China to check banks’ liquidity after bonds slump

Chinese regulators have asked banks to report on their ability to meet short-term obligations after a rapid selloff in bonds triggered a flood of investor withdrawals from fixed-income products, reports Reuters which cites individuals familiar with the matter.

The unscheduled regulatory queries coincided with the biggest decline in China’s short-term government bonds since mid-2020. The slump, spurred by a shift toward riskier assets including stocks, prompted retail investors to withdraw money from wealth-management products, fuelling a spiral of price declines and accelerating withdrawals.

Losses also spread to top-rated corporate bonds, stoking a record surge in yields this week. On Wednesday the People’s Bank of China (PBOC) injected a net yuan (CNY) 123 billion (US$17.3 billion) of seven-day liquidity via its open-market operations.

According to UBS Group report issued this week China’s property slump has cost the nation’s banking system as much as CNY1.5 trillion in losses on loans, bonds and other assets,

Such a figure will be “digestible by the banking system as the banks have strong earnings power and high” reserves against non-performing assets, May Yan, the bank’s head of Greater China financials equity research, said in the report. “As such, we don’t expect any banking system crisis at this point.”

Embedded finance “will be transformative” for the MENA region

Embedded finance is becoming a reality in the Middle East and North Africa (MENA) region, with open banking and open finance fuelling its growth, according to a report by the MENA FinTech Association’s (MFTA) Open Finance Working Group.

The report by the not-for-profit body, published to coincide with the current Abu Dhabi Finance Week, notes that there has been a considerable interest in embedded finance for some time, with many expecting it to be disruptive – a ‘must-have’ in the online customer journey and to enable any large firm to become a fintech company. It goes on to define embedded finance, how it is delivered and explain why it is a transformative product for both the MENA region’s banks and non-financial firms.

• Embedded finance enables any brand to incorporate innovative financial services swiftly and affordably into consumer experiences.
• The use of application programming interfaces (APIs) for sharing customer-permissioned data and banking capabilities makes embedded finance an efficient and convenient option for providers and recipients of all sizes.
• Its relevance extends across all industries as everything can be re-engineered and applied to any specific field.
• It is already worth billions of dollars globally, and the Middle East & North Africa (MENA) is no exception.

Nameer Khan, the MFTA’s Chairman and Founding Board Member, said: “Our region (MENA) is the global opportunity hub, the leadership across the region has created tremendous opportunities to further amplify impact on a global stage. The evolution of technologies being built and scaled from and outside the region are phenomenal.

Indian government bonds back in favour with mutual funds

Indian government bonds are back in favour with the country’s mutual funds, reports Reuters. Fund managers told the news service they believe that India’s inflation rate has peaked – the consumer price index dropped back to 6.77% last month – leaving limited room for further rate hikes that, in turn, is leading to sharp decline in yields.

“The market is expecting inflation to have peaked and slow into 2023, while growth headwinds have picked up into 2023, especially in the western world,” said Vikram Chopra, a fund manager with DSP Investment Managers. “This is bringing in fresh investors.”

Mutual funds have bought bonds net of more than 150 billion Indian rupees (INR) – about US$1.84 billion – over the last 15 trading sessions, data from Clearing Corp of India showed.

This trend could persist as mutual funds had limited exposure to government bonds over recent months after the Reserve Bank of India (RBI) aggressively raised interest rates to tackle steep inflation. The central bank has raised rates by an aggregate 190 basis points since May. Lifting the benchmark rate to 5.9%.

Mutual funds shunned government bonds for most of last month, after suffering heavy losses in September, amid an abrupt reversal in direction of yields when hopes of India's inclusion in a global bond index were dashed.

Microsoft launches its supply chain platform

Microsoft Corp has announced the launch of the Microsoft Supply Chain Centre, which the software giant says helps organisations maximise their supply chain data estate investment with an open approach, bringing the best of Microsoft artificial intelligence (AI), collaboration, low-code, security and Software as a Service (SaaS) applications in a composable platform.

The company also announced the preview of Microsoft Supply Chain Centre, a “ready-made command centre for supply chain visibility and transformation” as part of the new platform. It is designed to work natively with an organization’s supply chain data and applications, with built-in collaboration, supply and demand insights, and order management.

“Businesses are dealing with petabytes of data spread across legacy systems, enterprise resource planning (ERP), supply chain management and point solutions, resulting in a fragmented view of the supply chain,” said Charles Lamanna, corporate vice president, Microsoft Business Applications and Platform. “Supply chain agility and resilience are directly tied to how well organizations connect and orchestrate their data across all relevant systems. The Microsoft Supply Chain Platform and Supply Chain Centre enable organisations to make the most of their existing investments to gain insights and act quickly.”

Daniel Newman, founding partner and principal analyst of Futurum Research, commented: “Supply chain solutions are more critical than ever. Our early assessment of the Microsoft Supply Chain Platform and Supply Chain Centre is that the company has put its technology, applications and resources together in a way that will serve its customer base well in a wide swath of IT and operations environments, offering flexibility for diverse IT environments and continuous agility for transformation into the future.”

Allianz adds second trade finance fund

Trade finance is continuing to develop as a securitised asset class with the launch of Allianz Global Investors’ (AllianzGI) second trade finance fund. The Allianz Working Capital Investment Grade Fund (Alwoca IG) aims to build on the success of its predecessor, Allianz Working Capital Fund (Alwoca), which was launched in April 2019 for professional clients.

Under the original Alwoca structure, trade finance assets –  including invoices, receivables backed loans, factoring, documentary credits, notes, bonds and other instruments sourced by partners including HSBC  –  are put into a special purpose vehicle (SPV). These assets have different risk profiles and typically short tenors, such as 60-day fixed term corporate payables. AllianzGI then acts as portfolio manager for the SPV, selecting the transactions purchased. The SPV’s assets are then wrapped into notes that Alwoca will buy, enabling the fund to take exposure to trade assets through a securities format.

Since the fund was set up, AllianzGI has attracted €500 million (US$518 million) from European institutional investors. In June it announced that it had won additional mandates which can bring assets to €1 billion. The asset manager says that the new, investment-grade iteration of the fund, is aimed at “investors who have restrictions on high yield rated investments but would like to enjoy the defensive nature of short-dated, diversified, trade finance investments”.

AllianzGI says it will source transactions through its existing network of sourcing partners, and aims to offer “attractive” yield, weekly subscriptions and redemptions and diversification benefits. The fund manager adds that its short interest rate duration allows resets to rising rates whilst its short spread duration and no reliance on capital markets seeks to help reduce volatility in case the credit cycle deteriorates.

“We are excited to launch this investment-grade version of the existing Alwoca fund,” said David Newman, AllianzGI’s head of global high yield. “We believe the characteristics it offers are particularly relevant to investors today in an environment of heightened geopolitical tensions, volatile bond yields and rising inflation. In this environment, trade finance can offer the flexibility and potential returns to help investors navigate the uncertain outlook.”

HSBC Oman and Sohar International Bank to merge

HSBC Bank Oman and local rival Sohar International Bank announced they have entered into a binding merger agreement. HSBC Oman’s assets and liabilities will be transferred to Sohar International, the banks said in two separate regulatory announcements, without disclosing the deal value.

On completion of the merger, HSBC Oman will cease to exist as a legal entity and its shares will be cancelled, the banks said.

HSBC has been in Oman since 1948. In 2012 HSBC Bank Middle East’s operations in Oman  merged with Oman International Bank to create a HSBC Bank Oman.

"HSBC Bank Middle East Limited will now seek regulatory approval to establish a new, wholly owned branch of HSBC Bank Middle East Limited in Oman, should the merger of HSBC Oman and Sohar International receive the necessary shareholder approvals," the bank said in a separate statement.

Shareholders of HSBC Oman will be offered a consideration valuing HSBC Oman at one times book value, with an option for shareholders to elect to receive cash provided it does not exceed 70% of the total consideration payable by Sohar International.

The shares that form a part of the consideration to HSBC Oman shareholders will value Sohar International at one times book value, the banks said.

Boost for TIPS as LHV UK joins

LHV UK, which provides banking services to fintech and crypto companies, has joined the TARGET Instant Payment Settlement (TIPS) system to improve access to real-time euro payments in countries where the scheme is not yet widely accepted.

LHV commented that although the Single Euro Payment Area (SEPA) Instant scheme launched back in 2017, only around two-thirds of the EU’s payment service providers (PSPs) offer real-time payments. The TIPS market infrastructure service launched by the Eurosystem in November 2018, enables real-time money transfers in Euros 24/7, even in regions where the functionality for instant euro payments is lacking.

The Eurosystem comprises the European Central Bank (ECB) and the national central banks of the EU’s Member States, whose currency is the euro. LHV UK, which processes 7% of instant SEPA payments transactions in Europe, considers wide access to the scheme for its clients as a priority.

As of October, outbound and inbound TIPS payments are automatically enabled for all LHV UK’s direct clients, ensuring that any bank account holder in a euro-denominated country can be reached. Since joining the scheme, LHV UK reports improved real-time euro payments coverage in the Netherlands, Poland, Italy and Spain, with more than 90% of all outgoing euro payments now happening in real-time. This starkly contrasts the EU average, where according to the European Commission (EC), only 11% of all credit transactions are executed in real-time.

The EC is planning to change that, as the voluntary adoption of real-time payments in the block has flatlined it unveiled a draft law that would force banks to offer SEPA instant payments in euros at no extra cost. The scheme processes the payments in seconds, regardless of the time or day throughout the year, and the block-wide uptake is expected to boost economic efficiency and support innovation.

Andres Kitter, Deputy CEO of LHV UK, said: “Having witnessed the transformative impact of real-time payments to consumers and businesses since 2017, we welcome the proposal by the EU, which intends to make instant euro payments mandatory throughout the block at a fair price.”

State Street to provide FX hedging services for China fund manager

US financial services group State Street has been appointed by China’s Harvest Fund Management to provide onshore yuan (CNY) foreign exchange (FX) hedging services for the Qualified Domestic Institutional Investor (QDII) investment funds.

It builds on the firm’s long-term partnership with Harvest, having supplied Harvest Fund with a wide range of global custody services since 2010. Earlier this year, State Street began providing onshore CNY FX liquidity on spot, forward and swaps with the Beijing FX trading desk.

The firm offers FX services to fulfil the FX demand for security settlement and currency hedging of offshore investors’ inbound investments via the Bond Connect, CIBM Direct and QFII channels, or onshore investors’ outbound investments via the QDII programme.

A spokesperson for Harvest Fund Management says: “China’s asset management market is rapidly evolving, and domestic investors are looking to diversify their portfolios by increasing global investments.

“We are excited to expand our relationship with State Street, allowing us to leverage [their] global scale and experience to access new asset classes and financial products”