as in the UK and the US. By Meredith Roscoe, Vice President - Senior Research Analyst, Moody’s Investor Service

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sector report 3: forex

What will spur volatility in Asian currencies?

Understanding forex and macro-change Making sense of international developments and how they affect the forex markets.

A

s if analysing foreign currencies were not complicated enough, large-scale changes all over Asia and the world are fundamentally changing the forex market we once knew. Growing internal trade in Asia, the internationalization of the renminbi (RMB), and monetary policy uncertainties in the West are only some of the issues that are stirring foreign currency valuations. We examine, in depth and in plain English, some of these issues and analyse how they affect foreign currencies at their core.

Shifting cross-border trade and the root of foreign currency markets At their core, markets for foreign currencies emerged as a result of international trade. Ever since different countries decided to trade goods and services with each other, currencies began to assume a commodity-like character of their own, as a country would also have to buy a trade partner’s currency in order to buy their goods (you can’t pay dollars for goods 42 ASIAN BANKING AND FINANCE | DECEMBER 2014

As demand from these rapidlygrowing Asian trade partners grow, so will demand for the RMB.

denominated in RMB). Hence, the direction of international trade flows affects foreign currency markets most significantly.

The issue at hand has to do with China’s emergence as a major trade participant globally (and especially within Asia), and its internationalization of its currency, the RMB. Jonathan Cavenagh, senior Asian currency strategist at Institutional FX Sales, Asia, Westpac, insightfully points out that “for a long period of time, Asian demand was linked closely with the fortunes of the US economy, but this has shifted quite noticeably towards China over the past 10-15 years.”

He adds that “FX transactions have also grown as more trading has been conducted in the Chinese currency.”

What does this mean for the foreign currency market?

The key to understanding the links is in Cavenagh’s emphasis on Asian demand for Chinese goods. Note that emerging markets in Asia are expected to drive global demand in the coming years. And the fact that

these emerging markets are looking to China now versus the US in the past suggests that cross-border trade (the root of foreign currency markets) is fundamentally changing in favour of China. Add to that the internationalization of the RMB, and you can reasonably conclude that the RMB may very well be the next USD. As Darryl Ye, lead analyst at East & Partners Asia notes, “RMB is targeted to denominate 30% of total trade with China by 2020.”

The key takeaway is that, as demand from these rapidly-growing Asian trade partners grow, so will demand for the RMB. And given the RMB’s internationalization, direct convertibility pushes the USD ever further to the sidelines.

Awakening the Asian currencies Of course, the spotlight should not be solely on China and the RMB, especially since cross-border trade is a two way street. The currencies of rapidly growing Asian economies such as Indonesia, Malaysia, and the Philip-

sector report 3: forex pines, are also affected by the broad changes sweeping regional trade in Asia. However, one of the foremost concerns regarding the currencies of these countries is their relatively low volatility, which is an issue because low currency volatility means less profitable opportunities for forex and derivatives traders. What developments could spur greater volatility in these currencies?

“Currency volatility in Asia could see a turnaround if the regional geopolitics worsen,” according to Saktiandi Bin Supaat, head of FX research at Maybank Singapore. Geopolitical tensions affect foreign currencies because these tensions could affect domestic price levels within the affected countries, and movements in price levels affect the real value of currencies. Geopolitical tensions could therefore spur volatility because of the uncertainty over these changes in price levels.

Policy moves in the West as catalysts for more volatility Another potential catalyst for more volatility in Asian currencies are monetary policy moves in the West.

According to Novelina Luciana, treasury advisory division head at OCBC NISP, “one of the most important factors would be Draghi’s recent move towards quantitative easing.

The unclear strategy of European QE may spark uncertainties over Europe’s economic future that will significantly impact currency stability in Asia.”

Foreign monetary policy changes affect currency volatility because of increased activity in capital movements, and therefore more volatile demand for particular currencies.

But Tan Eng Kiang, deputy head of group financial markets, Alliance Bank Malaysia Berhad, thinks the biggest catalyst will be the recovery story in the US market that will eventually drive US interest rates higher. “Unless Asia’s interest rates rise in tandem, the narrowing interest gaps between the US and emerging countries will not only deter emerging market assets due to carry trade motivations but also reversal of funds on existing invested funds. Such reversals will cause spikes in volumes in emerging countries like in Asia,” he adds.

According to Luciana, with the Asian markets slowing down due to Chinese economic cooling measure, sluggish recovery in the US and the new uncertainties in Europe, higher interest rates will exacerbate the impact of global slowdown. “The winners would be limited to companies with mountains of cash piles and retirees with cash savings while bonds investors, stock investors, consumers and corporates with loan lose. The losers would be everybody,” she notes.

Tan also notes there could be more losers than winners in Asia as countries compete for funds, unless higher interest rates are accompanied by higher GDP growth. Cost of borrowing will become more expensive and banks in countries that are highly exposed to high household debt could face deterioration in asset quality. “No clear winner but less of a loser would be China. Its currency is ‘fixed’ and it does not allow its currency to flow freely in and out of its economy.

Unless pure fundamental backs its currency, Asia raising interest rates as a defense against outflows would be the least preferred mode. However, Asia is more prepared now than in 1997 but would still suffer some pain correction when global investors pull out,” says Tan. But a CIMB spokesperson argues that there’s no specific winner or loser with the increasing interest rates. CIMB notes that tightening of monetary conditions, specifically higher interest rates, be it from the US or domestic Asian economies, tend to have the broad macro repercussions of slowing growth in the medium term, but it also re-adjusts the macro economic imbalances in the short term. “Concerns should be on economies in Asia where leverage to the property sector is excessive as well as economies that have high household debt; this tends to magnify the existing debt situation,” CIMB adds.

Novelina Luciana

Saktiandi Bin

Darryl Ye

Jeffrey Tjoeng

reputation as an attractive investment is spurring capital flows and foreign currency activity.

As Cavanagh notes, “Capital flows have come to dwarf trade flows over the past 2-3 decades. This has reflected a gradual opening up of capital accounts in emerging markets in Asia and increased interest in investing in this part of the world. This reflects to a large degree the better growth outlook in EM Asian economies, particularly compared with regions such as Europe.”

In relation to this fact, a major driver of capital flows that in turn affects foreign currency activity is monetary policy. Specifically, this refers to the state and direction of interest rates in major economies.

Learning to navigate the foreign currency markets There is a plethora of tools that monetary authorities use to influence interest rates. The key point to understand is that once a monetary authority has committed to a direction for their interest rates, then it is reasonable to extrapolate where interest rates may settle. And once that’s done, one can make an inference as to how interest rates will affect liquidity conditions, as well as the relative attractiveness of different economies as investments.

All of these culminate in a conclusion about the direction of capital flows, and thus how demand for particular currencies will be influenced.

Of course, these analyses are not quite so straightforward in reality, but keeping in mind the fundamental links between international developments and foreign currency markets will make it possible to navigate the foreign currency markets.

Capital markets and the relevance of monetary policy Inasmuch as cross-border trading of goods and services significantly influences foreign currency valuations, the movement of capital is also a major driver of the demand for particular currencies. And Asia’s emerging ASIAN BANKING AND FINANCE | DECEMBER 2014 43

ANALYSIS 2: eu regulation

Career choice: Accountant or banker?

EU regulation turns Asian banks into greener pastures Top western talent may increasingly flock to Asian banks for more satisfying compensation.

A

fter risk-taking bankers helped drive the western world to the brink of financial collapse, it was only natural for governments to attempt to rein in their reckless ways. Foremost among the regulatory moves was to put a firm cap on banker performancelinked bonuses to dissuade them from short-sighted actions, but this has also had the unintended effect of making Asia that much more attractive to top western talent.

“It has become a lot easier for local Asian banks to be more competitive with the global banks in compensation. Because they’re not subject to the CRD IV, they can actually be a bit more flexible in the way they operate,” says Keith Pogson, senior partner, financial services, Asia-Pacific at 44 ASIAN BANKING AND FINANCE | DECEMBER 2014

Asian banks are not only attracting western talent with sweeter pay packages, they also promise stable employment in a region known for its high growth.

EY. He is referring to the Capital Requirements Directive IV or CRD IV, a new regulation in the European Union (EU) that places a cap on performance-related pay.

He argues that the enforcement of CRD IV has helped level the global competition for talent that was once skewed towards US and EU banks.

“Regulation is driving some major shifts. One is that investment bankers are probably not getting as well compensated.

The golden days of traders driving their brand new Ferrari away from bonus payouts I’m afraid are long gone. Because that sort of business has gone but also the fee pools generated by the primary businesses are also diminished,” says Pogson. “I had a talk with some friends and they were telling me: being an accountant or a

lawyer might actually be a better career than being an investment banker. It’s actually interesting how compensation has moved on for these guys.”

It is no surprise then that Asian banks have made moves to attract these disheartened western bankers. Many Asian banks can, and are willing to, offer attractive compensation packages to rival the newly-lowered pay packages from US and EU banks.

Chinese banks are among those eager to hire top western talent in their bid to expand beyond mainland China and establish new investment banking and transaction banking divisions.

Singaporean banks and Malaysian banks are also starting to compete for western bankers.

Asian banks are not only attracting western talent with sweeter pay packages, they also promise stable employment in a region known for its high growth, says Kevin Ong, director, executive compensation, Southeast Asia at Towers Watson.

Western banks have suffered a slew of layoffs, while Asia’s

ANALYSIS 2: eu regulation booming banking markets ensure that demand for top talent is high.

Western banks fight back As their top talents threaten to pack up and head to Asia, western banks are looking for ways to circumvent pay regulation while still observing better risk controls.

Large numbers of EU banks, for example, are increasing base salaries or using cash allowances as part of the pay mix, says Shai Ganu, ASEAN business leader, Mercer Talent Consulting. He says 70% of EU-based banks are also seeking approval to increase the bonus cap to 200%. All these efforts are aimed at attracting and keeping top talent despite the CRD IV restrictions.

“High-performing employees expect remuneration comparable to their peers, but CRD IV restricts EU-headquartered banks in what they can pay in performance-related compensation,” says Mark Quinn, head of talent at Mercer UK and a financial services remuneration specialist. “Banks are looking at other methods of making up the shortfall to prevent staff walking into the arms of other less regulated competitors, such as hedge funds.”

CRD IV basically prevents Euro-headquartered banks that are hiring in from western or Asian banks from giving a higher bonus than a potential hire’s previous employer. So Pogson argues that, even though some banks can sweeten the pot with a more attractive bonus structure that rewards high performers, investment bankers could still decline an offer that will not earn them significantly more than if they stay put in their bank.

Investment bankers are not allowed to be paid much more than their guaranteed base somewhere else, says Pogson, which lowers the potential benefits of switching after taking into account the costs and hassle of relocating. A negligible effective pay increase makes accepting an offer difficult in spite of the other

advantages of moving to Asia.

Aside from making Asia look more attractive to unsatisfied western bankers, the CRD IV and other similar regulations have influenced Asian banks to take a more cautious approach.

Asia learns from the West Increasingly, Asian banks are evaluating their current compensation schemes to avoid fostering similar rogue risktakers among their ranks and cherry-pick the initiatives that seem applicable to the region. For example, Southeast Asian banks have generally been more prudent at risk-reward management compared to western banks, so they are likely to focus on malus, clawbacks, and risk-adjusted metrics, says Ganu.

Greater emphasis is being placed on risk-adjusted performance metrics for the funding and for the distribution of variable consultation, he says.

This has led some Asian banks to start switching from stock options to more performance-based long-term incentives, while others are deferring more bonuses into equity. The idea of identifying material risk-takers has also gained traction in Asia. Ganu says regulators in Asia are encouraging banks to more clearly identify staff who are likely to take risky actions and structure a significant portion of their pay as deferred and linked to bank equity.

In general, Asian banks are focusing on long-term incentive compensation schemes. The goal is to discourage executives from making decisions based on shortterm gains that garner larger personal performance bonuses but will ultimately hurt banks. “We have seen the implementation or redesign of a long-term incentive plan as one of the key actions being taken by many banks to encourage longer-term thinking, alongside the rethinking of certain metrics used in incentive plans,” says Ong. But, relative to western banks, Asian banks have chosen to apply a more limited

Keith Pogson

Kevin Ong

Shai Ganu

set of changes to remuneration structures and processes, according to Ong. This is because most board directors in the region view Asian banks as not being in the same dire situation as western banks. For one, variable pay in the region is more subdued, and the banks themselves profess to have a different business focus, product mix and risk appetite. There appears to be a sentiment that compensation arrangements at Asian banks are not really causing bankers to behave inappropriately or take unnecessary risks.

Malus and clawback Malus and clawback provisions are becoming more popular as deferred and equity compensation options. By withholding or taking back compensation when fraud, material risk issues and financial mis-statements arise, malus and clawback provisions can keep bankers firmly in check. “While it has not been made mandatory yet, we expect the Asian regulators to introduce more changes in this regard,” says Ganu. Some analysts, however, warn that implementation could face resistance in several markets.

“Employment laws in more pro-employee regimes across Asia – such as Indonesia and Malaysia – make the implementation of maluses and clawbacks challenging. Even if such provisions are put in place, banks may find them difficult to enforce when they truly need to apply them,” says Ong.

Measures to be taken in response to the regulation on the ratio cap of variable to fixed pay

Source: Mercer Global Financial Services Executive Compensation Snapshot Survey 2014 report

ASIAN BANKING AND FINANCE | DECEMBER 2014 45

ANALYSIS 3: FINANCIAL INCLUSION

ATM? What ATM?

Find out why reaching Asia’s unbanked has become less of a pipe dream

More countries have made remarkable headway in improving the number of financially included adults.

G

overnments around the world are increasingly viewing financial inclusion as essential to economic development.

Over 90 developing countries, representing more than 75% of the world’s unbanked population, have signed the Maya declaration since 2011.

The declaration is a set of measurable commitments that aim through financial inclusion to improve social and economic conditions of the poorest in society. The measureable commitments relate to four specific areas covering better use of data, better use of information technology, setting up frameworks to enhance links between financial stability and inclusion and measures to protect consumer rights.

As well as supporting economic development, financial inclusion is seen as a primary tool for reducing income inequality.

The World Bank estimates that nearly 2.5bn adults globally (50% of 46 ASIAN BANKING AND FINANCE | DECEMBER 2014

It is possible to have a very deep financial market without having a financial system that is inclusive.

the total adult population) is currently ‘unbanked’ or does not use formal financial services (Demirguc-Kunt, 2012). The global number masks huge disparities between different regions in the world. The developed world (OECD countries) show a high proportion of the adult labour force included. This ratio drops significantly for emerging markets. Over two-thirds of the adult population in South Asia, SSA and MENA are still financially excluded.

Defining financial inclusion Financial inclusion is a measure of the proportion of individuals and firms that use financial services provided by a formal institution. The focus is mostly on very basic financial services and covers not only access to (supply of financial services) but also the use of (demand for) financial services. In our report, we follow the definitions used in the G20 Basic set of Financial

Inclusion indicators or the World Bank Global Findex database. A formal financial institution is defined as a bank, credit union, cooperative, post office or microfinance institution and an account can be in an individual or joint name and covers all sorts of savings and borrowing as well as payment and transfer transactions, including the use of debit cards.

Financial inclusion is one aspect of financial-sector development. Financial deepening, which refers to the range of financial-market products available to economic agents for their borrowing, savings, investment and risk-management needs, is the other major component of financial-sector development. It is possible to have a very deep financial market without having a financial system that is inclusive. For example, a common measure of financial depth is domestic credit to the private sector as a percentage of GDP. This measure is

ANALYSIS 3: FINANCIAL INCLUSION high in Vietnam (125%) but only 21% of adults have formal accounts. In the Czech Republic, on the other hand, inclusion is high (81% of adults have formal accounts) while depth is only moderate at 56% of GDP (DemirgucKunt, 2012).

No single measure of financial inclusion exists. This is because individuals and firms can use different financial services including savings, borrowings, money transfers and payments. As a result, several indicators are used simultaneously to gauge the level of financial inclusion in a country. These range from savings accounts at formal financial institutions to the use of Automated Teller Machines (ATMs), mobile banking or the use of debit and credit cards.

Is there any progress?

Asian economies such as Thailand, Malaysia, Vietnam, Philippines and Indonesia significantly increased the number of ATMs available per 100,000 adults in 2011 compared to 2004. Despite these improvements they remain well below the levels in the more industrialised countries. For example, in Thailand, the number of ATMs increased from around 19 in 2004 to 77 in 2011 but this is still much below the 129 ATMs seen in Japan.

However, some countries have shown a decline in the number of branches per 100,000 adults, including Singapore, Malaysia, Philippines, the UAE and Australia. This could signal pressures to cut costs or the introduction of alternative new tech-

nologies, such as internet banking and the greater use of debit and credit cards, which lower the need for as many ATMs. Debit-card use continues to grow in emerging markets but is still at introductory stages compared to its widespread use in more advanced economies. Among emerging markets, South Africa, China, India and Indonesia are all making progress, but debit-card use is constrained by limited access to formal banking and lack of education (for overall as well as financial literacy) and the absence of infrastructure, such as access to computers to be able to utilise this service.

Lack of infrastructure is also a constraint in the use of electronic payment mechanisms such as direct credits. However, this mode is now being increasingly introduced in the more formal sectors of emerging markets for payments of salaries and other benefits directly into employee accounts. Malaysia and Thailand has shown significant pick up here. While it is beginning to gain a foothold in larger emerging markets such as India and China, financial education and infrastructure build will have to be accelerated before this tool of financial inclusion becomes important.

Some countries have made remarkable headway in improving the number of ‘banked’ adults, albeit from a very low base. Indonesia is among the top-five fastest gainers in at least three of five categories for which time series data is available. Bangladesh, Vietnam and Russia have made considerable

Use of financial services is still very limited in emerging markets

Source: Global Findex database, Standard Chartered Research

Financial education and infrastructure build will have to be accelerated before financial inclusion becomes important.

progress in expanding the more formal banking services such as access to ATMs and bank branches. Indonesia and Malaysia are expanding the newer innovations in financial inclusion, such as electronic banking, retail points of sale and the use of debit and credit cards.

Financial education has a big role to play Lack of financial literacy among the poorer segments also represents a significant barrier to the access and proper use of formal financial services. Banks and other financial providers often do not have an incentive to provide simplified financial products to cater to the needs of low-income consumers due to high transaction costs. In response to high costs many national governments have encouraged or mandated banks to offer cheaper and more innovative product offerings with little or no fees or minimum balance requirements.

In some countries people worry that banks are not safe due to their experience of past banking crises, government expropriations and currency devaluation. To improve public trust banks may need to increase accountability through greater disclosure and being more transparent, but financial education plays a fundamental role.

People are also more likely to be willing to have a bank account if they are confident that government policy will contain inflation and that there is no risk of government expropriation.

For optimum results, financial literacy programmes aimed at poor

Financial inclusion is lower for women

Source: Global Findex database, Standard Chartered Research

ASIAN BANKING AND FINANCE | DECEMBER 2014 47

ANALYSIS 3: FINANCIAL INCLUSION households should target individuals at ‘teachable moments’. A ‘teachable moment’ is essentially a life-changing moment during which specific financial decisions might alter incomes or normal patterns of expenditure – for instance, purchase of a financial product or service such as a mortgage, marriage, divorce, starting a job or retirement. During these ‘moments’ people might be extra motivated to gain and use newly acquired financial knowledge and skills (World Bank, 2014).

Financial literacy is intrinsically linked to consumer protection. Consumers are more likely to trust banks and use their financial services if they understand the products and are able to make well-informed financial decisions on their choice of financial products and services. A well-educated consumer is able to understand consumer disclosures, risks and rewards, and their legal rights and obligations.

Financial literacy linked to consumer protection

Progress despite the obstacles In most emerging markets access to and use of financial services still lags behind the developed world. The gains from increasing financial inclusion can be substantial and governments and many financial institutions and others are actively seeking ways to reduce the burden of regulation and overcome challenges of weak governance.

Progress has been made in some developing countries in addressing some of the key barriers, particularly

in SSA, Indonesia and Bangladesh; but more needs to be done. Growth in many emerging markets should help accelerate the uptake of technology which could reduce the cost of transactions. Technological innovation is making it economically viable for banks and other financial services providers to reach poorer people with a wider range of products and services.

Banks are constantly looking at new ways to innovate and are keen to participate. The correspondent bank-

Electronic transfers are picking up in Asia

Source: G20 Financial Inclusion Indicators, Standard Chartered Research

48 ASIAN BANKING AND FINANCE | DECEMBER 2014

Technological innovation is making it economically viable for banks to reach poorer people with a wider range of products and services.

ing model supported by technology, particularly in South Asia and Latin America, and mobile money in Kenya are examples of successful measures.

New institutional approaches are also being explored and tested, with many countries pioneering policy and regulatory responses to market innovations. New products, such as mobile wallets, pre-paid cards, biometric ATMs and kiosks which enable lowercost access for rural communities are reaching more users worldwide.

Reforms to improve the legal and regulatory environment, governance and institutional infrastructure (coverage of credit bureaus, payment systems) have moved to the top of many developing countries’ agendas.

This will likely speed up the adoption of new and more attractive financial products and technology, which should help reduce transaction costs and other barriers.

Measures to improve financial inclusion are ongoing. There is still much to do, but it is promising that emerging country reforms are starting to bear fruit and should enable them to move many steps closer to greater financial inclusion.

By Madhur Jha, Senior Global Economist, Standard Chartered Bank

ASIAN BANKING AND FINANCE | DECEMBER 2014 49

co-published Corporate profile

The Bottled Wealth elegantly brings to the table a new way of investing in fine wines TBW’s focus on Australian wines distinguished it as a leader in the market.

A

ustralia’s wine industry has boomed in the past ten years. Being the top 4 largest wine exporter in the world, Australian wines has produced approximately 750 million liters a year--engraving its part to Australian economy. Employers have had to triple their staff numbers to cope with the demand for Aussie wine.

Considering the lower average national population of Australia, compared to say the United States or even South Africa, 30,000 (2001) workers is pretty high. One of the main reasons for the demand on this skillful industry is that it has won an international reputation for quality and value.

Australian wines have won many highly sought-after international awards and labels and many innovative Australian winemakers are sought internationally for their wine making expertise.

Due to the incredible rise in prices as well, Australian Wine has become a good source of investment making many investors considering as an alternative assets. According to the statics, the return of the wine investment from the New World rises up to 37% against traditional investment that can have a return of 24%. This fact increases the interest from investors, especially those from Australia which has a growing reputation for producing some of the world’s finest wines.

Some of the best Shiraz vineyards, for example, can be found in Australian regions such as Barossa Valley and McLaren Vale in the South. In the centre of the country you

can find award-wining Sauvignon Blanc, and at the west side the flagship of Chardonnay, Pinot Noir and Sparkling Wines.

The road not taken At The Bottled Weath (TBW), they focused on Australian Wines because of the growing interest on the New World Wines. Year 2002, TBW started to open its wine investment company with the support from Cougar Express in Singapore. For the past decades the wine investment market had grown into larger digits. Now a wide range of French, Australian and Spanish wines are traded for profit and pleasure.

According to the Giullianno Mata CEO of The Bottled Wealth Holdings, the company recognized the potential, reputation and great quality of the Australian wine time ago.

He said,“We believed that the rising generation of wine lovers, such as collectors, investors and drinkers are open to the opportunity that this investment provides, and also the security of it, as per the value of wine will rise instead of decrease. TBW has at this moment more than 4,000 investors that believe in wine and of course, in us”.

TBW target the market in Asia-Pacific

“One reason for the demand on Australian wines is that it has won an international reputation for quality.”

The Bottled Wealth Holdings offers variety of classic, flavorful and elegant Australian finest wines

50 ASIAN BANKING AND FINANCE | DECEMBER 2014

CEO Giullianno Mata promoting TBW’s wine event

where tremendous investment opportunity are like treasure that need to be find. For the past year, TBW extend their markets not only in Asia- Pacific (China, Singapore, Jakarta, Malaysia and Hong Kong) but also in Europe and USA to meet the increasing demands if wine consumers, investors and collectors.

Some investing tips Despite the fads and fashions of the wine industry, certain wines have historically fared better than others in investment terms. First released in 1991, the Langton’s Classification of Australian Wine has become the benchmark for investment in Australian wine.

It ranks this country’s best-performing wines, based on market demand and secondary (or auction) market performance over time.

As is expected, certain wines have dropped off this classification over the years, but the top performers have pedigree and with research (there’s that word again) into vintage conditions and cellaring potential, there can be returns to be made from the blue-chip wines.

But it is not as easy as it seems to invest in wine, here are five tricks it can become useful when the opportunity of investment comes.

Check them out and see if their fit in your expectations: invest in the best wines, know the region, deal with reputable merchants, Insure the goods and, go for the deal.

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51

COVER STORY

ABF Awards 2014 winners revealed

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sian Banking and Finance has once again gathered the best and the brightest in the industry for the Retail Banking Awards and Wholesale Banking Awards, beating last year’s already overwhelming number of awardees.

Around 200 bankers came over to Singapore for a night of celebration and recognition, in full witness of 39 winning banks for the Wholesale Banking category and 60 winning banks for the Retail Banking category.

Winners for the Wholesale Banking category came from the following countries: Australia, Bangladesh, Cambodia, China, Hong Kong, India, Indonesia, Kuwait, Kyrgyzstan, Laos, Malaysia, Mongolia, Papua New Guinea, Qatar, Saudi Arabia, Singapore, Sri Lanka, Thailand, Turkey, United Arab Emirates, Vietnam, and Yemen.

Winners for the Retail Banking Awards represented the following countries: Australia, Bahrain, Bangladesh, Brunei, Cambodia, China, Hong Kong, India, Indonesia, Kazakhstan, Kuwait, Kyrgyzstan, Laos, Malaysia, Mongolia, Pakistan, Philippines, Qatar, Saudi Arabia, Singapore, Sri Lanka, Taiwan, Thailand, Turkey, United Arab Emirates, Uzbekistan, Vietnam, and Yemen.

Nominations sent by top Asian banks were judged by Antony Eldridge from PwC, Egidio Zarrella from KPMG, Mohit Mehrotra from Deloitte Consulting and Liew Nam Soon from Ernst and Young Advisory LLP. The judges handpicked the winning banks based on the following criteria: uniqueness and innovation, effectiveness, and dynamism.

Each of the winners are the best in their category in terms of the freshness, uniqueness and the quality of innovation of their idea; achievements and results; positive impact to company and stakeholders; and flexibility to changes and progressive opportunities.

This year also saw a stream of new nominations and awardees, some of which are Bangkok Bank, ANZ Banking Group, Doha Bank, Maybank Kim Eng, East West Banking Corporation, Kanbawza Bank, and Bank Mandiri.

Asian Banking and Finance publisher Tim Charlton said, “This is a not a night of competition but of celebration as each bank present is a winner in their respective area. Congratulations to all the winners of this year’s awards.”

ABF salutes all the winning banks:

Laos Domestic Cash Management Bank of the Year Banque Pour Le Commerce Exterieur Lao Public Malaysia Domestic Cash Management Bank of the Year CIMB Bank Berhad Philippines Domestic Cash Management Bank of the Year Bank of the Philippine Islands Saudi Arabia Domestic Cash Management Bank of the Year The National Commercial Bank Singapore Domestic Cash Management Bank of the Year DBS Bank Thailand Domestic Cash Management Bank of the Year KASIKORNBANK Public Company Limited Turkey Domestic Cash Management Bank of the Year “TÜRK EKONOMİ BANKASI A.Ş.

(TEB / BNP Paribas Joint Venture)” UAE Domestic Cash Management Bank of the Year Abu Dhabi Commercial Bank Vietnam Domestic Cash Management Bank of the Year BIDV Australia Domestic Trade Finance Bank of the Year Westpac Banking Corporation Bangladesh Domestic Trade Finance Bank of the Year Janata Bank Limited Cambodia Domestic Trade Finance Bank of the Year ACLEDA Bank Plc. China Domestic Trade Finance Bank of the Year Bank of Chia Hong Kong Domestic Trade Finance Bank of the Year Hang Seng Bank Limited India Domestic Trade Finance Bank of the Year ICICI Bank Indonesia Domestic Trade Finance Bank of the Year United Overseas Bank Malaysia Domestic Trade Finance Bank of the Year Maybank Mongolia Domestic Trade Finance Bank of the Year Golomt Bank Philippines Domestic Trade Finance Bank of the Year Bank of the Philippine Islands Qatar Domestic Trade Finance Bank of the Year Doha Bank Singapore Domestic Trade Finance Bank of the Year OCBC Bank

WHOLESALE BANKING AWARDS 2014:

Thailand Domestic Trade Finance Bank of the Year Siam Commercial Bank

Australia Domestic Cash Management Bank of the Year Westpac Banking Corporation

Vietnam Domestic Trade Finance Bank of the Year TECHCOMBANK

China Domestic Cash Management Bank of the Year DBS Bank

Malaysia Domestic Project Finance Bank of the Year Maybank Investment Bank Berhad

Hong Kong Domestic Cash Management Bank of the Year Bank of China (Hong Kong) Limited

Philippines Domestic Project Finance Bank of the Year BDO Unibank, Inc.

Indonesia Domestic Cash Management Bank of the Year PT Bank CIMB Niaga Tbk

Singapore Domestic Project Finance Bank of the Year DBS Bank

Kuwait Domestic Cash Management Bank of the Year Burgan Bank

Sri Lanka Domestic Project Finance Bank of the Year Standard Chartered Bank

52 ASIAN BANKING AND FINANCE | DECEMBER 2014

COVER STORY Thailand Domestic Project Finance Bank of the Year Bangkok Bank Yemen Domestic Project Finance Bank of the Year Tadhamon International Islamic Bank Australia Domestic Technology & Operations Bank of the Year Westpac Banking Corporation Bangladesh Domestic Technology & Operations Bank of the Year Janata Bank Limited Indonesia Domestic Technology & Operations Bank of the Year Panin Bank International Technology & Operations Bank of the Year Maybank Kim Eng Kyrgyzstan Domestic Technology & Operations Bank of the Year OJSC “Optima Bank” Laos Domestic Technology & Operations Bank of the Year Banque Pour Le Commerce Exterieur Lao Public Malaysia Domestic Technology & Operations Bank of the Year CIMB Group Papua New Guinea Domestic Technology & Operations Bank of the Year Australia & New Zealand Banking Group (PNG) Ltd Philippines Domestic Technology & Operations Bank of the Year PHILIPPINE BUSINESS BANK Singapore Domestic Technology & Operations Bank of the Year DBS Bank Thailand Domestic Technology & Operations Bank of the Year Bangkok Bank Yemen Domestic Technology & Operations Bank of the Year Tadhamon International Islamic Bank Hong Kong Domestic Foreign Exchange Bank of the Year DBS Bank Indonesia Domestic Foreign Exchange Bank of the Year ​ PT Bank OCBC NISP Tbk Malaysia Domestic Foreign Exchange Bank of the Year RHB Banking Group Philippines Domestic Foreign Exchange Bank of the Year Security Bank Corporation Singapore Domestic Foreign Exchange Bank of the Year DBS Bank Vietnam Domestic Foreign Exchange Bank of the Year TECHCOMBANK

RETAIL BANKING BANKING AWARDS 2014 International Retail Bank of the Year HSBC Asia Pacific Domestic Retail Bank of the Year - Bahrain Standard Chartered Bank, Bahrain Domestic Retail Bank of the Year - Bangladesh The City Bank Limited Domestic Retail Bank of the Year - Brunei BAIDURI BANK Domestic Retail Bank of the Year - Cambodia Cambodian Public Bank Domestic Retail Bank of the Year - China

DBS Bank (China) Limited Domestic Retail Bank of the Year - Hong Kong DBS Bank (Hong Kong) Limited Domestic Retail Bank of the Year - Indonesia PT Bank Mandiri (Persero) Tbk Domestic Retail Bank of the Year - Kazakhstan JSC “Halyk Bank” Domestic Retail Bank of the Year - Kuwait Burgan Bank Domestic Retail Bank of the Year - Kyrgyzstan OJSC “Optima Bank” Domestic Retail Bank of the Year - Laos Banque Pour Le Commerce Exterieur Lao Public (BCEL) Domestic Retail Bank of the Year - Malaysia PUBLIC BANK Domestic Retail Bank of the Year - Mongolia Golomt Bank Domestic Retail Bank of the Year - Myanmar Kanbawza Bank (KBZ Bank) Domestic Retail Bank of the Year - Qatar Doha Bank Domestic Retail Bank of the Year - Singapore DBS Bank Domestic Retail Bank of the Year - Sri Lanka National Development Bank PLC Domestic Retail Bank of the Year - Taiwan Taishin Bank Domestic Retail Bank of the Year - Thailand KASIKORNBANK PCL Domestic Retail Bank of the Year - UAE Abu Dhabi Commercial Bank Domestic Retail Bank of the Year - Vietnam Techcombank Domestic Retail Bank of the Year - Yemen Tadhamon International Islamic Bank ASEAN Finance Company of the Year Hong Leong Finance Limited Finance Company of the Year - Hong Kong ​PrimeCredit Limited Finance Company of the Year - Vietnam DongA Money Transfer Advertising Campaign of the Year - China HSBC China Advertising Campaign of the Year - Hong Kong HSBC Hong Kong Advertising Campaign of the Year - India HSBC India Advertising Campaign of the Year - Indonesia HSBC Indonesia Advertising Campaign of the Year - Malaysia Maybank ASPIRE Advertising Campaign of the Year - Pakistan Habib Bank Limited Advertising Campaign of the Year - Singapore DBS Bank ASIAN BANKING AND FINANCE | DECEMBER 2014 53

COVER STORY Advertising Campaign of the Year - Sri Lanka HSBC Sri Lanka

Online Banking Initiative of the Year - Laos Banque Pour Le Commerce Exterieur Lao Public (BCEL)

Advertising Campaign of the Year - Thailand Bank of Ayudhya PCL (Krungsri)

Online Banking Initiative of the Year - Malaysia Alliance Bank Malaysia Berhad

Branch Innovation of the Year - Gold Standard Chartered Bank

Online Banking Initiative of the Year - Mongolia Golomt Bank

Branch Innovation of the Year - Silver KASIKORNBANK PCL

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

Branch Innovation of the Year - Bronze Maybank ASPIRE

Online Banking Initiative of the Year - Singapore DBS Bank

Cards Payment Initiative of the Year - Malaysia CIMB Group

Online Banking Initiative of the Year - Taiwan Taishin Bank

Core Banking System Initiative of the Year - India Bharatiya Mahila Bank

Online Banking Initiative of the Year - Thailand KASIKORNBANK PCL

Core Banking System Initiative of the Year - Laos Lao Viet Joint Venture Bank

Online Banking Initiative of the Year - Turkey Kuveyt Türk Participation Bank

Core Banking System Initiative of the Year - Malaysia CIMB Group

Online Banking Initiative of the Year - Uzbekistan Private Open Joint Stock-Echange Bank “TRUSTBANK”

Core Banking System Initiative of the Year - Myanmar Kanbawza Bank (KBZ Bank)

Online Banking Initiative of the Year - Vietnam Ocean Commercial Joint Stock Bank

Core Banking System Initiative of the Year - Singapore DBS Bank

Online Securities Platform of the Year - Hong Kong Bank of China (Hong Kong) Limited

Core Banking System Initiative of the Year - Sri Lanka National Development Bank PLC

Online Securities Platform of the Year - Singapore OCBC Securities Private Limited

Corporate Social Responsibility Program of the Year - Gold National Australia Bank (NAB)

ASEAN SME Bank of the Year OCBC Bank

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

SME Bank of the Year - China DBS Bank (China) Limited

Corporate Social Responsibility Program of the Year - Bronze ​ PT Bank OCBC NISP Tbk

SME Bank of the Year - Hong Kong DBS Bank (Hong Kong) Limited

Credit Card Initiative of the Year - Bahrain Standard Chartered Bank, Bahrain

SME Bank of the Year - Indonesia PT Bank OCBC NISP Tbk

Credit Card Initiative of the Year - Bangladesh The City Bank Limited

SME Bank of the Year - Malaysia OCBC Bank Malaysia Berhad

Credit Card Initiative of the Year - Hong Kong HSBC Hong Kong

SME Bank of the Year - Mongolia Golomt Bank

Credit Card Initiative of the Year - Philippines East West Banking Corporation

SME Bank of the Year - Philippines BDO Unibank, Inc.

Credit Card Initiative of the Year - Sri Lanka HSBC Sri Lanka

SME Bank of the Year - Sri Lanka National Development Bank PLC

Credit Card Initiative of the Year - Taiwan Chang Hwa Commercial Bank

SME Bank of the Year - Thailand Siam Commercial Bank PCL

Employer Award of the Year - Gold Citi Singapore

SME Bank of the Year - Uzbekistan “Hamkorbank” OJSCB

Employer Award of the Year - Silver The Royal Bank of Scotland N.V.

Website of the Year - Hong Kong Standard Chartered Bank

Online Banking Initiative of the Year - Australia HSBC Australia

Website of the Year - Philippines Bank of the Philippine Islands

Online Banking Initiative of the Year - Bangladesh The City Bank Limited

Website of the Year - Singapore DBS Bank

Online Banking Initiative of the Year - China Standard Chartered Bank (China)

Website of the Year - Taiwan Taishin Bank

Online Banking Initiative of the Year - Indonesia ​PT Bank OCBC NISP Tbk

Website of the Year - Turkey Kuveyt Türk Participation Bank

54 ASIAN BANKING AND FINANCE | DECEMBER 2014

Md. Abul Munsur, Most. Altafun Nessa, Serajul Mowla Salim, Mst. Mahrufa Khanom of Janata Bank Limited

Swapnil Desai of Burgan Bank

Linus Goh of OCBC Bank

Navinder Duggal of DBS Bank

Tan Eng Leong of DBS Bank

Jerry Serrao of Abu Dhabi Commercial Bank

Lucas Chew of CIMB Investment Bank Berhad

Mathan Karuppiah of DBS Bank

Tan Kay Cheng of RHB Banking Group

PT Bank Mandiri (Persero) Tbk Team

Phansana Khounnouvong of Banque ASIAN BANKING AND FINANCE Asian Banking & Finance Team Pour Le Commerce Exterieur Lao Public

| DECEMBER 2014 55

Axel Boye-Moller of Westpac Banking Corporation

Jack Teoh of Maybank Investment Bank

Usana Wanachate of Siam Commercial Bank

Keith Chan of Philippine Business Bank

Dithichai Limpodom of Kasikornbank

Tuck Wai Chan of DBS Bank

Dushan Casie Chetty of Standard Chartered Bank

Ed Soriano of BDO Unibank

Andrea Wong of Bank of China

56 ASIAN BANKING AND FINANCE Linus Goh of OCBC Bank | DECEMBER 2014

Grace Lim of Maybank

Dr. R. Seetharaman of Doha Bank

Wong Kartyono of UOB Indonesia

Wu Beng Na of OCBC NISP

Eric Kuah of Maybank Kim Eng Securities

Niramarn Laisathit of Bangkok Bank

DBS Bank Team

Westpac Banking Corporation Team

Devabalan Theyventheran of CIMB Group

Alliance Bank Team

East West Banking Corporation Team

HSBC Team

ASIAN BANKING AND FINANCE | DECEMBER 2014 57

RHB Bank, Abu Dhabi Commercial Bank and Burgan Bank Team

Doha Bank Team

Alliance Bank, UOB, BCEL and CIMB Team

East West Banking Corporation, BDO Unibank and Habib Bank Limited Team

58 ASIAN BANKING AND FINANCE | DECEMBER DBS Bank and OCBC Bank Team

LaoVietBank, National Development Bank and Janata Bank Team

2014

Networking Dinner

Maybank Team

Abid Sattar of Habib Bank Limited

Alvin Lim of HSBC

Venkatakrishnan Menon of Burgan Bank

Amit Malhotra of PrimeCredit Limited

Andree Wang and Jesse Han of Taishin Bank

Ekkavee Visitsunthorn of Bank of Ayudhya PCL (Krungsri)

Anurag Mathur of HSBC

Bee Bee Tan of CIMB Group

Wu Beng Na of OCBC NISP

Chee Seng Wong of OCBC Malaysia Berhad

Dalal Abdulla of Standard Chartered Bank, Bahrain

Yet Pek Yeen of Hong Leong Finance Limited ASIAN BANKING AND FINANCE | DECEMBER 2014

59

Deepak Khanna of HSBC

Delrene Seneviratne of National Development Bank

Devabalan Theyventheran of CIMB Group

Đoàn Việt Nam of Lao Viet Joint Venture Bank Alvin Lim, Eugene Kwek, Anurag Mathur and Deepak Khanna of HSBC

Emmanuel Narciso of BDO Unibank

Eugene Kwek of HSBC

Gopal Iyer of Abu Dhabi Commercial Bank

Hery Gunardi of PT Bank Mandiri

Jacqueline Fernandez of East West Banking Corporation

Kamill Fung of Bank of China (Hong Kong) Limited

(Persero) Tbk AND FINANCE | DECEMBER 2014 60 ASIAN BANKING

Emmanuel Narciso and Ed Soriano of BDO Unibank

Eunice Chan and Choong Wai Hong of Maybank

Vu Duc Minh Hieu of OceanBank

Tuck Wai Chan of DBS Bank

Kenneth Tsao of DBS Bank (Hong Kong) Limited

Linus Goh of OCBC Bank

Nang Lang Kham and Aung Ko Win of Kanbawza Bank

Victor Khor and Sally Chow of Alliance Bank Malaysia Berhad

Mathan Karuppiah of DBS Bank

Shakila Lokumanna and Delrene Seneviratne of National ASIAN BANKING AND FINANCE | DECEMBER Development Bank

2014 61

Neil Parekh of National Australia Bank

Pakorn Partanapat of Kasikornbank PCL

Pengiran Azaleen of Baiduri Bank

Phansana Khounnouvong of Banque Pour Commcerce Exterieur Lao Public

Romil Sharma of DBS Bank

Sathyamuth of Doha Bank

Simon Song of DBS Bank

Theodore Mak of Standard Chartered Bank

Thomas Low of OCBC NISP

Taishin Team 62 ASIAN Bank BANKING AND FINANCE

| DECEMBER 2014

Hong Leong Finance Team

Burgan Bank Team

Bank of China (Hong Kong) Limted and OCBC Team

Janata Bank Team

HSBC Team

Kanbawza Bank Team

Kanbawza Bank and National Development Bank Team

National Australia Bank Team

Kanbawza Bank and OCBC TeamASIAN BANKING AND FINANCE

| DECEMBER 2014 63

Online Securities Platform of the Year - Hong Kong

BOCHK drives online convenience for customercentric securities services

Ms Kamill Fung, Deputy General Manager Channel Management, BOCHK

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enquiries. ank of China (Hongkong) ‘s (“BOCHK”) comprehensive Full-fledged mobile banking app internet and mobile securities With just a few taps, the BOCHK Mobile services aim to provide customers with the App allows smartphone users to flexibly utmost convenience. In recognition of the arrange the homepage setting, conduct service performance, BOCHK was granted securities trading and the “Online Securities access information. It also Platform of the Year – Hong “We are the first bank offers securities market Kong” by Asian Banking news, company and IPO to launch mobile and Finance. functions for IPO share information, as well as subscriptions and IPO tools for analysis to keep Capturing every financing in Hong Kong.” customers abreast of the investment opportunity latest market trends for Riding on advanced timely decision making. technology, we provide oneBOCHK also pioneered the launch of a stop online securities services, including brand new A shares Information Web Page securities trading, securities margin in July 2014. By visiting www.bochk.com, trading, and monthly stocks savings plans. customers can enjoy quick access to free We are the first bank to launch mobile real-time stock quotes, stock news and AH functions for IPO share subscriptions and shares performance for an insight into the IPO financing in Hong Kong, to facilitate A shares market. customers to fulfil their investment Underpinned by the “learning before needs. Customers can also submit their investing” concept, we provide customers Corporate Action instructions via Internet with Virtual Securities Investment Banking conveniently. Moreover, we offer Platform to educate investors about free SMS or email alerts of order status for securities investment. Customers can customers. We also launched the first-ever conduct virtual securities trading with 24-hour online chat service in the local virtual funds and real-time stock prices banking industry in response to customers’ 64 ASIAN BANKING AND FINANCE | DECEMBER 2014

via the interactive online platform free of charge.

Innovative family securities account Based on the “family wealth management” concept, this service enables customers to manage their various securities portfolios through different platforms. In addition to maintaining an ordinary personal securities account, customers can open multiple Family Securities Accounts under the respective names of their children or other family members for identification purposes. Online securities trading and setting up of Monthly Stocks Saving Plans can be conducted with these accounts to facilitate financial management. This is designed to help customers better plan for their children’s future, achieve their family financial goals and pass their wealth to future generations.

CONTACT Company Name: Bank of China (Hong Kong) Limited Address: 1 Garden Road, Hong Kong Phone Number: (852) 2826 6888 Fax Number: (852) 3406 2326 Website: www.bochk.com

Money can pay your child’s tuition.

But ambition earns the diploma.

Banking On Education An education is an important step toward realising your child’s ambition. At ADCB, we have a wide range of financial solutions designed to provide you and your child with the right products to help lay the foundation for an ambitious future. Learn more at adcb.com

domestic retail bank of the year - myanmar best core banking system initiative bank - myanmar

KBZ Bank: Your Gateway to Myanmar financial services

K

anbawza Bank Limited (KBZ Bank) established in 1994 is the largest privately owned bank in Myanmar. It is the most profitable bank in Myanmar and has been conferred as the highest tax payer in the country for the last two years. KBZ with its 270 branches has the most extensive branch network amongst the private commercial banks.

It is also the leading brand in the banking sector given its prominent position not only in Yangon but also throughout Myanmar.

KBZ has always served an important role in building the local communities by providing much needed financing to small & medium enterprises in the country. KBZ provides 35% of total loans in FY13/14 – making it the largest lender. This speaks volumes of KBZ’s ongoing commitment to support the local communities and its role in shaping the nation and supporting the local community by combining commercial pursuit, fair business ethics and socially responsible behavior.

its strategic initiatives. The bank has developed a midterm strategy to ensure a sustainable and long-term growth trajectory.

KBZ’s repositioning In the light of the new opportunities and challenges, KBZ has developed a midterm strategy to lay the foundation to guide it through into the long-run. KBZ’s strategic drivers are centered on four key elements: (i) capacity building to enhance its capabilities and cultivate a “learning and growth culture” that will spur it to a new height, (ii) leveraging on technology and innovation to ensure market dominance through higher customer satisfaction (iii) realignment of KBZ’s business model and supporting pillars in meeting the various business segments as well as new business lines and (iv) strengthening its corporate governance & risk management capabilities that build confidence for all stakeholders i.e. regulators, customers, business partners, employees and shareholders.

Financial performance For financial year ended 31st March 2014, Award-winning bank KBZ performed well with ROE, exceeding KBZ Bank is named “Domestic Retail 34%, whilst PBT was 22% higher. Total Bank of The Year 2014” as well as “Best assets were up by 67% from previous end Core Banking System Initiative Bank” year. Total deposits and

by Asian Banking & “KBZ has always total loans were up 64% and Finance magazine (ABF). served an important 61% respectively. Quality of ABF and other reputable role in building the assets was remarkable with organizations have local communities by NPL at less than 0.11%, conferred KBZ Bank as providing much needed the best bank in Myanmar whilst NIM was averaging financing to small & at 4%. for the last two years on medium enterprises.”

KBZ’s achievement is the basis of its excellent a result of its ability to understand the financial performance, and clear and market, meet and anticipate the customers’ distinct strategic capability. These awards needs and deliver them in a innovative and distinctions validate KBZ’s inexorable way that entails the highest customer commitment and ability to successfully satisfaction. KBZ’s rapid expansion and continuously improve upon its branch network, mini-branches rolled previous achievements. out, mobile bank, corresponding KBZ’s continuous focus on capacity banking network, and new business lines, building, innovation & technology, product offering in trade financing, cash realignment of its business, strengthening management services, workers remittances corporate governance and risk and treasury & foreign currency trading management have propelled it to be has contributed significantly to its the bank of choice amongst Myanmar performance. nationals, many MNCs and international KBZ’s continuing sustainability is organizations entering the Myanmar reflected in its ability to effectively execute market. KBZ’s vision to be the “Strength 66 ASIAN BANKING AND FINANCE | DECEMBER 2014

U Aung Ko Win Executive Chairman, KBZ

of Myanmar” is reflected in the efforts and achievements of the organization.

Aside from business, KBZ has a strong penchant for corporate social responsibility (CSR) programs. The CSR culture is embedded into KBZ’s corporate policy. The bank’s intimate linkage with the community was recognized by the President of the Union of Myanmar when KBZ’s Executive Chairman, U Aung Ko Win, was singled out and honored with a “Special Honorary State Excellence Award” for being the highest tax payer and largest financial contributor to the state and society in 2014. He was also awarded the same in 2013.

KBZ’s integrity in its achievements is evident across different awarding bodies.

It has been named “Bank of the Year 2013”

by The Banker of the Financial Times, “Best Commercial Bank 2013” and “Best Banking Group 2013” by the World Finance magazine, and “Best Bank in Myanmar 2014” by Euromoney.

CONTACT Kanbawza Bank Ltd. (KBZ Bank) No.615/1, Pyay Road, Kamayut Township, Yangon, Myanmar.

Tel: +95-1- 538080 Email: customer_service@kbzbank.com Website: : www.kbzbank.com, www.facebook.com/KanbawzaBank

ASIAN BANKING AND FINANCE | DECEMBER 2014 67

ASEAN SME Bank of the Year SME Bank of the year- Malaysia sme bank of the year- indonesia

OCBC: Supporting SMEs across the region

O

CBC Bank is the second largest financial services group in Southeast Asia by assets and one of the world’s most highly-rated banks, with an Aa1 rating from Moody’s and ranked by Bloomberg Markets as the world’s strongest bank in 2011 and 2012.

It was formed in 1932 from the merger of three local banks and is the longest established Singapore bank. OCBC Bank has been a committed supporter of SMEs and has consistently been ranked as the Best SME Bank by various award publications. It recently won this publication’s title of “ASEAN SME Bank of the Year” for the 4th consecutive year and the “SME Bank of the Year in Malaysia” and “SME Bank of the Year in Indonesia” for the very first time. As a foreign bank in both Malaysia and Indonesia, these awards reinforce OCBC as a key player in the regional SME financing landscape.

OCBC Centre

transition as customers move seamlessly within the OCBC network.

Wide network capabilities Innovative products and solutions Traditionally, as businesses grow larger, Over the years, OCBC Bank has capitalised they are forced to think about overseas on various opportunities by focusing expansion, as their local market may be on developing innovative products and too small to accommodate their growth. enhancing service delivery. In Singapore, OCBC Bank’s extensive global network for example, the entrepreneurship scene of over 530 branches and representative has been on an upward trend over the last offices in 18 countries and territories decade. There has been allows SMEs to explore an increase of 58% in the new territories easily with “Through its wide number of startups from a partner that can provide global network, OCBC 24,000 in 2005 to 39,000 in market insights and local Bank can leverage 2012. know-how. In addition, the upon the various However, due to a bank boasts of more than countries’ strengths startup’s lack to track 330 branches and offices for best practice record, it is difficult to in Indonesia operated by learning within the secure working capital Bank OCBC NISP and 70 network, built to from financial institutions. branches in Hong Kong, provide consistency Hence, the OCBC Business China and Macau by OCBC in strategies and First Loan was launched to Wing Hang. services.” provide young companies With the recent a with up to S$100,000 in a collateral-free acquisition of Wing Hang Bank in July loan. this year, also known as the bank’s biggest It was found that half of young takeover to date, OCBC is poised for businesses require funding to kickstart deeper penetration into the Greater China their business growth and more than 80% territory. require a first round of financing within Through its wide global network, their first two years. Nearly 60% of the OCBC Bank can leverage upon the businesses that do not qualify for a loan various countries’ strengths for best have to fall back on personal savings. To practice learning. A knowledge base of mitigate the hassle in applying for a loan, such best practices can be built to provide OCBC takes the extra step to by only consistency in strategies and services requiring 3 documents to be submitted regionally. This also creates an effortless

68 ASIAN BANKING AND FINANCE | DECEMBER 2014

and a turnaround of 1 day for loan approval.

Supporting the business community Today, OCBC Bank has one of the most comprehensive SME financing businesses in the region, with extensive offerings across multiple product and distribution platforms. OCBC Bank also supports various business awards that aim to give due recognition to deserving entrepreneurs and enterprises, ranging from emerging businesses to large corporates. This underscores the Bank’s commitment in helping SME customers achieve their ambitions at different stages of growth.

With a holistic array of initiatives, OCBC Bank helps customers achieve their business ambitions and expansion plans by going beyond financial solutions. Through the Bank’s focus on understanding the needs of SMEs and supporting them at every stage of their development, it has strengthened partnerships with its customers and gained a loyal following both locally and regionally.

CONTACT Oversea - Chinese Banking Corporation Limited 65 Chulia Street, OCBC Centre, Singapore 049513 Tel: +65 6538 1111 www.ocbc.com

ASIAN BANKING AND FINANCE | DECEMBER 2014 69

Hong Kong Domestic Cash Management Bank of the Year

BOCHK reinforces cross-border competitiveness

E

fficient cash management is one of the keys to the financial success of multi-national corporates (MNCs).

In order to support customers in their cross-border business expansion, Bank of China (Hong Kong) (“BOCHK”) continues to drive product innovation, strengthen our system connection with different BOC offices around the world and offer customers tailored cash management services to meet their needs.

supported. In the past year, BOC offices in HK and China have successfully helped our MNC customers to design appropriate cross-border cash pool models and seek approval from regulatory authorities.

In the cross-border RMB cash pool model, our MNC customers start seeing the benefits of a RMB liquidity channel built – with its strong RMB income stream derived from its PRC operations flowing through the channel to cash pool outside China and vice versa, thus bringing cash flow balancing and easier funding to both treasury operations inside and outside of China, with increasing fund liquidity, higher visibility, increase of financial returns and reduction of financial costs. RMB can finally be added into the corporate treasurer’s multi-currency cash pool, which was previously isolated on its own due to regulatory requirements.

Cross-border cash management service Cross-border business and offshore RMB business are the two key strategic focuses of BOC and also where our strengths lie.

In order to follow the footsteps of our MNC clients in their global expansion plans, BOCHK endeavors to strengthen its global service capabilities and expand its presence beyond Hong Kong through collaboration with our head office and all our group’s overseas branches and FX liquidity management subsidiaries. BOCNET HK, our corporate Effective from June 1, 2014, MNCs can internet banking, is now connected to establish cross-border foreign currency the e-banking and cash management (non-RMB) cash pools in any provinces platforms of BOC China and its overseas in China with linkage to any preferred branches in 17 countries around the world. locations outside China. Similar to RMB Our cross-regional liquidity management cash pools, BOC offices in China and service can facilitate MNCs to manage Hong Kong have been helping our MNC their cash and liquidity position in clients to design cash pool structure and different countries on a seek appropriate regulatory “BOC offices single platform. approval. Regulators have successfully With the finalization look for genuine business helped design of the operating rules on needs, proper treasury appropriate cross-border cash pools by management structure and cross-border cash Chinese regulators, MNCs electronic systems in place pool models and can now much more easily for treasury management seek approval move funds in and out of on foreign currencies and from regulatory China. While both RMB more than USD100 million authorities.“ and foreign currencies cash in foreign currencies pools can now be set up across China, the receipts and payments in prior year. detailed rules for RMB cash pools outside Cross-border foreign currencies cash the Shanghai Free Trade zone have yet to pool also come with the regulatory be announced at the time of writing. requirement on the amount of fund flows permitted. For funds flowing into RMB liquidity management China, it is subject to the Foreign Debt In the past, many MNCs found their limit approved by SAFE. For funds RMB liquidity trapped in China due to flowing out of China, the amount cannot regulatory restrictions and could only exceed 50% of the MNC’s total equity in move their RMB liquidity out of or into China. By establishing the cross-border China to support their liquidity needs foreign currencies cash pool, our MNC with limited options approved by PBoC clients achieve better utilization of their or SAFE. With the establishment of the foreign debt limits while we help them new rules on RMB cash pools, these types ensure their usage of regulatory limits are of operating needs can now be better properly monitored. FX position netting 70 ASIAN BANKING AND FINANCE | DECEMBER 2014

Samuel So Deputy General Manager Head of Cash Management Bank of China (Hong Kong) Limited

has become more feasible under the new rules and thus saved our clients in FX conversion cost.

Evolving with customer needs BOC cross-border cash management services have evolved to satisfy the changing regulations and the cross-border liquidity management needs of MNCs. With our knowledge in China and its regulations, our massive operations in China, Hong Kong and around the world, we are in the best position to help MNC clients which have cash management needs.

In recognition of our market leading cash management capabilities, BOCHK received the “Asian Banker’s Achievement Award for Best Cash Management Bank in HK” in both 2013 and 2014 and the “2014 Hong Kong Domestic Cash Management Bank of the Year” award from Asian Banking & Finance.

CONTACT Company Name: Bank of China (Hong Kong) Limited Address: 1 Garden Road, Hong Kong Phone Number: (852) 2826 6888 Fax Number: (852) 3406 2326 Website: www.bochk.com

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OPINION

Christine wright

Asia’s most in-demand banking and finance jobs right now

What are the hottest jobs?

I

nternal Auditors, Regulatory Reporting Analysts, and Financial Planning & Analysis professionals are among the skills in high demand across Asia, according to our latest Hays Quarterly Report of jobs in demand.

The overall trend for slower growth in China, the world’s second-largest economy, is unlikely to have a significant impact on the banking and finance jobs market in the Asia-Pacific region. In fact, recruitment activity is expected to increase this quarter as many banks are recruiting across various levels and require candidates for both permanent and temporary positions.

So looking firstly at hotspots in China’s accounting and finance sector, there continues to be high demand for Regional Finance Managers as many multinational companies have offices in China, especially in Shanghai and Beijing.

Employers are also looking for candidates with mid-level accounting, planning, and analytical skills, who can be responsible for the regional finance operation.

Financial Analysts with strong commercial acumen are also sought after in commercial areas such as retail, FMCG, trading, and services, as these businesses are paying more attention to financial planning and business analysis. We’re also seeing demand for Costing specialists, especially in the manufacturing industry, Internal Auditors, Finance and Accounting Managers,

72 ASIAN BANKING AND FINANCE | DECEMBER 2014

BY CHRISTINE WRIGHT Managing Director, Asia Hays

and Commercial Planning specialists.

Moving to the banking sector, Corporate Banking Relationship Managers continue to be in high demand as most foreign banks are still in their growth phase and are looking to generate new client accounts.

Credit Analysts are also sought because banks are implementing new credit control measures and need to establish a strong first line of defence against potential risks in their lending businesses.

Due to the IPO market still being slow, Debt Capital Market specialists are in demand. This area of banking continues to pick up momentum in China as it is currently considered to be an easier way for companies to generate new funding.

In Hong Kong, Regulatory Reporting Analysts are sought in response to tighter legislation and regulations, as are Financial Regulatory Reporting Managers. Scrutiny by regulators continues to call for stricter requirements on regulatory reports produced. The pool of such talent in Hong Kong is limited, especially higher up the seniority ladder. Employers usually require candidates with existing exposure or niche skill-sets in these areas.

In commerce and industry, new permanent positions are being created by organizations that are regionally headquartered in Hong Kong. Demand is high for Financial Planning & Analysis Managers who can adapt to fastchanging environments and possess strong analytical, interpersonal, and communication skills. Also, strong demand exists for Internal Auditors across local, regional, and international banks. They continue to recruit for treasury and markets audit due to the complexity of products.

Within Hong Kong’s banking market, Quantitative Analysts, Corporate Banking Relationship Managers, Commercial Banking Credit Approvers, Private Bank Relationship Managers, and Compliance Change Programme Managers are all needed.

In equities sales and sales trading, smaller regional and Chinese firms are constantly on the lookout for experienced candidates who can bring an active client base. They are mainly seeking Cantonese and/or Mandarin speakers but there is a limited pool of good quality candidates.

ASIAN BANKING AND FINANCE | DECEMBER 2014 73

OPINION

CYNTHIA STUCKEY

How to keep banking & finance go-getters from jumping ship

O

BY CYNTHIA STUCKEY Managing Director Forum Corporation

n average, an associate investment banker in Singapore earns SG$86,811 per year, almost double the median gross yearly income of a typical worker who earns around SG$44,500. Yet salaries well above the norm don’t seem to be enough to keep banking and finance employees in one place. Employee turnover is an endemic problem that is probably more pronounced in banking and finance than any other industry, whether in Singapore or other financial hubs in Asia.

So how do managers in a cut-throat sector, already offering large salaries, effectively engage their staff to ensure they don’t lose motivation, switch off, and reinvest their expertise with a competitor?

Engagement equals retention Banking and finance managers need to make sure their staff are highly engaged. This means having a deep sense of ownership for the organisation and strong feelings of involvement, commitment, and absorption in one’s work. It is this motivation and discretionary energy the willingness to go above and beyond, which is vital in maintaining interest and commitment to an organisation.

A survey by Towers Perrin Global Workforce Study illustrates a strong correlation between employee engagement and retention. Fifty-one percent of engaged employees have no plans to leave and only 4% are actively seeking new employment.

In contrast, 28% of disengaged employees are on the hunt for another job, while only 15% are planning to stay put. To attract and retain talent, employers are providing salary increments of 10% to 15%; but they also know that a fat paycheque is not enough. Hence, companies are investing in personal development programmes and trainings to ensure employees are getting what they want out of their job.

Individualistic industries Staff in individualistic industries, such as investment banking, tend to have an ‘advancement’ engagement profile as opposed to those working in the non-profit/charitable industry. Someone with a strong ‘advancement profile’ is typically more engaged in a job where they are ‘getting ahead’.

For example, a job which gives scope to build

74 ASIAN BANKING AND FINANCE | DECEMBER 2014

a professional portfolio of skills and contacts as well as enabling progress in position and salary would be considered desirable to most people working in banking and finance. That said, don’t dismiss the four other core engagement needs of Accomplishment, Recognition, Belonging, and Enjoyment in planning a balanced engagement needs approach.

Recognising this desire and building rewards that feed this need will raise engagement for these types of employees. For this reason, employers need to proactively communicate with staff so that they are aware of their expectations in terms of skill development, progression, and remuneration to create an engaging work environment.

To identify and support employees’ expectations, organisations should define an overarching employee value proposition (EVP) that applies to all operations.

Employee value propositions An EVP is a collective array of programs that an organisation offers in exchange for committed employment and defines the ‘give and the get’ between a company and its employees. When an EVP is clearly communicated, employees better appreciate the value of remaining with an organisation.

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OPINION

TONY SINGLETON

How Asia Pacific’s treasurers should think about Basel III

BY TONY SINGLETON Managing Director, Asia Pacific Reval

drive more transaction business. Lastly, banks might look at their relationships with corporates more holistically in order to cross-finance their services. Understanding the change in bank relationships, treasurers should consider the following: 1.Redesign your bank portfolio No matter whether they are working with a few, global bank partners or a large number of local banks, treasurers should review their portfolio and re-evaluate counterparty risks and bank costs. As the sweet spot of banks is likely to shift to transactional banking, a great partner today is not necessarily a good partner tomorrow.

2. Rethink your mix of financing As less credit will be available, treasurers should think about leaning more towards alternatives such as issuing corporate bonds or investing in private equity. In general, financing strategies might shift, with in-house banking and supply chain financing becoming even more popular.

Banks need to constantly rethink their strategies.

A

s a consequence of the financial turmoil in 2008, Basel III adds new requirements for the composition and quality of capital to financial institutions. In Asia Pacific, the first countries already began transposing Basel III into local regulatory rules in 2013 whereas globally, most countries started implementation in 2014. Thinking of Basel III as a regulation for banks only may leave finance professionals unprepared for the effects it can have on corporate treasury. With their regulators and banks being at the forefront of Basel III, treasurers in Asia Pacific will most probably also be first to see its impacts.

In the longer term, corporates will see their banks change their corporate service offerings to increase the stability of their deposits. For example, they could provide, let’s say, 31 or more days, or call deposits. Furthermore, financial institutions could launch incentive programs to

76 ASIAN BANKING AND FINANCE | DECEMBER 2014

3. Reconsider the mix of deposit instruments With decreasing interest rates for overnight deposits, alternative instruments such as money market funds, which are also attractive instruments for spreading counterparty risk, should be considered. Treasurers should also watch out for incentives banks might offer to actually leave money in their operating accounts rather than frantically race for a slightly higher yield elsewhere.

4. Review credit facilities As banks will have to hold more capital for credit facilities, corporates should be carefully considering which bank facilities they really need and trying to reduce unnecessary headroom – overall and with the individual bank partner.

Advanced cash management techniques, such as cash pooling or netting, can help manage facilities more closely.

5. Optimize working capital Treasurers should have an overview of their cash on hand, but many finance professionals still struggle with cash visibility. With Basel III in place companies will pay higher fees, particularly for short-term funding.

ASIAN BANKING AND FINANCE | DECEMBER 2014 77

OPINION

DESMOND TEO, MERCY JOSEPH

Singapore and the United States shake hands on FATCA

BY Desmond teo & mercy joseph Partner & Manager EY Singapore

S

ingapore is on the brink of concluding an agreement with the US to clamp down on tax evasion by US citizens or residents (US persons); a move that will enhance Singapore’s credentials as a global financial hub.

On 6 May 2014, Singapore announced that it had substantially concluded discussions with the US on a tax information sharing agreement that will help Singapore-based financial institutions comply with the US Foreign Account Tax Compliance Act (FATCA).

In fact, the wheels for this had already been set in motion more than a year ago. Singapore had announced on 14 May 2013 that it intended to ink a Model 1 Intergovernmental Agreement (IGA) with the US on FATCA. On 5 May 2014, Singapore was added to the US Internal Revenue Service’s (IRS) list of jurisdictions that have “reached agreements in substance”. The IGA with the US is expected to be signed in the second half of this year.

Enacted in the US Congress in March 2010, FATCA aims to prevent US persons from using offshore accounts to avoid paying US taxes.

Under this legislation, financial institutions outside the US are required to report, on an annual basis, information about financial accounts held by US persons either directly or through other non-US entities to the IRS as well as withhold tax in certain prescribed situations.

Non-compliant foreign financial institutions face a 30% FATCA-related withholding tax on certain US source payments.

Under the Model 1 IGA, exchange of information on accounts held by US persons will be done on a government-to-government level.

Singapore-based financial institutions, including banks, custodians, trust companies, insurers, and asset management groups, will be required to identify, review, and report information on financial accounts held by US persons to the Inland Revenue Authority of Singapore (IRAS), which will in turn provide the information to the US Internal Revenue Service (IRS).

Providing certainty to financial institutions Being one of the first Asean nations to commit to an IGA with the US, Singapore’s move will surely earn itself plaudits among financial institutions

78 ASIAN BANKING AND FINANCE | DECEMBER 2014

operating in Singapore. The swiftness and decisiveness of its decision provides certainty and clarity to financial institutions on the government’s position on FATCA. A Model 1 IGA is also a less cumbersome option than a Model 2 IGA. Under the latter model, governments take a less involved approach, leaving the financial institutions to deal directly with the IRS in reporting prescribed information on US persons.

That said, Singapore-based financial institutions will still have to register with the IRS (where applicable) to identify themselves as Model 1 IGA financial institutions and obtain a Global Intermediary Identification Number (GIIN).

The deadlines to register for FATCA and ensure inclusion on the first and second IRS list were 5 May 2014 and 3 June 2014, respectively.

With the clarity on the IGA, Singapore-based financial institutions will now have until 31 December 2014 to register and obtain a GIIN. An IGA will also see withholding tax requirements under the FATCA legislation suspended. Certain entities that could otherwise be caught by FATCA may also now be considered as exempt or “deemed compliant” under the IGA, making the compliance with FATCA more straightforward.

Financial transparency is key

OPINION

ASHLEY O’REILLY

Why less is more in management

B

anking executives are generally frustrated by the lack of efficient and effective Management Information (MI) that they receive to run their businesses in Asia. Sources of this frustration include MI duplication which often exists across business functions; laborious and error-prone manual production of MI; production of reports that lack focus or insight; gaps in MI such as missing HR and/or sales data; and poor MI storage, governance, and delivery.

Banking executives in Asia want to frequently receive summarized snapshots of relevant and standardized MI, governed by a structured distribution process that incorporates a formalized feedback loop to all business lines.

There is low overall consumer satisfaction with MI within the Asian banking industry, driven by three attributing themes: Inconsistent MI, Untimely MI, and Irrelevant MI. Banking executives should receive appropriate MI to make effective decisions and run their businesses without wasted effort on redundant MI activities.

Inconsistent MI and a lack of ‘one version of the truth’ is a recurring concern among Asia-based banking executives. A bank in Singapore suffers from poor MI quality which has led to a lack of trust during data interpretation. The producers of MI must understand the business and reasons why core information is required.

Consistency in the approach and presentation of MI is also important to ensure that data is analysed and used correctly.

Business departments require tools and processes to ensure that the data they provide to executives is consistent (eg business performance results as calculated by Finance and independently by geographical operations departments).

A multitude of independent MI producers leading to a lack of a single source of truth is a recurring cause of MI inconsistency across the market.

“Producers must understand the usefulness of the reports they are producing so that they can focus on the timely production of MI that increases business performance.”

We frequently hear about data not being readily available and unreliable processes and systems for the conveyance of MI. Some banks in Singapore manually load MI components into systems and subject data to manual manipulation (eg to resolve reconciliations) which delays MI and subjects it to error risk. Data integrity steadily decreases when figures are manipulated by numerous people.

There is also a strong correlation between the value of MI and the rate in which it is received by its interpreters due to quick fluctuations in exposures, exchange rates, and so forth. Furthermore, if related MI is not delivered at the same time, its meaning can be diluted driving further inefficiencies.

80 ASIAN BANKING AND FINANCE | DECEMBER 2014

by ASHLEY O’REILLY Management Consultant Deloitte

Timing is very important

A key contributing factor causing untimely MI is there being too much data produced and disseminated. Producers must understand the usefulness of the reports they are producing so that they can focus on the timely production of MI that increases business performance and/or better supports the making of important decisions.

MI consumers tell us that they are often required to sift through irrelevant data in order to find MI that meets their strategic needs.

Occasionally, executives receive raw data and not the organized MI they require to quickly and easily digest and analyse.

Banks in Asia need to produce fewer data reports and more analytically enabled MI. MI and data should be governed in such a way that ensures standardization of geography, country, product, etc. reporting.

Reviews of bespoke MI produced by most banks reveal that not all legacy MI is actively used to manage businesses. Key indicators of potentially irrelevant MI include: MI lacking forward forecasting; reports containing duplicated data; geography specific reports with no link to overall regional strategy; raw data dumps, etc.

The solutions to MI effectiveness and efficiency issues are not all costly and time-consuming. Certainly central data warehouses improve MI production and interpretation dramatically, however other, more immediately achievable, opportunities to improve MI production and delivery exist.

All functions within banks and across channels should understand the MI needs of their executives. Identifying critical MI and rationalizing non-critical reports and associated processes is equally important.

Banks need to assess the effectiveness and efficiency of their critical reports; identify data, structural and other content design improvements, and tailor solutions to improve MI automation, accessibility, and usability. Once solutions are implemented, banks must determine and implement appropriate on-going MI governance.

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