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Central banks decide after Fed holds US rates – Industry roundup: 21 September

Decision day for 10 central banks after Fed holds US interest rates

Ten of the world’s central banks – including the UK, Norway, Sweden, Switzerland and Turkey – are delivering interest rate decisions today after the Federal Reserve delivered a “hawkish pause” on Wednesday, by maintaining US interest rates on hold but keeping the door open for future hike.

The Bank of England (BoE) followed the Fed's lead and kept the UK rate on hold at 5.25%, following 14 successive increases since November 2021. The monetary policy committee's (MPC) decision followed a surprise fall in UK inflation. The rate dipped to 6.7% in August from 6.8% the previous month against expectations that the figure would show a temporary uptick to 7% or above. This resulted in a close decision with four MPC members favouring a 0.25% rate hike to 5.50% outnumbered by five voting for no change.

The Swiss National Bank (SNB) unexpectedly also left its key interest rate unchanged, saying past hikes were countering inflation while warning that more increases may still be needed. It kept the rate at 1.75% but warned that "it cannot be ruled out that a further tightening of monetary policy may become necessary to ensure price stability over the medium term."

"The SNB will therefore monitor the development of inflation closely in the coming months," it said.

Turkey's central bank, which last month surprised markets with a bigger than expected increase in rates from 17.5% to 25%, has followed up with a further hefty rise to 30%.

Norway's central bank increased its key interest rate, up to 4.25%, its 13th rise in two years. Norges Bank said in an announcement that the 0.25% increase is necessary amid soaring costs -- inflation reached 4.8% in August -- and that interest rates might need to go up again in December to reach its 2% target.

Sweden’s central bank also raised its key interest rate , saying that “inflationary pressures in the Swedish economy are still too high,” although there were signs that inflation had begun to fall. The Riksbank announced a 0.25% increase to 4% and said its forecast indicated that it could be raised further.

Commenting on the Fed’s latest decision, ING analysts James Knightley, Padhraic Garvey and Chris Turner said: “The Federal Reserve certainly delivered a hawkish pause today with the message clearly being that policymakers believe interest rates will be staying higher for longer. The Fed still have one 25 basis points (bp) hike in their summary of economic projections for this year with 12 Federal Open Market Committee (FOMC) members backing the move while seven look for stable policy rates through to year-end. However, they have upped the view for next year so there are only 50bp of rate cuts pencilled in rather than the 100bp that was viewed as the most likely outcome back in June.

“The Fed has left the Fed funds target range at 5.25-5.5% and continues to indicate the prospect of another 25bp hike this year. Longer term, the Fed is signalling less prospects of rate cuts and a diminishing chance of a recession as it guides inflation back to 2%. Given the challenges the economy faces, the market is understandably sceptical.”

In Europe, the European Central Bank (ECB) raised its key interest rates on 14 September for a 10th consecutive time, taking the deposit rate to a record high of 4.00% from a historic low of minus 0.50% in just over a year.

Although the ECB upgraded its 2024 inflation outlook to 3.2% from June's 3.0% prediction, the Governing Council signalled an end to its most aggressive hiking cycle on record, given the anaemic economic growth in the euro zone.

“It will probably be some time before the ECB will describe it as such, but 4.00% is likely to be the terminal rate, in our view,” said Mark Wall, chief economist at Deutsche Bank.

“President (Christine) Lagarde apparently did not want to say rates have peaked... However, the hurdle to a further hike does feel relatively high.”


Deutsche Bank CEO warns on outlook for Germany

Deutsche Bank CEO Christian Sewing said Germany risks becoming the sick man of Europe if “structural issues” are not urgently addressed

“We are not the sick man of Europe,” Sewing said in his keynote address at the Handelsblatt Banking Summit 2023, “but it is also true that there are structural weaknesses that hold back our economy and prevent it from developing its great potential.”

“We will become the sick man of Europe if we do not address these structural issues now,” he added.

Deutsche Bank’s CEO said the biggest task lies with banks, whose roles are changing in the current macroeconomic climate. “We are more in demand than ever as risk managers and advisors. This is a great responsibility, but also a great opportunity to create new trust,” Sewing said.

″[We] must not deceive ourselves: we are still lagging behind our international competitors, even if the special economic situation caused by interest rates currently glosses over this somewhat – more for some institutions, less for others,” he added.

Sewing also listed other issues contributing to Germany’s image as the “sick man,” including high and unpredictable energy costs, slow internet connections, outdated rail networks, digitalization backlogs, a lack of skilled workers, excessive bureaucracy, and long approval procedures.

There has been much debate in recent months as to whether Germany deserves the moniker, first used to describe Europe’s largest economy in 1998 as it navigated the expensive challenges of a post-reunification environment.


Goldman Sachs raises US$15.2 billion for secondary private equity deals

Goldman Sachs’ asset management arm announced that two funds have closed, raising more than US$15 billion for funds that enable investors to make secondary investments in existing private equity (PE) deals.

Goldman Sachs Asset Management's "Vintage IX" fund raised US$14.2 billion, exceeding its target of US$12 billion, from institutional investors, wealthy clients and bank employees, while the inaugural Vintage Infrastructure Partners separately raised about US$1 billion, it said.

“What we do in our secondaries business is really go in and provide liquidity to investors in these funds, who wanted to get out before their natural termination,” Harold Hope, global head of secondaries at Goldman Sachs Asset Management, told Reuters.

“The vintage fund that we just raised will come in, look at the value of your assets, negotiate with you, agree on a price and then we’ll buy you out of that investment.”

Goldman’s asset management arm is also considering investing in so-called “continuation vehicles”, he said. Such deals allow PE firms to roll older investments into new funds.

PE firms are finding it tough to raise fresh money from investors who have already allocated large portions of their portfolios to PE investments, Hope said.

"They're being very cautious around new investments," he said. "And they're really not investing a lot of capital. So that's why I think people are having a hard time raising money.” The aggregate value of private equity deals fell by 44% to US$302.7 billion in the first eight months of 2023 from a year earlier, according to S&P Global Market Intelligence, the lowest level for January to end-August since 2019.


Standard Chartered offers sustainable trade loan for financial institutions

Standard Chartered has announced the launch of a sustainability-focused trade loan for its financial institution clients, enabling them to provide additional liquidity to support ESG-related trade flows.

The bank says the loan offering will provide “much-needed” liquidity to financial institutions globally, in turn accelerating borrowers’ efforts to meet their sustainability targets and net zero commitments. Eligibility is based on Standard Chartered’s green and sustainable product framework, which was co-authored with ESG ratings provider Morningstar Sustainalytics. 

Initial focus is on sustainable end use in the renewable energy sector, such as projects involving wind turbines, solar panels and battery storage systems, the bank says. “The lack of funding for sustainability initiatives continues to be a challenge for companies,” it comments. 

According to a report published by the bank in April, 70% of large corporates and mid-sized companies are reluctant to make ESG commitments by difficulties accessing finance. The bank describes obtaining funding as “a major issue’. 

Samuel Mathew, the lender’s global head of flow and financial institutions trade, adds that the loan offering will help clients “play a greater role in driving sustainable outcomes by directing capital to where it matters most in their markets”. 

The loan follows Standard Chartered s launch of a set of sustainable trade finance solutions in March 2021, based on the Loan Market Association’s (LMA) green and sustainability-linked loan principles. 

In December, the bank announced it was piloting a sustainable supply chain finance programme in the United Arab Emirates (UAE), which it said was the first of its kind in the Middle East.

Temenos Payments Hub launches on IBM Cloud

Swiss enterprise software specialist Temenos announced that the Temenos Payments Hub has become the first payments solution to be available on IBM Cloud for Finance Services, an industry-specific platform designed to accelerate financial institutions’ digital transformations.

This makes it available across IBM’s hybrid cloud infrastructure, running on Red Hat OpenShift with IBM Power as well as LinuxONE.

A release added that Temenos Payments Hub is designed to offer the first step for banks to take advantage of the new payments initiatives such as the FedNow Instant Payments Service in the US and SEPA Instant in Eu rope and offer secured, digital banking services to customers. With Temenos Payments Hub, banks can progressively modernise their payments capabilities and their integration with new payments schemes and rails.

Ross Mallace, EVP Global Head of SaaS & Partner Ecosystem, Temenos, said: “Following on from a number of recent wins for SEPA Instant processing in Europe and our certification for the FedNow program in the US as well as a win with a global payments leader, Temenos sees tremendous growth opportunities in the payments space. With Temenos Payments Hub, banks can quickly implement instant payments services like FedNow and can then proceed to progressively modernise their payments capabilities.”


Mastercard and Saxo Bank partner on investments initiative

Global financial services provider Mastercard and Denmark’s Saxo Bank have announced a strategic partnership aimed at “revolutionising the way customers manage their investment accounts through open banking technology.”

This collaboration enables users of Saxo Bank's investment platform to seamlessly transfer funds into their accounts by utilising Mastercard’s open banking technology.

Unlike traditional methods that require customers to log into separate bank accounts and manually transfer funds, this new feature streamlines the process, enhancing convenience and efficiency.

Bart Willaert, the Executive Vice President of International Open Banking at Mastercard, commented: “Through our partnership with Saxo Bank, we're enabling simple, safe financial experiences for their customers powered by our open banking technology and leveraging the breadth of our global network to facilitate the bank's expansion into new markets."

The partners added that the service has already been successfully launched in Denmark where it has significantly improved the overall customer experience and an increase of 20% in new funds moving into investment accounts through open banking transactions. Encouraged by this initial success, both companies are now gearing up to introduce this open banking service across European markets.


Indonesia launches national task force to support local currency transactions

Indonesia has launched a national “de-dollarisation” task force to facilitate cross-border local currency transactions with regional partners as the push to reduce US dollar dependence in south-east Asia gathers pace. More than 80% of exports in the region are invoiced in dollars, according to the Asian Development Bank (ADB).

The national task force is expected to pursue policy adjustments to financial market and trade rules as the government attempts to incentivise banks and other institutions to deepen their engagement with regional currencies. 

“Through the task force, the government will look at the [policy] bells and whistles it needs to fine-tune. This [covers] financial markets, trade and customs; there are many things to synchronise,” says Erwandi Hendarta, senior partner and the head of finance and projects practice group at HHP Law Firm, member firm of Baker McKenzie in Indonesia. 

Tools available to regulators include lowering bank reserve requirements on holdings of regional currencies and accelerating import procedures for certain businesses, though concrete changes have yet to be announced.

The task force, launched two weeks ago, includes at least six ministries, the central bank, and key financial regulators, underscoring its political power. It follows last month’s endorsement of a region-wide local currency transaction framework by Asean finance ministers and central bank governors.

“The Indonesian government is trying to foster local currency use [with regional partners]. Having a [national] task force is an excellent idea to facilitate policy co-ordination locally and internationally,” says Hendarta.


Italy’s CBI expands Name Check coverage via Swift’s Pre-Validation service

Italy’s CBI, which develops digital services – including open banking and open finance services – for the financial industry and the Public Administration. is expanding its Confirmation of Payee services to the European level and beyond through the use of Swift’s Payment Pre-validation service.

The collaboration will enable a broader network of verification and a higher level of security for financial services users. At a future date, Italian banks will be able to pre-validate abroad through CBI, implementing a unique “Confirmation of Payee” solution that will seamlessly work domestically and cross-border. 

Swift’s Payment Pre-validation solution seeks to reduce errors and mistakes in payment messages. By utilising API technology and best-in-class data sources to validate key information before a payment is sent, the Swift service adds a layer of predictability to every transfer and eliminates payments friction. 

The Name Check CBI Service is designed to offer a real-time verification of the correct association between IBAN Codes and the names of beneficiaries. Targeting Payment Service Providers (PSPs) and Corporates, and thanks to a centralized and advanced matching algorithm, this service provides a crucial layer of security and risk mitigation in the world of financial transactions. CBI’s Name Check ensures that payments are sent to the intended recipients, it helps prevent fraudulent behaviours and accidental misdirection of payments, in addition to providing users with clear guidance on the accuracy of their payment details.

The announcement comes in the same week as Swift announced its latest collaboration with Visa, using Swift Payment Pre-validation for the prompt scrutiny of Visa B2B Connect payments.


LG Energy Solution issues US$1 billion of green bonds

South Korea’s LG Energy Solution announced that it has successfully completed the issuance of a total of US$1 billion in global green bonds including US$400 million with a five-year maturity and US$600 million with a five-year maturity.

Their interest rates were set at +100 basis points (bps) and +130 bps over those of US three-year and five-year government bonds, respectively. This is a reduction of 40 bps from the initial offering interest rate.

LG Energy Solution’s green financing framework, which includes the company’s green bond use and management plan, was recognized by Moody’s for its environmental, social and governance (ESG) management system, so it received the highest rating of SQS1 (Superior).

The global bond issuance attracted 114 institutional investors for three-year bonds and 186 investors for five-year bonds and received orders for bonds five times the total offering amount. LG Energy Solution’s active investment plan and investors’ significant anticipation for future growth led to high demand from global investors.

The company plans to ramp up its investment in production facilities worldwide through this global bond issuance. In a conference call in the first quarter, the company announced that it invested won (KRW) 6.3 trillion (US$4.48 billion) in capital expenditures for global battery production last year and plans to scale up investment by more than 50% year on year in 2023.


Trade Ledger introduces Aida, its GenAI solution 

UK fintech Trade Ledger, in collaboration with Microsoft, has announced the launch of Aida—a working capital analysis, product matching, and product application tool.

Utilising generative artificial intelligence (GenAI), Aida aims to change how small and medium-sized businesses manage cash flow. The product is set for release on Microsoft’s Commercial Marketplace in Q2 of 2024.

Aida uses Trade Ledger’s data layer and pipeline, supported by Microsoft’s Azure OpenAI service and Synapse for warehousing and insights. The solution includes cognitive search for data indexing and querying. Microsoft Teams serves as the user interface for interaction with Aida, a chatbot designed for working capital queries.

Deployed by Accenture, the beta version of Aida will be available to banking clients. “There has been much focus on embedding bank credit products in business channels, however, most banks are confusing channel integration with embedded finance. Delivering working capital solutions in a conversational interface via Microsoft Teams, results in a scalable embedded business lending initiative,” says Martin McCann, CEO and co-founder of Trade Ledger. Aida interprets conversational queries, deploys algorithmic inquiries, and provides actionable insights.

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