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Mizinga-Melu

Exclusive interview with Absa Bank Zambia PLC Managing Director, Mizinga Melu

Absa Bank Zambia PLC is part of Absa Group Limited, an African financial services group that aims to be the pride of the continent. Formerly known as Barclays Bank Zambia PLC, the Bank has operated in Zambia for over 102 years. The Bank rebranded to Absa on 10 February 2020. Absa is a truly African brand, inspired by the people it serves and determined to always be brave, passionate and ready so that the Bank can make the African continent proud and bring possibilities of its people to life.

Absa Zambia Mutaba Branch, Cairo Road, Lusaka – a state of the art flagship branch

Absa Zambia Mutaba Branch, Cairo Road, Lusaka – a state of the art flagship branch

How is Absa Bank Zambia PLC working towards becoming the pride of the continent? 

Absa Bank Zambia PLC is an award-winning commercial bank that has been serving the financial needs of the Zambian population since June 1918. The Bank is a wholly owned subsidiary of Absa Group Limited (AGL), a well-capitalised banking group listed on the Johannesburg Stock Exchange (JSE).

Mizinga Melu – Absa Bank Zambia PLC Managing Director

Mizinga Melu – Absa Bank Zambia PLC Managing Director

With a strong heritage anchored on local, pan- African and international knowledge as well as a legacy of providing innovative banking solutions with a number of industry firsts, Absa is well positioned to be the Bank of choice of the continent as it aims to provide revolutionary products and services that stem from its wide success of previous accomplishments such as  being the first bank to distribute the newly independent Zambian currency at its Ndola Branch in 1964 following the country’s independence. The Bank also launched the first Debit Card and ATMs in Zambia in 1996 and thereafter the first cash accepting ATMs in 2010. In addition, the Bank launched the country’s first Kwacha Credit Card and subsequently the first mobile Point of Sale (mPOS) in the country in 2016 revolutionizing convenient banking. In 2018, the Bank was first to provide online insurance premiums.

Following the announcement of a change in operating name from Barclays to Absa by June 2020, the Bank also adopted a new strategy focused on being a digitally-led organisation.Over the last three years, Absa Zambia have invested over ZMW 100 million in technology to enhance the banking experience of its customers. This has resulted in the Bank having the largest network of intelligent ATMs with deposit-taking, bill payment and funds transfer capabilities. Through a strategic partnership with mobile network operator MTN Zambia and Fintech company Jumo, the Bank introduced the award-winning KONGOLA, a lending product and KASAKA, a savings product that allows customers to borrow and save funds respectively on their mobile wallets.

As a key player in the growth of the economy, the Bank has invested in excess of USD 7 billion in key sectors that drive growth in the economy and continue to look for opportunities to be a key growth partner. Notable projects comprise of  infrastructure development financing which include the Eurobonds arrangement and Public sector financing, Agricultural support particularly with the Zambia Sugar (Illovo) expansion project and support to the energy sector through the Maamba Coal Mine project adding 300 MW of power to the national grid. The Bank also extends support to Small and Medium Enterprises through its Business Banking proposition as it understands that this sector fuels the economy.

Absa Zambia has continued to be a key partner in addressing societal challenges by playing a shaping role in society and has invested more than K15 million in the last three years. Some notable projects include donation of the country’s first Dexa machineto the leading public hospital in the Country, University Teaching Hospital. This machine is critical for the diagnosis and treatment of bone-related illness; sponsorship of Zambia’s biggest football tournament which was rebranded from Barclays to Absa Cup giving local players an international platform to showcase their skills; financial literacy for SMEs and adolescents to spur entrepreneurship and money skills among others.

The transition from Barclays to Absa reiterates the Bank’s commitment to continue operating in Zambia and the continent at large, further according it with an opportunity to enhance its services by offering home-grown banking solutions for the thriving African continent.

How widespread is your presence throughout the region?

Absa Group Limited, Absa Bank Zambia PLC’s parent company, has a presence in 12 countries in Africa, with approximately 42 000 employees. Across the continent, the Group has over 1,000 branches and about 10,000 ATMs.

The Group’s registered head office is in Johannesburg, South Africa, and it owns majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa (Absa Bank), Tanzania (Absa Bank Tanzania and National Bank of Commerce), Uganda and Zambia.  The Group also has representative offices in Namibia and Nigeria, as well as insurance operations in Botswana, Kenya, Mozambique, South Africa, Tanzania and Zambia.

In addition, the Group also has representative offices in London and New York.

Absa Group Limited offers an integrated set of products and services across personal and business banking, corporate and investment banking, wealth and investment management and insurance.

What type of local challenges do you help your clients overcome and how do these solutions add value?

The biggest challenge most clients face in the market is the lack of access to capital. Absa Zambia is currently the biggest lender in the country among financial institutions providing support to key sectors of the economy.

Absa Zambia realises that the biggest challenge most clients face in the market is lack of access to capital to finance growth projects.  Lending to SMEs in Africa is also difficult using traditional credit scorecards because of lack of data and insufficient collateral/security. In informal funding markets, rates can range between 20 – 50%, which is not sustainable for the SMEs. The Bank has therefore taken time to understand our corporate and SME businesses, including the entire sector so that it can support their financing needs adequately. Some of the initiatives the Bank has done include tailoring its lending criteria to the SME sector and collateral provision.

Other initiatives include:

  • the introduction of Business Internet Banking which allows 24/7 convenient banking
  • the SME tool kit, an initiative to assist our customers develop financial statements and business plans in an easier and structured manner
  • Supporting value chains that the African continent relies on for growth through conferences like the Africa Procurement Summit.
  • Linkages to intentional suppliers of goods and services through SME trips to China

The Bank continues to be a key financier of projects that positively impact the economy like the Zambia Sugar expansion project, the infrastructure projects resulting in the building of various malls in the country and the energy sector where the Bank supported the coal-fired electricity plan in Maamba.

Most recently, in the wake of the COVID-19 pandemic, Absa Zambia became the first Bank in the country to announce a Loan Payment Relief Programme in response to the financial impact on a number of economic activities.The Relief Package is a comprehensive solution that applies to the Bank’s credit products, including home loans, vehicle finance, personal loans, as well as commercial asset finance and mortgage-backed business loans. These solutions cut across Corporate, Business and Retail Banking customers to ensure that customers receive adequate support.

With the Zambian society mainly driven by formal employment,Absa understands the growing need to drive an agenda of a more diverse skillset and entrepreneurship. The Bank realises this challenge and has taken deliberate steps to work with different partners to encourage entrepreneurship. Absa Zambia has worked with organisations like the Zambia Development Agency (ZDA) to provide business clinics that offer financing advice including generation of business plans through to unlocking access to finance opportunities.

The Bank offers financial literacy education as part of our support to communities it operates in line with the corporate social responsibility agenda. As part of Absa Group Limited, the Bank has identified playing a shaping role in society as a key enabler and remain committed to being a force for good in society.

With Financial inclusion being a topical issue in Africa, what is Absa Bank doing to improve access to financial services?

The Bank has been a major supporter of Government initiatives that encourage financial inclusion. Absa Zambia works closely with the Bank of Zambia to develop and roll-out programmes that are targeted at the underprivileged, unbanked and rural population with limited access to banking facilities.

The bank has partnered with the country’s Mobile Network Operators to allow the public to access and move money from the bank to the mobile phones through the bank-to-wallet and wallet-to-bank services.

The Bank has collaborated with MTN Zambia to ensure that members of the public with mobile phones access banking solutions without using data.

Through the Financial Inclusion pillar, the Bank has developed banking solutions that are market relevant speaking into our customers’ needs. The Bank has developed products like the Ignition Student Account especially tailored for the youth with features such as no minimum balance and free ATM withdrawals to encourage youths to use and have access to banking facilities.

Furthermore, the Bank has the CashSend facility which is a mobile banking platform function allowing customers to send cash transfers to any mobile number in Zambia and the recipient can withdraw from any Absa ATM using the Bank’s cardless services. The recipient does not need to be a Bank customer or have a bank account. Customers can also pay bills and check account status through mobile banking.

In addition, the Bank has collaborated with MTN and Jumo to offer the award-winning wallet services KONGOLA and KASAKA that allows customers to borrow and save on their mobile phones. More than 27 million loans have been disbursed to customers since the product was introduced on the market over a year ago.

What range of financial management solutions do you provide?

Serving about 200,000 customers, Absa Zambia has a network of 34 branches in all 10 Provinces across the country. The Bank has a network of 124 ATMs with cash accepting capabilities and over 2,000 active Point-of-sale terminals. The Bank is one of the largest employers in Zambia’s financial services sector employing over 800 people across its operations.

Absa Zambia offers a diverse range of banking services for individuals, Small and Medium Enterprises (SMEs) as well as larger corporates. The Bank continues to be a strong foreign exchange business focused ondelivering a unique product portfolio to support customers’ investment plans. In addition, Absa Zambia has robust digital banking offering transactions easier and convenient.

The Bank’s offering can be categorised as follows:

  • Cash Management
    • Operational and Investment accounts
    • Foreign currency solutions
    • Payments, Collections and Channels solutions
  • Trade Finance
    • Documentary trade that includes Letters of Credit, Bank Guarantees and Documentary collections
    • Working capital solutions to include Invoice Discounting, Trade Loans and Supplier Finance
  • Financing
    • Debt and Capital Markets as well as Vehicle and Asset Finance
  • Treasury
    • Sales & Trading, Treasury Services, Wholesale Deposit and Investment Banking
    • Africa Access online platform allowing FX spot, forwards and swaps as well as real time execution in local and major currency pairs up to one year forward

What makes Absa bank stand out from other banks?

Our agenda transcends just meeting the financial scorecard. It is about being a force for good in society. We want to bring possibilities to life. As a Bank that has been in Zambia for over 100 years, we have a deep knowledge of the market and are able to tailor solutions suited to this environment.

Absa Zambia is a forward thinking Bank that has exciting propositions to offer customers in Zambia and across the continent. As part of its new brand identity, the Bank has committed to being a digitally-led organisation making extensive investment in technology to meet the ever changing needs of its diverse customer base.

The Bank prides itself in being a pioneer in technological advancements that have revolutionised the Zambian banking landscape. Its long history in the country gives the Bank an advantage based on the heritage and local knowledge of trends. Absa Zambia is a model investor committed to being part of the solution to a number of societal challenges.

Going forward, the Bank remains committed to offering unique business propositions that are relevant to various customer segments so that it truly is a financial partner to help customers achieve their financial needs.

Absa Zambia is committed to complement Government efforts in fuelling sustainable growth in the economy by supporting key sectors that include Mining, Agriculture, Public Sectors, Energy, Manufacturing, Telecoms, Financial Services, Wholesale and Trading.

Financial inclusion remains one of the Bank’s key focus areas so that financial services are delivered to different customer segments in the country through strategic synergies.

As a new brand in Zambia that is customer obsessed, the Bank endeavours to offer an enhanced customer experience.

*For more about Absa Bank Zambia PLC, its products and services, visit www.absa.co.zm

Interviews

Front line strategies for responding to the COVID-19 crisis: Experiences from legal team leaders around the world

Front line strategies for responding to the COVID-19 crisis: Experiences from legal team leaders around the world 1

By Diane Dix – General Counsel, Total Safety, Marc Michael – Chief Counsel, Global Dispute Resolution, AES Corp, Tim Williams – Senior Counsel, Dispute Management, Wärtsilä Corporation, Susan Dunn – Founder and CEO, Harbour Litigation Finance, Tamer Nassar – Managing Director, Eternal Energy, Derrick Dale QC – Fountain Court Chambers

A crisis like Covid-19 has presented a highly unusual set of challenges for global business.  Whilst, for any business, ensuring the immediate health and safety of its workforce is paramount, a coordinated and considered crisis response strategy is also essential.  Any such response strategy should include the in house legal function to mitigate litigation risk, assist in managing the dialogue with counterparties in business-critical contracts and to horizon-scan for legal and compliance risk which may develop from the crisis.

In this article, London-based Winston & Strawn litigation partner, Ben Bruton, speaks to 4 senior in house leaders, a leading Queen’s Counsel and the founder of a prominent third party funder to draw on their experience of managing their teams through previous crises and to share their perspectives on the legal challenges which businesses are encountering arising out of COVID-19.

BB: First of all, thank you to all of you for agreeing to share your experiences from managing your teams through the pandemic.  As we all worked through the global financial crisis in 2008 onwards, I thought we could start by comparing the consequences of the current pandemic with consequences of the financial crisis.  Do you see similarities?

DD:  When lockdowns commenced around the world, we were better prepared than we were in 2008, in part because this crisis came on gradually so we had time to consider the possible scenarios and plan for them. We spent several weeks ensuring we had business continuity and crisis response plans in place, developing a communications plan and reviewing contracts for force majeure and other relevant provisions. We did not have that luxury in the 2008 financial crisis. What makes this crisis different is that it has significant health and economic impacts, and it is truly global, both of which create a very different dynamic from prior crises. And our response strategies have been much more employee focused.

SD: The main difference between 2020 and 2008 we have seen (as a litigation funder), is that we did not see litigation emerge seeking funding until a very long time after 2008.  It seems people were assessing their position and knew they had, typically, 6 years to bring a claim, and therefore focused on re-building, not litigation, initially.  This time round we have already seen people contacting us for funding of claims because they have to act right now to save their businesses.  This is the big difference.

The other big difference is that litigation funding was less widely used and understood in 2008.  In 2020, it is used by every type of client including those who might well have used funding in 2008 but were not being advised by their external lawyers that it was an option.

TW: The global financial response to COVID-19 was, I think, significantly influenced by the lessons learned from the previous financial crisis: governments moved quickly to signal and implement stimulus and offer support (including direct action on evictions and so on), which I think can only help.

MM: Unlike with the 2008/9 financial crisis, our first priority has been health and safety.  Everyone is concerned about maintaining the safety of our workforce and customers. This has forced us to change the way we work at the plants and corporate offices.  We really did not have to change our methods of working during the previous crisis, although we did worry about the financial wherewithal of certain counterparties.

TN: Whilst the 2008 crisis was financial in nature and the 2020 crisis heath related, the risks to business brought about are surprising similar.  Once again we have been looking at developing strategies to save businesses, save jobs and adjust to what appears to be a new normal.  Now, as then, we are looking at various strategies to reduce costs such as remote working, cutting travel and other related expenses, shedding value-add services such as consultants and the like and renegotiating pricing with vendors.

BB: The circumstances have obviously put supply chains and contractual relationships under significant pressure.  What strategies have you deployed for engagement with contractual counterparties?

MM: The workload in the legal team increased dramatically.  We received literally hundreds of notices claiming force majeure and/or change in law relating to the pandemic or the governmental response to it.  Construction contractors have sought relief in meeting milestones given the disruption to travel and the difficulty in procuring supplies, for example.  Fuel suppliers warned that stay-at-home orders and possible social unrest could impair their ability to deliver fuel to our facilities.  We made an effort to compile and analyze these notices so that we could provide consistent guidance to all of our affected businesses.

SD: From the litigation funding perspective, a key issue is of course the solvency of claimant counterparties and defendants alike.  We always pay close attention to that factor, regardless of these current circumstances. The number one question we always ask of any new matter is how do we and the claimant get paid if the case is successful.  Inevitably there may be some impact on the businesses of particular defendants so we are paying even closer attention to this factor.  And if claimants need putting into administration in order to protect and preserve their claim we will look to protect them in this way.

TN: On the whole, we sought to accommodate our clients’ requests to suspend contracts or otherwise terminate them outside of the scope of the actual terms of the agreement (e.g. notice periods, etc.).  in many cases, we also advised our clients to do the same, such that they are not perceived as being opportunistic in their dealings with clients and vendors.  Suffice to say, we have not been running straight to the contract in these trying times, but taking a rather pragmatic view of things.

DD:  We reviewed all of our key contracts to ensure we understood our contractual rights and obligations so that we were prepared to act swiftly where necessary. We were also very proactive in engaging with our largest customers and suppliers to anticipate any disruption in services. And where projects have been delayed, we have been in regular communication about scheduling to ensure that work could resume as soon as possible. In some cases we have been asked for price concessions and we have asked our suppliers for price concessions. Our experience has been that our contractual counterparties generally are acting in good faith and trying to work together to get through this crisis.

TW: We have been working hard to keep customers, suppliers and stakeholders informed and involved, and to offer both short-term alternatives (such as remote monitoring of the equipment) and medium- to long term business continuity (how long will your safety spares last?). We have found that there have been fewer shutdowns in the supply chain than slowdowns, and we have been humbled by the responses of our individual employees who were prepared to keep going to work to keep the lights on.

BB: What are the key legal issues you have been contending with as a consequence of the pandemic and the government response?

TN: We have had to consider contract terminations and suspensions, generally predicated on force majeure; non- and late payments; employment terminations and furloughs; unilateral price revisions from clients; and disruption to the supply chain in terms of non- and late delivery.

DD: The legal issues have been numerous. We reviewed the various government aid packages in North America, Europe and the Middle East to determine which of them apply to our business; we monitored the state and local shelter in place ordinances to determine whether we are an essential business and can continue operating; we reviewed privacy laws globally in connection with actions to take concerning the health of our own employees as well as evaluating new commercial offerings such as coronavirus screening; and we reviewed contractual recourse, among many other issues.

TW:  Along with everyone else, a priority has been to balance our duties as an employer to provide a safe workplace with compliance with applicable law, changes of law, the practical challenges of restrictions on movement (we have a significant field service offering) with the flurry of force majeure notices, and of course the follow up contract notices that address events of delay. We have not sought to rely on frustration and impossibility to end contracts as we are in long term relationship businesses. We expect to see the impact of hardship to come in terms of insolvency events and possibly even foolish calls on performance bonds, and we have worked hard on alternative sources of supply, logistics and transportation.  The key words have been continuity and cash flow. We need to keep getting paid, and paying our bills.

DDQC: In terms of commercial contracts the main focus has been analysing force majeure, frustration and termination rights under contracts. In terms of insurance claims, analysing the scope of the cover for business interruption claims has been centre stage and I suspect that in addition to coverage, issues of causation and loss will all be highly contested.

MM: In addition to force majeure and change of law issues, we’ve had to consider whether official governmental action in response to the virus may require us to provide to relief to utility customers or may even impair our rights.

BB: You are all responsible for managing teams.  As a final question, based on your experience of the last few months, what guidance would you give in relation to how to manage a team remotely in an effective manner?

TW: If you are not already used to managing teams remotely, get used to the technology, use it, and use it often to stay in touch. Make sure your networks and infrastructure are robust. It also helps to use video where your network supports it to improve the quality of communication. No one wants to spend all day talking to their own screen. Virtual coffee breaks or even lunch breaks can help bring us together, especially if you have ‘lone wolves’ in your team.

MM: We’re a very collaborative organization, with frequent scheduled and impromptu in-person meetings throughout the day.  Over the last few months, that has not been possible, because many of us have been working remotely, so we’ve had to rely heavily on technology to keep us connected.  Videoconferencing has been very helpful with this, and in the Legal group we established guidelines to ensure that people are able to work productively at home and keep in touch with their colleagues.  We also established a weekly call for the global Legal group, and a weekly virtual “happy hour” for the corporate Legal group so that we can connect with our colleagues more socially.

TN:  We found that an effective method of remote team management has been to schedule weekly individual calls to set weekly objectives and review the prior week’s accomplishments.  Communication in between those calls ought to be sparse and generally initiated by the team member, rather than the manager.

DDQC: Ensuring good levels of communication and teamwork within any litigation team is always essential and during the lockdown period we had to double up on this as solicitors and barristers navigated our way through gearing up for remote hearings, which seem to be the new norm for the foreseeable future. In our world ensuring that we have the requisite IT support to do this at all times has been essential. At Fountain Court, we have set up our large conference rooms so we can use them to dial into remote hearings and have leaders and juniors in the same room whilst the hearing is going on as well as having the IT support on hand.

DD: I have led a global team based across various jurisdictions for many years, so I’m very comfortable managing a team remotely. It has been a bigger challenge for colleagues who are accustomed to in-person engagement. They have learned to take advantage of video tools and grown more patient with background noise (children, dogs). As a leadership team, we have focused on frequent communication with our employees, being as transparent as possible about the state of the business and actions we are taking to address the challenges, and we have taken time to joke with one another and have a little fun. I find that when a team is working remotely, especially during a crisis, maintaining camaraderie and a positive outlook is very important.

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Interviews

How mortgage regulations are changing globally

How mortgage regulations are changing globally 2

By Globalaw members Oliver Foerster, Partner @ Huth Dietrich Hahn, Roberto Sparano, Partner @ Quorum Legal ,Paul Tully, Managing Director and Partner @ (McInnes Wilson) ,Tim Meng, Managing Partner @ Golden Gate ,Rory Campbell, Partner @ Hanson Bridgett ,Jose Gutierrez Partner @ Ramírez Gutiérrez-Azpe, Rodríguez Rivero & Hurtado, Andrew Chalmers, Managing Partner @ DCS Legal, Bryan Birkeland, Partner @ Jackson Walker  

What is the most significant change we’ve seen in regulation in the past year?

UK: There are two key bodies that handle mortgage regulation in the UK. The first is the Financial Conduct Authority (FCA) and the second is the Prudential Regulation Authority (PRA). The FCA regulates all home-owner mortgages and lifetime mortgages such as equity release lending. Meanwhile, the PRA determines the amount of money that lenders, such as bank and building societies, need to hold, and the risk controls that they need to maintain. In October 2019, the FCA issued responsible lending rules and guidance covering borrowers who wanted to switch mortgage and were up to date with payments but did not wish to borrow any more money, by reducing barriers to such switches.

On 31 January 2020 the FCA announced a new mortgage advice and selling standards rules with immediate effect and a transition period running to 30 July 2020. These rules are intended to give consumers more choice in how they buy a mortgage and remove barriers created by earlier legislation. The rules centre around ensuring that consumers only pay for specific mortgage advice and ensuring that advisers must explain why they are not recommending cheaper mortgage options.

Germany: There were no significant changes in regulation regarding non-commercial mortgages.

US: The significant regulatory developments in the U.S. residential mortgage industry are:

  • Federal Developments:
    • Mortgage Underwriting: The Consumer Finance Protection Bureau (CFPB) has indicated that the “GSE Patch” (a temporary category under which loans eligible for purchase or guarantee by Government Sponsored Enterprises) will be extended beyond its pending expiration in January 2021. It will permit federally backed lenders continued underwriting leeway in addressing the 43% debt-to-income underwriting standard and is expected to preserve over $250 billion in loan originations.
    • Flood Insurance Reauthorization: The National Flood Insurance Program has been extended until September 30, 2020. It preserves flood insurance for approximately 5 million insurance policies, 22,000 communities, and provides $1.3 trillion in coverage.
    • CMBS Markets: The Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac’s regulator and conservator, has implemented its goal of creating a common mortgage-backed security (MBS) protocol via the “Single Security Initiative.” It is being done via a common securitization platform (CSP) which will now underpin the operations of the $4.6 trillion MBS market.
  • COVID-19 Regulation: The COVID-19 Aid, Relief, and Economic Security Act (CARES ACT) applies to federally backed mortgages, which account for approximately 70% of all residential mortgages in the U.S. For borrowers under financial distress due to COVID, the CARES ACT provides for forbearance (payment delays) on mortgages for up to 12 months. Late charges, extra fees and penalties are prohibited. Limited documentation is required to prove eligibility. Multifamily loans under HUD programs also have forbearance, but under shorter forbearance periods (up to 90 days). Loan servicers on federally backed mortgages are prohibited from starting foreclosures before May 18, 2020.
  • State COVID Response
  • Beyond federal limitations, state and local authorities in many U.S. states have issued COVID-19 focused temporary orders restricting remedies on residential mortgages. These vary state-by-state. Examples include:
  • California’s suspension of residential foreclosures state-wide through May 31, 2020;
  • New York’s 90-day moratorium on the enforcement of foreclosures and prohibitions “until further order” against filing foreclosure actions and other non-essential cases; and
  • Florida’s suspension of residential mortgage foreclosures through May 18, 2020.

Mexico: There were no significant changes in regulation regarding non-commercial mortgages.

China: Since August 2019, China’s central bank (PBOC) has changed the way commercial lenders set interest rates for loans. The mortgage rates will be based on Loan Prime Rate, or LPR, the new benchmark rate system, which will be linked to the PBOC’s medium-term lending facility (MLF) interest rate.

New mortgage loan rates for first-home buyers shouldn’t be lower than related LPRs. It has also been reported that the rate for second-home buyers must be at least 60 basis points higher than LPRs. Also, the loan prime rate is set on the 20th of every month, instead of daily.

Borrowers could negotiate with lenders on how to adjust their interests of mortgage loans each year based on changes of the LPR.

What impact will COVID-19 have in shaping regulations in the future if any?

UK: The FCA issued guidance on 20 March to mortgage lenders specifically dealing with COVID-19. This guidance is to be reviewed in the next 3 months. It is based and builds on two important principles binding mortgage lenders, namely, to treat the interests of its customers fairly, and to act honestly, fairly and professionally in accordance with the best interests of the customer.

The main principles of the guidance are that:

  1. A borrower experiencing difficulties or who reasonably expects to do so, may ask for a payment holiday and if that request is made, a 3 months’ payment holiday is to be offered, unless the mortgage lender can demonstrate that it is reasonable to do otherwise. More favourable arrangements can also be offered such as reducing or waiving interest.
  2. A payment holiday should be offered to anyone that indicates that they are or may be in difficulty making their mortgage payments.
  3. No fee or charges can be applied to any request.
  4. Any request for or any payment holiday agreed must have no impact on the credit rating of any person concerned as this is due to circumstances entirely outside of their control.
  5. No repossession should be commenced or continued at this time. This applies irrespective of the stage which any repossession proceedings have reached.

Germany: The impact of COVID-19 will most likely depend on how fast the country’s economy will recover. If the recovery materializes at a slower than expected pace, it is fair to assume that stimuluses will be introduced to promote the recovery of the economy. Instruments that reduce interest rates and an easier access to lending might be one of those stimuluses. This can lead to higher prices for real estate which – in turn – can change the ratio of equity and debt in relation to the financing of the acquisition prices. Loans are likely to be backed by mortgages. In consequence, the level of indebtedness will increase, and the solvency of the debtors will decrease, thereby also decreasing the value a mortgage can provide to secure the lender.

Another possible instrument could be a regulation differentiating the access to lending by the level of the borrower’s exposure to the COVID-19. For instance, a borrower who is more exposed to other individuals or is employed in an industry which largely depends on the contact of individuals (i.e. the hotel or catering industry) could possibly be treated differently from a borrower who has no such exposure.

Background for this differentiation would be that the more exposed borrower is more likely to be infected and therefore might be considered to present a higher risk to default on a debt. On the other hand, depending on the impact of COVID-19 on the economy, it is also a possibility that the government will guarantee to the lender to a certain extent that a mortgage-backed loan will be repaid. In this scenario, it is likely that the regulation on mortgages would be relaxed.

US: COVID-19 is disrupting every aspect of the U.S. economy and social life. It will continue to effect massive political, legal and social changes. Stop-gap regulatory responses will continue to attempt to “flatten the curve” of this disruption, but it is hard to see how the industry and the legal infrastructure can manage the fallout (it is still hobbled by lockdown in many places). With over 33 million people filing for unemployment and an unlikely V-shaped recovery, lenders will be facing a tsunami of distressed borrowers, mortgage defaults, impaired collateral, and deteriorating credit quality.

While the residential real estate market has been particularly hard hit, in recent weeks effective short-term solutions have been created for both homeowners and mortgage servicers. Depending on the length and severity of the economic impact created by COVID-19, it has yet to be seen if these temporary adaptations will result in longer-term changes for the residential mortgage market.

Lenders are likely to seek relief (and receive it) in adjusting underwriting standards and recalibrating debt-to-income and credit quality standards. It is also likely that banks may propose that the Federal Reserve and Treasury establish a credit facility for mortgage servicers, who are being hit hard by the relief provided to borrowers.

For borrowers, we expect continued stopgap measures to spread out payment regimes in the short-term. Despite major efforts to provide liquidity for the market via monetary policy and stimulus programs, borrowers are faced with a highly damaged economy, rent strikes and impaired income prospects. They will enhance bottlenecks in having loans underwritten, as lenders attempt to respond to an evolving regulatory and economic environment. However, federal, state and local temporary mortgage forbearance measures as well as moratoriums or restrictions on foreclosures and evictions, in particular, seem unlikely to continue for the long-term after the economic impact of the COVID-19 situation stabilizes.

Mexico: COVID-19 is more likely to have an impact on business practices and not so much on legislative matters, since the consequences and results of an event such as this one is already regulated. However, when drafting an agreement, the will of the parties mainly dictates the rules, and for this reason, the impact would be reflected in the clauses of the agreements when dealing with acts of God and force majeure events. For this reason, it is likely that moving forward, these types of clauses will play a greater role in all kind of agreements, including the insertion of rules and exceptions for the enforcement of a mortgage guarantee under a scenario like the one we are currently facing.

China: Since January 2020, the China Banking Regulatory Commission and other governmental agencies released a number of measures to outline the special circumstances being implemented as a result of COVID-19. Under these measures, generally, financial institutions should flexibly adjust personal repayment arrangements such as housing mortgages and reasonably postpone the repayment period. Also, financial institutions are encouraged to negotiate with borrowers and appropriately reduce the interest on individual housing loans for those who temporarily lose their sources of income due to the pandemic.

In practice, most banks should grant an extension for instalment repayments for borrowers = affected by COVID-19. For example, for those who have lost their income temporarily due to the pandemic, the Bank of China (BOC) can offer 3-6 months’ delayed repayment arrangements dependent on individual circumstance. Another example of this is if confirmed or suspected cases or their spouses are overdue in making repayment during the pandemic period, the China Industry and Commerce Bank will not consider this a breach of contract or include them in the list of defaulting customers.

During the COVID-19 outbreak, banks and other financial institutions have been encouraged to actively use online technical means to handle banking services. In the event that borrowers could not apply for the extension of the banking agreement and sign the extension agreement through traditional face to face meetings, the banks could take the form through a non-contact approach, primarily through online financial services tools such as WeChat to solve the problem.

What regulations can we expect in the future?

UK: COVID-19 is likely to have a long-term impact on the economy and so it may well be that the guidance issued and referred to above will be extended beyond its initial three-month term. If the economy returns to normal, it is unlikely that COVID-19 will result in any specific new regulations in what is already a heavily regulated sector.

Other regulation that looks likely is facilitating the ability of borrowers to switch mortgage providers more easily. Research published in March 2019 shows that borrowers are reluctant to switch even if they could get far better deals elsewhere. The FCA is looking to intervene to help borrowers who do not switch and is issuing a consultation paper on potential remedies later in 2020, which may lead to new regulations.

The PRA is expected to introduce new mortgage reporting requirements for regulated home lenders and home finance administrators effective 1 October 2020.

Germany: We’re likely to see legislation geared towards breaking the vicious circle of cheap money, high real estate prices, increase of indebtedness of the acquirer, decrease of acquirer’s solvency, and decrease of the value of a mortgage for the lender; regulation might be introduced to limit the ratio of the acquisition price allowed to be financed by loans and backed up by mortgages.

US: If a new administration is elected, especially if the majority of the Senate shifts, significant “New Deal” restructuring can be expected.

On a more pragmatic level, the need to improve logistics surrounding closings has become quite evident as a result of state and local orders that have closed businesses, including title companies, and imposed social distancing requirements that often make in-person closings difficult or impractical. While virtual closings would seem to present an answer, current laws pertaining to electronic signatures, recordings, and notarizations make closings in an online world more difficult. The SECURE Notarization Act, proposed in March—permitting remote online notarization nationally—may, if passed, be a first step in the path to a digital transformation of the mortgage industry.

Mexico: There are a number of financial institutions which have been granted grace periods and subsequently restructured under certain conditions the repayment of loans, as otherwise a high volume of lenders would default, pushing lenders to foreclose a large sum of mortgage guarantees; a situation similar to what we saw during the 2008 financial crisis, which is not a desirable outcome for lenders or providers.

As a result, the Bank of Mexico and the Mexican Bank Association have issued policies to considerably reduce the inter-bank interest rate  as well as to negotiate its payments terms for four months in order to support the real estate market, which has been paralyzed to date as a result of COVID-19.

However, these conditions have developed through the will of the parties concerned and not through a binding decree or regulation. Therefore, in order to protect the interests of the parties involved, we could see future regulations of a public nature that bind financial institutions to behave similarly in the treatment of delinquency interest and in the terms of loan payments.

China: There is currently a high level of financial pressure and an increased risk of defaults. As a result of this, debt restructuring volumes will increase. It is also likely that the interest rate will be reduced for a prolonged period. Other measures such as debt relief and tax cuts may also be adopted to promote business activities.

Online technology and big data related technology will also be encouraged to use to make lending process more quickly and efficient.

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Interviews

Delivering Innovative Wealth Management Solutions

Odetta Morton

For more than half a century Deltec Bank & Trust has been providing global private banking services to high net worth clients. Deltec Bank & Trust has delivered comprehensive financial solutions and exceptional client support to meet the international wealth management needs of successful individuals, families, and businesses.Since becoming CEO in 2019, Odetta Morton has focused on leveraging Deltec’s unique global network to serve its private and corporate banking clients with an emphasis on efficiency, innovation, and the highest ethical standards.

In the process, Mrs. Morton has made Deltec Bank & Trust an agile, innovative and solutions-driven institution. Deltec has consistently built on its client service, and Mrs. Morton is committed to growing shareholder value by building the bank of the future with access to the most unique network of opportunities for its clients. On the occasion of winning Best Private Bank in the Caribbean 2020

Global Banking & Finance Review interviewed Mrs. Morton, CEO of Deltec Bank & Trust to find out more about the bank and their plans for the future.

Congratulations on your award- winning success. What initiatives do you feel have led to your success?

Thank you.

I attribute our success to the extraordinary talent that extends across our organization. Our success has always been because of the people who work tirelessly to ensure that we give exceptional service to our clients.

As a team, we’re focused on the future, trusting disruption and investing in technology that delivers 24/7 financial solutions. This audacious approach drives our team to offer award-winning wealth management and financial services.

What are the biggest challenges you see taking place right now and how is Deltec Bank & Trust prepared to help clients navigate this difficult time?

Within the last few years, Deltec’s main focus has been to ensure we have a business model that can withstand the pressure of an ever changing financial environment, which is faced with major disruption due to new regulations, a changing customer base, and emerging digital technologies.

These preparations have helped us tremendously to transition to the COVID-19 dilemma we see today. We have been focused on resilience, having developed a robust and tested business continuity plan as part of our enterprise risk management framework as an essential of component of the Bank’s business model.

With our headquarters positioned in a hurricane belt, we are no stranger to facing crises and our enterprise risk management framework has served us well in this unique environment.

Additionally, our conservative strategy serves as one of Deltec’s advantages – with healthy liquidity ratio, no debt, no proprietary trading, zero commercial loans, and no leverage. We remain conservative in our credit policies and commitment to sound capitalization. These prudent practices ensure that there is no threat to the Bank’s sustainability, safety and soundness.

We are well-served by our commitment to and investments in technology to transform the way we work: rapidly responding to this challenge, finding opportunities and quickly scaling effective solutions for our clients.

In our discretionary portfolios, we have ensured that we are in the best possible position to deliver both investment services and ongoing performance in the face of the uncertainty posed by COVID-19.

As the pandemic has unfolded, we have been proactive and agile in our strategic response. Our team has come together with a renewed commitment to confront new challenges to ensure that we thrive in the new normal.

We believe that these times have revealed why Deltec is so special:

  • our team is guided by our mission to serve and protect our clients; and
  • our commitment and flexibility to rise above the challenges of this moment by solving difficult problems in real time.

How has client’s attitudes towards wealth management changed over the past few years?

With new digital technologies and an always-on culture, clients expect wealth management solutions to be available 24/7. It’s important to add that there is a new generation of clientele emerging- the savvy and empowered digital consumer – who is interacting with their bank in completely new ways.

This is why the role of fintech has become so prominent. Clients want to be more involved in the way their wealth is managed and protected.

At Deltec Bank, we have embraced this and invested in a digital transformation designed to not only provide 24/7 financial services but revolutionize how wealth management and financial services are offered today.

Client relations have always been at the core of your banking operations. Why is this and how do you continue to strengthen these relations?

Quite simply, we provide a network of unique opportunities with white-glove service to our clients. Our approach is two-fold. On one hand, we take the time to understand our clients, their unique situations and we build around that. On the other hand, we have embraced that our service must be available in real-time and available across different time zones. Our technology plays a big role in that. Our clients can interact with us based on their preferences and our expert team of professionals are committed to giving our clients world-class solutions and service.

How do you support clients’ in achieving planning for and achieving their financial goals?

We believe that understanding the financial needs and goals of our clients is one of our most important responsibilities. Whether the client already knows what they require, or would like help developing an appropriate investment and wealth plan, we seek first to understand. This allows our team to more accurately leverage Deltec’s in-house financial and investment expertise and match clients with the right solution for them.

From an investment perspective, we simplify the process for our clients by offering a selection of discretionary model investment portfolios to match their risk profiles. From there our experienced team of investment analysts and portfolio managers make clients capital work for them, applying Deltec’s robust investment framework to investment markets.

Moreover, one of the distinct advantages of Deltec is that we’re a true financial partner to our clients. The Deltec International Group offers diversified solutions, ranging from fund administration, corporate advisory, merchant banking, global insurance to digital asset financial services, therefore at Deltec Bank, we’ve been able to create synergies to match our clients with a wide range of financial solutions.

With over half a century of operations, you are now servicing several generations. What are the challenges in multi-generational wealth management?

Every generation has a distinct set of values, thinking patterns and expectations. For example, we know that the new generation of wealth management clients, which include Gen X and Gen Y, even baby boomers who have been influenced by the younger generation expect to have more control over their finances and are less concerned about authority than previous generations – in fact, they lean on their peers for feedback and advice.

One of the ways we’ve been able to successfully service multi-generational wealth is by being a pioneer in the wealth management industry. At Deltec, we always embrace the future and anticipate what’s next. This approach has positioned the Bank to meet and exceed the expectations of the many generations of clients we serve.

What role is technology playing in the development of services for wealth management?

Technology is changing the way our clients interact with us and enhancing how we deliver financial solutions. We see this transformation happening in many other industries and wealth management is no different.

At Deltec, we’re leveraging technology to provide one of the most advanced wealth management platforms, pioneering models and algorithms for real-time financial solutions based on individual client suitability and preferences. As an international bank, we’ve place priority on 24/7 wealth management and financial services, and technology is the engine behind that.

How does Deltec Bank & Trust support the socio-economic development in the Caribbean?

Deltec Bank has long held strong ties within the local community in The Bahamas through our Deltec Initiatives Foundation, which was designed to foster an environment that empowers young Bahamians to drive positive social impact through the power of arts, entrepreneurship and education.

Since 2013, the foundation has discovered, launched and mentored many talented, motivated and driven Bahamian artists, artisans and entrepreneurs. The Deltec Initiatives Foundation comprises three pillars: The Initiative for the Arts, The Initiative for Young Entrepreneurs and The Initiative for Scholarship & Education.

What can we expect to see from Deltec Bank & Trust over the next 3 years?

Over the next 3 years, I expect to see a complete transformation of wealth management and financial services, and Deltec will be at the forefront of the advanced thinking emanating from the industry. Our technology and processes will provide a model for private banks and wealth managers around the world and deliver even more value to our global clients 24/7.

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