Turkish lira at record low on possibility of Erdogan re-election

Investors have sold stocks and pushed down the value of the lira (TRY) to a new record low against the US dollar as they nervously await the outcome of Turkey’s presidential race in a runoff vote on May 28. 

Turkey’s benchmark BIST-100 index fell by as much as 6.4% in pre-market trade after Sunday’s election result that saw President Recep Tayyip Erdoğan performing better than polls had indicated, tallying about 49.5% of the vote to the opposition’s 44.9%.

“An opposition victory looks to have become less likely and this will disappoint investors hoping for a return to orthodox economic policymaking and a more credible commitment to tackling Turkey’s inflation problem,” said Liam Peach, senior emerging markets economist at Capital Economics, in a note.

The sharp stock market fall prompted the Istanbul exchange to halt trading briefly. The BIST-100 closed down 6.1% while its banking sub-index finished the day 9.2% lower, following confirmation that the election will have to be decided in a runoff between Erdoğan and his main opponent, Kemal Kilicdaroglu.

The TRY slipped 0.5% to stand at 19.70 against the US dollar, a record low. The value of the currency declined by more than 40% last year as Erdoğan’s unorthodox economic policies pushed inflation to a peak of over 85% in October 2022 although by April it had nearly halved  to 44%, data from the Turkish Statistical Institute shows.

Erdoğan has been at the helm of Turkey’s government for two decades, and may be on the brink of a further five years in power. With nearly all of the votes counted, neither Erdoğan nor Kilicdaroglu had reached the 50% threshold of votes needed to declare victory.

The uncertainty has investors in Turkish government bonds worrying about the country’s ability to pay them back. The cost of buying insurance against the risk of default by the government — known as a credit default swap — surged nearly 27% to its highest level since November, according to data from S&P Global Market Intelligence.

Credit rating agency Moody’s said Monday that a victory for the opposition would “improve prospects for a return to orthodox economic policies which — if effectively implemented — would be positive for the sovereign’s credit profile over the longer term.”

Still, “unwinding the distortionary measures put in place over the past two years will be challenging,” Moody’s said, adding that the risk of volatility in Turkey’s economy and markets was “significant.”

In late 2021, as global inflation started to accelerate, Erdoğan ordered Turkey’s central bank to slash interest rates — the exact opposite of what other central banks were doing to tame runaway prices. Annual consumer price inflation surged to 85% in October, before slowing to 44% in April, data from the Turkish Statistical Institute shows.

“A victory for President Erdogan, which now looks like the base case scenario… would be negative for Turkey’s macroeconomic stability and financial markets,” Peach added.

“We think the continuation of low interest rates, restrictive foreign currency regulations and high inflation could increase the threat [of] a severe currency crisis down the line.”
 

China opens new Swap Connect programme for onshore bond hedging

China has taken a further step toward opening its financial markets, with a new channel that lets foreign investors trade in onshore interest rate swaps via Hong Kong to hedge risks on their bond holdings.

The new Swap Connect programme for financial derivatives allows “northbound” trading in yuan-(CNY) denominated contracts on the mainland, with a daily net cap of CNY20 billion (US$2.87 billion). The quota may be adjusted in future based on market conditions A “southbound” channel from the mainland to Hong Kong is also under consideration.

Deutsche Bank announced last week that it had been named a market maker for Northbound Swap Connect and commented: “Swap Connect will also mark an important step in the internationalisation of the renminbi (RMB). As further progress to Bond Connect, the initiative reinforces the role that Hong Kong plays in connecting China with international investors.”

Nicolas Aguzin, CEO of Hong Kong Exchanges & Clearing (HKEX) said that Swap Connect would further promote the currency's global status.

In addition to helping offshore investors to manage interest rate risk and lower financing costs, the new scheme would improve the efficiency of clearing and capital usage, said Haifeng Xu, deputy chief executive at Bank of China (Hong Kong).

Xu added that in recent years mainland China and Hong Kong regulators were regularly optimising Connect schemes, expanding channels for offshore investors to invest and finance in onshore markets and making the processes more convenient.

Swap Connect was announced by regulators last July and had initially been scheduled to launch six months later.

Jizhi Zeng, head of financial markets at Standard Chartered Hong Kong and the Greater Bay Area, said Swap Connect was another milestone connecting capital markets in Hong Kong and mainland, and would help to create synergies with the Bond Connect scheme.

 

Thailand’s economy buoyant as pro-democracy groups celebrate election win

Thailand’s pro-democracy groups are celebrating a decisive election victory by the reformist opposition after nine years of rule by the conservative military-backed bloc helmed by Prime Minister Prayuth Chan-Ocha.

The next leader faces challenges including steering the future of the US$506 billion economy that counts China as its largest trading partner while navigating US and Asean relations. Also at stake is the fate of one of Asia’s worst-performing stock markets and the revival of the country’s key tourism industry.

Thailand’s progressive Move Forward Party (MFP) and the populist Pheu Thai Party were projected to win about 286 seats in the 500-member House of Representatives. However, uncertainty remains about whether they will be able to form the next government due to skewed parliamentary rules that allow 250 members of a military-appointed Senate to vote on the prime minister.

That means MFP and Pheu Thai will need the support of smaller parties to establish a new administration.

The incoming government will be buoyed by economic data for the first quarter of 2023 showing that the Thai economy grew 2.7% in Q1 from a year earlier supported by a strong recovery in tourism and rising consumption, but the gloomy global economic outlook still weighed on the nation.

The GDP figure exceeded expectations for a 2.3% increase and contrasted with growth of 1.4% for Q4 2022, according to the National Economic and Social Development Council.

As more Chinese travellers return to the country, Thailand’s tourism sector looks set to continue to recover, helping to bolster the overall economy, despite global macroeconomic uncertainty, economists said.

Private consumption, which accounts for about half of the Thai economy, increased 5.4% in the first quarter from a year earlier, compared with a 5.6% gain in the fourth quarter.

Exports of services climbed 88%, compared with a 95% rise in the previous quarter, while exports of goods fell 6.4% and imports of goods and services declined 1.0%, the data showed.

Government spending fell 6.2% and public capital investment increased 4.7%, while private capital expenditure gained 2.6%.
 

Singapore to develop anti- financial crime platform

Singapore’s Parliament has authorised a legislative framework that will enable banks to share customer information, adding to the city state’s anti- financial crime arsenal.

Amendments to the Financial Services and Markets Bill lay the groundwork for the first centralised digital platform that will allow financial institutions to request and share targeted information on individuals and companies confidentially to help flag, detect and prevent money laundering, terrorism financing and proliferation financing.

The platform, dubbed Cosmic (Collaborative Sharing of Money Laundering/Terrorism Financing Information and Cases), will be initially opened to six banks – Citibank, DBS, HSBC, OCBC, Standard Chartered and UOB – which will help develop the platform with the Monetary Authority of Singapore (MAS) ahead of its scheduled roll out from the second half of 2024.

Cosmic will initially focus on three key risks: shell companies that conceal true ownership, trade-based cross-border transactions that disguise crime proceeds, and shell companies that facilitate indirect trade and payments to sanctioned countries. The initiative will be expanded over times to include additional financial institutions and key risks.

Minister of State for Trade and Industry Alvin Tan told Parliament that the MAS is the owner of Cosmic and will ensure that data is exchanged and stored securely. “The platform will have robust controls, including cyber-security measures such as data encryption, and firewalls to block unauthorised external access. It will also have strict user access limitations,” he said. “These controls will be subject to periodic audits to ensure the efficacy.”

He stressed that no red-flag indicators will be triggered for most customers, and that the amendments have legal and operational safeguards to protect the confidentiality of the information being shared and the interests of legitimate customers.

The changes to the law allow banks to share information when they detect suspicious transactions that meet a stipulated threshold. They can also request information from other banks and warn financial institutions of possible bad actors. In the first phase, information sharing will be on a voluntary basis but will subsequently become  mandatory.

DBS head of legal and compliance Lam Chee Kin said criminals are getting more sophisticated and tend to engage with each bank differently to make it very difficult for any one institution to weed out illegal schemes alone. Cosmic will provide banks with additional tools to bridge this information asymmetry.

Loretta Yuen, head of group legal and compliance at OCBC, said information sharing on Cosmic is integrated into the bank’s data analytics tools, adding to its risk detection strengths and expertise. It will also encourage more efficient allocation of industry resources.

“Cosmic allows participant banks to leverage the economies of scale and tactical advantages gained from having a banking sector that can effectively share risk information in a timely manner, with a united purpose to combat financial crime,” she added.

To protect legitimate customers, financial institutions are required to assess a client’s profile before sharing details, consider other information sources beyond Cosmic, and give customers an opportunity to explain any suspicious behaviour detected. “We will only use the data for the purpose of detecting any illicit activities related to financial crime,” said UOB head of group compliance Daniel Ng, adding that the banks are committed to protecting the security of customer data.

Currently, the US and the UK have laws that allow such data sharing under the US Patriot Act and the Proceeds of Crime Act 2002.

The clandestine nature of money-laundering makes it difficult to estimate the total amount of money that gets laundered, but the United Nations office on drugs and crime has estimated that the global figure is about 2% to 5% of global gross domestic product (GDP), or roughly US$2 trillion.

Describing the platform as “ground-breaking”, HSBC Singapore chief compliance officer Jamil Ahmed said the initiative “will place Singapore as a market leader in the global fight against financial crime”, while Citi Singapore country chief compliance officer Dylan Lee said the move will result in a safer banking environment for clients and bolster Singapore’s position as a financial centre.

American Express ends non-US business FX operations

American Express has announced that it is decommissioning its Foreign Exchange International Payments (FXIP) offering for the majority of business customers outside the United States by the end of 2023.

Amex said that it had taken the decision to discontinue FX services for corporates beyond its domestic US market following significant foreign exchange volatility off the back of aggressive monetary policy tightening from the world’s central banks.

The group highlighted the risks of hawkish interest rate settings on FXIP earnings in its 2022 annual report, warning that “adverse currency fluctuations and foreign exchange controls could decrease earnings we receive from our international operations and impact our capital”. Amex will continue processing AccessLine payments to domestic suppliers for the immediate future ahead of a decision on whether to maintain the offering.

A group spokesperson said that Amex would contact all affected customers to guide them through the local implications of the changes and provide support as they transition to alternative providers.

 

Florida bill aims to restrict use of CBDCs

Florida Governor Ron DeSantis has signed a bill restricting the use of central bank digital currencies (CBDCs) in the state.

The new law takes effect on July 1 and prohibits the use of a United States federal CBDC “as money within Florida’s Uniform Commercial Code (UCC)”, bans the use of CBDCs issued by foreign governments and calls on other states to use their commercial codes to institute similar prohibitions.

At the signing ceremony for the bill, DeSantis said he was spurred into action by President Joe Biden’s administration’s studies of the new financial technology. The US does not yet have a CBDC and the upcoming launch in July by the Federal Reserve on its FedNow digital payments system is regarded by many as reducing the need to introduce one.

“I don’t think they would have done that if they don’t intend on implementing this,” he said. Were a US CBDC to be issued, it would be “a massive transfer of power from consumers to a central authority.”

DeSantis also regards the potential introduction of a CBDC as a threat to cryptocurrency: “I think they want to crowd out and eliminate other types of digital assets like cryptocurrency because they can’t control that, so they don’t like that.”

The bill introduces changes to the state’s current commercial code. “You started to have a movement among the states to actually add CBDC to their Uniform Commercial Codes (UCC), and this is something that was pushed by a lot of powers that be to do that,” he said, in an apparent reference to the proposed Article 12 of the UCC now before state legislatures.

DeSantis added: “We looked at that and said, ‘[…] We are not going to add central bank digital currency to our commercial code,’ but we also said, ‘[…] We need to add protections for Floridians against this,’ and so we’ll put in the UCC that CBDC is something we don’t recognise.”

The Uniform Law Commission, aka the National Conference of Commissioners, has attempted to dispel the idea that it is encouraging the adoption of CBDC, even recently issuing a clarification on its position.

John Montague of Florida-based Montague Law commented: “This bill stipulates that transactions involving CBDCs won't be afforded the usual UCC protections, potentially dissuading entities or individuals from engaging in such transactions with CBDCs.

“The UCC can establish obligations and alter third-party rights, even without their direct contractual involvement. Florida has the authority to alter this definition.”

 

Revolut to begin offering loans in France

UK financial services and fintech company Revolut has announced its ambitions for France over the next two years, including the roll-out of customer credit products at the end of this month.

At a recent in-person press conference in Paris hosted by Antoine Le Nel, vice president of growth at Revolut, Le Nel stated that consumer loans will be available to more than two million of its French customers from May 30. The company has previously launched the offering in several other markets, including Ireland, Lithuania and Romania. 

The Revolut Loans offering will be available exclusively to French residents with zero opening fees, and the company says that its use of open banking means that hardcopy paperwork will not be required to submit loan applications. Users will have almost instant feedback on their request.

Loans amounts will range from €1,000 (US$1,090) to €50,000 with a duration of three to 84 months at effective interest rates ranging from 3.90% to 21.12%.

At the launch, Le Nel told French reporters that the bank “wants to be the number one bank for our customers […] We are aiming for 100 million customers by 2025.”

Although mortgage payments are not part of the initial French offering, Le Nel stressed that plans were underway to add them at a later date.

 

Trading platform Tradeweb discusses US default contingency plans

Bond trading platform Tradeweb has revealed that it is in talks with clients, industry groups and other market participants about its contingency plans in the event of a US debt default in the near future.

Financial markets are nervous about the possibility that the US Treasury could miss debt payments as President Joe Biden and top lawmakers remained deadlocked in talks over raising the $31.4 trillion federal borrowing limit.

As US government bonds are widely regarded as a fundamental of the global financial system, a potential default would send shockwaves across financial markets and concerns are growing as the government could hit the debt ceiling at the start of June.

Tradeweb has said that it continues to “evolve its contingency plans” to ensure its clients are able execute trades efficiently in any potential outcome. The company, which operates electronic marketplaces for rates, credit, equities and money markets, reported a total trading volume of US$22.3 trillion last month.

“As the leading electronic trading platform for US Treasuries, we will be ready with any necessary technical changes to the impacted securities,” a Tradeweb spokesperson assured Reuters.

The US has experienced regular debt limit standoffs since 1960. Over the past decade, they have largely been resolved before they could ripple out into markets, but warnings that little more than two weeks remain before the current ceiling is reached and the Republican party’s narrow majority in Congress could make it harder to reach a compromise this time.

The US Congressional Budget Office said in a report issued last Friday that there was “significant risk” of a historic default within the first two weeks of June.
 

HSBC targets Asia returns of 12%-plus as Ping An maintains pressure

HSBC Holdings Plc said it is targeting a return on tangible equity for its Asia business in the “mid-teens” in response to continued pressure from its top shareholder to improve returns.

Ping An Insurance Group has criticised the bank’s current model in Asia as being inefficient, focusing on HSBC’s returns for Asia, which it said stood at 10.5% in 2022 compared with an average of 13.8% for its Asian peers. The Chinese firm is also pushing for a separate listing of HSBC’s Asian arm.

In a statement, HSBC reiterated that the group’s ambition is for returns of at least 12% from 2023. It is targeting high single digit percentage wealth revenue growth, and mid-single digit percentage lending growth over the medium to long term, the statement said. HSBC also again stressed the importance of its international network.

“We now have an unrivalled international proposition that supports our Asia customers looking to trade with and grow in markets across Europe, the Middle East and the Americas, and vice versa,” said Chief Executive Officer Noel Quinn.

About 60% of wholesale client business in Asia is cross-border, the bank said in a presentation. 

HSBC has been pivoting to Asia, selling operations in other parts of the world and reiterated its commitment to invest about US$6 billion in the region between 2021 to 2025.

The bank, which counts Hong Kong as its biggest market, has also been diversifying its presence in other markets in the region, amid rising geopolitical tension. “In addition to our core strength in Hong Kong, we now have growth engines in mainland China, India, Singapore and beyond,” said Quinn. 

Wealth is a key to its pivot to Asia, and HSBC has been ramping up operations in the mainland and plans to launch private banking in India in July.

HSBC also announced that it will be holding a weeklong seminar for investors and analysts in Hong Kong and Singapore to discuss its ambitions. Rival Standard Chartered is also holding meetings with investors this week.
 

Mastercard to offer Vesta’s fraud protection solutions in Asia-Pacific

Mastercard plans to start offering solutions from Singapore-based fraud protection pioneer Vesta to e-commerce merchants in the Asia-Pacific (APAC) region.

In a release, the companies said that as part of an expanded fraud detection partnership, Vesta’s Payment Guarantee and Payment Protect will be integrated into the Mastercard Payment Gateway Services (MPGS) platform and will be made available to MPGS customers in the APAC region in the second half of the year.

“Through this first-of-its-kind solution combining the scale and reach of MPGS with Vesta’s unrivalled fraud protection powers in a single integration, merchants can enjoy the peace of mind — and extra time in their day — that comes from knowing that their eCommerce transactions are fully protected from fraud and financial risk,” said Sandeep Malhotra, executive vice president of products and innovation for Asia Pacific at Mastercard.

Vesta’s Payment Protect is a risk-scoring solution, and with the Vesta Payment Guarantee, Vesta will absorb the full cost of any fraudulent transaction that is approved by its risk-scoring engine and makes it through the checkout process, according to the release.

These solutions will be available on an opt-in basis to customers of MPGS, which is an omnichannel payments platform that enables merchants of any size to expand into global markets and process payments in more than 170 currencies and more than 30 payment methods online, in-person or in-app, the release added.

 

Zimpler launches cross-border payouts via SEPA

Sweden-based fintech Zimpler, which provides account-to-account (A2A) payment solutions, is launching instant cross-border payouts that enable customers to instantly send euros to all 20 Eurozone countries through the Single Euro Payments Area (SEPA), with no hidden fees or complex administrative work.

SEPA was created to streamline and simplify euro-denominated electronic payments across Europe, making them safer, quicker, and simpler, enabling businesses to avoid using conventional methods like checks or wire transfers by sending payments straight to a recipient’s bank account.

By offering a larger geographical coverage, Zimpler can now cater to more European merchants and the solution will be available both for business-to-consumer (B2C) and business-to-business (B2B) clients.

Nicolas Köllerstedt, Chief Growth Officer at Zimpler, said: “We are thrilled to expand our offerings and provide both existing and new clients with instant, safe, and cost-effective cross-border payouts that are compliant with the highest anti- money laundering (AML) standards. Zimpler’s cross-border payouts launch marks a significant milestone for the company, establishing a truly pan-European presence. The feature has multiple use cases in segments Zimpler already operates in such as lending, salary payouts or cashback. It is exciting to see Zimpler continue to expand and build momentum from the successful B2B payments and the paylink product launch of last year.”

Joan Migioia, Internationalisation Manager at Zimpler, said: “We recognise that SEPA payout is a highly sought-after solution for businesses operating in Europe as it offers a cost-effective, swift and secure way of sending payments. Because it is standardised, businesses can use it to make payments in the same way across countries. Furthermore, our API-based solution enables companies to seamlessly integrate payout functionality into their software systems, allowing for swift and streamlined processes such as salary payments, reimbursements, and lending transactions.”