SWIFT’s annual SIBOS conference and exhibition will take place in Boston, USA, from 29 September to 2 October 2014. This is perhaps the most anticipated event for the global financial community to come together and discuss issues and trends in the areas of payments, securities, cash management and trade. Over 7,000 decision makers and experts from financial institutions, multinational corporations and technology partners are expected to congregate over the four days of the conference.

Asian banks have in recent years been expanding their transaction banking business more aggressively as they follow their clients across borders within Asia and into key markets such as the US and Europe, as well as new markets such as the Middle East and Africa. Connectivity, the ability to link up platforms across multiple banks/partners with different standards and protocols has been one of the key challenges as they seek to serve customers in multiple locations across different jurisdictions and currencies. Domestic banks looking to grow their business have always looked at global connectivity as a key differentiating factor.

Increasingly these financial institutions are looking towards more collaborative and mutually beneficial partnerships with their international counterparts to extend their reach and build expertise to serve diverse customer requirements across different markets with complex characteristics and challenges.

As part of The Asian Banker’s coverage of the event, we interviewed the heads of financial insitutions (FI) business at Bank of America Merrill Lynch, Soumen Sircar, and JP Morgan, Lim Kiat Seng, and asked them about the issues that Asia Pacific financial institutions are facing and what they can expect the event to address this year.

How are Asian FIs doing this year on the transaction banking front?

Soumen Sircar, managing director, head of financial institutions, Asia Pacific, global transaction services, Bank of America Merrill Lynch (BAML), feels that on the correspondent banking front Asian banks’ businesses are growing. They have raised money in international markets either through bond issuances and placements. As such, they are generally strong from a liquidity standpoint and well-placed to meet Basel III requirements. As a result trade financing has become more broad-based. It is moving away from traditional lenders towards increasing numbers of EMEA-based, Australian and Middle Eastern banks. From where BAML stands, smaller local banks are generally more concerned as the larger correspondents are making a play to be only on the large bank names.

Lim Kiat Seng, head of APAC FI sales at JPMorgan feels that Asian corporations are increasingly prominent in building their businesses across regional borders and also into key international markets like the US and Europe. As a result, Asian banks have been expanding their offerings aggressively over the past few years and finding a niche to serve their domestic clients in these new markets. This is particularly true for Southeast Asian banks, where they have been active in solutions around trade finance and transaction banking. These bring the banks ‘sticky’ and lucrative revenue streams. In North Asia, JPMorgan is seeing some of the biggest domestic banks expand their business primarily through traditional lending activities, which are more suited to their needs of their own client base.

Fred DiCocco, MD, head of sales & relationship management APAC for BNY Mellon Treasury Services business feels it varies by country, with money center markets and large economies acutely focused on transaction banking, but overall most banks across Asia and across APAC appear to be re-investing in their transaction banking product line to maximize the value of fee revenue growth, particularly in the prevailing low interest rate environment over the last few years. Banks in the traditional money center markets of Australia, Singapore, Japan, Hong Kong plus the dominant China economy continue to expand transaction banking capability, both in support of the local domestic markets but also expanding their regional and international presence. 

Nancy So, MD and regional head of cash management for financial institutions sales, AP GTB, Deutsche Bank feels that Asian FIs are willing to see beyond short-term growth for a more sustainable long-term steady growth. As such they are putting a lot of best practices in place and re-adjusting their client portfolio to focus more on the SMEs and privately-owned enterprises as well as to increase fee-based income, whether it is in Indonesia, Singapore, India or China. The shift to SMEs and privately-owned enterprises will ensure that they get more banking support, which reflects the importance of this segment as a future engine of economic and trade growth in the region.

What are some needs of Asian FIs that have to be met by their global counterparts? Do these needs differ from country to country?

Sircar sees Asian FIs focusing on more transparency, especially surrounding the impact of new regulatory guidelines. This includes what they should be doing and changes needed to their systems. Furthermore, financial institutions are demanding credit at cheaper rates, enhanced training, exchanges of thought leadership, new products, adding efficiency features in existing products, supply chain, referrals as well as reciprocity and cross-sell – especially services from a local currency perspective.

Lim says Asian banks and their global counterparts have been working closely together in terms of the inbound or outbound business, as they have done for many years. Distribution and complimentary capabilities are the key focal points in these relationships, with domestic banks able to provide a greater depth of in-country services to a global bank’s clients, while at the same time leveraging that global bank’s capabilities and international reach so as to support their own home-grown clients internationally. The challenging part will be linking up platforms across multiple banks/partners and the different standards and protocols currently being used. Over the next few years, there will likely be greater adoption of bank agnostic protocols, which will give corporate clients greater flexibility and easier access to standardised platforms and processes, which ultimately will help them manage cost pressures in their own business. For banks, the emphasis will therefore need to be on differentiating factors such as global connectivity, the breadth of their network, financial strength and the quality of value-added strategic advisory services.

DiCocco feels that banks need to center around alternative pricing schemes, alternative payment options (wire vs low-value ACH), multiple currency offerings (particularly relevant as banks continue to reduce the number of correspondent service providers. Having one or a few banks serve across multiple currencies is increasingly cost effective), liquidity management on a global scale, information and data analytics, trade finance processing such as supply chain services, pending adoption of SWIFT BPO, continuing development of open account services, and lastly, increasing demand to help navigate the compliance and regulatory landscape.

So sees most Deutsche Bank clients in Asia looking for support in the whole value chain. The key differentiator for Deutsche Bank's financial institutions client relationships is to stay relevant to their needs and provide innovative solutions. For example, the need to look at the demographic change in emerging markets and the shift taking place in the economic structure of Asian economies that will drive future requirements. The bank may see more private wealth clients coming from countries such as China and Indonesia rather than developed countries like the US in the future, and they may want to buy into alternative investments other than real estate and make cross-border payments for overseas studies. This also means that there will be a need to develop products that fit their needs. 

How do you see domestic banks in Asia?

Domestic regional players end up being clients, feels Sircar. BAML services needs that they cannot themselves meet. This could be transaction services, debt capital market, equity capital market or investment banking. These are areas in which we clearly have expertise but also where BAML needs to leverage on their network, domestic products and services, interbank dealings, treasury, currency, etc. Overall, Sircar thinks that banking is the only business segment where entities are partners first as they leverage on each other’s strengths to service their respective underlying clients.

Lim feels that it’s really all about being in collaborative and mutually beneficial relationships with Asian banks, rather than competition. The value JPMorgan brings to the table is its international reach, expertise around complex multi-market, multi-currency solutions, and advice in helping domestic and pan-regional financial institution clients better serve their end customers as they grow. JPMorgan also relies on having strong local banking partners so that they can offer global multinational clients a range of efficient, practical and cost-effective solutions in a particular market.

DiCocco is of the opinion that mega Japanese banks are competitors both within Japan and internationally. Chinese banks are investing a lot in their NY and international branches to initially service their own network but eventually compete with international money center banks. Others would be classified as coopetition. Taiwan banks are aggressively expanding in to mainland China and South Asia but to serve their own client base. Major ASEAN banks in Singapore and Malaysia similarly are expanding regionally but more to serve their customers’ regional expansion.

To So, the bank's approach is to form long-term strategic partnerships with financial institution clients and support their global expansion as they follow their clients. For Duetsche Bank, it plays to their strengths. The bank also has clients who are building their own transaction banking business, and they look to Deutsche for more holistic services. The bank is part of that value chain by addressing their payments and liquidity management needs. 

What are some of the external factors that can change the needs of your Asian FI clients?

Sircar feels that managing liquidity and how much a correspondent bank can hold or pay is always going to be a factor for FI clients. Issues such as the client selection process, whether a correspondent sticks with the bank, AML challenges and how will banks like BAML react to adverse news and credit supply are also factors. Both trade and general issues like bilateral loans and interbank placements are also areas that change.

External factors such as the degree of regulatory reporting to be done can have an impact on Asian banks, feels Lim. As the regulatory environment changes and increases in intensity and complexity, this places a variety of additional demands for resources on banks who service clients in more than one jurisdiction. This leads to a demand for solutions that can help them do business in a more cost-effective manner while still maintaining proper risk management.

DiCocco feels that interest rates, particularly US rates due to the prevalence of the USD as a regional settlement currency, are driving Asian bank’s needs. Another key factor is the increase demand of regulation and compliance.There is also the matter of the influence of the China economy on the regional Asian landscape.

So says there are three major factors which will change Deutsche Bank's clients’ needs. One is the regulatory environment; for example, the new Basel III requirement of intra-day liquidity reporting, and the implications this may have on their Asian financial institution clients. The second factor is how the geo-political changes will impact the global economy and trade in Asia, and third, how non-bank e-payment platforms will change the landscape of the payments industry.

What can Asian banks expect at SIBOS this year, and what kind of issues will be pertinent to them?

AML concerns and investigations on transactional flows, which are unprecedented, are likely to be hot topics at SIBOS. Basel III and the changes that it is expected to bring – especially to correspondent banking dealings, interbank liquidity, assets growth and focus on asset quality are other conversations Sircar expects to see. Liquidity and its availability and pricing will also be topical, but Sircar is mindful that banks are at different points in the pricing spectrum on same risk.

Lim feels the landscape around regulatory reporting is bound to be a big issue for discussion at SIBOS and how Asian banks can meet the new guidelines and rules effectively. Other issues he expects to be hot at SIBOS this year would probably include payment technology innovation, market infrastructure harmonisation and some more mainstream topics such as how everyone can benefit from big data.

DiCocco has no doubt that a lot of discussion will hinge on regulations and compliance. There are also hot topics such as Big Data and information management, developments in trade finance, payment technology vendors, and planning for the “post” financial crisis economy.

According to So, Deutsche Bank will be introducing to their clients some yield enhancement products, which are very important given the current interest rates, and they also anticipate that many discussions will be around compliance-related issues, including how to manage the FATCA registration requirements and longer-term implementation process. 

Categories:

Basel III, Liquidity Risk, Operational Risk, Risk & Compliance, Risk and Regulation, Technology & Operations, Trade Finance, Transaction Banking

basel III,Liquidity Risk,Oprisk,Risk & Compliance,Risk and Regulation,technology,Trade Finance,Transaction Banking,

Basel III,Liquidity Risk,Operational Risk,Risk & Compliance,Risk and Regulation,Technology & Operations,Trade Finance,Transaction Banking,

Keywords:SIBOS 2014, SWIFT, JPMorgan, Bank Of America Meryll Lynch