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China moves to stimulate economy – Industry roundup: 13 June

China cuts key rate to stimulate sluggish economy

China’s central bank has cut a key short-term policy rate as it deals with sluggish economic data in the country after a Covid-19 reopening failed to gain momentum.

The People’s Bank of China (PBoC) cut its seven-day reverse repurchase rate by 10 basis points from 2% to 1.9%, according to a central bank release, injecting Chinese yuan (CNY) 2 billion (US$280 million) through its seven-day repos. The onshore Chinese yuan weakened 0.25% to 7.1618 against the US dollar following the move.

This was the PBoC’s first such move since August and follows the nation's largest banks reducing deposit rates last week, indicating that further monetary easing lies ahead.

The move comes ahead of the PBOC’s medium-lending facility interest rate decision, due to be released on Thursday, while the bank’s loan prime rate is scheduled for release on June 20.

“Now we are going to see the Chinese [monetary] policy will become more supportive,” Atlantis Investments’ Chief Investment Officer Yang Liu told CNBC. “Basically what the Chinese government is [expected] to do [is] to try very hard to prop up the domestic consumption, especially in the private sector,” she said.

UBS Global Wealth Management also predicts further policy easing ahead in its June outlook report. “We believe monetary policy will continue to focus on keeping liquidity ample and credit growth steady,” said its analysts, predicting that the central bank will deliver one to two “modest” reserve requirement ratio cuts this year.

It also expects to see cuts in the medium-lending facility rate (MLF) by 5 to 10 basis points in the second half of this year. “Larger steps, however, could worsen FX pressure, which policymakers want to avoid, and come with diminishing returns if not accompanied by demand stimulus,” it said.


UK deals pick up as Bank of England’s corporate bond sales end

The Bank of England’s (BoE) announcement last week that it has sold most of its £20 billion (US$25 billion) corporate bond portfolio should allow sterling debt capital markets to recover without its constant presence overshadowing the sector.

Sterling corporate bond supply dried up while the central bank was offloading its portfolio. Now, with the prospect of cheaper money becoming available UK companies are starting to tap the market.

Four new sterling deals already announced from financial and industrial borrowers indicate a revival is underway. French lender Credit Agricole SA has a £350 million eight-year issue, while Yorkshire Building Society is coming with a five-year floating-rate note.

However, the standout performers are specialist financial conglomerate Close Brothers Group and mining equipment manufacturer Weir Group. Both are issuing five-year bonds, with the indicated credit spread on both transactions tightening by more than 25 basis points during the marketing process.

The BoE first bought corporate bonds in 2016, to support the economy after the UK voted to leave the European Union (EU) and doubled its holdings in 2020 as part of its efforts to limit the impact of the Covid-19 pandemic on businesses. Sales began in September 2022 and the BoE recently confirmed that they were likely to be completed within a few weeks.

After a final auction last Tuesday, the BoE said it would hold £833 million of corporate bonds which were close to maturing, unless investors approach it directly to buy them. “As previously announced, a small number of very short maturity bonds will continue to be held in the portfolio maturing fully by 5 April 2024,” the BoE stated.

Before the sale programme started, the BoE had been under pressure from environmental campaigners to divest its holdings of bonds from companies such as energy giant BP and mining company Rio Tinto.

Corporate bonds were only ever a small fraction of the BoE’s total QE programme, which reached £895 billion at its peak in December 2021. The Bank’s £20 billion corporate bond portfolio,), while dwarfed by the more than £800 billion of gilt holdings, still had an out-sized effect on borrowing conditions across the wider economy, which will take some time to wear off. The BoE is now reducing its holdings of government bonds at a pace of £80 billion a year, split roughly equally between outright sales and not reinvesting the proceeds of bonds which mature.

For the moment, the UK corporate bond market is free from restraints and looks relatively cheap; an advantage that some analysts suggest could last for a while.


India and UAE agree to non-oil trade deal

India and the United Arab Emirates (UAE) have mutually agreed to raise non-petroleum bilateral trade between the two countries to US$100 billion by 2030, the Indian trade minister announced.

The central banks of both countries are also discussing rupee-dirham trade mechanism, said Piyush Goyal after a meeting with UAE foreign trade minister Thani bin Ahmed Al Zeyoudi. The goal to achieve US$100 billion non-oil trade was set in the first meeting of the Joint Committee of India-UAE Comprehensive Economic Partnership Agreement (CEPA).

Initial figures from the UAE Ministry of Economy indicate that from May 2022 to April 2023, the first 12 months of the CEPA, bilateral non-oil trade reached a value of US$50.5 billion, a 5.8% increase on the same period a year earlier.

“Bilateral trade between India and UAE has seen a significant increase in the last 12 months,” said Goyal “Our earlier target was to touch US$100 billion by 2030, which had a substantial petroleum component. We have mutually agreed to up the target to US$100 billion for non-metro by 2030 from the earlier US$48 billion. Trade in petroleum will also be increased.”

Goyal said that an India-UAE CEPA council will be set up to further facilitate the implementation of the agreement.

UAE’s Thani bin Ahmed Al Zeyoudi said: “Trade ties with India have grown very rapidly (following CEPA). There are several areas where we are looking to provide a further fillip to our robust trading ties.”


ANZ boss says bank aims to grow India presence

Australian companies have an outdated view of India, according to Australia and New Zealand Banking Group (ANZ) chief executive Shayne Elliott who says it’s an attitude he wants to change as the bank looks to allocate more capital to its institutional business that to those trading in the world’s most populous nation.

Elliott told the Australian Financial Review that the rising Indian middle class – hundreds of millions of people – are more willing to take on debt to chase Western trends, which promises to lift demand for Australian exports. He agreed that developing a free trade agreement between the two countries was challenging, especially around agriculture and the services sector, given India’s history of protectionism.

ANZ, whose board was in India last week along with members of the group’s senior management team, facilitates capital flows for major multinationals working in India, including trade finance, foreign exchange and hedging services.

It does not provide project finance on the ground or lend to Indian companies for domestic activity, but the AFR reports that ANZ has banked some of India’s largest conglomerates doing business in the Asian region (where ANZ operates in seven other countries), including Reliance, Tata and Mahindra.

ANZ has a loan book and forex exposures in India of more than A$1 billion (US$680 million) and about A$500 million of capital is tied to the market – still small compared to its overall A$60 billion of capital. Its institutional bank in India is profitable, returning a double-digital return on equity – more than what it earns writing mortgages in Australia.

“We have hit an inflection point, and now it is about accelerating that growth,” Elliott told the AFR. “Now that the institutional bank is going well, we see more opportunity there. We will pivot more of our capital and resources to institutional – we have that optionality that other [big Australian banks] don’t have.”

As the governments of Anthony Albanese and Narendra Modi negotiate a free trade agreement, which is set to dismantle trade barriers on a range of Australian exports to India, the Australia-India Economic Co-operation and Trade Agreement (AI-ECTA) signed in April 2022 has already started to reduce tariffs on commodities including avocados, lamb, wool, lentils, horticulture and wine.


China plans late-November supply chain-themed national expo

China’s state-owned Global Times has announced that the county will hold the first China International Supply Chain Expo in Beijing from November 28 to December 2, the world's first supply chain-themed national exhibition, “with the aim of providing an international platform for advancing orderly and efficient industrial synergy across countries.”

According to Chinese officials, about 100 enterprises are reported to have signed up for the event to date, with confirmed US companies forming the largest group among foreign multinationals.

The expo’s theme is “connecting the world for a shared future,” and will feature five major supply chains including smart vehicles, green agriculture, clean energy, digital technology and healthy living, said Ren Hongbin, chairman of the China Council for the Promotion of International Trade (CCPIT) - organiser of the expo - at a press briefing of the State Council Information Office.

The total expo area will exceed 100,000 square meters, and is expected to attract over 300 companies, with international exhibitors making up 30% of the total, Ren said. The estimated number of attendees is more than 100,000, with international buyers from over 50 countries and regions accounting for 40%vof the number.

Lin Shunjie, chairman of the China International Exhibition Center Group, which is co-organising the event, told the Global Times: “The US companies I talk with are very pragmatic, and are looking to seize this rare opportunity. Many US firms said that they need to restructure their global supply chains after three years of Covid disruption.”

News of the expo also comes after several CEOs from multinationals have visited China in recent days, such as Tesla’s founder Elon Musk and JPMorgan Chase CEO Jamie Dimon. Reuters also reported that LVHM chief Bernard Arnault is set to visit China this month.


Bank Albilad is first Saudi bank to enable open banking services

Bank Albilad announced it has completed the technical permit requirements to enable open banking services according to the regulatory framework issued by the Saudi Central Bank with the aim of supporting the FinTech ecosystem in the Kingdom.

This makes Bank Albilad, which is the strategic partner of the Formula 1 Saud Arabian Grand Prix, the first bank in Saudi Arabia to obtain the technical permit and enable open banking services.

Abdul-Aziz Al-Onaizan, CEO of Bank Albilad said: “We took the initiative to enable the open banking services in order to support and enable the FinTech system and innovation in the financial sector, as it is one of the pillars of the financial sector development program emanating from the Kingdom’s Vision 2030.

“As we worked very hard since that time to contribute in achieving the objectives of the Kingdom’s Vision 2030, we are pleased today to enable all segments of our customers to share their financial data securely with our partners from service providers and providers of new and innovative products, which improves the quality of the banking services and enables sharing financial data”.

Bank Albilad opened an Innovation Center (HORIZON) in June 2022, to encourage innovation, fintech, and entrepreneurship towards creating a connected environment that ensures the incubation of ideas and digital leading projects.

This qualified Bank Albilad to keep pace with the regulatory framework for open banking since it was issued last November by the Saudi Central Bank to include regulations, business rules, and technical standards that were developed according to the best global practices and to enable banks and fintech companies to provide the open banking services in the Kingdom.


CFPB to propose US open banking regulation in coming months

Rohit Chopra, director of the US Consumer Financial Protection Bureau (CFPB) said in a blog post that the agency will propose a much-anticipated open banking rule in the coming months and will aim to finalise the rule in 2024.

Chopra’s blog comes as the bureau attempts to pivot the financial industry toward open banking, meaning consumers have control over their personal financial information and can share that data as they choose. The CFPB is keen for the forthcoming open banking rule to ensure that a handful of dominant players don't crowd out competition in open banking services.

The rule, which the CFPB is required to issue as part of Section 1033 of the Dodd-Frank Act, will open up competition in the financial services industry by mandating that large institutions allow consumers to request the share of their personal financial data with fintechs and other banks and online lenders, Chopra said.

Chopra is in Washington DC this week to testify before Congress. He is scheduled to give his semi-annual testimony before the Senate Banking, Housing, and Urban Affairs Committee today and and will appear before the House Financial Services Committee on Wednesday.


AXA and Capco partner on climate-related risk management

AXA Hong Kong and Macau, part of France’s multinational insurance group AXA, has entered into a strategic partnership with technology and management consultancy firm, Capco, to enhance data-driven climate risk assessment and reporting.

A release said that the new collaboration brings together AXA’s proprietary climate risk models with Capco’s climate consulting expertise for risk assessment, in an effort to assist companies as they try to meet new climate risk reporting requirements.

The idea is to offer a comprehensive climate-related risk management and reporting solution to financial institutions and other organisations.

Mandatory environmental, social and governance (ESG) reporting regulatory requirements are on the rise, and this partnership aims to provide a solution for both corporates and firms across numerous industries that are looking to meet their climate disclosure obligations.

“We are committed to supporting the fight against climate change, and are excited to be the first insurer to provide this comprehensive proprietary climate risk management and reporting solution to companies in Hong Kong, in partnership with Capco, to live out our commitment to become a true partner to our customers,” said Sally Wan, Chief Executive Officer (CEO), AXA Greater China.

The partnership will draw on Capco’s experience in helping clients build out their data-driven climate competencies and AXA’s depth and breadth of physical climate risk assessment coverage and capabilities.

Clients will be able to comply with evolving regulatory requirements, establish enterprise-wide climate competence, and overcome the key challenges posed by today’s fragmented climate data landscape.


BlackRock buys Kreos to enhance private debt products

BlackRock has signed an agreement to acquire London-based Kreos Capital, a well-known private debt provider that invests in technology and health sectors across Israel and European high-growth companies. Since 1998, the firm has invested more than €5.2 billion (US$5.6 billion) through nearly 750 transactions across 19 countries.

A release said that the acquisition will further bolster BlackRock's position as the global credit asset manager. It is also expected to further expedite the group’s goal to provide its clients with a wide range of private market investment products and services. The deal will complement BlackRock's Global Credit business and their clients will have access to Kreos’ additional private debt capabilities.

James Keenan, CIO and global head of BlackRock Private Credit, said: “The Kreos team has built a world class investment process and delivered for clients through multiple cycles. Coupled with our expectation that growth and venture lending will figure prominently in the expansion of the global direct lending opportunity set going forward, we believe this is an opportune time to welcome the Kreos team to BlackRock.”

Financial terms of the deal were not disclosed, while closing of the transaction, still subject to customary regulatory and closing conditions, is expected in the third quarter of 2023.


ForwardAI launches cash flow management tool for US small businesses

ForwardAI, the fintech providing aggregated direct data access to accounting and enterprise resource planning (ERP) platforms, has launched ‘Forwardly’: a new real-time payment (RTP) enabled cash flow management tool for small and medium-sized businesses (SMBs) in North America.

Forwardly aims to help SMB owners and accountants simplify their cash flow through instant payments. The new B2B payments platform, which is available at no cost to existing users, helps small businesses get paid in seconds. The service is also available 24/7 and 365 days a year, eliminating the need to consider bank hours or closures.

Other features include:

  • Faster speed: with payment up to three days faster than other legacy payment options
  • Savings of 60% to 80% (compared to credit card processing fees)
  • Faster times: Bank account and accounting system integration eliminates manual tasks; direct two-way sync with leading accounting platforms enables instant reconciliation of payments
  • Bank agnostic: Forwardly does not require the user to create a new bank account, change banks, or pre-fund a settlement account or wallet.

Nick Chandi, ForwardAI's CEO and co-founder added: “Cash flow is the most critical component of a business’s financial health, and in today’s economic climate, it’s more important than ever for small businesses to have visibility and control over their finances.

“Forwardly helps businesses accept payments faster, retain money longer, and spend less on processing fees, which ultimately means less time spent worrying about keeping cash in the bank.”

Powered by ForwardAIs' recently released ‘Precise API V2’, which aggregates data from major accounting systems, Forwardly aims to improve business workflows, integrates with bank accounts and accounting systems, and utilises instant and automatic reconciliation for leading accounting platforms, including QuickBooks Online and Xero.

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