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Blue bonds gaining traction in Asia-Pacific – Industry roundup: 19 September

Blue bonds gain popularity as financing tool for ocean-friendly projects

Bonds to finance sustainable ocean-friendly projects in the Asia-Pacific region are gaining relevance and importance among investors and policymakers due to the region’s dependence on coastal and marine resources.

These so-called “blue bonds” are issuances that emphasise “the importance of the sustainable use of maritime resources and of the promotion of related sustainable economic activities” according to the International Capital Market Association (ICMA).

The Asian Development Bank (ADB) has aligned its blue bond framework with that of ICMA and issued its own blue bonds underlining the dependency of Asia and the Pacific on healthy and resilient oceans for disaster resilience, food security, and livelihoods.

“Climate change, overfishing, pollution, and unsustainable development have pushed our oceans to the brink of collapse,” ADB said in a report. “To address the growing funding gap required to protect and restore ocean health, global markets need to systematically change. Blue bonds encourage that shift by increasing the amount of capital that can be invested in oceans to finance solutions at scale.”

Asia’s first blue bond was issued by the Bank of China (BOC) in September 2020 to fund eligible projects that met the requirements of a “sustainable blue economy”, defined by the bank as a “marine-based economy seeking to promote economic growth and preserve marine ecological environment, while ensuring the sustainable use of marine resources”.

BOC issued a yuan (CNY) 3-billion (US$412 million) blue bond with a tenor of two years through its Macau branch, and a US$500 million three-year note through its Paris branch.

Every year since that issue, there have been “landmark blue bond issuances in the region by a relatively diverse set of issuers,” said Thomas Kollar, law firm Mayer Brown’s Hong Kong-based partner and practice leader for corporate and securities in Asia.

“Although still a relatively new investment product, blue bonds are gaining momentum among policymakers across the world and Asian issuers have been a product leader in the asset class,” he said.

In May 2022, Philippine’s BDO Unibank also issued its first blue bond amounting to US$100 million, through an investment from the International Finance Corporation.

“This issuance will expand financing for projects that help prevent marine pollution and preserve clean water resources, while supporting the country’s climate goals,” BDO said.

Data from Dealogic showed a steady rise in blue bond issuance in Asia-Pacific region which has steadily risen to a little below US$1 billion last year, doubling since the region’s first such instrument was sold.

At the i15th United Nations Biodiversity Conference (COP15) in Montreal last December, a historic agreement was reached by over 190 countries to protect 30% of land and water considered important for biodiversity by 2030. Around 17% of terrestrial and 10% of marine areas are currently protected.

To protect 30% of the oceans by 2030, there existed an annual finance gap of between US$8 billion and US$11 billion, according to the State of Finance for Nature report published by the UN Environment Programme (UNEP) and the Economics of Land Degradation initiative in December. The annual investment in marine protected areas was US$980 million, according to the report.


Swift-Wise partnership announced on Day One of Sibos 2023

Swift has announced a collaboration with the UK-based global payments infrastructure Wise Platform to increase cross-border payment options for financial institutions and their customers.

Financial institutions will be able to route Swift payment messages directly to the Wise platform, through the fintech’s Correspondent Services Solution. This move will allow Swift customers to use Wise through Swift without making major system changes.

The Wise Platform will use Swift capabilities such as cloud and API connectivity and payment pre-validation, and will continue to offer banks all the hallmark features of Swift Global Payments Innovation (GPI), including a payment status tracker which Wise Platform will update to ensure end-to-end view across both networks.

The announcement was made at Day One of the Sibos 2023 conference in Toronto. Steve Naudé, managing director of Wise Platform, said: "We know that banks face a number of challenges when it comes to enhancing their international payments, including that this often requires them to embed technology which is incompatible with legacy infrastructure.

“By simultaneously leveraging existing payments architecture and optimising payouts using Wise's global network, we are empowering banks to innovate effortlessly. Our network, combined with Swift’s extensive reach and trackability, will make international payments more convenient, faster and lower cost for banks, without necessitating a major tech build.”

Thierry Chilosi, chief strategy officer at Swift, added: "Swift has built an infrastructure that connects the world, that is trusted and relied upon every day. Our collaboration with Wise illustrates how Swift can be the bedrock from which the whole industry can innovate to improve cross-border payments and enhance the options available for customers across the globe. Cooperation such as this will be vital in our collective efforts to achieve the G20 targets for cross-border payments and enable the seamless, efficient and secure movement of value around a fragmented world."

Wise CEO Kristo Käärman and Swift CEO Javier Pérez-Tasso will further discuss the collaboration during a discussion on Tuesday, 19 September at Sibos.


Deutsche Bank partners with Taurus to offer global crypto custody services

Deutsche Bank is partnering with Taurus, a Swiss startup specialising in crypto security and tokenisation. The decision to join forces with Taurus follows the bank’s application for a crypto custody license from the Federal Financial Supervisory Authority (BaFin), the German financial regulatory authority.

Taurus specialises in providing enterprise-grade infrastructure for crypto issuance, custody management, and trading, covering cryptos, tokenised assets and nonfungible tokens (NFTs). 

Deutsche Bank has been closely monitoring the crypto landscape for several years, expressing its intentions to offer its customers crypto custody and trading services. In June, the bank took a significant step by applying for a digital asset custody license from BaFin.

The bank's significant investment in Taurus earlier this year, as part of a US$65 million Series B funding round alongside Credit Suisse, Arab Bank Switzerland, and Pictet Group, played a pivotal role in shaping this alliance. 

While the collaboration revolves around cryptos, Paul Maley, Deutsche Bank's global head of securities services, confirmed their intention to extend their offerings to tokenised financial assets. Initially, the bank plans to provide custody services for selected cryptos and stablecoins, foreseeing substantial activity in these segments, said Maley.

Maley also acknowledged the importance of regulatory clarity in Europe and Asia as a catalyst for their expansion into crypto.

Deutsche Bank also clarified its current stance on crypto trading, stating that despite expressing intentions in a 2020 World Economic Forum paper, there are no immediate plans to engage in such activities. The bank's strategic custody and tokenisation services plans align with traditional financial institution's growing interest in the rapidly evolving digital asset sector.

“Deutsche Bank’s announcement to offer crypto custody services is a positive step towards a growing acceptance and development of crypto in the mainstream financial sector. It could also be potentially providing a renewed sense of confidence among investors,” said John Stefanidis, chief executive officer and co-founder of blockchain infrastructure decentralised organisation, Balthazar DAO.

Citi report focuses on future of cross-border payments

The anticipated increase in cross-border payments in the years ahead presents a major growth opportunity for the most astute players in the market, a newly released report by Citi states.

Future of Cross-Border Payments: Who Will Be Moving $250 Trillion in the Next Five Years? builds on qualitative contributions from key market infrastructure experts from within and outside of Citi, fintechs and a diversified set of banks spanning across four continents. It also outlines the key findings from a survey of more than 100 of Citi’s financial institution clients. 

“The world of cross-border payments is at an inflection point,” comments Shahmir Khaliq Global Head of Services, Citi. “As the ecosystem is shaken up by new competition and technologies, there will inevitably be winners and losers. All players must remain nimble and adapt if they are to retain their market share and thrive. This report examines the challenges and opportunities faced by market participants at this pivotal time.

“The fierce level of competition in cross-border payments is unsurprising given the rewards on offer. There is a race emerging — between new entrants and existing players, often with new business models — to seize a slice of the cross-border payments wallet.

“The evolving landscape is also driven by changing behaviours, and heightened expectations, with consumers seeking a streamlined, transparent, 24x7 real-time experience, both domestically and across borders. These expectations have crossed over to the corporate and institutional client market as well. New business models, such as direct-to-consumer offerings, marketplaces, and shared economy models, are also spurring change in the payments world.

“Competition is increasingly multi-faceted within the industry. Payments are moving away from traditional instruction methods, which are tied to batch and files, and moving toward application programming interface (API) connectivity. This is leading to a heightened opportunity for both FinTechs and other participants that will be enabled through traditional financial infrastructures. Regulation is also increasingly fostering innovation via initiatives such as open banking and there has been a consequent increase in players that can deliver technology nimbly and leverage digital client experiences as a differentiating factor.”


National Australia Bank to close Hong Kong office

National Australia Bank (NAB) has announced plans to close its Hong Kong office and consolidate operations into mainland China, Singapore and Japan.

The closure of the office will take place over the next 18 months, said Krista Baetens, a Singapore-based NAB executive, in a statement.

The bank has about 50 staff in Hong Kong, who work in an office in Wan Chai. They were notified of the surprise decision at a meeting last week. NAB said it was too early to say how many would be made redundant or offered roles in its other regional offices.

NAB’s decision to exit Hong Kong closely follows a similar decision by another of Australia’s ‘Big Four’. Westpac, which closed its branch there in June. Westpac’s Asian offices are now in Singapore, Shanghai and Beijing.

Commonwealth Bank continues to maintain a Hong Kong presence, while ANZ is the largest Australian bank in the country. ANZ has 300 staff in Hong Kong and maintains the strongest footprint in Asia among the big four, with 300 bankers in China and 1000 in Singapore.

The NAB Hong Kong office will be run off over the next 18 months, and a full closure is slated for early 2025. The staff mostly supply support services to the region, including Treasury, finance, risk and legal, alongside a small team of corporate and institutional bankers.


HSBC joins Hong Kong retail CBDC payments trial

HSBC Hong Kong is one of 16 participants in the Hong Kong Monetary Authority (HKMA) central bank digital currency (CBDC) pilots and has kicked off an HSBC digital Hong Kong dollar (eHKD) trial with HKUST Business School students and staff.

The bank will use distributed ledger technology (DLT) to simulate programmable money and instant settlement for retail payments. Around 200 participants will receive ‘hypothetical’ eHKD to spend within a week at five campus merchants, such as cafes. They can also receive rewards as a digital token.

“The findings will help validate the effectiveness of a digital currency in retail, public-wide type scenarios, given the richness of the payment eco-system in HK,” said Bojan Obradović, Chief Digital Officer Hong Kong at HSBC. It plans to publish the results next quarter.

As part of a strategic partnership with HKUST Business School, HSBC sponsored an eHKD survey. The results published last year found that just over half of respondents would use the CBDC.

Last year, the bank was one of the winners of the Global Fast Track CBDC competition, which the HKMA and FintechHK ran.

HSBC is also one of the participants in mBridge initiative for cross border CBDC payments. While many CBDC projects are experiments, mBridge is moving forward to production. Participants include the Bank for International Settlements (BIS), HKMA, and the central banks of China, Thailand and the United Arab Emirates (UAE).

Additionally, HSBC has participated in trials of the Regulated Liability Network (RLN) in both the US  and the UK. The RLN aims to combine CBDC and bank deposit tokens within the same network.


Mexican fintech Clara relocates HQ to Brazil

Mexico’s payment fintech Clara is moving its headquarters to Brazil, a move driven by its recent acquisition of a central bank license to operate as a payment institution. This shift is expected to accelerate the firm’s expansion efforts, with Brazil positioned to become its premier market by the upcoming year.

Clara provides corporate cards and expense management software for businesses across Latin America. It reports monthly transactions in Brazil of 100 million reais (BRL), or close to US$20 million.

The fintech ventured into Latin America’s largest market in late 2021 and has been actively working towards expanding its presence in the region, alongside its operations in Colombia.

Recently, the fintech made headlines when it hired a former Meta and Uber manager as head of its Brazilian operations. Its goal is to roll out new products as well as acquire more large-scale corporate customers.

“Our goal is to consolidate Brazil as our main market by 2024,” said Gerry Giacomán, CEO of Clara. The company aims to reach BRL2 billion in corporate credit purchases next year, or close to US$400 million. This would mean twice its actual volume..

“In addition to being a sizeable economy, Brazil has a more mature financial and digital ecosystem,” said Giacomán. ¨Unique products such as Pix or express wire transfers (TEDs) represent a great opportunity for our payment solutions,”.


Kazakhstan establishes regulatory agency to implement CBDC

The National Bank of Kazakhstan (NBK) has established a separate entity to lead the development and implementation of the country’s central bank digital currency (CBDC), the digital tenge. 

According to an official statement, the National Payment Corporation (NPC) is a reorganiz=Sation of the Kazakhstan Center for Interbank Settlements. The new body will oversee the national payment system, including interbank clearing services, money transfers and digital identification.

The NPC will also be responsible for the development of “digital financial infrastructure,” including the implementation of the digital tenge (KZT).

Development of the digital KZT started in February 2023, with a launch deadline set for 2025. At the time, NBK deputy governor Berik Sholpankupov explained the bank’s vision of a “collaboration between traditional finance and DeFi” that could increase financial inclusion and support international trade.

Currently, the CBDC pilot in Kazakhstan is in a controlled environment pilot phase with real consumers and merchants. One of the principal partners for the project is the world’s largest crypto exchange, Binance. The company supports the pilot with its technical solution, BNB Chain.

In June, Binance announced the launch of a regulated digital asset platform in Kazakhstan in partnership with the local Freedom Finance Bank, allowing users to transfer fiat funds to their accounts on the platform.


UBS considers first AT1 bonds sale since Credit Suisse takeover

Switzerland’s UBS has begun canvassing views from investors over the possible issue of its first Additional Tier 1 (AT1) bond since its takeover of Credit Suisse in March.

Following the release of the bank’s quarterly results last month, UBS executives have launched a roadshow for investors where they proposed changes to the terms of future AT1 bond issuances to make them more agreeable to bondholders, sources told the Financial Times

According to the reports, UBS is under pressure to replace up to US$17 billion of Credit Suisse AT1 bonds in coming years in a bid to increase the efficiency of the enlarged bank's capital structure and free up cash for shareholder payouts and possible acquisitions. 

However, some investors are still sceptical after losing billions of dollars during the Credit Suisse bailout, when a Swiss emergency rule allowed the country's financial regulator FINMA to protect shareholders at the expense of AT1 holders.

The AT1 bonds were issued by Credit Suisse as part of its capital structure to meet regulatory capital requirements and contained a clause allowing Swiss authorities to write them off regardless of what happened to the shares if the bank fell insolvent. 

Through several lawsuits, bondholders are contesting the legitimacy of FINMA's decision to pass through last-minute legislation to write down the bonds, which they say upended the established hierarchy, given unsecured bondholders traditionally rank above equity holders in the capital structure.

Two insiders told the FT that one alternative under consideration was swapping out UBS's AT1 bonds, which are intended to be written down in the event the bank runs into difficulties, with versions of the product that would be converted into equity.

A bond manager involved in the UBS roadshow told the newspaper: “They will have to make their bonds as investor-friendly as possible. They will have to pay a premium, too.”


Banca Transilvania, Raiffeisen vie for OTP’s Romanian subsidiary

The sale of OTP Bank Romania, the submission of final offers and the selection of a winner has been deferred from this month to October, with only Banca Transilvania and Raiffeisen Bank still in the race after EximBank withdrew its bid, according to reports - although OTP reportedly hopes that UniCredit will return to place a bid.

In May, Hungary’s OTP announced that it was putting up for sale OTP Bank Romania, which ranks tenth in the market, with a share of 2.8% by assets.

The Hungarian bank entered the Romanian market in the early 2000s with the acquisition of Robank, and then acquired Millennium Bank Romania after the 2008 economic crisis. However, OTP said that it is now exiting the Romanian market because the chances of buying another bank are very low.

In June, reports suggested that Italy’s UniCredit SpA, Austria’s two top banks and Romania’s largest lender were all interested in buying the Bucharest-based unit of OTP Bank Nyrt, in a deal that would value the business at €300 million (US$329 million) or more, according to insiders.

The bidders have now narrowed to just two; Raiffeisen Bank and Banca Transilvania.

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