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THE JOURNEY TO SIMPLICITY 50 years ago, we started with a single thread of hope. Even though there were knots and tangles along the way, we persisted until we overcame the complexities to offer simpler banking solutions today. ABK... moving forward over 50 years.
Simpler Banking
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contents
SEPTEMBER 2017 | ISSUE 198
September was welcomed with a positive note as the shares of Sharjah’s controversial energy company, Dana Gas, resumed trading with a 14 per cent hike to 73 fils (its highest for the year) on the Abu Dhabi Securities Exchange, following the settlement of its fouryear dispute with the Kurdistan Regional Government. Echoing sentiments of these encouraging developments, this issue of Banker Middle East delves into fresh opportunities in investments, transaction services and technology. Our September cover (Paragon Business Group) provides an exclusive insight into investment potential in Australia on page 18; ICAEW delivers the hard truth of IFRS 9 in page 10; we explore
10
economic conditions in Palestine on page 24; while our technology section on pages 54 and 58 sheds light on the developments in cybersecurity and artificial intelligence. As markets continue to move in an upward trajectory, we hope to see more significant progress towards the end of the year. As usual, we wish you a fruitful read.
Nabilah Annuar Nabilah Annuar Editor
BankerMENA CPI Financial
24
30
COUNTRY SPOTLIGHT
6 News analysis
24 Championing Palestine
Breaking old habits
MARKET OUTLOOK
8 News bites
28 Are we there yet?
THE MARKETS
10 Fool-proofing the IFRS 9 14 The FCA’s decision on the Libor: an opinion
INVESTMENT
COVER INTERVIEW
DIGITAL CURRENCY
34 Impact investing in the GCC 36 Blockchain, cryptocurrency
18 Crossing boundaries
JULY – AUGUST 2017 | ISSUE 197
www.bankerme.com
Growth amidst uncertainty Ahmed Saud Ghouth, Chief Executive Officer of Alkhabeer Capital
Get the next issue of Banker Middle East before it is published. Full details at: www.bankerme.com • Follow us on Twitter: @bankermena
ANCIAL)
and MTOs: a happy union?
“Alkhabeer’s successful private equity strategy focuses on investing in defensive sectors.”
Growth amidst uncertainty Ahmed Saud Ghouth,
Chief Executive Officer of Alkhabeer Capital
Get the next issue of Banker Middle East before it is published. Full details at: www.bankerme.com
INSIDE: 18/06/2017 14:09
page 3-4 contents.indd
10 CREATING A
WIN-WIN STATE
24 TURKEY: REALITY IS BETTER
THAN PERCEPTION
30 INVESTING IN SAUDI’S
CONSUMER STAPLES
42 RENEWABLES: REALISING
THE POTENTIAL
1
(PHOTO CRED IT: FLORANTE MA GSAKAY/CPI FIN
18
E D I TO R ’ S L E T T E R
Dubai Technology and Media Free Zone Authority
C
ommencing the second half of the year, both emerging and developed markets are still in their respective phases of the ‘adjustment period’. The global economy continues to be buoyed by rising consumer spending and as well as a steady demand in commodities. With a slight increase in the price of crude oil, hydrocarbondependent economies are provided with a little bit more cushion than expected. The MENA region is projected to experience healthier growth going into 2018 on the back of improved political stability in economies such as Egypt and Lebanon, in addition to the rebound in oil. Financial institutions in the region have mostly posted positive earnings for the first half of the year, albeit at a marginal increase.
3
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4
SEPTEMBER 2017 | ISSUE 198
40
www.bankerme.com Chairman SALEH AL AKRABI Chief Executive Officer ROBIN AMLÔT robin@cpifinancial.net Tel: +971 4 391 4681
Managing Editor GEORGINA ENZER georgina@cpifinancial.net Tel: +971 4 391 3728
Sales Director OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419
46
REAL ESTATE
40 The big picture IN DEPTH
46 Resilience in the face of regional instability 48 Investment Banker of the Year 50 Addressing market needs COMPANY SPOTLIGHT
52
52 Xpress Money
TECHNOLOGY
54 Enabling innovation through security: how banks can stay ahead 58 Artificial intelligence-powered banking
PERSONALITY
62
62 Salman Bajwa, Senior Executive Officer, Emirates NBD Asset Management
Caring for your career
Looking for a new position in financial services in the Middle East?
Checkt CPI Financial’s Jobs page
ou
www.cpifinancial.net/jobs
Log on to www.cpifinancial.net for news, polls, events, analysis, blogs, features, commentary and more.
EDITORIAL editorial@cpifinancial.net
ADVERTISING sales@cpifinancial.net
Editor - Banker Middle East NABILAH ANNUAR nabilah.annuar@cpifinancial.net Tel: +971 4 391 3726
Business Development Managers SIMON MOTWALI simon.motwali@cpifinancial.net Tel: +971 4 433 5321
Editors MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716
NIKHIL NIDHAN nikhil@cpifinancial.net Tel: +971 4 391 3717
WILLIAM MULLALLY william@cpifinancial.net Tel: +971 4 391 3718
DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526
JESSICA COMBES jessica@cpifinancial.net Tel: +971 4 364 2024
MOHAMED MAKSOUD mohamed@cpifinancial.net Tel: +971 4 433 5320
London Bureau ISLA MACFARLANE isla@cpifinancial.net Tel: +44 7875 429476 Chief Designer BUENAVENTURA R. JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719 Senior Designer FLORANTE MAGSAKAY florante@cpifinancial.net Tel: +971 4 391 3724
Creative Designer ANA MAKSIC ana@cpifinancial.net Tel: +971 4 391 3723
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Administration & Subscriptions enquiries@cpifinancial.net Tel: +971 4 391 4682 Tel: +971 4 391 3709
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www.cpifinancial.net ©2017 CPI Financial. All rights reserved. No part of this publication may be reproduced or used in any form of advertising without prior permission in writing from the editor. Registered at the Dubai Media City. Printed by United Printing & Publishing - Abu Dhabi, UAE
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news
analysis
Breaking old habits Saudi Arabia continues to grapple with oil dependency and unemployment as it pursues its long-term diversification agenda
S
audi Arabia’s economy is expected to contract slightly in 2017 before rebounding next year. The Institute of International Finance (IIF) in a recent report expects the Kingdom’s economy to contract 0.4 per cent in 2017 before increasing two per cent in 2018. The region’s largest economy’s second quarter budget performance report released by its Ministry of Finance revealed that the Kingdom’s budget deficit fell to SAR 72 billion in the first six months of the year, half of the 2016’s deficit in the corresponding period and only 37 per cent of the government’s budgeted full year deficit of SAR 198 billion. Although the greatly reduced fiscal deficit is credit positive for the sovereign, Moody’s in a review of Saudi’s numbers suggested that the smaller deficit almost entirely reflects a sharp increase in oil revenues from higher oil prices, illustrating Saudi Arabia’s oil dependence. Oil revenue in the
Institute of International Finance expects Saudi Arabia’s economy to contract
0.4 2%
%
in 2017 before increasing
in 2018
first half of 2017 reportedly rose 63 per cent, or SAR 82.1 billion, from the year earlier period, even as OPEC production cuts constrain Saudi Arabia’s crude oil output until March 2018. The increased oil revenue comprised 69 per cent of total government revenue in the first half of this year, up from 55 per cent in first half 2016.
Despite the government’s wide ranging economic and fiscal reforms to reduce its dependence on oil revenue, the results of efforts to grow non-oil revenue have been mixed. Overall, non-oil revenue in the first half of 2017 declined by almost 12 per cent, or SAR 12.7 billion, from a year earlier. Customs revenues dropped SAR 2.9 billion, despite increased duties on hundreds of items in 2017, and likely reflects the continued weak growth of import-dependent non-oil sectors. However, income tax revenue (primarily corporate taxes) increased 23 per cent, or SAR 1.7 billion, over the same period. Additionally, the unemployment rate for Saudi Arabian nationals has increased to 12.3 per cent and is likely to stay high for several years in the absence of a strong recovery in non-oil growth. According to the IIF, the weakened economic growth was pushing the kingdom’s unemployment higher, necessitating the implementation of structural reforms for optimum education, training and job creation across the country, particularly in the private sector. Full year fiscal consolidation will remain contingent on oil price stability in the second half of the year, suggested Moody’s, given the modest progress at increasing non-oil revenues. However, even with stable prices and production levels, it may be challenging for the government to achieve its oil revenue target of SAR 480 billion. In addition to the weak performance, the lack of additional major reforms planned ahead of the introduction of value added in 2018, non-oil revenues are expected to be slightly lower than the SAR 212 billion budget target. As total spending in the first half was only 43 per cent of the budgeted amount, the government is projected to likely to undershoot its spending target, which would put further pressure on non-oil GDP growth.
(PHOTO CREDIT:3DSCULPTOR/SHUTTERSTOCK)
6
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news
bites
8
CBO approves merger between Oman ORIX and National Finance In statements to the Muscat Securities Market, Oman ORIX Leasing Company and National Finance Company both reported that they have received in-principle approval from the Central Bank of Oman for the proposed merger subject to regulatory approvals. National Finance first approached Oman ORIX in November 2016 and put down a cash offer in May following a study conducted by Deloitte. The offer was 1.2 times book value as of 31 March 2017.
DFSA launches crowdfunding framework The Dubai Financial Services Authority (DFSA) has launched its regulatory framework for loan and investment-based crowdfunding platforms, the first such framework in the GCC countries. The regime forms part of the DFSA’s regulatory roadmap to create an innovation-friendly ecosystem, in line with the UAE Government’s National Innovation Strategy. The DFSA crowdfunding regulations have the ability to catalyse growth in the financial technology (fintech) industry in the UAE and the region, by targeting the specific requirements of crowdfunding platforms. The regulations ensure clear governance for fintech businesses and provide appropriate protection for their customers. They also formalise the DFSA’s approach to regulating crowdfunding platforms which had operated through interim arrangements since 2016.
Investcorp to acquire undisclosed Swiss private bank in London Bahrain-based asset management company, Investcorp, has agreed to acquire an interest in a Swiss private bank in London. In an announcement on Bahrain Bourse on 17 August 2017, Investcorp revealed that that it has agreed to acquire a significant but less than majority interest in a Swiss private bank. Completion of the transaction is subject to various regulatory approvals and the transaction is expected to close prior to the end of calendar year 2017.
RATINGS REVIEW Entity
Abu Dhabi
LT IDR/LT Rtg (FC)
Bahrain Egypt Iraq
ST IDR/ST Rtg (FC)
AA
F1+
B
B
BB+ B-
Lebanon
B-
B B B
LT IDR/LT Rtg (LC)
ST IDR/ST Rtg (LC)
Country Ceiling
AA
F1+
AA+
B
B
BB+
B-
B
B
BBB+ B
B-
B-
Country
UAE
Bahrain Egypt
Iraq
Lebanon
AA
F1+
AA
F1+
AA+
Kuwait
A
F1
A
F1
AA+
UAE
BB+
B
BBB-
F3
BBB-
Saudi Arabia
A+
F1+
A+
F1+
AA
Qatar
AA
Turkey Saudi Arabia Qatar
Kuwait Ras Al Khaimah Turkey
UR
Under Review
F1+
AA
F1+
KEY Positive Negative Evolving Stable
AA+
OUTLOOK
WATCH
DGCX to launch region’s first Shari’ah-compliant spot gold contract The Dubai Gold & Commodities Exchange (DGCX) and Ayedh Dejem Group have agreed to develop and launch the Middle East’s first-ever Shari’ah-compliant spot gold contract to be traded on an international exchange. The partnership enables both entities to increase their presence in the Saudi Arabian and wider GCC Islamic Finance market, and attract the interest of regional Islamic financial institutions and banks. This development is reflective of the growing potential of the Saudi Arabian and wider GCC regions Shari’ah-compliant gold markets. According to the World Gold Council, Saudi Arabia’s gold demand, stood between 60 and 85 tonnes. This is the highest in the Middle East and ranked sixth in the world; representing almost 30 per cent of demand across the region. Shari’ah compliant gold investments are worth an estimated $2 trillion.
Aberdeen Asset Management completes merger with Standard Life, office in UAE The merger between Aberdeen Asset Management PLC and Standard Life plc has successfully completed to form Standard Life Aberdeen plc. The amalgamation has formed one of the world’s largest investment companies with assets under administration of approximately $871 billion. First announced on 6 March 2017, the merger is believed to have created an investment group with strong brands, leading institutional and wholesale distribution franchises, market leading platforms and access to long-standing, strategic partnerships globally. This newly combined business will retain a long standing commitment to active investment management with a similar investment culture and approach, underpinned by fundamental research. It immediately becomes one of the largest active managers in Europe having over 1,000 investment professionals around the world.
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05/09/2017 10:21
news
OBG Business Barometer: UAE CEO Survey
bites
9
World-class infrastructure and tourism offerings, significant financial reserves and a reputation as a safe haven have all contributed to a feeling that despite the various headwinds buffeting the UAE, it is well placed to drive on with reforms intended to ensure long-term, sustainable prosperity. Each emirate has therefore been able to take its own path: from the industrial base of Sharjah, the hydrocarbons and heavy industry sectors of Abu Dhabi and the services megalopolis of Dubai, the UAE as a whole is one of the most diversified in the region.
Regional security chosen as top external factor that could impact
How likely is it that your company will make a significant capital investment within the next 12 months? Very likely
Likely
Unlikely
Very unlikely
the local economy by
75%
of respondents Beyond the movements in commodity prices, please indicate the top 2 external events that could impact the local economy in the short to medium term. Regional security
Opening in Iran
Currency volatility
Slowdown of Chinese economy
24.7%
50.5%
75%
75%
21.2%
3.5%
said their company is
very likely or likely to make a significant capital investment
What are your expectations of local business conditions in the coming 12 months? Very positive
0%
40%
20%
Positive
40%
82%
15.3% 11.7%
Negative
60%
Very Negative
80%
100%
of respondents said they have very positive or positive expectations of local business conditions
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page 8 News Bites.indd 9
06/09/2017 15:56
the
markets
10
(PHOTO CREDIT: SHUTTERSTOCK/MACGYVERHH).
Fool-proofing the IFRS 9 Unified standards and effective implementation of integrated reporting is crucial for long-term success in the GCC, asserts Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia
D
ue to the continuous financial market fluctuations, and as a broad response to the financial crisis, the International Accounting Standards Board (IASB) has replaced IAS 39 with the International Financial Reporting Standard (IFRS) 9. Additionally, the American Institute of Certified Public Accountants (AICPA) and the Chartered Institute of Management Accountants (CIMA) advocated a new corporate reporting initiative, integrated reporting (IR), which is championed by the International Integrated Reporting Council (IIRC) and endorsed by the International Federation of Accountants (IFAC).
Michael Armstrong
While IR is not mandatory, IFRS 9 is and will come into effect from 1 January 2018. The race to regulatory compliance of the latter reporting should be nearing the finishing line. But how ready are the region’s banks and financial institutions? IFRS 9 The new standard brings together three phases of the IASB’s project which include classification and measurement, impairment and general hedge accounting. It will change the way in which banks and other financial institutions account for loan losses on their balance sheets, imposing a longer, more forward-thinking view. IFRS 9, which developed as a result of attempting to reduce the complexity of accounting standards for financial instruments, and to strengthen accounting recognition of loan-loss provisions by incorporating a broader range of credit information, will provide a more accurate and timely presentation of financial institution reporting. However, when it comes to implementing IFRS 9, some countries in the GCC, including the UAE, cont. on page 12
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MobileMobile Banking Banking Corporate Corporate 27x21 27x21 Ad.pdfAd.pdf 1 12/13/16 1 12/13/16 12:36 12:36 PM PM Mobile Mobile Mobile Banking Mobile Banking Banking Corporate Banking Corporate Corporate Corporate 27x21 27x21 27x21 Ad.pdf 27x21 Ad.pdf Ad.pdf Ad.pdf 1 1 12/13/16 1 12/13/16 1 12/13/16 12/13/16 12:36 12:36 12:36 PM 12:36 PM PM PM
C
M
Y
CM
MY
CY
CMY
K
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12
the
markets
cont. from page 10
may face challenges due to organisational culture, regulation, transparency and fraud, according to a report titled ‘The globalisation of Accounting Standards: The Case of the UAE’. In order to overcome such cultural issues, the UAE will have to adopt suitable regulatory systems relating to secrecy and fraud. IFRS 9 READINESS IN THE GCC According to Deloitte’s Fourth Global IFRS 9 Banking Survey that compiled the information of 91 banks and financial institutions, almost half of the banks surveyed do not think they have enough technical resources to deliver their IFRS 9 project and almost a quarter of these do not think that there will be sufficient skills available in the market to cover shortfalls. In the Middle East region, some of the challenges facing regional financial organisations when it comes
Banks and financial institutions should not wait for regulators to make suggestions about their reporting practices. Instead, they need to take a judgement call, forecast macroeconomic factors and run their own risk scenarios. – Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia –
According to Deloitte’s Fourth Global IFRS 9 Banking Survey that compiled the information of
91 1/2
financial institutions, almost
of the banks surveyed do not think they have enough technical resources to deliver their IFRS 9 and almost
1/4
of these do not think that there will be sufficient skills available in the market to cover shortfalls to IFRS 9 implementation include accounting related matters, creation of IT solutions to comply with the new rules, alignment of stakeholders and a lack of risk management expertise. Banks and financial institutions should not wait for regulators to make suggestions about their reporting practises. Instead, they need to take a judgement call, forecast macroeconomic factors and run their own risk scenarios. When it comes to businesses, they should put together a plan that involves a consistent capital planning and impairment analysis that would lead to an effective implementation of IFRS 9. Organisations in the GCC must ensure they understand stakeholder priorities, qualitative and quantitative data generation and credibility.
INTEGRATED REPORTING—A CATALYST TO IMPROVE BUSINESS REPORTING Integrated reporting (IR) has the potential to act as a catalyst for major improvements in business reporting. The Integrated Reporting Framework by IIRC, brings together material information about an organisation’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. It provides a clear, concise representation of how an organisation demonstrates sustainability and creates value. Effective integrated reporting requires integrated thinking and decision making based on an information set that is much broader, more interconnected and more forward-looking than traditional financial analysis. The IIRC’s vision is a long-term one and its ambition is not only for a new model of corporate reporting around the world, but for the adoption of ‘integrated thinking’ by businesses everywhere. While this transformation will require time, GCC businesses and organisations should start building the principles of integrated reporting into their existing annual reporting. Globalisation, technological development and rapid population growth are causing fundamental change to the business world. Traditional financial reporting has not kept pace with the seismic shift in macro-economic value experienced over the last 30 years. Now is the time for GCC businesses and financial institutions to adopt the new revolutionary reporting frameworks which will support in creating a more stable and sustainable economies.
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Where banking is more personal
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14
the
markets
Bank of England to collect information on actual lending deals between banks and derive a reference rate from that information. (PHOTO CREDIT: SHUTTERSTOCK/SHANNEONG)
The FCA’s decision on the Libor: an opinion Written by BG Consulting Group, global specialists in financial training and talent development
F
inally, Libor’s on the way out and it’s not just the scandals that are killing it (Ref: “UK watchdog sounds the death knell for Libor”, The Financial Times, Companies and Markets). Even those for whom Libor has been a significant factor during their working lives must be thinking “Not before time…!” The UK’s Financial Conduct Authority (FCA) has set a 2021 deadline to find an alternative to the benchmark rate upon which
so many financial instruments are priced. Since inception in the mid1980s Libor has performed a crucial and efficient role in global markets… or at least that is how it seemed until the rate-rigging scandal erupted six years ago. First, some background: Each day, a panel of leading banks in London are contacted to discover what they believe to be the true rate at which they could borrow from one another. The average of their responses is designated the cont. on page 16
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06/09/2017 16:35
Introducing NBF Elham Specialised banking for Emirati businesswomen
In the UAE, women play an increasingly vital role in society and business. As a firm supporter of the country’s socioeconomic progress for over 30 years, National Bank of Fujairah is pleased to introduce NBF Elham, a business unit dedicated to providing bespoke solutions to Emirati businesswomen. Leveraging the bank’s business expertise, local insight and experienced female Emirati relationship managers, you can be assured of NBF Elham’s support as you continue to break new boundaries. Find out how NBF Elham can help you realise your ambitions and achieve greater success. Call 8008NBF(623) or visit nbf.ae.
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16
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London InterBank Offered Rate—or Libor. The process is applied for five different currencies, across seven different maturities from overnight to one year—giving a total of 35 separate Libor rates. The reason that Libor—and any move away from it—is such a big deal is that worldwide, at its peak, about $350 trillion worth (yes, that is $350 trillion) of financial products were priced against Libor. Any instrument with a floating rate of interest such as mortgages, loans, floating rate bonds or derivatives can carry an interest rate or coupon which is regularly reset at an agreed premium over (or theoretically discount to) Libor. What you pay in interest on a mortgage for example might be readjusted each year to a rate that was the one year Libor rate PLUS two per cent, say. You can see why Libor is not just a crusty financial concept of concern only to those in the financial services industry...and why the rigging of the official Libor rates has been so hugely damaging. Leaving aside the cringe-worthy, laddish excesses of some of the individuals involved, a variety of banks have been fined a total of about $9 billion (so far) for skewing Libor rates in the direction that suited their trading books at the time. Others were guilty of seeking to distort the Libor rate to make themselves appear stronger during the financial crises when lower borrowing rates were viewed as a sign of strength. Such abuses came as a foul-tasting revelation to a general public who already held the banking industry in pretty low esteem, and perhaps it’s surprising that the Libor system continues to this day. As it happens however, the final straw that has forced the FCA to find an alternative by 2021 is less about the scandals of the recent past, and
If an active market does not exist, how can even the best run (i.e. clean) benchmark measure it? Moreover, panel banks feel understandable discomfort about providing submissions based on judgments with so little borrowing activity against which to validate those judgments. – Andrew Bailey, Chief Executive of the UK Financial Conduct Authority – much more to do with the fact that the interbank lending market upon which Libor is based has dried up since the financial crisis. As FCA boss Andrew Bailey said, “If an active market does not exist, how can even the best run (i.e. clean) benchmark measure it? Moreover, panel banks feel understandable discomfort about providing submissions based on judgments with so little borrowing activity against which to validate those judgments.” Well, we can see how they might. When a US regulator, Gary Gensler, called Libor “unsustainable” back in 2013, the British authorities disagreed largely on the grounds that it would be nigh impossible
to replace. Presumably they feel differently now, and have got over their concerns about existing Liborbased contracts that mature after its demise, believing in those cases that counterparties will be agreeable to applying Libor’s replacement. Which will be what, exactly? The FCA plumped for a reformed version of Sonia—the sterling overnight index average—back in April, but has only just put a time frame on it. The Bank of England will collect information on actual lending deals between banks (and those arranged by brokers) for sums in excess of GBP 25 million, and derive a reference rate from that information. That would certainly have the great benefit of being based on real transactions, rather than an estimate offered by an individual dealer who may not have been involved in that particular market for some time (comparatively speaking). We will have to wait to see how well it will work across the maturity range, and even more fundamentally how well it will fit with systems adopted by other regulators. The US authorities, just as one hugely important example, have gone for a reference rate based on transactions in the Treasury repo rate. You remember repos—or sale and repurchase agreements? A wouldbe borrower sells an asset (e.g. a Treasury bond) to another party, with an agreement to buy it back later at a higher price. The difference in price represents the effective interest rate. The FCA’s decision to implement a new system by a certain date does force all involved to ready themselves, but at the same time a date as far out as 2021 reflects the complicated processes that will need to be undertaken. Sure, this may seem like dry and uninspiring stuff but it will probably have more direct effect on the man and woman in the street than many of the more exciting stories we look at.
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The National Commercial Bank Realize Tomorrow
www.alahli.com |
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14/09/2017 11:18
18
cover
interview
Alande Mustafa Safi (PHOTO CREDIT: FLORANTE MAGSAKAY/CPI FINANCIAL)
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cover
interview
19
Crossing boundaries Alande Mustafa Safi, Managing Director of Paragon Business Group, talks about the burgeoning potential down under, and his vision for 2018
P
aragon Business Group is the parent company and the founder of Paragon Premier Investment Fund (PPIF). PBG has had 16 years’ experience in this field and currently manages AUD 1.06 billion in residential mortgage and AUD 284 million under management of the Federal Government Approved Investment Stream. This journey has enabled PPIF to come to fruition.
Bring us through the inception of Paragon Premier Investment Fund. Paragon Premier Investment Fund was established in May 2016. It is a regulated fund that holds an Australian Financial Services licence No. 483118. PPIF is a development investment programme in Australian real estate and mortgage assets. The fund is dedicated to building homes, factories, and development projects that we see feasible for the Australian community, to supplement the growth of the population in the country. Our product is capital guaranteed, as all investments are backed by First Mortgage with step-in rights, as the Principal Guarantee in the form of Title Deeds to the investors. As a foreign investor you will not only be supporting the Australian economy, but also create jobs and aid the local community whilst receiving a minimum return of six per cent per annum.
Some of our projects can deliver returns of 11 per cent per annum— these investments have a minimum investment term of between three to five years.
How has the fund performed thus far? Whilst the fund was established in May 2016, the parent company PBG, has had an Australian Credit licence for over 16 years. PBG has managed over AUD 1.06 billion in mortgage management in Australia and AUD 284 million for five years in foreign investment with Paragon’s two approved federal government investment streams called the 188 A and C Significant Investment Visa Streams. In 2016 Paragon managed to present investment opportunities worth over AUD 311 million.
Paragon Premier Investment Fund currently has over
$38 billion to source and introduce secured infrastructure investment opportunities worldwide
What are the challenges involved in growing the fund? Many investors are not aware of the potential of investing in Australia. It is our job to educate prospective investors and show them the attractive returns they can achieve in a secured development portfolio. Being a resilient nation and steering clear of global financial crisis that affected most financial markets, Australia was the least affected developed economy. The current population growth and rapid rise of the housing market is an optimum factor for the speedy growth of Australian real estate. The Paragon Premier Investment Fund team has a very prestigious and knowledgeable Board of Directors which enhances the solutions to investors, synergising our resources with major land holders, developers and building industry leaders to provide a premium and exclusive investment solution to our global investors.
Describe PPIF’s international presence. Paragon Business Group has been trading in Melbourne, Dubai, Shanghai, Los Angeles and Kabul. With the formation of Paragon Premier Investment Fund, it was inevitable to introduce it to existing markets. We have affiliated and sub-funded our regulated licence further to private banks, private family wealth managers, sovereigns in New York, cont. overleaf
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cover
interview
20
cont. from page 19
Our main focus in the region is to create awareness in the local market of lucrative development funds that invest in Australia’s real estate industry. This is to attract potential clients to invest in our products in Australia. Being the hub for many South East Asian and European banks, financial advisors, and consultancy firms, it is a business advantage to have presence in Dubai and use this as a centre to meet and discuss opportunities within the financial diaspora that Dubai is well-known for.
Safi reveals that PPIF will participate in the funding of the third international airport in South East Melbourne worth $7 billion. (PHOTO CREDIT: FLORANTE MAGSAKAY/CPI FINANCIAL)
Washington DC, Paris, London, Geneva, Zurich, New Delhi and Mumbai to strengthen the scope of PPIF’s global investor pool and to further enhance our fund raising capabilities for the projects we offer and require funding for.
How did the fund make its foray into the Middle East? Paragon Business Group, the parent company of PPIF, has an approved Federal Government of Australia Investment Stream Immigration Product [license] since the inception of the visa in November 2014 by the State Government of Victoria. I have been travelling to Dubai since then to promote this product. Once I identified the gap in market—which was the reluctance of banks in Australia to lend to large scale developments—I came up with this product. We then applied for the Australia Financial Services (AFS) license in December 2015, enabling foreign investment into the property development fund. This is how the PPIF came about.
Paragon Business Group has been trading in Melbourne, Dubai, Shanghai, Los Angeles and Kabul. With the formation of Paragon Premier Investment Fund, it was inevitable to introduce it to existing markets. – Alande Mustafa Safi, Chairman of Paragon Premier Investment Fund –
PPIF provides investors a direct opportunity to tap into the Australian real estate market, particularly in Melbourne. Can you provide an insight into its progress and future potential? Australia has a population of 24.6 million, and currently the population in Melbourne is 4.5 million with a four to six per cent growth per annum. The population in Melbourne is expected to double in 19 years. Therefore, Melbourne’s infrastructure and housing must also double to accommodate for this growth. Backed by a strong economy and reasonable cost of living, Melbourne has just been named the most liveable city in the world by Economist Intelligence Unit for the seventh year in a row. Australian banks have stringent lending policies making it almost impossible for developers to borrow funds from the banks. This is where PPIF fills the gap, as the fund conservatively invests into the median residential property growth, which is a much needed requirement for the influx of the population growth and lack of funding from banks for such scale development projects. cont. on page 22
www.bankerme.com
page 18-22 Cover Interview_v2.indd 20
17/09/2017 13:05
A countdown to VAT in GCC, A countdown to VAT in GCC,
are you ready? are you ready?
On January 1, 2018, value-added tax (VAT) will come into effect for the first time in the GCC. On January 1, 2018, value-added tax (VAT) will However, each member state of the GCC will establish their own come effect for the first time in means the GCC. separateinto national legislation concerning VAT. This that However,compliance each member state of theand GCC establish their own detailed requirements setwill of rules will be outlined separate national legislation VAT. This meansfinancial that in each respective legislationconcerning and businesses, including detailed compliance andthese set ofvariances. rules will Agility be outlined institutions (FIs) mustrequirements be prepared for as in each respective andto businesses, including financial well as accuracy is legislation key. Adhering the new VAT requirements institutions (FIs) must besystems, preparedtheir for these variances.and Agility has implications for FIs’ infrastructures skills,asas accuracy You is key. Adhering toall theaspects new VAT well as training. must consider andrequirements be ready. has implications for FIs’ systems, their infrastructures and skills, as well as training. You must consider all aspects and be ready.
Your core banking system needs to be fully GCC VAT compliant from day 1. You must ensure that all GCC VAT compliance elements work seamlessly with your established systems. You need a module that meets thebanking varying needs each to state’s legislation, adapting as this andmust develops. Your core systemofneeds be fully GCC VAT compliant fromchanges day 1. You ensureTemenos that all core can support GCC’swork VAT seamlessly requirementwith through its specially systems. designedYou module GCCbanking VAT compliance elements your established need GCCVAT. a module that meets the varying needs of each state’s legislation, adapting as this changes and develops. Temenos core banking can support GCC’s VAT requirement through its specially designed module GCCVAT.
Designed based on over 20 years’ of experience in supporting VAT schemes in Europe, Africa and Asia Pacific, the GCCVAT module meets all Designed based on over 20 years’ of experience in supporting VAT your VAT compliance needs. Integrating into your Temenos Core Banking schemes in Europe, Africa and Asia Pacific, the GCCVAT module meets all platform (T24), it enables you to be fully compliant. GCCVAT is also fully your VAT compliance needs. Integrating into your Temenos Core Banking compatible with the majority of Temenos core banking releases1. platform (T24), it enables you to be fully compliant. GCCVAT is also fully compatible with the majority of Temenos core banking releases1.
Features and benefits benefits •Features Automate yourand VAT collection • • ••
Efficient through straight through processing Automate your VAT collection and online queries Efficient through straight through processing Adapt with our highly configurable solution and online queries • Full visibility of all VAT paid and received2 •• Adapt our highly configurable solution Managewith your tax refunds 2 •• Full visibility of all VAT paid and received Implementation available through our wide • Manage tax refunds range ofyour partners • Implementation available through our wide 1 Unsupported releases be requested, but may be subject to an additional charge range of can partners 2 To support further calculation of amounts to be paid to authorities
Temenos has a proven track record, the breadth of experience and insight necessary Temenos proven track record, to ensure has youra core banking system the complies breadth of experience and insight necessary from GCC VAT from day 1. We are ready to to ensureyour yourcompliance core banking system complies support now, ensuring that from GCC VAT from day 1. We are ready to you are VAT ready. support your compliance now, ensuring that you aretoVAT Speak oneready. of our specialists or request more information at info@temenos.com Speak to one of our specialists or request more information at info@temenos.com
1 Unsupported releases can be requested, but may be subject to an additional charge 2 To support further calculation of amounts to be paid to authorities
bleed guide.indd 1
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cover
interview
22
cont. from page 20
What is currently in the pipeline for 2018? We currently have a signed letter of intent from a capital partner to fund the third international airport in South East Melbourne worth $7 billion. This project is much needed to service Melbourne’s booming South-eastern suburbs and the state’s East. We have progressed to have an announcement of this project within 90 days. What PPIF is seeing in the global market is the need for big ticket investors wanting to steer in a low return secured capital investment, not only to diversify their portfolios, but to also preserve capital in a global Government-approved infrastructure investment. It is with this known pattern evolving in the global investors market that PPIF has established a sub-fund product to specifically suit such investment, globally. Only those who have been living under a rock would not be aware that the world has attracted institutional capital for infrastructure investments since the 1990s. This is why governments began privatising the utility sectors as well as other infrastructure assets like toll roads, communication and airports. Despite the industry’s perceived maturity, the continued wave of privatisation has resulted in an uninterrupted pipeline of transaction opportunities. In light of many big ticket transactions, there was an interesting debate between diverse panels of asset managers as to whether or not the level of global infrastructure investment opportunities were sustainable. In short, the consensus was yes, but the panellists agreed that there would be significant product development, like new assets and strategies falling within the infrastructure scope.
Safi highlights that the continued privatisation of infrastructure assets has offered an uninterrupted pipeline of transaction opportunities. (PHOTO CREDIT: FLORANTE MAGSAKAY/CPI FINANCIAL)
However, it was still widely acknowledged that this was not really hindering demand, and that there is much more capital chasing fewer infrastructure assets, resulting in very high valuations and greater risk of compressed returns. According to Preqin data from Q1 2016 to Q1 2017, the majority of capital for unlisted infrastructure is still raised in North America ($50 billion), followed by Europe ($26 billion), Asia ($9 billion) and rest of the world ($6.6 billion). However, the lion’s share of this capital is going to an increasingly smaller number of managers, raising mega funds. According to PEI Infrastructure Investor H1 2017 Fundraising Review, 13 funds reached a final close in Q2 2017, with an aggregate raised capital of $6.6 billion, and 29 funds closed in H1 2017, raising $36.2 billion. The largest five funds closed during the period accounted for 73 per cent of total capital raised. This potentially argues the reversal of an earlier trend of limited partners
investing directly and reverting back to managed vehicles. This may also be the catalyst for a new trend of smaller funds with more specialised strategies. This point has been well perceived to be the point that was no longer deal-origination driven, but increasingly focused on their asset management capabilities. Based on this, Paragon Premier Investment Fund now has a structured product and provides the ‘platforms’—which are generally more asset-specific, targeting certain projects and on more bespoke terms than a fund—giving the limited partner greater flexibility and the reassurance of partnering with an experienced manager. Paragon Premier Investment Fund currently has over $38 billion to source and introduce secured infrastructure investment opportunities worldwide, whilst our Australian development-focused fund management has currently over AUD 700 million to manage from our global investor portfolio.
www.bankerme.com
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24
country
spotlight
Consistent stability across the state is key to a sustainable economic growth and a reduction in unemployment. (PHOTO CREDIT: SHUTTERSTOCK/GRIGORIS SIAMIDIS)
Championing Palestine As long as regional political tensions continue, economic recovery in Palestine will forever be an uphill battle
T
hrown into recession in 2014 by the Gaza war, the Palestinian economy has nonetheless been on a recovering trend. Although driven by unsustainable factors, the economy rebounded in 2015 with real GDP growth rate reaching 3.4 per cent in 2015 and an estimated 4.3 per cent in 2016. World Bank estimates suggest that growth in the Gaza Strip reached 7.4 per cent in 2016 driven by a surge in construction activity, while the West Bank economy expanded by 3.4 per cent mainly due to an increase in household consumption financed by bank loans.
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page 24-27 Country Spotlight.indd 24
17/09/2017 09:23
country
spotlight
The unemployment rate in Palestinian territories remains high at 27 per cent, masking wide regional differences with unemployment in Gaza, at 42 per cent, more than twice as high as in the West Bank. Youth unemployment continues to be a major concern in Palestinian territories, particularly in Gaza where more than half of those aged between 15 and 29 are out of work. FISCAL HEALTH Public revenues in 2016 grew by about five percentage points of GDP reaching 26 per cent, on account of one-off revenue transfers by the Government of Israel and advance receipts of telecom licence fees. In spite of this, the Palestinian Authority’s (PA) fiscal situation remained difficult despite the strong revenue performance. According to the World Bank, this offset the higher than budgeted increase in public expenditures which reached 32 per cent of GDP in 2016, mainly driven by wage increases for teachers and engineers, that led to a decline in the total deficit (before grants) to eight per cent of GDP. In parallel, aid to the PA continued its declining trend in 2016, resulting in a $330 million financing gap (2.5 per cent of GDP) and further arrears accumulation to the private sector and the public pension fund. The external current account deficit (including official transfers) is estimated to have slightly widened in 2016 and reached 16.3 per cent of GDP mainly due to a fall in aid inflows. On the other hand, trade deficit witnessed a slight decline in 2016 to 41 per cent of GDP following a drop in imports from Israel—the Palestinian territories’ main trading partner—due to lower fuel prices and a trend among Palestinian consumers to boycott Israeli products.
Palestine’s fiscal deficit (before grants) is projected to increase to
10
%
of GDP ($1.35 billion) Foreign aid could fall to about
$640 million
leaving a financing gap in excess of
$700 million (5% of GDP)
Exports continue to be constrained by the ongoing trade restrictions, and have remained low and stagnant at around 19 per cent of GDP. CHALLENGES AND OPPORTUNITIES Lack of progress in the peace process and the Israeli constraints on trade, movement, and access to resources, in addition to the internal political divide between the West Bank and Gaza, as well as a challenging business environment, continue to stand in the way of a sustainable economic recovery in Palestine. Therefore, downside risks to growth and employment for the nation remain significant.
25
Despite some progress, setbacks to the reconstruction process in Gaza are possible. The World Bank asserts that the resumption of armed conflict cannot be ruled out and if this happens, the Gaza economy is expected to slip back into recession. Moreover, if tensions erupt again throughout the West Bank, they will result in elevated security risks that may further hamper economic activity. On the bright side, supporting the development of the country, last July, the World Bank undertook four projects in the Palestinian territories aimed at improving living conditions and expanding opportunities. The projects will be funded by grants worth $43 million, and will support of job creation, recovery and reconstruction, service delivery, and social protection of the most vulnerable. The Third Municipal Development Project will be funded by $16 million from the World Bank and $20 million donor co-financing form the Partnership for Infrastructure Development Trust Fund administered by the World Bank (PID MDTF). The new project will build on the success of previous projects and will scale up its operations to improve municipal performance and service delivery. Another collaboration between the World Bank and international partners is the Electricity Sector Performance Improvement Project. With $4 million from the World Bank and $7 million from the PID MDTF, the project will strengthen the capacity of key energy sector institutions, improve the efficiency and service quality of the electricity distribution system, and pilot a new business model for solar energy in Gaza. Supporting job creation, the World Bank will carry out the Second Finance for Jobs Project. With grants from the Bank worth $8 million and $1.5 million cont. overleaf
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26
country
spotlight
cont. from page 25
from the State and Peacebuilding Fund, the project will support innovative financing approaches to jumpstart job creation through private capital. It will provide support to earlystage financing of startups, investment for employment in medium and large companies, and investment in the skills needed by the private sector. OUTLOOK According to the World Bank, the recent pickup in growth was driven by Gaza reconstruction and this is unsustainable without an easing of external restrictions and efforts to improve the domestic business environment. The economic outlook for the Palestinian territories therefore remains unfavourable, with projected growth levels insufficient to improve living standards. Assuming that the current restrictions remain in place and that the security situation stays relatively calm, the real GDP growth rate of the Palestinian economy in 2017 is projected at 3.5 per cent: 2.7 per cent in the West Bank and 5.5 per cent in Gaza. In the medium term, real GDP growth may average at 3.5 per cent. This sluggish growth implies near stagnation in real per capita income and an increase in unemployment. Palestine’s fiscal deficit (before grants) is projected to increase to 10 per cent of GDP ($1.35 billion) in 2017. At the same time, foreign aid in 2017 could fall to about $640 million, leaving a financing gap in excess of $700 million (five per cent of GDP). The PA’s actions alone will not be enough to fully close the gap. Unless donor aid is significantly stepped up, the gap will mostly be financed through arrears to the private sector and borrowing from local banks. Due to the persistently large trade deficit, the 2017 current account deficit—including official
Lack of progress in the peace process and the Israeli constraints on trade, movement, and access to resources, in addition to the internal political divide between the West Bank and Gaza, as well as a challenging business environment, continue to stand in the way of a sustainable economic recovery in Palestine. – World Bank – transfers—is projected to stay high. Constrained by the restrictions system, Palestinian export growth is expected to remain sluggish and the Palestinian territories will continue to heavily depend on imports to meet even some of their basic needs. Consequently, the current account deficit is expected to remain high in 2017, at about 15.5 per cent of GDP. GROWTH FORECASTS The Palestinian Monetary Authority (PMA) in a report released at the end of last year forecasted that real GDP growth during 2017 will be primarily underpinned by an increase in private consumption financed by further expansion in bank credit and the swelling of arrears. Real GDP growth will be additionally favourably affected by the upturn in total investment, particularly relating to the reconstruction process in the Gaza Strip, its slow pace, notwithstanding. The private-sector value added is expected to grow by 3.2 per cent in 2017, raising the sector’s contribution to real GDP at factor costs to around 79 per cent, as opposed to an expected growth of public-sector value added by only two per cent, pushing the sector’s contribution to real GDP down to around 21 per cent.
Additionally, PMA forecasts point to an expected upturn in total consumption spending by 4.1 per cent during 2017 (of which 3.7 per cent is for private consumption and 5.7 per cent for public consumption), pushing its contribution to real GDP up to 119.5 per cent. Conversely, total investment spending is expected to increase slightly by about 0.8 per cent, to constitute 20.9 per cent of GDP during the same year. For the Palestinian external sector, predictions point to an expected growth in exports by 2.2 per cent as opposed to a growth in imports by 3.6 per cent, mainly associated with an increase in consumption. Subsequently, it is expected that these changes in exports and imports will exacerbate the trade balance deficit by about 4.4 per cent to constitute 40.4 per cent of the real GDP predicted for 2017. The PMA highlighted that, because the predicted growth in real GDP is not high enough and historically shown to be a strong stimulator to employment, this growth may not have a significant impact on job creations and employment. Instead, it is expected that unemployment rates in Palestine will continue to climb, reaching about 27.6 per cent of labour force in 2017.
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country
spotlight
27
PALESTINE
in numbers
WEST BANK AND GAZA: FISCAL SECTOR INDICATORS (1994-2016)
4.95 million
Expenditure (In per cent of GDP)
70
50
40
40 30 20
10
10
0
0
05 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 201 16 5 pr oj.
30 20
20
Non-tax revenue Clearance revenue Domestic tax revenue Grants Public spending
60
50
20
5m
(In per cent of GDP)
70
Current spending Capital spending
60
1m
Revenue and Grants
20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 201 16 5 pr oj.
POPULATION
Source: Palestinian Central Bureau of Statistics
Deficit
Financing
(In per cent of GDP)
30
10
Recurrent financing Development financing
25
6
20
4
15
2
10
Source: World Bank
ro j.
15
6p
4
20
20 1
13
12
20
Ju
01
6
15
e2
Ju n
20
14 20
20 11 20 12 20 13
10
16
15
14
ne
20
20
20
10
20 11 20 12 20 13
-5
20
0
Public domestic debt Foreign debt Arrears
09
5
20
1
20 1 50 45 40 35 30 25 20 15 10 5 0
10
09
(In per cent of GDP)
20
15
20
Real GDP growth rate of the Palestinian economy in 2017 is projected at 3.5 per cent: 2.7 per cent in the West Bank and 5.5 per cent in Gaza
Public Debt
Pension fund Other private sector Wages Tax refund
20
20
96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12 20 201 16 4 pr oj.
19
Stock of Arrears
(In per cent of GDP)
25
20 1
-4
20 1
0
09
-2
94
5
0
0
19
3.5%
Banks Arrears Resid./Fin. Gap Deficit
8
20
GDP GROWTH
(In per cent of GDP)
Source: International Monetary Fund, Palestine Ministry of Finance and Planning.
www.bankerme.com
page 24-27 Country Spotlight.indd 27
11/09/2017 11:59
28
market
outlook
Are we there yet? Tariq Qaqish, Managing Director—Asset Management at Menacorp, lays down his projections for the second half of 2017
T
he longest bull market of over eight years with no meaningful correction and a return of 270 per cent in the S&P 500 is keeping everybody on their toes. We totally understand investors’ reluctance to navigate in such environment as cheap money continues to flow and drive equity markets to all time high. Although unpredictable events
such as the election shakings in USA and France, military aggravations between North Korea and USA, and the ongoing Brexit would have shaken the markets, yet all went unnoticed. Despite all of that, and the challenging conditions around the globe, economic outlook is still showing constant signs of growth. So why fight with the market when you can continue to ride the wave until it lasts.
Frequently investors pose the question: when do we expect a market crash? Well, Janet Yellen Fed’s Chair and Christine Lagarde IMF’s Managing Director made it less embarrassing for me to answer the question. When speaking during a Q&A event with British Academy President Lord Nicholas Stern in London end of June 2017, Yellen commented, “Would I say there will
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page 28-32 Market Outlook Menacorp_v2.indd 28
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market
outlook
29
World GDP growth to reach
3.5% % 3.6 in 2017 and
in 2018
Emerging market and developing economies is expected to grow to
4.5% % 4.8 this year and
in 2018
(PHOTO CREDIT: SHUTTERSTOCK/PIO3)
never ever be another financial crisis? Probably that would be going too far. But I do think we’re much safer, and I hope that it will not be in our lifetimes, and I do not believe it will be.” Lagarde’s responded, “I plan on having a long life and I hope Yellen does too, so I would not absolutely bet on that because there are cycles that we have seen over the past decade and I would not exclude that.”
Lagarde made it more interesting and shaded more light on the factors that will influence such crash. She added, “Where it will come from, what form it takes, how international and broadbased it will be is to be seen, and typically the crisis never comes from where we expect it.” Jokes aside, the recovery in the global economy is gaining steam backed by both advanced economies
Tariq Qaqish
and emerging-market countries due to healthy demand and rising consumer spending. World GDP is expected to grow to 3.5 per cent in 2017 and 3.6 per cent in 2018 compared to 3.1 per cent in 2016 as per IMF’s July forecasts. Emerging market and developing economies is expected to grow to 4.5 per cent this year and 4.8 per cent in 2018 from 4.1 per cent in 2016. Key to successful asset allocation strategy is to monitor and understand leading indicators (not lagging) such as orders and inventory changes, financial market indicators, business confidence which helps determined better market cycles. By looking at OECD latest report, their composite leading indicators continue to point to stable growth momentum and they do not foresee significant undesirable shift in global economic activities for the short term (six to nine months). Three years back, lots of analysts called a hard landing for the Chinese economy, however its economy appears to be robust and continues to grow at healthy rate of above six per cent. cont. overleaf
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30
market
outlook
cont. from page 29
IMF growth projections - real GDP% 2016
2017
2018
3.40
2012 2012 0.10
1.30
GERMANY
1.10 UNITED KINGDOM
1.70
1.50 1.80 1.80 1.60
2.20
2.60
2.60
1.80 1.70 1.50
EURO AREA
2.10 2.10
2..00 1.80 1.90 1.70
ADVANCED ECONOMIES
1.60
2.10 1.70 2.00 1.90
2.70
3.30
3.40 3.20 3.50 3.60
4.10
5.00
6.90 6.70 6.70 4.40
2015
WORLD
MENAP
UNITED STATES
CHINA
UNITED ARABIA
UAE
Source: Menacorp
THE US Valuation wise, it’s not a surprise to anyone, looking at the US, its market valuations seems stretched and above its 20 years medium by 15 per cent, the S&P 500 forward P/E is now trading at 19x as of 7 August 2017. However, we believe if Trump manages to pass the tax reforms and most importantly to convince the Congress to agree smoothly in September on lifting the debt ceiling to the desired level (cap) to implement the infrastructure spending plans, it would, in my opinion, continue the positive momentum and limit major setback. Failing to do so could lead to critical consequences on global economies and the financial markets.
Going into the second half of 2017, we expect the Fed to continue to raise interest rates over the next few years as long as inflation keeps ticking up and no recession occurs. I believe the US will keep all options open when deciding to raise interest rates and will react to any events the economy may face and keep their eyes glued to capital markets volatility. NORTH KOREA The North Korea tension is early to judge but it seems that Trump’s strong pressure on China and Russia to use its economic leverage to halt North Korea’s nuclear weapons development is somehow working.
The administration managed to pass a UN resolution by all 15 UN Security Council members to pass economic sanctions on North Korea that aim to cut its exports by about a $1 billion a year. This is a big shift in China’s foreign policy and could curb potential conflict that will leave major consequences to the world. BREXIT A number of headwinds are facing the UK economy and signs of losing momentum as the impact of Brexit vote started to punch the economy. It is expected that the negotiations with the EU will take a long time which creates more uncertainties with cont. on page 32
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market
outlook
32
cont. from page 30
GCC FDI flows 2013
2014
2015
2016
regards to the future of trade, impact on the pound and its effect on inflation and disposable income. There is no disagreement that the financial sector will be impacted drastically; Deutsche Bank is said to move its trading desk from London to Frankfurt which indicates the loss of hundreds of jobs with thousands of clients. GULF REGION The last few years witnessed a major shift in the Middle East & North Africa (MENA) region changing the face of several countries. A region that was blessed with natural resources from historic places to massive oil reserves supported by a young population has gone into huge turbulence that left few countries on their feet. Prior to the so called Arab Spring, the Gulf region’s sovereign wealth funds had access to more than $2 trillion attributed to high oil prices. Since 2014, oil dropped from its high of $125/barrel (Brent) to as low as $28/barrel, recording a 78 per cent drop in lost revenues for
The recovery in the global economy is gaining steam backed by both advanced economies and emergingmarket countries due to healthy demand and rising consumer spending. – Tariq Qaqish – countries that were highly dependent on oil which pushed major fiscal and structural reforms to adapt to the new norm. The rebound in oil prices to $50 level and political stability in major economies such as Egypt are expected to boost economic growth of the MENA region to 2.9 per cent in 2018
142
1,612
1,505
1,355
275
953
KUWAIT
OMAN (2,692)
Source: Menacorp
293
2,873 (797)
BAHRAIN
1,434
282
3,729 1,545
1,071
QATAR
774
1,040
395 KSA
(840
UAE
1,519
1,141
7,453
8,012
12,182 8,865
8,985
10,823
8,795
9,491
8,828
2012
according to World Bank estimates. Countries that are adapting to world changes by riding the technological development wave will have a better chance for a more resilient economy and sustainable diversity. A great example is the UAE where their leadership adapted swiftly to market changes and managed to continue to attract a lion’s share (approximately 50 per cent) of total foreign direct investments into the Gulf region. CONCLUSION The second half of 2017 will witness a rolling back of some of the cheap funds circulating in the market and the shrinking of the Fed’s $4.5 trillion balance sheets which would put a cap on further market rally. For the medium term, downside risk would be limited as policy makers will continue to adapt to a flexible tactic supported by low interest rate environment. Markets can stay expensive for a long time, but this is what I learned—stay invested.
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page 28-32 Market Outlook Menacorp_v2.indd 32
10/09/2017 11:44
T H E
Q U E S T
F O R
E X C E L L E N C E
PRODUCT AWARDS 2017/2018 July 2017 call for nominations • Oman • Bahrain September 2017 call for nominations • Kuwait • Levant October 2017 call for nominations • Qatar November 2017 call for nominations • United Arab Emirates January 2018 call for nominations • Saudi Arabia A list of the proposed categories will be circulated to banks and financial institutions in each country. Institutions may nominate products in as many or as few categories as are applicable. Nominations will be showcased on www.cpifinancial.net in four distinct sections: • Retail • Investment • SME • Corporate Registered readers of Banker Middle East, Islamic Business & Finance, WEALTH, FinanceME and www.cpifinancial.net will cast their votes and select the winners. These awards provide an excellent benchmark for the banking sector and our winners are recognised across the region’s media outlets for their success in this field.
For more information, please contact: OMER HUSSAIN +971 4 391 5419
omer@cpifinancial.net
CPI Financial FZ LLC • PO Box 502491 Al Shatha Tower, Office 1209 Dubai Media City, Dubai, U.A.E. Tel: +971 (0) 4 391 4681 • Fax: +971 (0) 4 390 9576 • www.cpifinancial.net
BME PA2017-2018.indd 1
12/06/2017 11:24
investment
(PHOTO CREDIT: SHUTTERSTOCK/CHINNAPONG)
34
Impact investing in the GCC Shailesh Dash, Founder & Board Member of Regulus Capital highlights the potential of impact investing in the region
I
mpact investing is becoming an integral part of investment strategies due to the increasing awareness of integrating ethical, social and governance (ESG) factors into investment processes. Businesses and investors, including private equity (PE) and venture capital (VC) firms, have started applying the ‘impact investing’ vehicle to generate beneficial social or environmental impact with financial return, unlike the traditional philanthropists.
According to the Global Impact Investing Network (GIIN) 2017 Annual Impact Investor Survey, the size of the impact investment market was estimated at $114 billion as of 2016, up significantly from $77.4 billion in 2015. Some of the pioneer names in the impact investment sphere range from specialist investment firms, such as Acumen Fund and the Omidyar Network, to large foundations, such as the Ford Foundation, Bill & Melinda Gates
Foundation and The Rockefeller Foundation. Moreover, global investment firms, such as Goldman Sachs, JP Morgan, Bain Capital, Bank of America’s Merrill Lynch and Blackrock, are seen joining this newest wrinkle with their own impact investment platforms. Although impact investment has gained considerable impetus globally in recent years, the GCC remains at a nascent stage of adopting this emerging investment strategy.
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page 34-35 Regulus Capital.indd 34
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investment
While the concept is still in its infancy among local investors, global organisations that employ a VC approach to social enterprises, such as Village Capital, the Acumen Fund, Grey Ghost Ventures, Root Capital, Willow Impact Investors and the Grassroots Business Fund, are all pondering expansion in the wider MENA region, signifying a large-scale potency. On the other hand, regional PE investors such as the Abraaj Group and Al Masah Capital are both well known for advocating sustainable investment as a way of doing business, screening potential investments based on their sustainability performance. Progress can also be seen in the GCC, as the Islamic Development Bank recently announced the launch of the Global Islamic Finance and Impact Investing Platform (GIFIIP) with the United Nations Development Programme to work towards achieving the UN’s Sustainable Development Goals (SDGs).
Additionally, GCC sovereign wealth funds (SWFs) have also started playing a catalytic role in advancing the social agenda of both Islamic finance and impact investment programmes. For example, Abu Dubai is using one of its smaller SWFs, Mubadala, for the development of Masdar City—a multi-billion dollar ‘green economy’ project, not only as a hedge against the stumbling oil sector, but also to support its diversification strategy outlined in the ‘Abu Dhabi Economic Vision 2030’, for sustainable evolution of its economy. Moreover, the GCC family businesses, who represent around 90 per cent of the private sector economy and have a tradition of philanthropic activity through charitable donations or ‘Zakat’, should start exploring impact investing as a means of innovative financial mechanisms to further bolster the concept. GCC needs a renewed commitment to catalysing a greater domestic impact investment industry in order
Shailesh Dash
35
to fix some of the region’s most pressing problems. It is important to realise that impact investing has the potential to change the trajectory of employment, education, healthcare, and green energy, amongst others; but hinges on investors buying into the value of social businesses and governments’ initiatives to create an enabling ecosystem for social enterprises. Although the GCC has made positive gains in supporting entrepreneurship, impact investing has yet to be embraced by large institutional investors, including SWFs, primarily due to subdued returns and stakeholder obligations. Further, as the fiscally distressed governments struggle to meet social and development challenges, impact investing can replace traditional market sources by supporting the under-funded socio-economic sectors. Regional impact investors now have the opportunity to replicate the success of business and startup ecosystem in the social areas to accelerate the pace of innovations. Achieving a transition toward more social-minded investment practises, the regional financial institutions will need to come up with creative solutions to overcome these challenges, while the GCC governments contemplate on the most effective way to capitalise on impact investing to generate returns. Greater awareness of the opportunities to make a positive social impact, in lieu of potentially achieving returns will help draw fund managers in this direction.
Shailesh Dash is an active Entrepreneur & Fund Manager and has promoted several Financial Services, Healthcare, Retail and Logistics companies.
www.bankerme.com
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13/09/2017 15:23
digital
Blockchain, cryptocurrency and MTOs: a happy union?
(PHOTO CREDIT: SHUTTERSTOCK/ENZOZO)
currency
36
Promoth Manghat, CEO of UAE Exchange Group, discusses the potential of combining blockchain technology with cryptocurrencies dealings and money transfer operations
B
itcoin and blockchain are terms that regularly make their way to the forefront of financial newswires, and are correlated with the general rise of fintech. As the head of a leading money transfer organisation, I am frequently asked how I see these changes unfold in the money transfer industry. Very often people use the terms bitcoin and blockchain interchangeably and assume they are irreversibly interlinked. So when Banker Middle East asked me to pen a few words on the topic, I felt it would be good to also clear the air around these terms and their applications. The fact of the matter is that the two terms represent distinct concepts and to enter a meaningful discussion, we must first unravel one from the other. Fundamentally, bitcoin is a cryptocurrency, which is
Promoth Manghat
a digital, non-fiat currency. While fiat currencies derive their legitimacy from the governments and central banks that support them, cryptocurrencies operate independently of regulators and central banks. Cryptocurrencies eschew centralised control, and instead rely on decentralised ways of maintaining ledgers, which brings us to blockchain—the innovative technology that creates replicable transaction ledgers. Thus, rather than having a central authority figure manually reconcile a transaction, blockchain adds a link—or a block— to the ledger every time a transaction is recorded. This transaction is then reconciled with all other copies of the ledger. While cryptocurrencies are underpinned by distributed ledger technologies like blockchain to function, the technology is cont. on page 38
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page 36-38 UAE Exchange.indd 36
14/09/2017 15:12
bleed guide.indd 1
13/09/2017 16:41
38
digital
currency
cont. from page 36
powerful with wider possibilities of application. It has, so far, proved incredibly resistant to hacking and tampering due to its distributed nature. Malicious actions cannot hope to compromise all the hundreds or thousands of ledger copies around the world, which means anomalous transactions can easily be reversed. The advantages of blockchain become obvious quickly. Imagine a series of publicly available ledgers that cannot be forged, and that can be easily updated and reconciled. Their distributed nature makes it very difficult to attack them, and suspicious transactions can be instantly spotted because no attack can compromise hundreds of registers in a global chain simultaneously. While blockchain was born out of a need to support the decentralisation that cryptocurrencies require, the technology also offers benefits to banks, money transfer operators (MTOs) and governments. At UAE Exchange, we are looking to leverage these benefits that blockchain technology can provide for our industry and clients. We have been making strategic investments in blockchain-based companies like Loyyal, and partnering with banks and consortiums. We are also pursuing other potential applications within our business, such as seamless know your customer (KYC) processes and reducing reconciliation overheads. The benefits of blockchain aren’t restricted to MTOs alone. Blockchain has the potential to disrupt the status quo within the financial value chain in a number of ways. The technology improves operational efficiencies across a range of transactions— including post-trade settlements of security transactions involving custodian banks, cross-border payments, real-time multi-party tracking and management of letters
Blockchain has the potential to disrupt the status quo within the financial value chain in a number of ways. The technology improves operational efficiencies across a range of transactions—including posttrade settlements of security transactions involving custodian banks, cross-border payments, real-time multi-party tracking and management of letters of credit, amongst many others. – Promoth Manghat, CEO of UAE Exchange Group – of credit, amongst many others. For financial service providers, this means secure and faster transactions with far lower error rates. For customers, these benefits translate into cost savings, speed and convenience. Regionally, blockchain has found a champion in the government of the UAE. Late last year, the Dubai emirate announced that it would move to paperless operations by relying on instantly updated distributed ledgers, as part of an overall Dubai blockchain strategy announced by His Highness Sheikh Hamdan Bin Mohammad Bin Rashid Al Maktoum, Crown Prince of Dubai. The aim is to conduct a majority of the Emirate’s business using blockchain, thereby making government services far more efficient, and substantially increasing the ease of doing business in Dubai. The strategy also establishes a roadmap towards the creation of an open platform that will eventually plug in other cities around the world to share real-time data. Moving on to the role of cryptocurrencies in the MTO sector, there is certainly a legitimate use
case, especially in settlements. Bitcoin exchanges, for instance, that convert fiat currencies using bitcoin as the base have already emerged globally. That being said, when we examine cryptocurrency-enabled settlements in the context of the anatomy of a remittance transaction, the case becomes less compelling. This is because costs and complexities in money transfer primarily reside in the first and last mile and not in the settlement side. Simple example, compliance, one amongst the largest cost overheads in the money transfer industry, is not something that cryptocurrencies can address. Similarly, the lack of regulatory framework also leaves cryptocurrencies in a somewhat grey area at present. Overall, the money transfer industry is closely monitoring this space to see what potential benefits can be derived for our clients. The focus, currently, is on blockchain that has far more exciting immediate applications that can benefit our business and clients alike. It’s only a matter of time for these forces to come together for a happy and successful union.
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page 36-38 UAE Exchange.indd 38
14/09/2017 15:12
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bleed guide.indd 1
12/09/2017 09:34
40
real
estate
The big picture Richard A Johnson, Managing Director—Head of Business Development, Real Estate & Private Markets and Paul Guest, Executive Director—Lead Strategist, Real Estate & Private Markets, both at UBS Asset Management, provides an overview of the global real estate sector
REAL ESTATE MARKETS: WHERE ARE WE NOW? he resilient appeal of real estate is driven by a number of factors: low bond yields, the hunt for steady income and the importance of asset diversification and need for stability. Unconventional monetary policies in the form of quantitative easing and ultra-low interest rates have, in recent years, boosted the relative appeal of the asset class, while the consequential increase in
T
capital flows have caused a surge in transaction volumes. Volumes are now down from their peak but remain robust. This continued strength reflects a reluctance to let go of assets given uncertainty as to how to re-allocate capital attractively. Many markets present a price gap between buyers and sellers, with owners of real estate, even with leverage, generally under no pressure to sell while buyers are not willing to pay ever higher prices given the interest rate outlook.
RETURNS— WHERE ARE WE GOING? In many ways a slowdown in transaction activity and price growth is positive for the market. The increasing rents we’re commonly seeing will gradually enable higher purchase prices justified by the income outlook. Many US and European markets have eased back from the above long term returns they had been delivering and now reflect, in yield terms, a level closer to the long term average.
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05/09/2017 10:25
real
(PHOTO CREDIT: SHUTTERSTOCK/PERFECT LAZYBONES)
estate
Whilst expensive in absolute terms, relative to bonds, these yields are still generally attractive. Total returns globally have slowed as a result of reduced yield compression and capital value growth. The supply side response, with exceptions, has been muted in this cycle. In part this is due to lending regulation as well as concern over the extent and strength of the recovery. In the best locations, this means rental growth has been accelerating with returns consequently driven primarily by income.
41
Global trends indicate intense demand for assets in the major markets whilst competitive nature is driving capital into regional markets and alternative sectors rather than to markets perceived as unstable. – Richard A Johnson – Differentiation in projected total return between markets and sectors is narrowing as the cycle draws on— unsurprising given that the period of rapid yield compression is ending. Income returns tend to be quite stable over time both within and across markets, while capital growth can vary tremendously depending on a market’s stage in the cycle. Property performance has changed; in addition to slowing capital value growth and reduced volumes, fundraising new capital can be more challenging. The shift in outlook to rising interest rates begs the question how property will compare to other asset classes over the next cycle. THIS TIME IT’S DIFFERENT? Historically, rising interest rates have coincided with strengthening property returns, thanks to an improving economy and rising rents. This time it’s different: property returns are slowing as rates rise because a period of exceptional capital value growth
Richard A Johnson
driven by ultra-low interest rates and excess liquidity has come to an end. There are three reasons why this latest ‘Golden Age’ of property will not end in tears. These are supply and debt; quality, and; demand and diversification. We have seen construction much more subdued this cycle than previously, largely thanks to a lack of development finance and uncertainty about the economic recovery’s resilience. This has led to historically low vacancy rates in some markets, coupled with much less leverage than was common pre-2007. A fall in values today is less likely to result in negative equity and fire sales than post 2007. The spread between high and lower quality real estate is wide compared to the last cycle. Investors rarely overpay for risky real estate, which has simply been, and remains, incapable of financing. The spread between prime real estate and the risk free rate is equal to or above its longterm average, meaning there is some cushion to absorb higher rates without necessarily eroding values. cont. overleaf
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real
estate
42
cont. from page 41
Real estate will not be immune to changes in the interest rate or inflationary dynamic, but there is more evidence in favour of a gradual adjustment than a sudden correction. We have long emphasised, for investors concentrating on a single city or country portfolio, that this is the time to focus on enhancing income and driving value growth. Real estate asset management may actually require proactive management again; this can be done through a variety of asset-specific initiatives, such as value-add redevelopment, which can make sense in locations where supply is tight. These strategies improve fund performance over the short term and should enhance value, whether to sell or hold, for the medium term. WHAT ELSE IS OUT THERE? We expect higher inflation and a rise in market interest rates, but at a more moderate level than previously. In today’s environment, however, there are considerable tail risks, whether linked to politics, regulation or economics. Some tails are fatter than others, but the result is a wide range in possible outcomes even for the most transparent markets. Furthermore, some low probability events, like a currency collapse, have huge downsides for property performance so, whilst unlikely, their risk-weighted impact is significant. These sizeable tail risks argue in favour of broad diversification, especially at a time when the breadth of performance outcomes is narrowing. Market and sector allocations need to be actively considered. This is true at all points of the cycle, but when the gap in potential performance is wider, picking outperformers is relatively easier. When the gap is narrow, the risk of being wrongly positioned for such gains; i.e. overweight in an underperforming market, is much larger.
What we are seeing, which is typical of late cycle behaviour, is an increase in opportunistic funds looking at frontier markets—e.g. Sub Saharan Africa, residential in Central Asia. – Paul Guest, Executive Director— Lead Strategist, Real Estate & Private Markets, UBS Asset Management – Therefore, maintaining a portfolio that is broadly neutral vis-à-vis your benchmark provides downside protection in the face of an uncertain future. We would argue in favour of being prudent and diversified, and focus on protection or enhancement of value rather than seeking alpha. Global trends indicate intense demand for assets in the major markets whilst competitive nature is driving capital into regional markets and alternative sectors rather than to markets perceived as unstable. WHAT COMES NEXT? The shortage of good quality real estate on the market has created record levels of dry powder which has resulted in capital being driven into niche sectors, many of which have a sound rationale but which lack the depth to accommodate the levels of liquidity targeting them. It has also driven an increase in build-to-core strategies, with even traditional institutional investors looking to build and hold in markets where they are having trouble accessing core.
Paul Guest
Evidence to date suggests that emerging markets will not soak up this excess capital; transaction volumes in Russia, Brazil and India are not appreciably growing, whilst in China the changes in volumes are driven more by shifts in government policy than in any top-down view on emerging markets. What we are seeing, which is typical of late cycle behaviour, is an increase in opportunistic funds looking at frontier markets—e.g. Sub Saharan Africa, residential in Central Asia. There is some rationale for these strategies but the relatively good present day liquidity may evaporate if the cycle turns, and these may be the first markets to go, regardless of the underlying macro rationale. The future interest rate outlook presents a challenge, particularly for prime real estate in the best locations. If the Federal Reserve continues its modest tightening, the risk premium will narrow and this could nudge up yields, eroding capital values somewhat. So what to do? The markets are now giving investors income rather than capital. Perhaps therefore, it is best to embrace that, diversify, keep leverage under control and asset manage your properties.
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page 40-42 Real Estate.indd 42
06/09/2017 16:55
Not your copy? Banker Midle East is a controlled circulation magazine delivered to specific, named individuals in board level and the very top management positions within the banking and financial services sector and to CFOs and Treasury heads in large, listed corporates in the MENA region. Others may subscribe to receive the magazine regularly through the subscription form below. Institutions may also arrange bulk purchase orders of the magazine and its supplements to circulate among internal and external stakeholders. If you wish to arrange regular bulk deliveries, please contact subscriptions@cpifinancial.net for terms. Annual individual subscription (11 issues/year) US$240
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BME subscription house ad 195-196-197.indd 1
07/08/2017 15:38
44
- ADVERTORIAL -
Jersey: Jersey:Finding Finding Favour Favourininan an Increasingly Increasingly Sophisticated Sophisticated
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GCC GCC Market Market Jersey Jersey hashas been been building building strong strong relationships relationships with with keykey markets markets across across thethe GCC GCC for for more more than than a decade a decade now. now. A concerted A concerted engagement engagement programme programme at industry, at industry, regulator regulator andand governmental governmental levels, levels, together together with with thethe establishment establishment of of a Jersey a Jersey Finance Finance representative representative office office in the in the UAEUAE more more than than six six years years ago, ago, have have all helped all helped givegive Jersey Jersey a strong a strong platform platform in the in the region. region. There’s There’s no doubt no doubt that, that, in ainshifting a shifting market market andand a changing a changing political political landscape, landscape, investors investors in the in the GCC GCC continue continue to find to find genuine genuine appeal appeal in the in the first-class first-class experience, experience, substance substance andand stability stability Jersey Jersey cancan offer offer as an as international an international finance finance centre centre (IFC), (IFC), as well as well as its as range its range of tried-and-tested of tried-and-tested wealth wealth products products – not – not least least its world-renowned its world-renowned trust, trust, foundation foundation andand company company legislation legislation andand Shari’a-compliant Shari’a-compliant services. services. Moreover, Moreover, thethe indications indications are are thatthat thethe links links between between thethe GCC GCC andand Jersey Jersey are are set set to get to get even even stronger, stronger, with with thethe Global Global Wealth Wealth 2017 2017 (Boston (Boston Consulting Consulting Group) Group) finding finding thatthat private private wealth wealth in in thethe Middle Middle EastEast is growing is growing by an by impressive an impressive 8.5%, 8.5%, andand with with GCC GCC investors investors placing placing an ever an ever greater greater focus focus on internationalising on internationalising their their wealth wealth planning planning strategies strategies andand diversifying diversifying their their investments. investments. Succession Succession planning planning TheThe findings findings of aofnew a new white white paper, paper, published published by Jersey by Jersey Finance Finance in conjunction in conjunction with with Hubbis, Hubbis, launched launched earlier earlier thisthis year, year, reinforces reinforces these these points, points, identifying identifying some some fundamental fundamental challenges challenges thatthat GCC GCC High High NetNet Worth Worth Individuals Individuals (HNWIs) (HNWIs) willwill faceface in the in the coming coming decades. decades. However, However, whilst whilst HNWIs HNWIs in the in the GCC GCC acknowledge acknowledge thethe importance importance of succession of succession planning, planning, which which cancan be extremely be extremely complex complex given given thethe global global nature nature of families of families andand their their businesses, businesses, there there is still is still a a reluctance reluctance to engage to engage with with third-party third-party support support andand a tendency a tendency to to default default to deferring to deferring succession succession decisions decisions – something – something thatthat could could prove prove costly costly in the in the long-run. long-run. According According to the to the research, research, for for example, example, there there are are realreal misconceptions misconceptions around around thethe issues issues andand solutions solutions available available when when it comes it comes to wealth to wealth structuring. structuring. Over Over halfhalf (56%) (56%) of of
GCC-based GCC-based advisers advisers saidsaid thatthat lossloss of control of control is the is the biggest biggest misconception misconception thatthat GCC GCC families families have have when when it comes it comes to to wealth wealth structuring, structuring, whilst whilst 23%23% are are concerned concerned by the by the lacklack of transparency of transparency of structures. of structures. Although Although thisthis offers offers some some considerable considerable challenges challenges for for wealth wealth professionals professionals in the in the region, region, it also it also highlights highlights thethe increasing increasing importance importance of experienced of experienced professionals professionals in IFCs in IFCs likelike Jersey, Jersey, who who are are used used to managing to managing complex complex cross-border cross-border financial financial flows, flows, andand cancan help help build build confidence confidence andand understanding understanding in these in these areas. areas. ForFor Jersey, Jersey, thisthis is already is already having having an impact. an impact. It’s It’s a positive a positive outcome outcome of events of events likelike thethe Panama Panama Papers, Papers, for for instance, instance, thatthat thethe differences differences between between IFCsIFCs have have been been brought brought to light, to light, andand Jersey Jersey is benefiting is benefiting as GCC as GCC investors investors look look for for quality quality support support from from quality quality jurisdictions. jurisdictions. As aAsresult, a result, thethe drive drive towards towards more more robust robust succession succession andand multi-jurisdictional multi-jurisdictional wealth wealth planning planning thatthat waswas highlighted highlighted in the in the white white paper paper is being is being accompanied accompanied by abytrend a trend for for private private wealth wealth vehicles vehicles to be to re-domiciled be re-domiciled from from lessless advanced advanced jurisdictions jurisdictions to to Jersey Jersey structures, structures, which which in practice in practice is quicker, is quicker, cheaper, cheaper, more more practical practical andand simpler simpler than than practitioners practitioners maymay have have believed. believed. Diversify Diversify Whilst Whilst Jersey Jersey hashas earned earned a reputation a reputation for for specialist specialist private private wealth wealth work work in markets in markets across across thethe GCC, GCC, thisthis hashas expanded expanded in in recent recent years years so that so that today today there there are are more more than than 40 Jersey 40 Jersey firms firms active active in the in the region region undertaking undertaking a broad a broad range range of investment of investment andand corporate corporate as well as well as private as private wealth wealth work. work. Certainly, Certainly, Jersey Jersey remains remains thethe jurisdiction jurisdiction of choice of choice amongst amongst GCC GCC investors investors for for outbound outbound commercial commercial realreal estate estate investment, investment, thanks thanks to its to flexible its flexible structures structures for for acquiring acquiring andand selling selling such such assets, assets, focusing focusing on the on the UK UK as well as well as increasingly as increasingly Europe Europe andand thethe US.US. In addition, In addition, though, though, as GCC as GCC institutional institutional investors, investors, led led by by sovereign sovereign wealth wealth funds, funds, are are looking looking more more andand more more at at opportunities opportunities in markets in markets such such as the as the UK,UK, US and US and Europe, Europe,
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page 44-45 Advertorial.indd 44
10/09/2017 11:26
45
- ADVERTORIAL -
KUWAIT KUWAIT
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page 44-45 Advertorial.indd 45
10/09/2017 11:26
in-depth
46
Resilience in the face of regional instability In an exclusive interview with Banker Middle East, HE Shaikh Khalifa bin Ebrahim Al Khalifa, Chief Executive of Bahrain Bourse, discusses the development of Bahrain Investment Market and his outlook on the Bahraini economy as we go into 2018
H
ow has the introduction of the Bahrain Investment Market affected the overall equity market and economy in Bahrain? Our focus since launching the operational phase of the Bahrain Investment Market (BIM) in March 2017 was on two areas: firstly, engaging with local business owners and fund managers to raise awareness about the many unique features and benefits of the Market, and secondly partnering with professional advisory firms to be authorised sponsors. We have made good progress on both fronts as we secured partnerships with four sponsors, KPMG, Key Point, BDO Consulting, and most recently SICO. We organised 10 awareness sessions covering 12 business societies and associations which were attended by more than 1,250 people. We also received serious queries from around 30 companies in Bahrain who are interested in listing in the Market. Another important milestone was signing an agreement with Tamkeen to launch a dedicated programme to help companies cover the costs associated with appointing and retaining sponsors.
HE Shaikh Khalifa bin Ebrahim Al Khalifa
Over the next few months, we will continue our stakeholder outreach locally and regionally, with the aim of starting trading by end of the year.
What is the next step for Bahrain Bourse from here? What other initiatives are in the pipeline? As part of the Bahrain Bourse’s mission to create a comprehensive capital market eco-system, Bahrain Bourse offers a wide range of asset classes.
In addition to the Bahrain Investment Market, we offer equities, bonds and Sukuk, treasury bills, mutual funds, and Real Estate Investment Trusts (REITs). Other initiatives in the pipeline include enhancement of services such as Bahrain Trade which would enable individuals holding retail account with select financial institutions to trade directly on Bahrain Bourse through an online broker platform.
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in-depth
We also recently launched Bahrain Clear as a subsidiary of Bahrain Bourse with an authorised capital of BHD 5 million and paid-up capital of BHD 1 million. Bahrain Clear is a fully-fledged clearing house for the region, offering comprehensive management, operation, and consultancy, and custodian and technical services of platforms relating to depository, clearing and settlement in a range of asset classes.
How would you describe the current state of Bahrain’s financial markets? How has it supported the Bahraini economy? At the macro level, the Bahraini economy expanded by three per cent in 2016 and continued the momentum in Q1 of this year. This growth was underpinned by and large by the private sector, which demonstrates the continued resilience of the non-oil economy. In terms of the debt capital markets, the market has been very active with the introduction of a secondary debt market. The equity capital market has also been very active with trading values increasing four-fold since the introduction of the $100 million Bahrain Liquidity Fund and the licencing of two market makers (SICO and Mubasher).
What challenges do you foresee for the rest of the year and going into 2018? Challenges are part of the course of business. Within challenges, there are opportunities. So the key is to identify trends early and adapt accordingly so as to not be left behind. This is what we consistently seek to do in the Bahrain Bourse. We always review the current market landscape to identify emerging trends and asking ourselves if we can make that work for the local and regional market.
47
The equity capital market has been very active with trading values increasing four-fold since the introduction of the $100 million Bahrain Liquidity Fund and the licencing of two market makers.
That being said, regardless of industry or sector, businesses will be fully supported by an extremely business-friendly environment which allows 100 per cent foreign ownership, well-developed infrastructure, robust regulatory and legal environment, skilled and highly-educated human capital, and strategic position in the heart of the massive GCC market. All these factors add up to form a very strong investment proposition.
– HE Shaikh Khalifa bin Ebrahim Al Khalifa –
Our outlook for Bahrain is a positive one. There are always challenges as I said, but the country has proven its resilience in the face of regional instability, as demonstrated by the steady progress in terms of developing the private sector and boosting its contribution to economic development and job creation. Economic forecasts from the Bahrain Economic Development Board predict the private sector’s upward trajectory to continue, and we, as the Bahrain Bourse, will do our part to support the private sector in this regard. As for our regional relationships, we always look for ways to increase cooperation across all levels for the mutual benefit of GCC members, including exploring ways in which we can open up the market and further open investor access to the regional markets. In Bahrain, there has been a greater focus on the capital markets as a mean of raising capital at a sovereign level, with the regional trend moving towards corporate fund raising through issuance of corporate Sukuk.
A perfect example of this was the Bahrain Investment Market. We saw that there was a real need for such a market, and so we looked at international best practises and fitted them to suit the unique needs of our target audiences and business environment. I think, and many other agree, that one area to keep an eye on is fintech. Thanks to technological advancements, this niche area— for now—is growing rapidly and disrupting the financial services sector as we know it, much like how social media disrupted traditional media.
What are the opportunities currently available in the Bahraini economy? Where do you see potential? I can honestly say that the Bahraini economy has opportunities across all industries and sectors, but currently the sectors which are drawing the most interest include tourism, ICT, logistics, construction and real estate development, and fintech.
What is your outlook on Bahrain for the next five years and its relationship with the rest of the GCC?
www.bankerme.com
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in-depth
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Investment Banker of the Year Hisham Al Rayes, Chief Executive Officer and Board of Directors of GFH Financial Group speaks to Banker Middle East on his triumph at the BME Industry Awards 2017
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hat does winning this Award mean to you?
I’m extremely proud of this award and of the overall recognition that GFH and our team continue to receive from our peers and the market. We have worked hard to transform GFH and to emerge a stronger, more competitive and diversified financial group. Such awards serve to underscore the success of our strategy and our ability to execute it. They also tell us that the market both sees and appreciates the strides and progress that we have and continue to make.
What are your plans for GFH for the rest of 2017? We are focused for the remainder of 2017 on maximising the value of our existing investments across key sectors such as financial services, education, retail and real estate among others. We are also busy assessing new opportunities in these sectors, where we can leverage our expertise and track record of success.
Where do you see the most opportunities for GFH in 2017 and beyond?
What has been your proudest achievement as CEO of GFH Financial Group? Amongst my proudest achievements as CEO of GFH has been leading an extremely dedicated and diligent
team of professionals who have been instrumental in making GFH what we are today—a strong, welldiversified and financial healthy institution that is recognised for its leadership, innovation and, most importantly, its commitment and ability to consistently deliver value for shareholders and investors.
Hisham Al Rayes
As we’ve announced, our long term strategy is to continue to solidify our position as the leading Islamic financial and investment group in the region. We are sharply focused on building on the diversification we have already achieved. This means growing both organically and through the acquisition of additional financial institutions and continuing to extract value from our existing assets while also identifying and investing in strong new income yielding assets across our regional and international markets of focus.
Amongst my proudest achievements as CEO of GFH has been leading an extremely dedicated and diligent team of professionals who have been instrumental in making GFH what we are today. – Hisham Al Rayes –
www.bankerme.com
page 48 In Depth.indd 48
06/09/2017 15:13
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Reach out to us at finacle@edgeverve.com to accelerate your automation journey
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12/09/2017 09:33
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in-depth
Addressing market needs Banker Middle East caught up with Mohamed Salah, Head of Corporate & Wealth Management at National Bonds for an exclusive insight into the corporation’s latest offering
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hat led to the launch of Prestige?
National Bonds was first launched to meet a demand for a service that rewarded investors. Since then, we have continually developed tailored products that meet the ever-changing needs of our customers. Launched in 2016, Prestige is unique offering and the first of its kind in the UAE. The product was designed by our Wealth Management team with the aim of providing high net worth individuals with investment advice and opportunities within the National Bonds Corporate (NBC) portfolio. Private wealth in the UAE is growing exponentially and is expected to reach $1 trillion by 2020. With this in mind, Prestige aims to provide customers with guidance around risk management and responsible investments to help achieve sustainable financial security.
How does Prestige differ from other similar offerings in the market? Prestige combines expert financial advice with industry-leading products. It offers investors a tailored and personal service.
Mohamed Salah
www.bankerme.com
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in-depth
The programme consists of three categories: Gold membership offers customers a portfolio of beneficial services and access to Wealth Managers who are among the industry’s best. Our Gold Members enjoy the highest level of service in the region and is only open to customers who have invested a minimum of AED 350,000 with us. Silver membership is only available to customers who have invested a minimum of AED 150,000 with us. We offer our Silver members services that include exclusive investment opportunities and direct access to our world class relationship managers. Bronze membership is only available to customers who have invested a minimum of AED 50,000. Our collective experience and wealth of local knowledge means that our Bronze Members have access to unrivalled financial advice. In addition, clients across all tiers have access to value-added services such as a pick-up and drop-off service for cheques and application services, free financial planning, advisory services and same day processing. Prestige also offers access to a dedicated Prestige desk at all National Bonds corporation branches. One of the products unique selling points is the ability to invest in our real estate inventory that offers investors the best payment plan in the UAE: a 10 per cent down payment followed by 90 per cent over a seven years payment plan post-handover.
How can executives and entrepreneurs cultivate a savings culture in the UAE market? Education is key to creating a savings culture and we believe employers play an important role in helping to raise awareness of Financial Planning and regular savings programmes in the UAE.
The product was designed by our Wealth Management team with the aim of providing high net worth individuals with investment advice and opportunities within the National Bonds Corporate (NBC) portfoliotwo market makers. – Mohamed Salah – As a business, we are passionate about educating the public on the importance of saving. To do this, we play a major role in educating residents and nationals on financial literacy. For example, we host financial workshops for companies on the saving and investment outlook in the UAE and compile an annual National Bonds Savings Index, which analyses the spending savings and spending habits of UAE residents. However it is not just about education. We also have a series of programmes tailored to suit all investor needs. Take our Employee Savings Programme (ESP), this was created for companies as a way to retain employee talent, enhance employee well-being and increase staff retention. National Bonds will continue to raise awareness of Shari’ah-compliant savings and investments tools to residents and nationals across the emirates with a view to increase the number of regular investors in the UAE.
51
Through financial instruments and planning, we aim to help boost the national economy and help investors achieve sustainable financial stability and security.
What are the company’s plans moving forward? As mentioned, we are committed to increasing the number of regular investors in the UAE and in line with the government’s vision; we are striving to help foster a savings culture through education and awareness. At National Bonds, we are continually adjusting our various offerings to suit the needs of our customers; the environment and the ever-changing market we live in. There are so many options available when it comes to savings and investment and our mission is to ensure our customers take the right steps to achieve their goals. This means providing them with the best advice, a successful financial plan and access to a wide-range of products. Our customers sit at the heart of everything we do and drive our business goals. Our mission is simple. We want to continue to provide excellent customers service. For example, we are currently working to develop cheque deposits and collection services. We have also adopted a digital-first approach, seen in a number of enhancements made to our digital platforms. Our customer-centric approach will benefit all our customers, those who seek financial advice in our physical branches and those who want to carry out transactions via online platforms on the go. Our digital platforms will play a key role in this, as it will allow us to reach our customers faster and provide customers with a seamless customer journey, end to end.
www.bankerme.com
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Xpress Money Sudhesh Giryan, COO of Xpress Money, discusses the trends shaping the global remittance industry and the company’s role in the region Sudhesh Giryan
G
iriyan has been a part of the Xpress Money family for over a decade, and has helped shape its journey to becoming one of the world’s most dependable money transfer brands. Banker Middle East (BME) wanted to understand how remittances link together the world’s economies in a dense network of economic value, the trends shaping the industry at present, and how fintech might impact conventional industry models. BME caught up with Sudhesh Giryan, COO of Xpress Money, to find out.
How has the remittance industry grown over the last 10 years? The landscape is practically unrecognisable, with a heightened emphasis on transparency, safety, compliance, and of course, customercentricity. The role of remittances in creating income parity and boosting GDP in developing markets has been irrevocably proven. Along the way, we’ve realised that businesses such as Xpress Money are also set apart by a social conscience and a commitment to community engagement. The industry’s role is to offer a legal, safe and transparent alternative to informal money flows that were more prevalent years back. At the same time, it is far more
aware of an obligation to financially include the large blue-collared and unbanked audiences in the region. The customer experience has also become far more central to the business model, and competes in importance with process excellence. Customers are demanding more, and also searching for competitive costs.
What market changes do you foresee over the next few years? It is an incredibly exciting time for the industry. Fintech, with its ability to revolutionise the customer experience, can be a potential disruptor. Yet it also brings with it an incredible opportunity for conventional financial service providers to partner with nimble startups to streamline the customer experience. New money transfer channels are cropping up—with consumers more willing than ever to use online and digital channels. Yet, a brick and mortar presence also remains crucial to building consumer trust, and serving unbanked audiences across global markets. Hence, Xpress Money is expanding its geographical presence, which extends to 200,000 locations across 165 countries, covering every single continent. We are also catalysing partnerships throughout the financial value chain to offer convenience and end-to-end transfer capabilities.
Today, most remittance corridors are linked with near-real-time capabilities where money can be picked up within minutes of it being sent. The next few years are going to be built on better customer service, reaching out to new audiences with innovative products, serving existing customers with more integrated offerings, and also looking at delivering competitive costs.
How committed is Xpress Money to the regional market? Our commitment is not restricted to just the UAE alone but encompasses the Middle East. This region poses exciting opportunities for us to empower large audiences through innovative financial services. Our role is to deliver world-class services and create innovations that empower customers, serve the financially excluded, and create tighter links between global economies. That is why we are investing in collaborations with banking partners and other financial services providers to open up new remittances routes and enable services such as instant account credits. We are also playing a role in engaging with regulators, and exploring fintech opportunities that can deliver better first-mile and last-mile capabilities. We are very much looking forward to helping grow the industry here, and shape its evolution.
www.bankerme.com
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Monday 27th November 2017 | Godolphin Ballroom | Jumeirah Emirates Towers Monday 27th November 2017 | Godolphin Ballroom | Jumeirah Emirates Towers Monday 27th November 2017 | Godolphin Ballroom | Jumeirah Emirates Towers
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To register your interest in attending, please visit To register your interest in attending, please visitout outwebsite, website,drop dropus usan anemail email or or give give us us aa call. call. To register your interest in attending, please visit out website, drop us an email or give us a call. www.wealtharabia2017.net events@wealtharabia.net +971 www.wealtharabia2017.net events@wealtharabia.net +971 44 391 391 4682
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+971 4 391 4682 17/09/2017 15:21
technology
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Enabling innovation through security: how banks can stay ahead By Jolette Roodt, Writer/Analyst, Entersekt
F
inancial services providers worldwide are facing growing internal and external pressure. With so-called challenger banks pushing from the outside and legacy core systems threatening to burst their seams, banks are being forced to reassess their offerings and strategies. Technology may be able to provide some relief in this regard, but banks will need to tread carefully when developing new products if they hope to hold onto a high-maintenance, high-net-worth customer base. Financial institutions, especially private banks and wealth management companies, operate in a challenging space. Their customers want their risk minimised, their every need met by tailor-made, innovative products, and their rights protected by strict regulators. Establishing and optimising digital operations at these institutions will require a significant investment in technology. This customer base is becoming more digitally adept—but, due to increased social media exposure, also more demanding of a personalised approach. More than ever, banks need to provide a tailored product offering or risk losing their customers to new fintech companies, or even to Facebook, Amazon, or Google—all of which are stepping into the financial arena.
THE CHALLENGE OF PROTECTING USERS However, there is no point in launching new means of communication, new products and new ways to transact unless the bank can also guarantee rock-solid security. This is particularly true in a region whose wealth makes it attractive to cybercriminals. In Global Finance’s 2016 rankings for the richest countries in the world, five out of the wealthiest twenty were located in the Middle East: Bahrain (16), Saudi Arabia (14), the United Arab Emirates (9), Kuwait (6), and Qatar (1). These affluent countries have been, and will continue to be, popular targets for fraudsters. ATMZombie became the first malware to steal money from Israeli banks in November 2015. Kaspersky’s most recent Security Bulletin placed Qatar among the top twenty countries with the highest risk of users being infected online, with Saudi Arabia at ‘high risk’ of local malware infection and the UAE among the top ten countries attacked by banking trojans. Considering these risks, how are the banks in this region currently securing their digital banking users? The data (see infographic), collected from the websites of the banks in each country, sheds some light on this question.
From the information available in the public domain, it appears that old-fashioned passwords are still the most popular form of authentication in the region. The pervasive use of the equally cont. on page 56
About Entersekt Entersekt, based in South Africa and founded in 2010, provides consumer-focused mobile security solutions. Entersekt is well-known as an out-of-band authentication provider in the financial vertical. Their Transakt SDK, available on iOS, Android and Windows Phone, is built for easy integration into existing or new apps, and provides a tool set that enables organizations to develop secure mobile applications. Transakt provides a seamless PKI infrastructure, devicebinding, dynamic public key pinning, secure storage and transaction signing, as well as malware resistance through root and jailbreak detection. Entersekt also supports biometric authentication schemes, and exceeds all strong authentication/2FA regulation requirements. Source: Entersekt
www.bankerme.com
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05/09/2017 15:42
Excellence through innovation Rewarding pioneers in Islamic finance
Islamic Business & Finance AWARDS 2017
12th DECEMBER 2017 Emirates Towers Hotel, Dubai
Voting commences Mid-October through end of November
For more information please contact CPI Financial’s events team Tel: +971 4 391 4682 or Email: events@cpifinancial.net
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cont. from page 54
problematic virtual keyboards and challenge questions is also a red flag. While virtual keyboards may be impervious to hardware keylogging (stealing an ‘imprint’ of a user’s credentials as they type it on their keyboard), they are vulnerable to the even more insidious software keylogging. Answers to challenge questions, on the other hand, can be obtained by social engineering or by digging through users’ open personal information on social media. INNOVATING SECURELY Attackers are now able to bypass even one-time passwords such as SMS OTP, which means that using this authentication method to protect online and banking users is no longer adequate either. In fact, the National Institute of Standards and Technology (NIST) in the United States has officially stopped advocating its use. But if passwords, virtual keyboards, challenge questions and OTPs are all failing, what is the solution? At Entersekt, we believe that the next generation of authentication is through a completely separate (i.e. out-of-band) communication channel between the bank and the user, bypassing the dangers of the internet, SIM swap fraud, man-inthe-middle attacks and a host of other fraud vectors. Performing authentication in this way— simply responding yes or no to a confirmation request from the bank with a single tap on the screen— makes for a slick user experience with no additional friction. If banks are to provide their fastidious digital users with the wide range of services they demand and deserve, the only way to do so is to ensure that both security and userfriendliness are firmly in place.
BAHRAIN Most popular security measure: Password SMS OTP prevalence: 6 out of 8 banks Other security measures: PIN
EGYPT Most popular security measure: Password SMS OTP prevalence: 3 out of 8 banks Other security measures: Virtual keyboard
JORDAN Most popular security measure: Password SMS OTP prevalence: 5 out of 10 banks Other security measures: Virtual keyboard, PIN
KUWAIT Most popular security measure: Password SMS OTP prevalence: 1 out of 7 banks Other security measures: Challenge questions
LEBANON Most popular security measure: Password SMS OTP prevalence: 5 out of 11 banks Other security measures: Virtual keyboard
QATAR Most popular security measure: Password SMS OTP prevalence: 2 out of 5 banks Other security measures: Virtual keyboard
SAUDI ARABIA Most popular security measure: Password SMS OTP prevalence: 10 out of 12 banks Other security measures: Challenge questions, PIN
UAE Most popular security measure: Password SMS OTP prevalence: 10 out of 12 banks Other security measures: Challenge questions, PIN
Source: Entersekt
www.bankerme.com
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Artificial intelligencepowered banking Rajashekara V. Maiya, Global Head—Product Strategy at Infosys Finacle, asserts that early adopters will stand to gain from AI
A
WHY DISCUSS AI NOW? Digitisation has given AI a push over the development and adoption threshold, ready to accelerate. Banks have also attained a degree of maturity in building digital components, such as big data, process automation and cloud solutions, which is a precondition for a successful foray into AI. Specifically, the factors driving AI adoption are: Consumer adoption: No matter how disruptive the technology, it needs to reach a point of critical mass with respect to consumer acceptance to be widely adopted. AI has reached that point now. Talking to Siri, checking out Amazon’s recommendations, or asking Google Home what the weather is like—today’s consumers are already using AI without even realising it.
rtificial Intelligence (AI) has been around since 1956. Over the following decades, it continued to be a topic of fascination for organisations of various types, but it never really found its way into real world applications. However, recent developments and maturity of certain underlying technologies have meant that AI powered applications have become commercially viable. Infosys Finacle collaborated with a select group of senior business and technology leaders from global banking community to build a point of view paper to serve as a practical guide for banks in their AI journey. These members are part of the Banking Visionaries Council instituted by Infosys Finacle. Here are the excerpts from the paper.
Efficiency and cost drivers: Averaging eight to nine per cent, banking profitability is now reset to about half its pre-crisis levels, and that is where it looks to stay. Extensive robotic automation of operations is inevitable for banks to stay competitive, and this is a precursor to the deployment of Artificial Intelligence in financial institutions. Advances in analytics algorithms: Readily available, open-source—hence affordable—AI platforms are playing a major role in its adoption. Cloud platforms from large technology companies, offer machine learning APIs to developers, who can build applications by abstracting some of the complexity of their algorithms. cont. on page 60
Figure 1
Percentages indicate average maturity score by industry
Pharmaceuticals/life sciences
Automotive and aerospace
Telecoms
Energy, oil gas and utilities
50
Manufacturing
Healthcare
Financial services
Retail
Public sector
32
50
Fast moving consumer goods
50
47
41
58
54
52
51
Source: Infosys Finacle
www.bankerme.com
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.ﻃﺮﻳﻘﺔ أﺧﺮى ﻟﻼﺳﺘﺜﻤﺎر ﻓﻲ اﻟﻌﻘﺎرات another way to invest in real estate.
اﻻﺳﺘﺜﻤﺎر اﻟﻌﻘﺎري ﺑﺄﻣﺎن وﺑﺴﺎﻃﺔ ﺗﺘﻴﺢ ﻫﺬه اﻟﺸﺮﻛﺔ.ﺻﻨﺪوق اﻻﺳﺘﺜﻤﺎر اﻟﻌﻘﺎري “أو "رﻳﺖ" ﻫﻮ ﺻﻨﺪوق أو ﺷﺮﻛﺔ ﺗﻤﺘﻠﻚ ﻋﺪد ﻣﻦ اﻟﻌﻘﺎرات و ﺗﻌﻤﻞ ﻋﻠﻰ در اﻟﺮﺑﺢ ﻣﻨﻬﺎ . ﺑﺬﻟﻚ ﻳﺘﻮﻓﺮ ﻟﻠﻤﺴﺘﺜﻤﺮ ﺑﻴﺌﺔ آﻣﻨﺔ وﺑﺴﻴﻄﺔ ﻟﻼﺳﺘﺜﻤﺎر.اﻟﻔﺮﺻﺔ ي ﺷﺨﺺ ﻳﻮد اﻻﺳﺘﺜﻤﺎر ﻓﻲ اﻟﻌﻘﺎرات ﺷﺮاء أﺳﻬﻢ اﻟﺸﺮﻛﺔ
real estate investment made safe and simple A REIT, or Real Estate Investment Trust, is a company that owns real-estate properties and generates incomes from these properties. It allows anyone to invest in real estate in a safe and simple way: through the purchase of shares.
www.reit.ae www.theresidentialreit.com Registered and licensed by DFSA and ADGM
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cont. from page 58
Open banking: UK’s Open Banking programme, the EU Payments Services Directive (PSD2) is heralding an era of open banking. Armed with more comprehensive customer data, banks can build better models, and more intelligent apps and services. But so can their rivals now, especially the new fintechs. In this race to converting data into competitive advantage, AI technology can give a bank a head start. Taking all this into consideration, it is clear that banks are past the time when they could maintain a wait and watch approach. BANKING IS NOT VERY MATURE IN ITS JOURNEY FOR AI ADOPTION Although the banking and financial services sector is showing interest in AI, our research found that it is clearly not very mature in its journey to adoption, coming in at the eighth position. This is surprising considering that financial services is a data intensive business. Our research, which covered respondents from 10 vertical groups, tried to assess their respective progress in the AI journey with the help of a maturity index that is depicted in Figure 1. On an average, most banks are explorers, with AI related skills on the increase and more initiatives planned in the coming 12 months. UNDERSTANDING THE AI STACK It is clear that banks should waste no time in executing their AI plans anymore. For building the AI based applications and business use cases, banks need to have a clear
Figure 2 Al infused business use cases
Customer Service
Sales and Marketing
Fraud Management
Financial Advisory
...
Applies Al Solutions
Virtual Assistants
RPA
Robots
Experts Advisors
...
Al Building Blocks
Machine Learning
Deep Learning
Natural Language Processing
Natural Language Generation
Vusual Perception
Al Foundation
Data and Analytics
Source: Infosys Finacle
understanding of all the underlying technologies. The schematic below shows a broad AI stack consisting of AI building blocks and applied AI solutions, which go into making business use cases. The point of view document defines each of these technologies, their applications in banking along with case examples of banks leveraging these technologies for the AI initiatives (see Figure 2). Many banks have made a start by incorporating several AI components into their processes and have experienced early results. DBS Bank, a leading financial services group from Singapore enabled conversational banking on mobile messaging apps using Natural Language Processing (NLP) and Natural Language Generation (NLG) technologies. Emirates NBD, one of the largest banking groups in the Middle East, has launched Pepper, the humanoid robot in select branches to improve banking experience for customers.
REIMAGINING BANKING PROCESSES WITH AI Today, the good news for banks is that AI technologies can be infused in numerous banking processes. Advancements in AI technologies offer an opportunity to completely redefine customer experiences on one end, while reimagining processes for unprecedented efficacies, on the other end. So, to begin with, banks should start their AI journey by identifying a suitable business use case where AI can provide the differentiation. Because AI is evolving so quickly, it does not allow banks the luxury of waiting till it achieves a certain level of maturity; and those who do, risk not being able to catch up with the leaders. Quick movers have another advantage in that their AI systems will start learning earlier than others, and will therefore evolve faster as well. Simply out, early adopters will stand to gain a significant competitive advantage where AI powered banking is concerned.
www.bankerme.com
page 58-60 Technology.indd 60
17/09/2017 09:29
TodayÕs Choices Shape TomorrowÕs Legacy As we celebrate our 75th anniversary in Kuwait, Ahli United Bank is honored to stand strong on a solid foundation of our clients’ trust. From one generation to the next, we have endeavored to bring you great success and satisfaction.
YEARS
www.ahliunited.com.kw
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personality
62
Salman Bajwa Senior Executive Officer, Emirates NBD Asset Management
I
have been in the financial services industry since I left college, almost 21 years ago. Prior to joining Emirates NBD Asset Management, I worked at UBS’ Investment Banking division in London and New York. I switched to Asset Management after moving to Dubai in 2008 and joining Emirates NBD, where I have worked in various roles before taking my current position as Head of the Asset Management business. I am particularly proud of the hard work we have delivered, as a team, to grow assets under management from $1.2 billion in 2011 to over $4.6 billion in 2017. This has been achieved by the successful delivery of a carefully planned strategy, executed over time, with a consistency of messaging and personnel, to turn our business into one of the Middle East’s leading fund management houses. The most satisfying part of my job is interaction with people, from our own team members to clients and our business partners. We are a mid-sized office with 50 staff, so we operate a fairly flat structure. This gives a tangibility to the difference one person can make to another’s life and career by mentoring and guiding them. At the same time, interaction with clients and validation from them on the quality of our service provides affirmation that all parts of the process have worked well to reach a positive outcome. This is very satisfying and fulfilling, both professionally and personally. We have recently converted our real estate fund into a REIT, ENBD REIT, and listed it on Nasdaq Dubai. This was a huge undertaking which involved a lot of resources
across the business. Now that we have completed the successful capital raise we are looking to deploy that cash in the form of new asset acquisitions, which the market will hear about in due course. I’m reading Shadows of the Pomegranate Tree by Tariq Ali. Two of the books which had the greatest impact on me, both in completely different ways, were Tipping Point by Malcolm Gladwell and The Da Vinci Code by Dan Brown. The lack of depth in capital markets is one area that is hampering growth of the financial sector in the GCC. If we look at regional equity markets, the daily traded volumes on local exchanges are poor compared to international levels. At the same time, the number of new companies coming to market in the shape of fresh IPOs is extremely limited. This lack of depth affects the entire sector—from the lack of recruitment/ staffing on Equity Capital Markets (ECM) desks at investment banks to the shrinking size of brokerage houses resulting from low trading volumes and the lack of asset gathering for equity mandates by fund houses, leading to a lack of demand for portfolio managers. Notwithstanding the lack of development in equity markets over the last few years, the regional bond markets have managed to make the step up to register on the international stage very successfully. Fixed income issuances out of the region are led by international investment banks, prepared according to the highest regulatory standards, and placed regionally as well as in global financial centres. Regional issuances now form an integral part of global fund managers’ portfolios and are included in recognised indices. This has been a healthy trend, initiated by issuances primarily out of the UAE and Qatar, but is set to grow as Saudi Arabia begins to deliver more issuances. On the equities side, the opening-up of the Saudi stock market and potential inclusion on the MSCI Emerging Markets Index could just be the fillip that the local markets need to revive them.
www.bankerme.com
page 62 Personality.indd 62
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Profiles in Leadership An important new series from CPI Financial, the Middle East’s leading financial and business publishing house. In challenging times, clear and dynamic leadership is the key to business success. CPI Financial’s new series Profiles in Leadership will identify and define those qualities necessary to succeed, profiling successful individuals and their businesses.
CPI Financial TV CPI Financial TV is proud to launch a new online Leadership series. We are conducting a series of in-depth, on-camera, face-to-face interviews with the key players in the Middle East banking and financial services sector. Dubai Islamic Bank The longest-established modern Islamic bank is one of the leading financial institutions and our interview with its Group CEO launched our Leadership series on 10 September 2017. You may watch the full interview online or alternatively view key segments of the interview individually. Who’s next? Our Leadership series launches with Dr. Adnan Chilwan of Dubai Islamic Bank. Look out for more great interviews in the coming weeks. We already have Patrice Couvegnes, CEO of Banque Saudi Fransi, and HE Abdul Aziz Al Ghurair, CEO of Mashreq, lined up with even more to come… Unparalleled insight Understand how the region’s top bankers view the challenges and opportunities their institutions face… and the plans they intend to implement. Identify ambition Whether in the domestic, regional or international arena you will be able to see for yourself just what is in store in the evolution of one of the world’s most dynamic economic arenas and for the institutions helping to bring economic dreams into successful reality. Bookmark CPI Financial TV Bookmark CPI Financial TV now to make sure you stay in touch and on top of these unique insights into the region’s banking and financial services industry.
IN-DEPTH INTERVIEWS
Dr. Adnan Chilwan Group CEO Dubai Islamic Bank
Patrice Couvegnes Group CEO Banque Saudi Fransi
HE Abdul Aziz Al Ghurair CEO Mashreq To learn more, contact: OMER HUSSAIN
CPI Financial FZ LLC • PO Box 502491 Al Shatha Tower, Office 1209 Dubai Media City, Dubai, U.A.E.
+971 4 391 5419
omer@cpifinancial.net
Tel: +971 (0) 4 391 4681 • Fax: +971 (0) 4 390 9576 • www.cpifinancial.net
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bleed bleedguide.indd guide.indd 1 1
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