Commentary

The origination of the ongoing crisis of Non-Performing Assets (NPA) in India cannot be attributed to a single event nor can it be confined to a particular timeline. It was only in the mid 1990’s; post the economic liberalization when the country entered into the new millennium that the banks realized the sudden compounding of bad loans. The NPA situation essentially propelled in the mid 2000’s following over-optimism in the economy specifically between 2006-2008, on the back of strong economic growth and pending infrastructure projects completing on time and within specified budgets, a thing largely unheard-of till then. This irrational exuberance was followed by number of bad loans being advanced by the banks often by compromising due diligences. Riding on this positive environment, corporations were being granted loans based on recent performances and growth. Loans were being advanced at an alarming rate, and these corporations grew highly leveraged which led to most of the financing through external borrowings rather than internal equity. However, though post the global financial crisis of 2008, the bubbled economic growth stagnated and the repayment capability of the same corporations substantially decreased causing unparalleled financial stress on the banking and the corporate sectors. The strong projections for various projects started seeming unrealistic and it became increasingly clear there was no set structure in place to recuperate these loan advancements.

Deteriorating asset quality led to enhanced provisioning, reduced profitability and a subdued capital position has created a challenging period for the Indian banking system. Poor asset quality levels also necessitated capital infusion into several banks, especially in the government owned banks. Policy measures like resolution under the Insolvency and Bankruptcy Code (IBC) has helped the banks in recoveries of certain bad accounts. The government has taken decisive measures towards consolidation of the banking sector by creating fewer banks of significant size which would be easier to operate and capitalize. Further, the government has announced infusion of capital to enable transition of these banks.

With increasing volumes of data, and the introduction of Artificial Intelligence (AI) and Machine Learning (ML) technologies, models are at the heart of every financial institution (FI)’s operations. But as FIs increasingly rely on model outputs for decision-making, the focus on model risk – or risk of errors in the development, implementation, or use of models – has continued to gain momentum.

Some might still perceive millennials as a generation of teenagers obsessed with avocado toasts and fancy festivals. However, the upper bracket of today’s millennials are now almost 40 years old and many of them are entering their prime spending years. Over the next three decades, millennials would have inherited 30 trillion US dollars, and by next year they will make up 50% of the total global workforce.

Traditional banks are under fierce rivalry from new competitors, both big tech companies and smaller fintech start-ups. Initially, existing regulators were making it harder for new entrants to challenge banks, but this is starting to change. In Hong Kong, Chinese technology firms such as Alibaba, Tencent and Xioami were recently granted virtual banking licenses. They can now compete head-to-head with traditional banks on a level playing field. To preserve their market share, banks need to reposition themselves in the market and offer customers a better digital experience. Simply hiring a digital team and occasionally implementing stand-alone digital initiatives will fall short.

The latest bailout of Bank of Jinzhou shows the intervention by the People's Bank of China (PBoC) on Baoshang Bank was not an isolated event. There are indeed fundamental solvency and liquidity issues for some small Chinese banks, widely influencing both bond market as well as broader financial sector.

In a period of uncertainty for global trade, fuelled by protectionism and increasing concerns regarding a potential US-China trade war, the strength and resilience of Asian trade endures.

The Emerging Mobile Investment Service Launched in Japan LINE Corporation launches the LINE Securities, a mobile investment service, August 20, 2019. Based on the joint venture agreement to form a business partnership to pursue financial businesses focused on the securities business, LINE Financial Corporation ("LINE Financial") and Nomura Holdings Inc. ("Nomura") established LINE Securities Preparatory Corporation on June 1, 2018.

Digital innovation initiatives are gathering speed at financial institutions around the world. This was made further evident by the Celent Model Bank awards announced in April 2019. The awards recognized 22 projects from 30 countries, and all were initiatives that feature digital elements and innovation.

The first section of this two-part commentary was published here. 

Chinese yuan has been under pressure in recent weeks due to the double dip in recent ecomomic data and more importantly, the escalating trade war with the US. Since then, the CNY has shown weakness against USD, breaking 6.9 versus the USD, but also against major global currencies. The looming prospect of the China-US relationship, as well as a likely continued lax monetary policy in China, has all pointed to a weaker yuan, at least in the short term.

In November 2018, the Japanese Bankers Association and Zengin Net launched a new platform—the so-called “more time system.” This extends the operation hours of the Zengin System, the backbone of the nation’s bank payment infrastructure, extending the service hours of financial services related to fund transfers. As a result, together the existing and new system will enable round-the-clock operations 365 days a year, making it possible to confirm the receipt of funds from other banks in real time.

The results of a global survey published by PricewaterhouseCoopers (PwC) confirm that Asia remains the leading growth region for mobile payments. In line with other countries in the region, Singapore continues to see an increase in mobile payment usage, with the proportion of consumers making such payments growing from 34% in 2018 to 46% in 2019.

In recent years, we have seen an influx of Asian money into countries like Singapore and Hong Kong. According to the recent World’s Billionaire’s list published by Forbes, Asia is home to 719 billionaires, approximately 32.65% of the world’s billionaires. The ultra-rich are starting to take a more hands on approach in the investment of their wealth and Family Offices are on the rise. At the end of 2018, Asia has nearly 500 Family Offices in Asia and this number is set to rise in 2019. Family Offices not only provide investment strategies, they also assist with diversification of the family’s business portfolio, dispute resolution, and succession planning.

We are living in Industrial Revolution 4.0 where data have emerged as the new ‘growth fuel’, powering everything from productivity and profits to politics and dominance.

During the 13th National People's Congress (NPC), Chinese Premier Li Keqiang presented the government work report. Whilst the market read the new growth target (6-6.5%) rather negatively, Premier Li Keqiang was very transparent about the difficulties in reaching this target and the fiscal and monetary expansion which will be needed to achieve them. Whilst a lot has been written about tax cuts as well as lowering the still high reserve requirement ratio (RRR), less has been commented on how banks will be affected by the measures announced during the NPC. Li Keqiang made a number of specific announcements on this front. a) lower funding costs for small-and-micro enterprises (SMEs); b) 30% growth in state-owned commercial banks’ lending to SMEs from negative growth in 2018; and c) extending the maturity of loans, especially for manufacturing firms.