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Asia Pacific Banks set on financial recovery

World Bank Prospects Group Director Ayhan Kose described the world recession plunged by the Covid crisis as “singular in many respects and is likely to be the deepest one in advanced economies since the Second World War and the first output contraction in emerging and developing economies in at least the past six decades”.  After a year of disruption and slowdown, there can be a sustained growth and economic recovery suggesting that 2021 is likely to be a better year than 2020. If sustained by strong national fiscal and monetary policies as well as coordinated regional trade enhancement measures that will provide financial relief to drive the growth of the region through employment. A good example is the Regional Comprehensive Economic Partnership (RCEP) signed by the 10 member countries of ASEAN, Australia, China, Japan, New Zealand, and South Korea.

Helen Qiao, head of APAC Economics at Bank of America Global Research expects the RCEP to open a new window for more comprehensive regional supply chain over the medium-term and set the stage for closer regional economic integration. Her thoughts were, “In particular, we expect trade with China and ASEAN around intermediate goods and final goods to further accelerate with the ratification of RCEP, in addition to ASEAN being China’s largest trading partner as of first half of 2020. At the same time, RCEP could also accelerate separate bilateral/multilateral free trade agreement (FTA) procedures within the bloc such as China-Korea-Japan FTA.” The regional recovery process was started with the effective corona virus vaccine points as the historical low interest rates were the result of these quantitative easing and economic stimulus measures. But recovery in Asia Pacific (APAC) will be an uneven K-shaped one where some sectors of the economy less affected by COVID-19 will recover and grow faster than others. Uneven economic recovery in APAC might result in banking systems in the region will also recover at different speeds, while problem loans will increase moderately. Gross domestic product (GDP) to contract or significantly slow in 2020 in APAC economies, followed by recovery in 2021 that will generally result in GDP remaining below its pre-pandemic level. 

“As such, asset risks for banks will grow substantially. Loans that will deteriorate the most in quality include unsecured personal loans, vehicle loans and loans to small and medium sized enterprises (SME) and large corporates active in industries disrupted by the pandemic the most, such as transportation, hospitality, leisure, retail and some commodities,” remarked Moody’s senior credit officer for financial Institutions, Eugene Tarzimanov. Non-performing loan (NPL) growth will be the mildest in South Korea, Japan and Vietnam. This is partly because economic damage has been less significant in the case of South Korea and Vietnam, while traditionally strong underwriting practices are paying off for Japanese banks during this downturn.

“We estimate that APAC banks’ preprovision income will decline 5%-10% in 2020 from 2019 before recovering modestly in 2021-2022. The combination of higher credit costs and lower revenue will drag down APAC banks’ average ROTA by about 50 basis points by 2022 from 0.9% in 2019. At the onset of the coronavirus crisis, banks in Indonesia had the highest average ROTA, while those in Japan and India had the lowest. The stronger a bank’s profitability, the better its first line of defense against credit losses, which explains why Indonesian banks have the highest capital ratios Key variables for our projection are when banks will recognize new NPLs and how actively they will book lifetime expected credit losses (ECL) under IFRS 9, except in Japan, India, Vietnam and Bangladesh, which have not adopted the accounting standard. Regulators in many APAC economies have allowed the banks to create ECLs gradually, which should smoothen the impact of higher provisions on bank earnings.’’ said Tarzimanov.

Government support can be expected in India and China – particularly for state-owned and systemically important banks. “We also expect liquidity to be most stable for the largest banks in each system, but risks becoming more stretched for smaller, faster-growing banks where deposits may not keep pace with asset growth,” said Cornish, Head of APAC banks, Fitch. Challenges to keep the capital levels above minimum regulatory requirements will be greater in India, China, Vietnam, and Sri Lanka.

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Goldman banker hired by the Citi bank

Citigroup has hired Luisa Leyenaar-Huntingford from Goldman Sachs. This new hire is to co-head its global infrastructure franchise. Because, it seeks to win more business from cash-rich investment firms focusing on infrastructure deals. Leyenaar-Huntingford will be based in London. Responsibility will be shared with Todd Guenther in New York.

The pair will work closely with industry teams covering healthcare, industrials, natural resources and clean energy transition (NRCET), technology and communications. Leyenaar-Huntingford helped in the establishment of the Goldman’s infrastructure franchise in her time at the Wall Street bank. They will team up with Citi’s Iberia co-head of banking, capital markets and advisory (BCMA) Jorge Ramos will continue to be a senior member of the global infrastructure franchise.

The infrastructure sector is poised for further growth, according to the memo. The memo was released by Citi’s global co-heads of the alternative assets group Anthony Diamandakis and John Eydenberg, and its EMEA head of BCMA Nacho Gutierrez-Orrantia. There was significant private investment demand across the globe to deal with environmental, energy, transportation, waste, communication, digital and other social needs.

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Banks make slow progress on UK gender pay

Major banks in Britain made a slight dent in their gender pay gaps. Several insurers went backwards. Companies in Britain with more than 250 employees have been required to publish the difference between the pay and bonuses of their male and female employees. They got a reprieve due to the pandemic, last year. The financial services sector has shown one of the largest genders pay gaps in Britain. The lack of women in senior jobs is the main reason.

Pay gap data from 21 major financial institutions showed a narrowing in their average mean gender pay gap. This is just 0.4 percentage points. Banks alone had a pay gap which narrowed by one percentage point. Ann Francke, chief executive of the Chartered Management Institute said that the UK’s financial services industry has often been singled out. It really does have to get its house in order. Goldman Sachs had the widest gender pay gap in the year to April 2020. Goldman posted a gender pay gap of 51.8%. The bank told the staffs that narrowing the gap further was a critical priority. A spokesperson for banking lobby group UK Finance said, that there is clearly more still to be done.

FTSE 100 insurers Prudential, Legal & General and M&G reported a widening in their pay gaps. Prudential’s UK gender pay gap widened to 45.2%. M&G also reported a widening in its pay gap in the most recent year to 30.5%. The M&G spokesperson said that they are determined to narrow their gender pay gap and will do this by achieving better representation of women in all roles at all levels of our organization. Legal & General’s mean gender pay gap widened to 30.8%.

The insurer said that the legal & general is tackling the underlying causes of its pay gap. This is by creating a more diverse workforce and a more inclusive culture through sustained, long-term action. Admiral had a gender pay gap last year of 12.8%. The 21 firms surveyed were Barclays, HSBC, Lloyds, NatWest, Standard Chartered, Bank of America Merrill Lynch, Goldman Sachs International, JPMorgan, Morgan Stanley, UBS, Credit Suisse, Deutsche Bank, PGMS (a Phoenix unit), abrdn, Schroder Investment Management, St James’s Place, Legal & General, Prudential, Admiral Group, Aviva and M&G.

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BOJ to lower inflation target-Japan’s finance minister

Japan’s outgoing finance minister, Taro Aso, said that he had proposed lowering the central bank’s 2% inflation target. This is when the prices took a hit from plunging oil prices. He was the finance minister for nearly nine years. The slump in oil price was among the main reasons the government could not officially declare an end to deflation. In his final news conference as finance minister, Aso said that he proposed to Governor Kuroda that, with oil prices falling this much, it would be hard to achieve 2% inflation. Hence, the target must be lowered at some point. He stated this by referring to Bank of Japan (BOJ) chief Haruhiko Kuroda.

Aso also said that the governor said he would do his best to achieve the target. This is stated by adding that policymakers must scrutinise at some point, why the BOJ’s inflation target of 2% has not been met. The remarks highlight how the government and lawmakers distanced themselves from the BOJ’s target years ago, despite central bank reassurances that achieving the target was possible by maintaining or increasing stimulus.

Aso was deeply involved in negotiations with the BOJ. After Kuroda took over as governor, he deployed a massive asset-buying program. This is for pulling Japan out of deflation. Aso supported the BOJ’s stimulus efforts. He is a member of the cabinet. And also, had raised many doubts that monetary policy alone can reflate the economy out of the doldrums. New Prime Minister Fumio Kishida is set to form a cabinet.

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