Asian Banking and Finance

SPECIAL EDITION SPECIAL EDITION NOVEMBER 2013

Post-sibos special report a roundup of what you missed at sibos in dubai

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Asian Banking & Finance

insights from sibos Check out why it’s all about rebuilding trust

Swift in DUBAI SWIFT moves to capture the expanding APAC market

SIBOS FEATURE Bankers share their thoughts on the recently held Sibos

RMB GLOBALIZATION Find out why it’s still a long way off

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PAge 12

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www.mitsa.ch

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• Multiple purchases and sales per transaction • Collateral follow-up and Risk management related to the lifecycle of a transaction • Integration with any core banking systems • Integration with CREDOC or any other Trade Finance software

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Trade commodiTy Finance

Trade risk & collaTeral managemenT

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FROM THE EDITOR It was the first time for Sibos to be held in Middle East and we at Asian Banking and Finance flew to Dubai to witness one of the most prestigious events in the banking industry. SWIFT revealed that over 7,500 delegates from around the world attended Sibos 2013 and the number of media participants also hit an all-time high with 148 registered journalists.

Publisher & EDITOR-IN-CHIEF Tim Charlton Assistant Editor Jason Oliver Art Director Jonnel Martin Herman Editorial Assistant Queenie Chan Media Assistant Daniela Gujilde

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This year’s conferences dwelled on the importance for financial institutions to change and to rebuild trust following the financial crisis. Sibos forums probed how much restructuring and rebuilding of trust is necessary to be achieved by regulation and if the industry can actually do it. The event also gave insights into more pertinent issues like regulator demand, risk assessment, and data intelligence.

In this special post-Sibos edition, we give you exclusive insights from SWIFT’s key executives as well as major banks that exhibited this year.

Start flipping the pages and catch up with what you missed at Sibos 2013.

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CONTENTS

08

Here’s what we wish you’ve seen at Sibos 2013 in Dubai

SPECIAL REPORT 08 Here’s all you need to know

about Sibos 2013 in Dubai Asian Banking & Finance gives you this year’s highlights at Sibos 2013 along with interesting updates from prominent bank attendees.

OPINION 14 CNH’s onshore deregulation and offshore expansion

16 Reforming business

compliance for the APAC banking industry still a long way off

4 ASIAN BANKING AND FINANCE

SWIFT moves to capture the expanding APAC market

18

Why RMB globalization is still a long way off

FEATURE

18 Why RMB globalization is

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

12

06 What were the most

interesting things at Sibos?

Bankers share their thoughts on the recently held Sibos 2013 in Dubai.

12 SWIFT moves to capture the

expanding APAC market SWIFT executives Alain Raes and Paul Taylor share insights into the lucrative growth opportunities in Asia.

For the latest banking news from Asia visit the website

www.asianbankingandfinance.net

AD ASIAN BANKING AND FINANCE 5

SIBOS FEATURE

What were the most interesting things at Sibos?

Bankers share their thoughts on the recently held Sibos 2013 in Dubai.

Westpac Institutional Bank National Australia Bank

Barclays

Mizuho Bank

Axel Boye Moller

Christopher Hanning

Gwynne Master

Masahiro Goda

A major theme at this year’s Sibos was the wave of regulation impacting banks globally. Clearly, this is driving increased costs as banks upgrade their systems and processes and invest in additional resources. More importantly however, it is forming the need to be absolutely clear on what your strategy is and how to profitably deliver value to customers in your chosen target segments and markets.

For some banks, the increased regulatory requirements may lead to a rationalisation of relationships or products that are either too small, too costly or too risky to manage in the new environment. For others, this could be an opportunity to deepen relationships and focus on their core competencies and customers.

Innovation was another major theme. Developments in real-time payments in various parts of the world, mobile solutions for both corporate and consumer customers, and electronic trade solutions such as Bank Payment Obligation.

We also participated in several discussions on leveraging Big Data to develop new and innovative customer value propositions.

I was greatly impressed with whole pre- and post- SIBOS experience. From the initial website which ensured I maximised my schedule, to the exhibit hall which was filled with some amazing booths (including NAB), to the 7000 or so delegates all interacting in a companionable and optimistic manner with aligned objectives, the experience was both incredibly worthwhile and rewarding.

There were a number of key trade finance themes that I commonly encountered throughout the conference including; reciprocity, capital management, market liquidity, Basel 3, BPO, buyer financing, return on equity, market pricing. Most interesting for me however is the importance of relationships.

In Trade Finance, the importance of understanding the key drivers of your customer’s business is pivotal to a long-term and successful relationship. For Trade(& Supply Chain) Finance, this not only means understanding and supporting our corporate clients but also our partner banks. SIBOS provides the opportunity to share these market insights, and I look forward to Boston in 2014.

Head, Global Transactional Services, Asia

Director Head of Trade Finance

Head Financial Institutions, Asia As expected, regulation continued to be a hot topic, but when comparing where we are now to last year, complex regulation has crystallised into real action. Discussions pertaining to CRD IV and Basel III, whilst previously hypothetical, are now focused on real tangible actions.

Another interesting theme centred on partnership and innovation. Many banks are focusing on solutions and geographies where they excel, rather than being all things to all people. This is driving a change in the traditional correspondent banking model.

Banks are clearly narrowing down the number of partner bank relationships, instead deepening select relationships in order to partner for success.

Sibos provides a great platform to share the latest in innovation and there are clearly a number of innovative solutions coming out of the industry as select banks further invest in technology.

These will continue to be key themes for Sibos 2014 as the industry looks at opportunities to grow, as well as focus on important areas such as sustainability and citizenship and what role banks can play within these broader themes.

General Manager, Global Trade Finance Division, Asia Dubai was still heavy and sultry, and the conference venue was well packed and organized although climate for banks has been cloudy.

Today, banks play a very important role in the society and in the global economy, but if you look at bank’s role, it is rather simple such as deposit taking, lending money, issuing Letter of Credit, and coordinate remittance of money to overseas.

However, banks need to fight many risk factors such as macro-economy, regulatory issues in each country, settlement risk of counter-party, and country risk of emerging markets. The most critical issue is how banks will meet customers’ expectations in terms of efficient cash flow management and faster turnaround time between bank & customer, and customer & banks at overseas or counterparty.

Sibos enabled us to get some new ideas and share difficulties of implementing new technology. It is a great help for us to aim to be an innovative financial institution for our customers and new potential future customers in trade & cash management services.

special report: sibos 2013

Here’s all you need to know about Sibos 2013 in Dubai Asian Banking & Finance gives you this year’s highlights at Sibos 2013 along with interesting updates from prominent bank attendees.

S

ibos, the world’s premier event for the financial services industry, was held in Dubai this year and over 7,500 delegates from all over the world flocked into the city to participate in the event. SWIFT revealed that even the number of media participants hit an all-time high with 148 registered journalists.

Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai and Chairman of the Dubai International Financial Centre, graced the event with an official visit and was briefed on the platforms of financial companies and global banking provided by these companies.

One of the biggest industry issues that got speakers, exhibitors, and participants buzzing is a hanging recognition that the financial industry has to undergo two important processes following the financial crisis—to change and to rebuild trust. Sibos forums probed 8 ASIAN BANKING AND FINANCE

SWIFT revealed that even the number of media participants hit an all-time high with 148 registered journalists.

how much restructuring and rebuilding of trust is necessary to be achieved by regulation and if the industry can actually do it. The event also gave insights into more pertinent issues like regulator demand, risk assessment, and data intelligence.

Amidst all these, speakers at Sibos talked of a clear path that everyone in the industry can walk on to go forward. Firms were advised to focus on internal culture change, strong leadership, governance and accountability. Speakers also said that firms must demonstrate openness and transparency, must keep regulators informed about challenges, and must ensure confidence in the sustainability of systems.

In this special post-Sibos edition, we at Asian Banking & Finance also bring you insights from four major banks that exhibited this year.

Mobile channel payments Nick Diamond, Head of Cash

Management and Payment Sales at Lloyds Bank Commercial Banking, said that the rise of mobile channel payments was a pressing issue at Sibos 2013. There is much hullaballoo about a sector adoption of mobile payments, he said, along with the implementation of standards and the risks and opportunities presented by technologies. “While we are still at an early stage in the development of mobile payments, the trend regarding small-scale retail transactions is very positive and I expect it will eventually crossover into commercial banking,” Diamond said.

He added that many mobile solutions in the market place are zeroed in on consumer-to-consumer (C2C) transactions such as money transfers. Diamond warned though that the vast majority of transactions that consumers take part in are with businesses. “The real boom in mobile payments will occur only when companies start adopting them as a standard process for retail payments,” he said.

When it comes to the businessto-business segment, Diamond predicts that in the future, remote ‘on the move’ authorization will enable people to authorize payments

special report: sibos 2013 remotely using only their mobiles or tablets, thus boosting the efficiency of the accounts operation.

Link-up with other banks Crafting a relationship with other banks is an interesting opportunity for Lloyds Bank because according to Mandeep Ahluwalia, Managing Director & Global Head of Banks, they are still working on having a significant international presence.

Lloyds Bank is currently present in 10 countries, and they recognize the need to partner with other banks to be able to deliver and service their clients both in the United Kingdom and internationally. “What we offer for these banks is basically we will help them and their clients in the UK, but while we differentiate ourselves from the other banks, we also make it a point not to compete with any in the local market,” Ahluwalia said.

The same story goes for Asia, he said. They currently have a small marketing team in Hong Kong which helps them do business in the region.

Ahluwalia said that Lloyds Bank is in the process of forming local partnerships in Asia and creating an ‘alliance’ of banking relationships.

RBS as a debt financing bank The Royal Bank of Scotland has 200 years’ worth of experience in assisting companies and financial institutions manage their cash and trade transactions around the world. With this as backdrop, they see transaction banking as its biggest opportunity that’s about to come in.

James Miller, CEO, Middle East & Africa at RBS Markets & International Banking, predicts that there will be a 10-20% growth in transaction banking as this is RBS’ strongest area. Outside transaction banking, Miller said that RBS’s next big opportunity lies in it being a strong debt financing bank. “When we say debt financing, that’s in the broadest sense, so that’s anything from all sorts of debt products,” he added.

UAE has been one of the global homes to RBS for 39 years already.

Since its establishment in the country, it has provided local solutions to Middle East and Africa and has supported its offices in Qatar, South Africa, and Egypt. Miller said that 10 ASIAN BANKING AND FINANCE

what makes them an outstanding bank in the region is their threepronged strength.

Firstly, their debt capital markets offering is inclusive of loan markets, and public and private bond markets.

RBS is among the prominent market leaders in this area. Secondly, Miller said that RBS’s risk solutions delineate them from the rest of their competitors. They offer comprehensive and tailored solutions to financial service firms’ risk management challenges, including straightforward foreign exchange and interest rate derivatives to more complicated equity derivative and hedging necessities.

“Lastly, our transaction services business is one of the top five payments business in the world.

Corporations, public-sector clients among others use our products and services to support their domestic and international business,” Miller said.

NBAD’s banking experience The National Bank of Abu Dhabi (NBAD) is currently one of the largest networks in the UAE and has a still expanding network of 125 branches and cash offices. It also has over 585 ATMs across the country. It is also billed as the safest bank in the Middle East as it has

been consecutively grabbing a spot in Global Finance magazine’s World’s 50 Safest Banks.

Frank Hamer, Global Head of Transaction Banking, Global Banking, said that quite a number of domestic banks are growing at a quick rate and are starting to take some market share of the international banks. The good news, he said, is that the strong competition between domestic and international banks drives the latter to always keep up and step up their game.

UAE has been one of the global homes to RBS for 39 years already.

Wells Fargo’s focus on customers Daniel Son, Regional Manager for Wells Fargo’s international trade services in Asia, said that a lot of things have changed this year as compared to 2012. It was a fantastic year as the trade margins were impressively high and the inter-Asia trade force was great, but it was still a challenging road. “In 2012, we had extraordinary margins. In India, we were getting as much as 350,” he said.

In 2013, he said that margins have come down significantly but are slowly getting back on track. “But this still depends on what market we are talking about,” he warned. From the trade perspective, Son said that there will certainly be a lot of discussions around how difficult things are for the industry right now.

co-published Corporate profile

Euroclear reveals progress in Asia’s financial infrastructure Olivier Grimonpont believes Asia has reached significant milestones over the past five years.

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s a Belgium-based financial services company specializing in the settlement of securities transactions as well as the safekeeping and asset servicing of these securities, Euroclear reveals that after years of discussion on how to improve Asia’s financial infrastructure, major milestones have been achieved. Olivier Grimonpont, General Manager and Regional Head for Asia-Pacific at Euroclear notes that when you look at where we are today compared to where we were 5 years ago, Asia has improved a lot.

From an infrastructure point of view, some of the strongest countries in Asia are Singapore and Hong Kong, but Grimonpont notes that other Asian countries can definitely do better. He says that whenever the legal and regulatory frameworks in a certain country are good, client demand and competition will inspire the infrastructure to do well. Those countries, according to Grimonpont, that don’t do well in infrastructure services should take a look at their regulations and question how investment-friendly they are.

“We have been involved with the HKMA and Bank Negara Malaysia to develop what we call the Common Platform with an objective to support cross-border Asian securities transaction flows between Malaysia and Hong Kong using Euroclear’s infrastructure.

Philippines, Thailand, Indonesia and Japan are observers to the initiative and hopefully they will join the platform soon,” adds Grimonpont.

Cross-border investment flows Overall, we have certainly seen a lot of changes in infrastructure over the past few years. It seems to be a very frustrating exercise, but Grimonpont reckons that when you look at the way the market has evolved, Asia is basically doing in a few years what Europe has done in decades. There is very clear direction in Asia to make infrastructure more efficient to cope with more crossborder flows, although it’s not always a straight line of progress.

“When we look at the flows to, from and within Asia, we have seen that the fastest growth worldwide in cross-border flows over the past few years came from this region. We see a lot of growth in settlement volumes from countries where their domestic securities are “Euroclearable,” with some having a growth rate of 150%. For example, foreign holdings in Malaysian domestic securities have grown from 21% to 31% in less than two years.

This makes Malaysian securities one of the biggest foreign holdings in Asia, just after Australia and almost similar to Indonesia,” says Grimonpont.

Meanwhile, one of the limitations that prevent growth from happening faster is the need for domestic markets to first put the focus on their own investors and issuers. “Part of the frustration in the international community is that the local markets are actually not advancing as fast as they wish, but on the other side, some of the domestic markets have their own domestic issues to resolve.”

Offshore RMB The development of the Renminbi is obviously very impressive and has attracted a lot of interest. Grimonpont notes Euroclear probably processes around RMB 450 billion of securities that are issued. The bulk of that will be in the domestic market in Hong Kong while a third of that will be in the international market. We see a growing interest in RMB now from Singapore, London, and Taiwan.

Grimonpont sees a lot of issuance activity in Hong Kong coming from the Ministry of Finance directly, which is actually providing and getting liquidity out of the RMB offshore market as well. Investors are definitely very excited about the idea of investing in this type of instrument.

“We see a growing appetite to issue securities in RMB. In fact, we are currently

Olivier Grimonpont General Manager and Regional Head for Asia Pacific, Euroclear

discussing the issuance of Sukuk in RMB, which I hope to see coming to market soon, as that will be the best of both worlds. People are seeing Sukuk as a safe investment,” he adds.

Islamic finance and regulations The Asian market, according to Grimonpont, seems a bit less dogmatic in some of the rules imposed and this makes it a lot easier both from an issuer and investor point of view to deal under Islamic rules. With an office in Dubai, Euroclear has been very active in Islamic finance and is supportive of the International Islamic Finance Market or the IIFM. “One of the important directions we need to go in Asia is on the financing side; it’s important that we support repos involving Sukuk. If we could manage financing using Sukuk on a very efficient and Shariah-compliant manner, it will represent a new growth opportunity for Asia as a whole,” says Grimonpont.

Meanwhile, he reckons that Asia will be directly and indirectly impacted by the new regulations from the US and Europe. Asia is not at the same stage in terms of preparation compared to the US and Europe. Asia is lagging a little bit but that’s mostly because it is less directly impacted by those new regulations.

“Asia will still need to be ready. It’s just a matter of understanding what it means for their counterparties,” notes Grimonpont.

“We see a lot of growth in settlement volumes from countries where their domestic securities are ‘Euroclearable’.”

feature: SWIFT in dubai

Paul Taylor - Director of Global Matching and Post Trade Matching, SWIFT Alain Raes - Chief Executive in Europe, Middle East and Africa, and Asia Pacific, SWIFT

SWIFT moves to capture the expanding APAC market SWIFT executives Alain Raes and Paul Taylor share insights into the lucrative growth opportunities in Asia.

A

sian Banking and Finance caught up with Alain Raes, SWIFT’s Chief Executive in Europe, Middle East and Africa, and Asia Pacific, at this year’s Sibos in Dubai. When we last spoke with him in Japan one year ago, he was preparing to add the Asia Pacific to his existing EMEA portfolio, and also to relocate in Asia. Since taking up the additional Asia Pacific role in January, Raes says that he has been busy discovering the region, exploring its unique challenges and expansion growth opportunities over the next year or so.

Because SWIFT does not have the same presence in the payments, securities and treasury markets in Asia as it does in EMEA, Raes will be focusing on ongoing initiatives with the Japan Securities Depository Centre (JASDEC) in internationalizing and standardizing their messaging standards and connectivity. He will also be concentrating on moving SWIFT more into domestic channels. With the SWIFT RMB Tracker showing 12 ASIAN BANKING AND FINANCE

While many banks felt that business was good in 2012, this year has seen some compression in the market, which could affect their ability to adopt new SWIFT initiatives.

that RMB is now the eighth most traded currency in the world as of September, he is also interested in the role SWIFT can play in RMB internationalization.

India continues to be another key focus for Raes. “We want to start addressing the demands of all our customers who are supporting the payments industry, trade and corporate connectivity.” He also revealed that the Board has recently approved the creation of domestic operating centres (OPCs) to handle this. He was also enthusiastic about working with ASEAN given their similar objectives, saying, “It’s about collaborations, it’s about interoperability, it’s about connectivity, and all that is very close to the values that we have, and therefore we’re looking forward to working with them.”

Post- trade priorities for Asia: efficiency and cost SWIFT conducted a Post-trade survey of their securities and treasury clients around the world in Q3

2013, asking about their imperatives and challenges. The majority of respondents were from the Asia Pacific community. The resulting white paper reveals a definite interest across the board in increasing post-trade automation levels, with the three main motivating factors being regulatory compliance, cost reduction and improved risk management. When comparing the Asian community with the rest of the world, it becomes clear that these drivers are prioritised differently.

Taylor explains that, for SWIFT, Asia is a very interesting region with different priorities than the rest of their global clients, saying, “What we’re actually seeing from the Asian perspective is that, whilst regulation isn’t necessarily biting in this region yet, they’re very much keeping an eye on what’s going on in other parts of the world.”

The focus for Asian participants in the survey is not necessarily on regulation, but on efficiency and cost.

Taylor adds, “we have whole host of products and services where you can reuse your SWIFT connection, or if you don’t have a SWIFT connection, you can use very low-touch tools in order to reuse some of those services, so you can increase your STP, and with people talking about increases of STP rates when they’ve automated their matching process across multiasset classes – that’s something that’s really interesting for this community.”

For this reason, SWIFT is focusing on building momentum in Singapore, Hong Kong and Malaysia, among other Asian countries. Latin America is also on their radar, where, as in Asia Pacific, there are still many processes which haven’t yet been automated.

Businesses under pressure While many banks felt that business was good in 2012, this year has seen some compression in the market, which could affect their ability to adopt new SWIFT initiatives. Raes confirms that banks remain under pressure, particularly to keep cutting costs and reducing operations. But he adds that this isn’t limiting their readiness to continue with further integration, saying, “They still have to engage in massive investments, especially when it comes to pricing and regulation.” Compliance and

feature: SWIFT in dubai KYC are ongoing concerns, and there will be an increased move to outsourcing, to allow banks to provide what Raes calls “the right services at the right time”.

Taylor also recognizes the pressure on businesses at the moment, saying, “Clearly margins have shrunk. I mean, you’re talking about singledigit return on equities in many financial institutions nowadays, as opposed to double-digits before the crisis.” But he also believes this pressure makes it all the more vital to invest in further integration. “I think people need to understand that you actually need to invest in order to improve, so there are also some opportunities for people to improve significantly so they can save further cost into the future.”

As a not-for-profit utility he sees SWIFT as an organization which is ideally positioned to assist businesses with these investments in long-term improvements.

Signs of recovery Raes is optimistic that the financial industry is recovering, using SWIFT transaction volumes to represent the industry as a whole. “Last year was a bit of a difficult year. If you look at gross at SWIFT, it was at about 4% in 2012. This year is actually quite good.

We’re moving more like at 12-13% – in some markets we’re even going to 20-25% – and when talking to banks, they seem to say that they see signs of recovery, they see signs of more transactions in the future, and that’s good.”

The SWIFT Board of Directors shares this optimism, seeing signs of recovery in London and the rest of Europe, and in the US as well. Things are looking particularly good for Asia, according to Raes. “Obviously in Asia, it’s even more bullish, so yes; I’m looking forward to perhaps having more activities in the future.”

more transactions, so that’s what they’re looking at as well. And, of course, also by operating much more efficiently. That’s where we can build off – helping the banks to operate much more efficiently in the future.”

Taylor agrees that there is a strong emphasis on people trying to become more efficient, based on his previous experience as a banker, saying, “I’ve lived this first hand, and I think you need to make sure that your operational processes, through any services you are purchasing or using from other people, are very slick, very fast, in order for you to have scale going through your institution.

Shrinking margins typically mean that you need more volume coming through. So we look forward to helping people with that.”

Dubai as the venue for Sibos in 2013 Although locations for Sibos are selected five years in advance, Raes sees the choice of Dubai as this year’s venue as fortunate and timely, as Dubai is currently positioning itself as an international financial centre.

“They clearly have the ambition to consolidate all the financial flows from Asia to Europe and vice versa.

They’re not only looking at the trade side, but at being a financial centre as well. So we’re really in the ideal location to talk about this.”

“I’m sure that many customers and clients that we have here at Sibos are eager to see how they can create more synergies between the two

regions – how they can collaborate,” he adds. He also highlighted the good news that Chinese banks are again participating in Sibos after withdrawing from last year’s conference in Osaka due to political differences with Japan. Paul Taylor, Director of Global Matching and Post Trade Matching at SWIFT, points out that being in Dubai also provides a valuable opportunity to meet their Middle Eastern and North African customers, given their significant client base in the MENA region.

This Sibos seems to be the greatest that we’ve ever had.

Positive developments Raes closed with some final thoughts about Sibos, reiterating how delighted he was to be in Dubai, and how pleased he was with the success of this year’s event, saying that, with approximately 7,300 participants registered at the time of our interview, “this Sibos seems to be the greatest that we’ve ever had.”

He also said that there is a lot of attention being paid to what SWIFT is doing, and emphasised that they are placing a great deal of attention on listening to their clients to see exactly what they want from the organization. He is especially positive about the signs of increasing take-up of their current initiatives in Asia.

His other area of responsibility, EMEA is also on track, with active support for members and customers in implementing SEPA being a key priority. “We’re seeing a massive surge of volumes around SEPA, so there’s good stuff happening.”

Increased transactions and efficiency Although recovery is in sight, banks are saying that their margins continue to be tight. Raes agrees that margins are under pressure, but that is true of any kind of industry in which businesses may operate. “I think it’s part of the normal business development cycle, and one of the ways to balance this is by having ASIAN BANKING AND FINANCE 13

OPINION

NATHAN CHOW

CNH’s onshore deregulation and offshore expansion

RMB convertibility is one of the priorities

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ccording to the blueprint of The Shanghai Free Trade Zone, financial innovations including RMB convertibility and interest rate liberalization are the priorities on the reform agenda.These reforms will make the RMB an increasingly important currency in the global FX market.

However, some worry that the establishment of SFTZ will undermine the development of offshore RMB markets. Such fear is unwarranted.

Looking at the Eurodollar market could help shed light on how offshore market grows in spite of onshore deregulation.

Experience from the Eurodollar market During the 1960s, changes in US regulations such as reserve requirements, interest rate restrictions, and borrowing limits made offshore banking more attractive to local banks. Consequently, USD liquidity migrated to London, where nonUS banks were not subject to regulation by the Federal Reserve. The Eurodollar market grew rapidly as a result.

In the late-1980s and early-90s, most of the aforementioned regulations were eliminated. For instance, the Federal Reserve lowered reserve requirements on large-denomination domestic deposits to zero; in effect removing that ‘tax’ on local intermediation. But the Eurodollar share of global dollar banking had grown from 10% in 70s to 20% in 90s and over 30% in mid-2000s.

Non-US residents continued to hold the

14 ASIAN BANKING AND FINANCE

BY NATHAN CHOW HUNG LAI Vice President Economist Group Research DBS Bank

majority of their dollar offshore, and so did the official holders of dollar reserve (mostly overseas central banks). During the 2000s, more than 70% of official dollar reserves was placed outside the US. And interestingly, LIBOR is the benchmark for today’s US corporate borrowing.

The sustainable growth of the Eurodollar market can be attributed to a number of factors.

Most characteristically, it has served as an efficient intermediary between non-US lenders and non-US borrowers of dollars. For example, the central bank of UAE deposits USD10 mn in a London bank, which then lends the funds to a Mexican oil importer.

In this case, the dollars might go through one or more offshore interbank transactions that could take place in London or other banking centres. But it does not require either sourcing funds or deploying funds in the US. Indeed, a significant portion of offshore dollar banking corresponded to such third-party intermediation.

As of Jun10, of the USD4.9 trn total claims booked offshore, USD2.7 trn (or 55%) were claims on non-US resident. Convenience factors such as regulatory environment, accounting standards, and time zone difference might explain the market participants’ preferences for offshore transactions.

Another motive is to separate currency risk from country risk. In September 2001, for instance, the trading of US Treasury securities was interrupted due to terrorist attacks.

But overseas central banks with dollar securities held in European depositories were still able to carry out normal operations. That reminds official reserve managers the potential benefits of having diverse trading and custodial locations.

Other factors contributed, too. Volumes of literature have pointed to the Soviet Union’s placement of dollar deposits in London as one of the origins of the Eurodollar market. Middle East oil exporters also preferred to keep their oil revenues outside the US for various reasons.

Implications for offshore RMB markets Judging from the dollar experience, global investors prefer to transact in a particular currency through the offshore markets. With respect to the RMB, the offshore market in Hong Kong (and in other financial centers) can be expected to evolve along the paths of the Eurodollar counterpart.

Co-published corporate profile

ADCB reveals how increased regulatory oversight affects trade finance in Asia

Murali Subramanian also talks about technological opportunities in the industry.

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ith its eyes set on being the number one bank of choice in the UAE, Abu Dhabi Commercial Bank or ADCB is constantly innovating and strives to maintain the highest integrity and reputation for its customers. ADCB aims to build a partnership with its customers that lasts a lifetime by treating every customer as an individual, offering innovative products and unparalleled service, and never forgetting that every customer has a choice.

Asian Banking and Finance caught up with Murali Subramanian, ADCB’s Head of Transaction Banking Group, at this year’s Sibos held in Dubai. “It’s a first for Sibos in Dubai in the Middle East ever, and there is of course a certain middle eastern focus that Sibos has got this year but the overriding themes aren’t very different. It’s regulation, cost management, and the evolving landscape of global banking,” says Murali. He revealed that ADCB has set up alliances with Bank of America Merrill Lynch and Banco Santander and those, according to Murali, arguably rival the global network of some of the biggest banks.

Islamic trade finance There has been a growing interest in Islamic trade finance and its synergy with traditional trade finance practices.

Especially in trade, Islamic finance has greater relevance to conventional methods of funding trade because Islamic Finance relies on principles of underlying sale and purchase of goods.

The concept of borrowing and lending, reckons Murali, are slightly more alien but the concept of buying and selling are far more coherent and convergent to Islamic principle. So Islamic Trade Finance has always been an alternative available to corporates and banks from a different investor base and the challenges if any would simply be an understanding what the do’s and don’ts are.

“If there is one thing in Islamic Finance which is not standard, it’s how it’s governed. There are Shariah boards that are quite diverse in their opinions depending on whether it is in Malaysia

Murali Subramanian Head of Transaction Banking Group, ADCB

or Saudi Arabia. So the interpretation is where the challenges are, but the practices are fundamental to trade,” adds Murali.

Increased regulatory oversight With the undeniable increase of regulatory oversight across the world, how will trade finance in Asia be affected? Murali notes that most of the relevant regulatory initiatives like Basel III, Dodd Frank, or FATCA significantly alter the way trade is being done.

“Trade used to be a case of easy funding over longer periods of time for transactions that were well understood.

Now that attracts a whole lot more pricing premium because these are not well structured according to the new principles. So they have to be structured more shorter term and they have to be far more tied in the underlying trade transaction.”

Murali sees that to demonstrate its trade requires a whole lot more active steps to be taken which can increase the structuring time and documentation required. The regulations also challenge

“Murali believes that the industry is going to be more and more bank agnostic.”

some of the weaker borrowers in the market for being able to do transactions at all.

Technology opportunities and risks There are several technologies that are being introduced to the Asian market. For instance, Murali notes that SWIFT’s Bank Payment Obligation (BPO) is fundamental to trade and will be one of the trends in the future although it has just been introduced in July this year. “BPO became an accepted practice. It’s not adopted widely yet but once that started getting adopted, BPO will be as fundamental as the MT101 message in trade,” he said.

The other opportunities in technology lies in the usage of bank proprietary technology as opposed to bank agnostic technology again offered by bodies like SWIFT. Murali believes that the industry is going to be more and more bank agnostic. Corporates are going to get far more choice as they go into xml message formats or 79x message formats in trade.

“The only way banks can survive in this business long term is for them to be competitive in the core areas in banking such as efficient risk management and balance sheet usage. Banks should not resist the trend towards proprietary technology being disintermediated and should support this change in the interest of their clients,” says Murali.

ASIAN BANKING AND FINANCE 15

OPINION

JAMES HATCHER

Reforming business compliance for the APAC banking industry

It’s high-time to intensify banks’ security measures

16 ASIAN BANKING AND FINANCE

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yber security continues to be one of the fastest-growing threats to banking institutions. In the wake of a financial crisis and recent Consumer Data Protection Act implementations, most banking institutions are looking to evaluate their governance, compliance and control systems for increased regulation, scrutiny, and oversight.

According to a recent survey by KPMG, majority of Asia Pacific-based executives (73% respondents) confirmed that Governance, Risk and Compliance (GRC) are of the highest priority on their agenda. Effective information security practices are becoming more important than ever now, taking into consideration breaches of data confidentiality and security threats posed on to the banking sector.

As a result, banks are looking to transform their business compliance model to achieve better security measures and subsequently increasing the technology adoption rate across the banking industry, especially in the file exchange and communication aspects which have been under invested in until recently.

The majority of banks today have over complicated systems to monitor and secure the data traffic that moves within the bank amongst its own internal divisions, applications and to their external counterparts.

Moreover, the complexity has increased due to internet usage. Banks are facing the challenge of collecting data transactions across a number

BY JAMES HATCHER Managing Director SEEBURGER Asia Pacific

of processes and complying in accordance with multi-jurisdictional requirements.

Currently, banks tend to miss more than 80% of data that is in the form of files of various sizes and types that need to be transferred across secured data transmissions systems. As part of any regulatory compliance and engagability, data needs to be tracked, traced and have the compliance department alerted. Now banks have the opportunity to reduce these complexities, decommission old legacy systems and migrate it all onto a single platform. To do so, leading banking organizations are embracing technology that can help them to manage their day-to-day compliance requirements.

The comprehensive communication platform must be able to manage and track all transactions that move through the bank’s systems and algorithm databases, with business rules that are embraced inside the data transmissions. These actions provide an audit trail for compliance purposes and tighten security measurements. In addition, in the event of a fraudulent transaction taking place, banks can use these trails to evaluate the patterns that cause such cases to happen.

Managed file transfer solution The modern managed file transfer solution enables banks to meet compliance expectations to ensure greater security yet with a lower cost of deployment.

‘Human-to-human’ integration is a core trait of managed file transfer solutions. ‘Systemto-system’ integration is crucial and mostly automated, but the human-to-human integration focuses on the way people within the bank communicate with others.

It senses when the outgoing data should not be sent, for example data such as account number and social security numbers. Employees can also attach spreadsheets and documents to be sent out. With this feature, the banks are able to look for specific items, identify it, and quarantine it if it is deemed inappropriate Also, the managed file transfer solution can automate attachments that need to be secured and send an email message to the recipients that informing them that there is a document waiting for them which requires them to log on to the system to retrieve it. This will secure the item and prevent employees from stealing essential data from the organization.

Co-published corporate profile

What MIT’s TRACCO-PUBLISHED has in store for Asian banks CORPORATE PROFILE

The collateral management software isn’t just about mitigating and dealing with risks. n a very competitive banking and risk assessment He reckonsand that categorizing and MIT brings TRAC to Asiapurposes. Since TRAC’s finance industry, MIT is one of CREDOC the few inception in 2010, MIT has finalized a clearly identifying the risk at each stage

I I

companies thatMIT’s intend topremier remain a products deal with corporateindustry. and investment bank of a transaction will helptrade banks tocommodity Check out for Asia’s finance specialist rather than a generalist. After NATIXIS two years ago. NATIXIS’ branch improve efficiencies when meeting Basel 30nyears of dedication in developing the early 1970s, bankers were doing platforms likeisWindows, Linux,with andthe AIX customers through web. The return in Singapore due to go-live III requirements, forthe instance. trade finance software foroperations bankers, MIT all documentary credit with Oracle DB. After more than 25 years, CREDOC system before the end of the year, then on investment in collateral management begins to focus more on thethen quality of manually.

Three brothers began TRAC isby a trade risk and in collateral has already been in more followed the branches Hong Kong technologies can installed be justified giventhan the their products. MIT then reached a to computerize thehas operations of management supporting 50 banks in Switzerland, Europe, and and Shanghaï.system Dumani reveals that they sums involved in this activity and the new as itcommodity gained the trading muchtheirmilestone international commodity finance and talks structured trade also theon Middle East.

CREDOC was first are already in advanced with other impact cost of capital. coveted “Swiss Made Software” company and birthed the Micro label. finance.

TRAC is designed for commodity released in 1986 and the years that banks in Asia.

Informatique & be Technologies SA,who also finance relationship managers, credit followed sawway different enhancements MIT strives to that provider Paving the for TRAC in Asia known as MIT. Their success started the managers, and top managers who and upgrades thethe system. contributes to improve risk monitoring Plans for the Asian market Dumani notes of that goal of TRAC is to risk idea of founding a software company want to track and monitor theirs According to on MITthe General Manager efficiency in the trade commodity finance Dumani says TRAC is destined forrisks centralize data trade commodity to automate and streamline banking appropriately.

Paul Cohen Dumani, they had to market by bringing an innovative tool Commodity Finance departments. The finance activities of a bank – and it operations, andRisk led to the creation According to Jean-luc Spinardi, head andtool redesign their called the Trade Active Control of MIT constantly two biggest commodity trading platforms provides a design dedicated in order to in 1984. of salesworld and marketing MIT,Singapore.

TRAC has product software trade most finance to (TRAC). in the are Genevaatand achieve this.

Until for recently, banks As one of the key players in the trade identified a realnaturally gap in the market.

The keep customers loyal to them.

MIT’s strategy declines from were their still using Excel spreadsheets finance industry, MITmanagement showcased two of product has then attracted great interest He adds that today, CREDOC exists in Need for collateral trying to focus first on Singapore, to monitor their credit lines which is its major products at sibos 2012 in Osaka two from theirto customers.

- a reliable web-based software and then increase their presence not atechnologies dedicated and tool.version MIT - CREDOC and TRAC. to the industry’s Spinardi notes thewhole usual way which is more suited for multi-branch MIT has been sensitive and reference listthat to the APACto envisioned to develop a tool that could trade finance in banksin deployment a Windows-based call for a software that could manage region.

Forcommodity now, MIT has a distributor enable banksand to centralize heterogeneous treat The and CREDOC technology isSingapore still Excel (Sterci spreadsheet. version whichfrom is more suitedthird for single risks damages.

According to Paul Asia PtyAnd Ltd),with butthe their data coming different party CREDOC is an advanced software financial crisis as wellterm as the pressure from department deployments.

Cohen Dumani, General Manager, aim on the medium is to provide providers such as collateral management solution for the the regulators, the maindesigned added value of adocumentary collateral localauditors supportand as well.

“ThereMIT is a realized strong companies, pricing data providers, credit departments of banks.

It provides need to address these issues.with more MIT’s TRAC management technology is that it can potential growth in this region, brokers, vessel information providers and the full processing of documentary “This is the reason why we In 2010, MIT launched yet another game provide banks with a system thatcredits clearly banks wanting to compete indecided the area other. The technology enables all data to and tradeand finance operations, domestic to this new application and there changer - the Trade Risk Active Control, identifies quantifies the different of create Structured Commodity Finance, since be fed into one collateral management and international guarantees, was a great answer ourbanks customers,” commonly knownthe as TRAC. nature of risks at any one pointcollections, in time. banks in Asia along from with US do not system to provide bank with a loans, advances, fundistransfers, reckons Spinardi.

It ispicture the firstofThin-Client Web-based He says that timing very important face shortage of liquidity when it comes clear the circumstances of a accounting entries, customized statistics, application for the trade commodity in this area as, during any one financing, to lending in US Dollars,” Dumani says. transaction at any one point in time for andvery connection between banks MIT in Asia the same goods will fall intoand different finance industry, available on several These banks want to take market Dumani notes thatEuropean MIT wants to test, risk categories. “For example, goods may share from some banks whosee “After more 25 years, CREDOC already “MIT hashas been sensitive and make sure thatkey they address every be pre-financed by athan bank, meaning historically are the players in this been installed in more 50the banks in Switzerland, forsince theirthe clients byhave coming that performance risk (among other thanto industry’s call for a issue activity latter hadto toAsia and talking with Asian banks.

Europe, also the Middle East.” risks) needs toand be accounted for until the reduce their ambition in CTF mainly due software that could manLast year, MIT inked a deal with goods are stored or shipped on a vessel,” to high exposure on sovereign debts. age risks and damages.” Sterci SA, a financial messaging Dumani adds. solutions company, to ensure product The big gap representation through an office in the As of today, Dumani reveals MIT is Singapore. only vendor in the market that can Sterci is an expert STP software provide both MiddleinOffice Collateral development and has a strongalong with Management systems (TRAC) foundation of 25 yearsTrade in financial traditional back-office Finance messaging.

Its product Stelink transmits solutions (CREDOC) Swift messages coming from andmarket to They have competitors in both CREDOC. segments which gives them many Spinardioptions. notes that the partnership different They can sell CREDOC with Sterci is very important forCREDOC, MIT as it without TRAC, TRAC without spurred great interest in Asia especially in or both as an integrated package.

Singapore for trade commodity finance.

“Furthermore, should a bank require “We partnered in Singapore integrating TRAC with with Sterci another back-end because we noticed that there a Trade Finance system, then MITwas is the gap in the market for trade commodity ideal partner because we understand finance.

Youautomation can notice issues that inrelated the to exactly the market, there are many companies now back-end trade systems since we are also Jean-luc Spinardi, Head of Sales and Marketing; Paul Cohen Dumani, General Manager which areofgoing in this to run their provider those,” he area concludes. business,” says Spinardi.

With more innovations underway, MIT’s ASIAN BANKING AND FINANCE 17 presence in Asia is expected to expand in

OPINION

NATHAN CHOW HUNG LAI Why RMB globalization is still a long way off

by NATHAN CHOW HUNG LAI Vice President Economist Group Research DBS Bank

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fforts to globalize the renminbi (RMB) reached a milestone when the currency joined the league of the most-traded currencies for the first time.

According to the Bank for International Settlements’ (BIS) latest report on foreign-exchange turnover, daily trading in RMB has tripled over the past three years to USD120 bn. This makes the RMB the ninth most actively traded currency in 2013, with a share of 2.2% in global FX volumes. The RMB ranked 17th (with a share of 0.9%) in the last survey conducted in 2010.

The ninth-most-actively-traded currencyThe notable improvement highlights the flexibility foreign firms can gain by using RMB. For corporations that trade with China, the use of RMB can lower their FX costs and risks. They can also enjoy the price discounts offered by some mainland companies.

Since Chinese exporters usually raise prices on foreign currency transactions as a cushion for potential FX fluctuations, it is estimated that overseas importers paying in RMB could save 2-3% on their invoices. The combination of factors has led to a six-fold surge in RMB-settled trade in the past three years.

Continuous policy initiatives Having said that, the RMB is still underrepresented when compared to the size of the China’s economy.

Currently, China represents around 11% of global GDP (2nd largest economy) and more than 10% of world trade (largest trading country). But the RMB’s share in global FX volumes is significantly lowered than that of the USD (87%), the most-used currency for global transaction.

Continuous efforts are therefore desired to move RMB further up the ranks as a global payments currency. Trade channel In July, the People’s Bank of China (PBoC) announced a series of measures aimed at simplifying RMB cross-border transactions.

Based on the basis of ‘know your customer’, ‘know your business,’ and ‘due diligence’, banks in the mainland can process RMB cross-border trade settlement for their corporate clients before verifying the documentary proof of underlying trade transactions. The streamlined process increases the efficiency in handling RMB-denominated trades Meanwhile, the PBoC has also approved a new scheme — gross-in/gross-out arrangement — to make it easier for a European Fortune 500 company with substantial sales in China to manage its RMB holdings.

Before the new model was introduced, the company had to process multiple cross-border RMB payments separately for regulatory oversight, resulting in transaction costs and a lack of central monitoring.Some domestic banks were also being frustrated since settling trade separately had been both time-consuming and labor intensive. Under the new scheme, the company can consolidate all incoming RMB transactions made in different time periods into a single transaction; as well as all outgoing RMB payments into another.

This centralized approach to cash management significantly reduces the exchange rate exposure and optimizes liquidity management for the company.

It also sets a precedent for other foreign corporates to adopt the RMB in international trade. Portfolio investment channel. Progress has also been made on 18 ASIAN BANKING AND FINANCE

loosening controls on cross-border investment. In August, the State Administration of Foreign Exchange (SAFE) simplified rules on the Qualified Domestic Institutional Investor scheme, including allowing investors to choose the currencies they want to use for cross-border fund remittance and no longer requiring the regulator’s approval on FX purchases/sales.

After the deregulation, China fund managers will see more flexibility in designing QDII portfolio.

Offshore RMB investable products such as dim sum bonds could also be benefitted. For instance, mainland investors might be particularly interested in high yield names such as property developers as Chinese property firms have been banned from issuing onshore.

Direct investment channel Beijing is also keen to boost offshore RMB liquidity by encouraging more RMB use in outward direct investment (ODI).

On the back of policy relaxation, such as raising thresholds for project amounts subject to approval and simplifying application procedures, RMB-settled ODI surged 50% last year. The growing share of private investment can also be seen as a result of preferential policy supports. In 2012, outward investment made by non-SOEs accounted for 9.5% of China’s ODI, a significant rise from 4% in 2010. More encouragingly, the US has recently committed to maintain an open and fair investment environment for Chinese investors. If realized, this represents an important breakthrough for China’s ODI. In the past, Chinese direct investment was often viewed with suspicion because it was dominated by SOEs. These were considered a threat to competitive markets and, occasionally, to national security.

Consequently, though China was the largest investor in developing economies in 2010 and 2011, it represents less than 2% of the US’s total stock of inward investment.

RMB-settled trade surged six-fold

AS A REGIONAL BANK WITH GLOBAL STANDARDS, WE’RE WINNING MORE THAN JUST BUSINESS.

Best Transaction Bank Best Corporate Bank

Best New SME Product Best Trade Finance Offering Best Cash Management

2013 Trade Finance Bank of the Year

Highly commended for Best Trade Bank in MENA Best Trade Bank in the ME Silver posiiton

Award-winning Wholesale Banking from ADCB. Our ongoing commitment to provide the best possible products and services continues to be recognised by the industry.

For more details about our services and to discuss how ADCB can partner with you, please visit us on stand E58 at Sibos. adcb.com