Guidance is required when walking the emerging markets tightrope, says Paolo Spada head of CEE Global Transaction Banking at Unicredit
Nothing better illustrates the fragile interplay between risk and reward than business involvement in the emerging markets. Indeed, prolific emerging market growth in recent years has been stimulated, in part, by this fragility, with profit margins widening as a corporate assumes more risk. The Central and Eastern European (CEE) region is a clear example of this, with manifold business opportunities for those who venture into this volatile market.
Yet harnessing the region’s business potential while simultaneously reigning in the risk is like walking a tightrope, and is certainly one that would prove difficult without guidance.Strong relationships between corporates and their banking partners have thus become essential in the world of business, and represent another collaborative step towards breaking down the remaining barriers to globalisation.
Bank-corporate relationships have become increasingly complex. Before globalisation took a hold of the business sector, banks played a far more static role in their clients’ affairs – supporting their needs within constituent markets while co-operating internationally through correspondent relationships with fellow banks. But with corporates now heading further afield in search of new opportunities, their banking partners have adopted ‘follow-your-client’ strategies.This acknowledges the need for a multifaceted approach in order to stay in tune with clients’ requirements when exploring new but often highly complex business environments. The CEE region is key in this respect. There is strong growth potential due to geographical positioning and infrastructural needs. Yet the knock-on-effects of the 2008 global financial crisis still linger in the region, meaning that CEE – as an emerging market region for corporates to exploit –presents a number of critical challenges.
Many corporates are now recognising that they need to position themselves strategically within CEE in order to fully enjoy the fruits of long-awaited recovery. But previous speculation – regarding the probability of convergence between the business landscapes in the eastern and western halves of Europe – has proved unfounded. Differences remain between the CEE region and Western Europe when it comes to business practices.
This, of course, throws up problems for multinational participation in the area. The Russia-Ukraine conflict is one among several recent issues that have rendered the region increasingly volatile. Such complexity demands bank involvement on an intimate basis. While IT infrastructure and logistics can be managed from afar, some form of on-the-ground presence is essential for operations, as corporates often require local knowledge in order to be assisted over the regulatory, cultural and legal hurdles.
Knowledge breeds responsibility
Corporates therefore solicit more than just payment services from their banks. Advisory services are also a crucial need.In turn, this requires a partnership approach between banks and corporates. While in the past, businesses worked with a variety of banks on a multi-contractual basis to cover separate regions (and even within separate markets), corporates now look for a single banking partner that can provide the same breadth.Thus, banks must be comprehensive in their coverage so as to remain competitive. They must hire or train individuals with expertise in both regional and global markets, in order to gain perspective at both a macro and a micro level.
The value of local insight and its impact on credit pricing cannot be underestimated, particularly in a region as systemically ambiguous as CEE. Indeed, legal requirements vary according to region and can be difficult for multinationals to manage without a knowledgeable, on-the-ground, presence to guide them.While a number of initiatives have moved the region towards standardised regulation in Europe and even globally– namely SEPA and the Basel Accords– their implementation in the CEE region continues to be heterogeneous(i.e. jurisdictional) and regionally nuanced.
In 2016, however, SEPA-compliant payments formats become mandatory for all euro-denominated payments, including those collected by non-euro counter parties. Corporates in CEE must prepare for the transition: something that, again, they will look to their banking partners to facilitate. UniCredit, for example, has already geared up to do so, and is helping clients become SEPA-compliant in advance of the 2016 deadline.
But beyond concerns regarding regulatory differences, variances in culture and language can pose a significant challenge when it comes to doing business in the emerging markets, and is another area in which banks can help their clients. Indeed, many of our Western European clients request management advice when dealing with their business partners in the CEE region.
In Europe’s current turbulent geopolitical climate, and with further enforcement of regulation not far off on the horizon, cooperation between corporates and their banking partners is key to weathering the storm. And as businesses globalise and emerging economies deepen their participation in the wider market, corporates will increasingly look to their banks to provide them with the tools they need to thrive.
European shares end higher on strong earnings, positive data
By Sagarika Jaisinghani and Ambar Warrick
(Reuters) – Euro zone shares rose on Friday, marking a third week of gains, as data showed factory activity in February jumped to a three-year high, while upbeat quarterly earnings boosted confidence in a broader economic recovery.
The euro zone index was up 0.9%, with strong earnings from companies such as Acciona and Hermes brewing some optimism over an eventual economic recovery.
The pan-European STOXX 600 index rose 0.5%, as regional factory activity was seen reaching a three-year high on strong demand for manufactured goods at home and overseas.
Another reading showed the euro zone’s current account surplus widened in December on a rise in trade surplus and a narrower deficit in secondary income.
Still, the STOXX 600 marked small gains for the week, having dropped for the past three sessions as investor concern grew over rising inflation and a rocky COVID-19 vaccine rollout.
But basic resources stocks outpaced their peers this week with a 7% jump, as improving industrial activity across the globe drove up commodity prices.
“This week’s slightly adverse price action has all the hallmarks of a loss of momentum temporarily and not a structural turn,” said Jeffrey Halley, senior market analyst at OANDA.
“There is not a major central bank in the world thinking about taking their foot off the monetary spigot, except perhaps China. (Markets) will remain awash in zero percent central bank money through all of 2021 (and) a lot of that will head to the equity market.”
Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields.
The bank’s relaxed stance was justified by the euro zone economy requiring continued monetary and fiscal support, as evidenced by a contraction in the bloc’s dominant services industry in February.
The STOXX 600 has rebounded more than 50% since crashing to multi-year lows in March 2020, with hopes of a global economic rebound this year sparking demand for sectors such as energy, mining, banks and industrial goods.
London’s FTSE 100 lagged regional bourses on Friday due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years. [.L] [GBP/]
French carmaker Renault tumbled more than 4% after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz rose following upbeat trading forecasts.
(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Shailesh Kuber)
ECB plans closer scrutiny of bank boards
FRANKFURT (Reuters) – The European Central Bank plans to increase scrutiny of bank board directors and will take look more closely at diversity within management bodies, ECB supervisor Edouard Fernandez-Bollo said on Friday.
The ECB already examines the suitability of board candidates in a so-called fit and proper assessment, but rules across the 19 euro zone members vary, so the quality of these checks can be inconsistent.
The ECB plans to ask banks to undertake a suitability assessment before making appointments, and they will put greater emphasis on the candidates’ previous positions and the bank’s specific needs, Fernandez-Bollo said in a speech.
The supervisor also plans more detailed rules on how it will reassess board members once new information emerges, particularly in case of breaches related to anti-money laundering and financing of terrorism, Fernandez-Bollo added.
Fernandez-Bollo did not talk about enforcing diversity quotas, but he argued that diversity, including diversity in gender, backgrounds and experiences, improves efficiency and was thus crucial.
“Supervisors will consider furthermore all of the diversity-related aspects that are most relevant to enhancing the individual and collective leadership of boards,” he said.
“Diversity within a management body is therefore crucial … there is a lot of room for improvement in this area in European banks,” he said.
(Reporting by Balazs Koranyi, editing by Larry King)
Where are we with Open Banking, and should we be going further?
By Mitchel Lenson, Non-Executive Chairman, Exizent
Open Banking has the power to revolutionise the way we manage our money, but most (65%) consumers are still not aware of it, while many financial institutions continue to treat it as an obligation rather than an opportunity.
For Open Banking to truly reach its potential, consumers need to have more trust in its benefits. However, this will only happen if banks and other financial institutions start to embrace it, rather than simply accept it.
Covid-19 has proven to banks that digital banking and open finance innovation is not simply a ‘nice to have’. It is vital for their own survival. With so many challenger banks now coming into the market, many of whom have entirely digital models and therefore invest heavily in technology, banks are starting to become aware that if they don’t embrace it, they’ll get left behind.
So, fuelled by a mixture of competition and Covid-19, banks are starting to realise that Open Banking is not about giving away valuable data, but it is about collaborating with third party fintechs to explore the endless opportunities data sharing can bring – to all sides.
By making open finance easier for developers, banks can not only save time and money by improving their own services but help create useful solutions that add real value for their customers.
Open Banking for all?
There is one, yet untapped area of consumer finance that could be immeasurably improved by Open Banking, and that is estate administration.
Recent research from Which? found that many executors contend with delays, errors and poor knowledge from their banks during the probate process. Our own research shows that most legal professionals admit the process does not work as it should, and the time it takes to complete probate is unacceptable.
Like the Which? survey, we found that the main issue is the administration involved, with most legal professionals saying that the time it takes for financial institutions to get back to them with the information they need is the main cause of delays.
Given that the system is not working for consumers, something clearly needs to be done. The good news is that the technology and data is already available – we just need to harness it to create a better system.
That is why we are developing the first ever platform to connect executors, legal professionals, and financial institutions to create a better, quicker, and more secure probate experience for everyone.
Our first release of the platform – a bespoke cloud-based solution to enable legal services firms to integrate directly with financial institutions making information gathering and processing more straightforward – was released in 2020. We are now building on that foundation to accelerate our development work with financial institutions to deliver additional value for all sides.
We also see huge potential in working with banks to utilise the digital financial infrastructure, powered by Open Banking, to improve things even further. But there is one, fairly sizeable issue – currently, Open Banking consent ceases at the point of death.
Is it time for legislative change?
Open Banking is not as open as is should be for those who can give consent, so we are certainly some way off from Open Banking for the deceased. However, the more that banks acknowledge Open Banking and its potential and are prepared to collaborate with third party fintechs to develop better experiences for consumers, the more likely we are to get to a point where we can tap into that potential to improve things for the bereaved.
Many of the problems – highlighted by Which? – that consumers face when managing someone’s estate could be reduced significantly if open finance continued to apply to the deceased.
Open Banking provides a huge opportunity to speed-up and reduce friction for loved ones faced at some of the hardest moments of their lives, and there is a strong argument here for the current position to be reviewed to enable better access to a deceased person’s assets.
With our current platform, we are showing how technology is playing an incredibly significant role in dealing with the complex, tangled process that is probate and the potential of open finance in radically enhancing what we are already doing cannot be understated.
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