Finance can put trade at risk, leaving the global economy 'on the brink' – with developing countries hardest hit

 1. A new UN Trade and Development report says reforms to global financial systems are key to reducing vulnerability, improving predictability and supporting stronger alignment between trade, finance and development.

2. Global growth will slow to 2.6% in 2025, down from 2.9% in 2024, as global trade and investment face growing pressure from financial volatility and geopolitical uncertainty, according to UN Trade and Development’s new “Trade and Development Report 2025: On the Brink – Trade, finance and the reshaping of the global economy”. The report shows that shifts in financial markets move global trade almost as strongly as real economic activity, influencing development prospects worldwide.

3. UN Trade and Development (UNCTAD) Secretary-General Rebeca Grynspan said the findings show how financial conditions increasingly determine the direction of global trade: “Trade is not just a chain of suppliers. It is also a chain of credit lines, payment systems, currency markets and capital flows.”

Philippines launches FIST Act for Banks and Financial Institutions

1. On February 16, 2021, the Philippines government issued the Financial Institutions Strategic Transfer (FIST) Act to facilitate banks and financial institutions (FIs) to dispose of their non-performing assets (NPAs) and non-performing loans (NPLs) through transfers to FIST Corporations (FISTC).

2. The FIST Act is among the government’s priority legislation to strengthen the financial sector and enable banks and financial institutions to extend credit to more sectors and thus stimulating much-needed economic growth. 

3. FISTC are asset management firms similar to special purpose vehicles and have been given the power to collect, dispose of, manage, and operate NPAs acquired from FIs under the FIST Act.

4. Through this measure, the government expects that the recovery of these financial institutions would spill over to other affected sectors of the community and help keep the economy afloat.

Analytics for Banking and Examples of Machine Learning

1. Banks’ futures depend on institutions’ ability to master three key things – customer experience, compliance, and storage.

2. strategic default models were a waste of time and money, not because they were inaccurate, but because the parties involved failed to anticipate how offering one customer an attractive loan restructure would influence other customers who hadn’t yet defaulted. The analytics didn’t fail. The implementation strategy did.

Asset Liability Mismatch and Management

ASSET LIABILITY MISMATCH IN BANKS SYSTEM

1. Mismatch occurs when the tenure of maturing loans do not match the tenure of the sources of funds on the liabilities side. The liabilities side of the balance sheet of a bank includes sources of funds and for a bank one of the main sources of funds are the deposits.

2. From 2010 onwards with the economy recovered, disbursements of infrastructure loans were sanctioned by banks to projects such as power and roads had duration between 10 and 15 years. However, deposit tenures were getting shorter and this huge disparity in tenures between assets and liabilities created the instability in banks’ balance sheets.

3. Countries pegging interest on deposits to market-determined rates has resulted in a fall in the rates and deposits are now of shorter tenure. With the de-regulation of interest rates, most depositors are not looking beyond one or two years. 

4. Constant monitoring and periodic evaluation of its investment portfolio is important for a bank as many of its short-term liabilities are met through this resource.

China's Debt Bubble - Part 2 - The Actual Situation

This post continues from part 1 discussing where the credit risks lies and how China's banks circumvent the system.

China's Debt Bubble - Part 1 - Debunking the Beliefs

SUMMARY OF CHINA'S DEBT BUBBLE
1. In November 2016, Fitch Ratings warned that China’s bad loans in the banking system might be 10 times the official estimates of 1.8% of total assets. 

2. The predictions of a Chinese banking crisis have been proven wrong multiple times and  the concerns should lie somewhere else in the system rather than in a systemic blow-up.

China's Economy & Financial Markets - Part 4 - RMB and Special Drawing Rights

Part 4 discuss the RMB's global role and the inclusion of RMB into the Special Drawing Rights (SDR) basket.

China's Economy & Financial Markets - Part 3 - Banking System, Shadow Banking, Stock Market Swings, and Policy Instability

Part 3 discuss risks in  Banking System, Shadow Banking, Stock Market Swings, and Policy Instability.

China's Economy & Financial Markets - Part 2 - Capital and Debt

ECONOMIC AND FINANCIAL RISKS
1. Capital account liberalization and the possibility of a surge of capital outflows, which could destabilize the financial system as well as the overall economy. 

2. There are concerns on China’s financial system, including the stability of the banking system, wild swings in the stock market, and a large shadow banking system.

3. China’s policy making are too in doubts concerning  the possibility of policy missteps in the process of the difficult and risky transition from a largely command-driven economy to a market-oriented.

China's Economy & Financial Markets - Part 1 - Overview

Pertinent points from U.S.-China Economic & Security Review Commission's Hearing on“China's 13th Five-Year Plan” - April 27, 2016 by Eswar S. Prasad

Insurance & Banking Innovation

INNOVATION CYCLE
1. Innovation is crucial as it evolves the industry with domino's effects onto other industries as processes becomes easier or faster. 

2. The innovation cycle starts by problem identification, generating ideas to solve the problems and to execute the idea. Below are some of my comments on the innovation cycle.

3 Identify Problem - Is enough market Research being done? Are there distribution channel gaps? Market segment Gaps? 

4. Ideas - Are there enough ideas to solve the Problem?

5. Execution - How fast is the execution to achieve first mover's Advantage?!

6. Below are some current trends that may or may not disrupt the industry follow by examples of innovative products found globally.

China's WMP Products and Shadow Financing

THE SITUATION
1. Local governments circumvent borrowing restrictions causing accumulation of debts into speculative investments.

2. All this is done via the proliferation of maturity mismatched WMPs (wealth Management Products).

3. Banks on the other hand are able to obscure or partially conceal credit risks info with this method.

4. The central bank forces bad debts to be rolled due to protectionism and nationalism reasons suppresses NPLs figures.

5. A rough picture can be obtained from previous post titled "China's Credit Risk Exposure"

China's Credit Risk Exposure

CHINA'S  NPL INCREASES TO FIVE-YEAR HIGH

Since FY 11 to FY15 Q1, NPLs in China are on an upward trend with NPL of four largest banks reaching a 5 year high.. Refer graph below for NPL trends. Source: (http://www.financeasia.com)

This post will discuss factors in addition to the increase in China's NPL. The factors are constant rollovers and credit risk carried outside of the banks potentially causing a dominos effect as assets become impaired during an economic slowdowns. Lastly we will look at how prepared the banks are by comparing their portfolio of off-balance sheet assets against their total asset.

Banking Innovations - Part 5 - Regulations, Landscape, Gaps, and Risk Management

This post covers Regulations, Landscape, Gaps, and Risk Management in the fintech industry.

Banking Innovations - Part 4 - Australia and Banking Initiatives

This post covers Australia with an analysis of their Fintech companies and initiatives by banks.

Banking Innovations - Part 3 - Asia and Africa

This post covers Asia and Africa with an analysis of their Fintech companies.

Banking Innovations - Part 2 - USA and Europe

This post covers USA and Europe with an analysis of their Fintech companies.

Banking Innovations - Part 1 - White Paper on Trends and Purpose

1. Banking Innovation is a global growth‐sector. There are three types of banking innovations (on top of the regular IT investments done by banks: (1) In‐bank FinTech innovations – also known as FinServ innovations; (2) Neo‐Banks as part of the FinTech community; and, (3) Non‐Banking FinTech companies.

2. A white paper on Banking Reports by MarketResearch highlight significant qualitative and quantitative differences between five continents examined.

"Swipe" Credit Cards - Part 2 - New System

In Part 1 I covered how & what made the US credit cards so vulnerable to fraud. More info at the link below

(http://levelnineatwork.blogspot.com/2014/05/end-of-just-swipe-it-credit-cards-part-1.html)

Below are some  factors affecting the adoption of new system.

"Swipe-It" Credit Cards Part 1 - Slow Adoption in U.S.

If you recall,Target Customers' Credit Card Info was compromised.  More info at the link below.

(http://levelnineatwork.blogspot.com/2014/01/40-mil-accounts-of-target-shoppers.html)

Its surprising that the most advance country in the world still utilises old magnetic strips for transactions.