BIS aims to better monitor developments in global value chains - Industry roundup: 10 July
by Ben Poole
BIS aims to better monitor developments in global value chains
The Bank for International Settlements (BIS) is launching Project Insight to explore how to better monitor developments in global value chains (GVCs) by combining structured and unstructured granular data and applying big data analytics tools.
The segmentation of global production and trade in the form of GVCs has long been accepted as common practice. However, there are significant data and analytical gaps that hinder policymakers' ability to monitor trends and shifts in GVCs. Recent shocks to global supply chains laid bare just how little we know about firm-level GVC relationships and how they can spread shocks and affect economic growth, inflation and financial markets. For example, the Covid-19 pandemic placed significant stress on GVCs, precipitating supply chain bottlenecks, altering established supplier relationships and contributing to a surge in inflation across much of the globe. The disruptions spread through complex firm interconnections not evident in the aggregate data. Also, recent efforts to ‘reshore’, ‘near-shore’ and ‘friend-shore’ production networks can potentially drive a significant restructuring of supply chains.
Central banks and policymakers must understand GVC dependencies and monitor their shifts and trends, as GVCs are intricately linked to central banks' core objectives of price stability and economic growth. Indeed, the topic of supply chains increasingly features in the considerations, discussions, speeches, and published materials of central banks and regulatory authorities around the world.
Against this backdrop, Project Insight seeks to build a timely and comprehensive GVC monitor that can support central banks, policymakers, and international organisations in monitoring critical developments in GVCs and assessing their associated economic and financial impacts. Insight will work with the private sector to explore combining rich amounts of structured and unstructured granular data relevant to GVCs. It will also explore the application of big data analytics tools such as artificial intelligence, machine learning, and network analysis to extract meaningful insights for the public sector.
Project Insight is a collaboration between the BIS Innovation Hub’s Hong Kong Centre, the BIS Monetary and Economic Department, the Hong Kong Monetary Authority, the International Monetary Fund, the World Trade Organization, the Asian Development Bank, the Organisation for Economic Co-operation and Development, the United Nations and DIW Berlin (German Institute for Economic Research).
CFO and CEO views differ on sustainability and cost management
Some 62% of CFOs and 58% of CEOs believe that AI will have the most significant impact on their industries in the next three years, according to a survey by Gartner, Inc. The survey of 247 CEOs and CFOs, polled from July 2023 to December 2023, was conducted to examine CEO and senior business executive views on current business issues, as well as some areas of technology agenda impact.
“CFOs and CEOs are both focused firstly on profitable growth with nearly two-thirds of respondents in both groups putting this in their top three strategic business priorities,” said Alexander Bant, Chief of Research in the Gartner Finance Practice. “After that, technology and workforce are the next highest priorities with approximately a third of respondents selecting these in their top three.
"While AI has enormous potential to transform industries, three years is a short time horizon to do so. Senior executives must manage their expectations and be fully aware of the organizational challenges they will face.”
CFOs and CEOs are similarly aligned on growth, with both groups selecting it as their top business priority for 2024-2025. For CFOs this does not mark a huge change from their 2023 priorities, but for the CEO group the number of respondents picking growth in their top three priorities has jumped 38% since last year.
The sentiment regarding cost management deviated this year, however, with a significant increase in CFOs seeing it as a top priority but little change in CEO sentiment, possibly due to CEOs being more likely to give longer leeway on internal investment payback periods than CFOs.
CEOs and CFOs are also concerned about talent shifts, citing employees’ rising compensation expectations and desire for flexibility in the short term, and the impacts of AI in the long term. Both are optimistic about AI’s potential to boost cost savings and productivity, but more CFOs than CEOs hold concern about near-term talent challenges.
Finally, almost 75% of CEOs see environmental sustainability as more of a growth opportunity, whereas CFOs are more likely to view sustainability initiatives as marketing tools.
“As an initial step to reconcile their position, CFOs should determine whether their CEO’s sustainability ambitions call for compliance, optimisation, or transformation,” added Bant. “After which, CFOs should revise their investment evaluation criteria to take these goals into account, such as by incorporating non-financial criteria, as well as opportunity costs and the costs of inaction.”
Basel Committee consults on principles for sound third-party risk management
The Basel Committee on Banking Supervision has published a consultative document proposing Principles for the sound management of third-party risk in the banking sector. Ongoing digitalisation has led to rapid adoption of innovative approaches in the banking sector. As a result, banks have become increasingly reliant on third parties for services they had not previously undertaken. This increased reliance on third parties beyond the scope of traditional outsourcing, coupled with the expansion of supply chains and rising concentration risks, has necessitated an update to the 2005 Joint Forum paper Outsourcing in financial services, specifically for the banking sector.
The consultative document consists of twelve high-level principles that guide banks and supervisors in effectively managing and supervising risks from third-party arrangements. The Principles introduce the concept of a third-party life cycle and emphasise overarching concepts such as criticality and proportionality. Furthermore, they delve into the topics of supply chain risk and concentration risk and highlight the importance of supervisory coordination and dialogue across sectors and borders.
The Principles complement and expand on the Financial Stability Board's 2023 report 'Enhancing third-party risk management and oversight – a toolkit for financial institutions and financial authorities'. While primarily directed at large internationally active banks and their prudential supervisors, these Principles also benefit smaller banks and authorities in all jurisdictions. They establish a common baseline for banks and supervisors for the risk management of third parties while providing the necessary flexibility to accommodate evolving practices and regulatory frameworks across jurisdictions.
To remain adaptable and applicable to a wide range of technologies, the Principles maintain a technology-neutral stance. As a result, they can be applied to recent trends like artificial intelligence, machine learning and blockchain technology, even though these trends are not explicitly referenced. Comments on the proposed principles are requested by 9 October 2024.
Two-thirds of travel companies see margins eroded by inefficient payment systems
Research has revealed 66% of travel companies are seeing their profit margins impacted by outdated or complicated payment systems, with nine in 10 expected to prioritise modernising their financial operations this year. The report from Airwallex and Skift notes the travel industry is also being challenged by shifting payment preferences since the Covid-19 pandemic. While revenue from cross-border payments is rising, the unprecedented diversity of payment methods in different markets complicates transactions for 70% of travel companies.
Credit cards, debit cards and digital wallets remain the most common customer payment methods. However, travellers increasingly use local payment methods or peer-to-peer payment apps, which can vary widely by market. A significant majority (88%) of travel executives agreed that there has been a shift in how customers prefer to pay since the COVID-19 pandemic. Local payment methods and peer-to-peer systems are also rapidly gaining popularity, especially in Asia. Handling a variety of payment types, across different markets, is becoming increasingly complex for 70% percent of travel companies.
Cross-border transactions are now commonplace, with nearly 40% of travel executives reporting half of their revenues to be from international customer payments. Meeting different market payment needs, foreign exchange (FX) fees, and managing multiple supplier and vendor payments in numerous countries hinder travel companies from expanding their supplier or vendor network in new markets. Three-quarters (75%) of travel companies earn more than one-quarter of their revenue from cross-border payments, while 88% frequently make payments to suppliers or vendors in foreign currencies. Two-thirds (67%) of executives agreed that cross-border payments have become more complicated due to the volatility of FX rates. Managing multiple supplier and vendor payments in different countries using existing payment and financial infrastructure and reconciling bookings, payments, commissions, and refund data is a crucial challenge for more than half of executives.
Elsewhere, challenges with payment systems, such as multi-currency payments and settlements, fraud risk and other operational inefficiencies, impact travel companies. Nearly two-thirds of travel finance executives say that outdated or complicated payment systems directly impact their organisational efficiency and profit margins, with nine in ten reporting at least a 2% erosion and over one-third losing 10%. Nine in ten travel executives (90%) prioritise payment and financial operations systems upgrades, while 80% would be interested in an all-in-one payment and financial operations platform.
Addax Energy closes US$195m inaugural RCF
Switzerland’s Addax Energy SA has announced the closing of its inaugural committed unsecured revolving credit facility (RCF) totalling US$195m. The facility was substantially oversubscribed and upsized from its initial launch amount of US$125m. It attracted 15 existing and new relationship banks.
The facility contains a 364-day extension option and includes an accordion feature to increase its size up to US$225m. The inaugural RCF will support the company’s short-term trade finance requirements and benefit from the guarantee of its parent, Oryx Energies SA.
“We are extremely proud to have successfully closed our inaugural RCF,” said Stephen Paris, Chief Financial Officer, Oryx Energies. “This landmark transaction will strengthen our liquidity, our financing capabilities and complement our existing bilateral facilities and syndicated borrowing bases already totalling US$3.5bn.”
The RCF was arranged by five bookrunner and mandated lead arrangers, including CA Indosuez (Switzerland) SA, ING Bank N.V., Natixis CIB, Société Générale and UBS Switzerland AG. Société Générale acted as syndication coordinator, joined by Natixis CIB and ING to act as the three active bookrunners. Natixis CIB acted as press and information memorandum agent, CA Indosuez (Switzerland) SA acted as documentation agent and UBS Switzerland AG acts as facility agent.
The Facility received the support of Oryx Energies existing and new banks including also, Arab Banking Corporation S.A., Banque Cantonale de Geneve, Banque de Commerce et de Placements SA, Banque Internationale de Commerce - BRED (Suisse) SA, Credit Europe Bank (Suisse) SA, Ecobank International SA, Nedbank Limited, London Branch, The National Bank of Ras Al-Khaimah, The Standard Bank of South Africa Limited and Union de Banques Arabes et Françaises.
EBRD and Banca Intesa Beograd sign financing package of €72m
The European Bank for Reconstruction and Development (EBRD) has signed a financing package of €72m million Banca Intesa Beograd that aims to boost the competitiveness and trade potential of businesses in Serbia, as well as further the country’s green transition and promote financial inclusion.
The package includes three financing facilities: a new risk-sharing framework; a loan under the SME Go Green Programme co-funded by the European Union; and a senior loan under the Western Balkans Women in Business programme.
Banca Intesa will be the first Serbian bank to benefit from a new risk-sharing framework of up to €50m. The framework is designed to allow the EBRD to share partner banks’ exposure to local large or small and medium-sized enterprises (SMEs) through an unfunded risk participation. The EBRD will guarantee up to 65% of each individual sub-loan that Banca Intesa provides its eligible clients. The bank’s commitment under the agreement could reach up to €50m.
The €15m loan signed under the SME Go Green Programme will provide sub-loans to eligible SMEs in Serbia. They will then use the funds to invest in sustainability practices, adopt internationally recognised quality standards, scale up green economy investments (particularly, to ‘green’ agribusiness supply chains), and promote more equitable access to climate finance and other finance for women-led SMEs. Banca Intesa will aim to deliver 70% of the proceeds to projects eligible under the Green Economy Transition (GET) initiative.
The senior loan of up to €7m is for on-lending to eligible women-led SMEs in line with the criteria under the second phase of the Western Balkans Women in Business programme. This is the seventh consecutive loan to Banca Intesa under this programme following the success of the previous facilities. The loan will contribute to women's economic inclusion by helping women-led SMEs access finance and business advisory services.
NatWest turns to OneID to smooth identification of people from different countries
NatWest says it has become the first UK bank to use bank-verified digital identity to enable people from different countries to prove their identity quickly and easily, by integrating OneID in Adobe Acrobat Sign. NatWest will use OneID’s bank-verified digital identity solution for the bank’s Structured Finance business in Sweden, Finland and Norway. The solution brings certainty of identity that transcends borders. Now, any individual who has online banking in the UK, Sweden, Finland and Norway can verify their identity using their bank before signing a NatWest leasing agreement.
The switch to OneID comes after NatWest reviewed the existing verification processes for document and contract signing for its leasing business in the Nordics. The traditional 'text authorisation' or 'one-time password' method, typically added as a security measure to ensure the right person is signing a document, was found inadequate for their requirements of both security and efficiency. It introduced friction and the possibility of fraud in a process where certainty and speed are paramount.
Instead of restricting people to just one method of verifying their identity, NatWest wanted to offer a single solution combining different verification methods, thereby allowing more people to benefit from the improved process.
“Through utilising OneID’s Digital Identity solution within Adobe Acrobat Sign, NatWest is streamlining business processes while strengthening the security of signatories,” said Kevin Dearing, Head of Bank of APIs at NatWest. “NatWest has been enabling customers to consent to share bank-held identity attributes with OneID so it is great to see a use case for these services emerge from within NatWest.”
Sygnum and Fidelity International partner with Chainlink
Chainlink has announced a collaboration with Fidelity International and Sygnum to bring net asset value (NAV) data onchain. In this production use case for tokenised assets, the collaboration provides transparency and accessibility around key asset data for Sygnum’s recently issued onchain representation of Fidelity International’s US$6.9bn Institutional Liquidity Fund. Sygnum, a global digital asset banking group, tokenised US$50m of Matter Labs’ company treasury reserves. The reserves are held in Fidelity International’s money market fund and were issued on the ZKsync blockchain, a member of the Chainlink SCALE program.
NAV data is a building block that underpins the traditional fund industry today. With Chainlink, NAV data can be accurately reported and synchronised onchain in an automated and secure manner. This could provide real-time transparency and built-in access to historical data for Sygnum, its clients, and broader market participants.
“As we work to bridge the gap between traditional finance and the blockchain industry, setting standards is crucial for fostering ecosystem participation and strengthening collaboration across blockchain companies, regulated financial institutions, and asset managers,” said Fatmire Bekiri, Head of Tokenization at Sygnum.
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