Emerging market central banks may start rate cuts mid-2023

Central banks in emerging market (EMs) may begin lowering their interest rates by the middle of next year in response to weakening growth and on the back of decelerating inflation and falling US Treasury yields, according to Capital Economics.

“Monetary tightening cycles in EMs are advanced relative to developed markets (DMs) and are now drawing to a close in many countries,” commented William Jackson, the London-based economics researcher’s Chief Emerging Markets Economist, in an investor note.

“Elevated inflation will mean that policy will stay tight over the coming months, but the conditions for several EM central banks to start cutting rates could be in place by the middle of next year,” he said.

Some central banks in EMs such as Brazil, Chile, Czechia and Hungary have halted their tightening cycles and many other could opt for the final rate hikes in the next month or two, the economist said.

While central banks of Turkey and Russia have been cutting rates for several months, several countries running large current account deficits such as Hungary, Romania, Chile and Colombia could tighten more than expected in the current cycle, he added.

India’s central bank, the Reserve Bank of India (RBI), added an unscheduled meeting at the start of this month after failing to meet its inflation mandate and is widely expected to continue raising its policy rates when it next meets on 5-7 December.

Capital Economics reports that EM central banks have historically tended to act quickly when a change of policy from tightening to loosening monetary conditions is necessary. In the past few decades, the regulators have waited around four months on average between ending their hiking cycle and delivering their first rate cut.

The larger the preceding tightening cycle, the quicker the move to interest rate cuts, the firm added.

India has raised its key policy repo rate by 190 basis points (bps) since early May and it now stands at 5.90%. Economists expect about 60-85 bps in further hikes over the next few months.

Globally, the surge in inflation and a quick monetary tightening by the US Federal Reserve has pushed interest rates higher.

India's headline retail inflation rate fell to a three-month low of 6.77% in October from 7.41% the previous month on a favourable base effect, data released on 14 November showed.

Despite the fall in inflation in October, India’s inflation rate has now spent 10 consecutive months above the 6% upper bound of the RBI’s 2-6% tolerance band.

Separately, Fitch Ratings forecasts that loan growth at Indian banks will accelerate to 13% in the current fiscal year despite the RBI’s rate hikes, as economic activity picks up after a pandemic led lull.

China seen as behind gold buying spree

Central banks have been major buyers of gold this year and uncertainty about which of them is behind the move has fuelled speculation that China is a key player and is quietly dumping the US dollar and accumulating gold.

Analysts believe that the impact on Russia of monetary sanctions imposed by the West has persuaded China and some other countries to speed up their reduced dependence on the dollar. One report observes that “one of the worst-kept secrets in global central banking is the extent to which Chinese officials are swapping dollars for gold.”

Although the People's Bank of China (PBoC) under Governor Yi Gang and his team have not disclosed their strategy it is likely to the clear policy trajectory Chinese leader Xi Jinping has pursued in recent years of internationalising the renminbi (RMB) as the top rival to the dollar.

Xi’s policy has started to be adopted by other governments that detect a waning of trust in the dollar as global reserve currency and the need for an alternative to the dollar. This has been heightened by US national debt exceeding US$30 trillion this year for the first time, inflation at a 40-year high, the risk of recession as the Federal Reserve hikes interest rates and US political uncertainty.

Central banks that once hoarded dollars are buying gold in record amounts. In Q3 2022 central banks more than quadrupled gold purchases from a year earlier and added nearly a net 400 tonnes to already sizable stockpiles.

The figures from the World Gold Council show that this year’s flurry of gold buying already well surpasses any 12-month period since 1967. They reveal that about 90 tonnes worth of purchases can be traced to Turkey (31.2 tonnes), Uzbekistan (26.1 tonnes), India (17.5 tonnes) and other developing nations. It is widely assumed that China is behind the other 300 tonnes.

This year has also seen Beijing dumping US debt. In the seven months from the end of February to the end of September 2022, China sold at least US$121 billion of US Treasuries. Selling intensified around the time Russia invaded Ukraine in late February. Since July, China’s imports of gold from Russia have increased sharply. That month alone, China’s gold transactions surged to roughly 50 times the year-earlier level.

CLOs back in favour after short-lived selloff

Global prices for bonds backed by leveraged loans have swiftly bounced back from a short-lived, UK-centred selloff that is changing investor perceptions about the US$1.2 trillion collateralised loan obligation (CLO) market, according to Bloomberg.

It reports that in Europe, Ares Capital Corp and OakTree Capital Group have sold new CLOs this month although other debt markets, including junk bonds, have been largely moribund. New CLO sales since mid-September have exceeded €5 billion (US$5.2 billion).

When UK pension funds dumped assets in late September to raise money to meet margin calls, they focused on the esoteric instruments tied to leveraged loans and effectively affirmed the market’s huge liquidity. That has now become a positive feature as credit broadly rallies. The drop in CLO prices due to liability-driven investing (LDI) -- the use of derivatives to match assets and liabilities -- is fuelling demand and an uptick in deals. Prices have returned to the levels that preceded UK pension funds’ woes.

“The LDI selling has confirmed that there’s liquidity in the CLO market. They could have sold other holdings, but they chose CLOs,” Cyrille Javaux, portfolio manager at Fidelity International, told Bloomberg. “The spread widening that resulted from LDI selling has attracted buying interest,” especially from US asset managers.

Prices reflect the relative liquidity of these instruments. While top rated US CLOs fell a little more than a cent on the dollar between mid-September and late October, high-grade European corporate bonds, which many investors would have historically viewed as more liquid, fell about four cents on the euro.   

Bargain hunters including Apollo Global Management and Blackstone made quick gains from buying CLOs in the secondary market, while European banks resumed looking at the market again. Meanwhile investors have kept buying, signalling that whatever concerns they may have about the economy in 2023, they have faith that the safest CLOs will perform well.

CBA surges in Australian asset finance

Commonwealth Bank of Australia (CBA), one of the country’s big four banks, is gaining a lead in the Australian asset finance market as more small and medium sized businesses and large companies coming to the bank for equipment and vehicle finance, according to an annual industry report by East & Partners.

The research firm reports that CBA is set to become the largest primary asset finance provider in the Australian market in 2023, having topped the share of finance for vehicles and equipment by SMEs as well as commercial businesses, while significantly increasing its share with corporate customers.

East’s annual asset finance market shows that CBA’s relationship share is gaining 7% each year and the bank ranks as the “most recalled brand”, performing best across 10 product and service customer satisfaction factors including relationship management, sales service, specialist advice, ease of use, innovation and pricing.

Grant Cairns, CBA Executive General Manager Business Lending, said asset finance was a priority growth area for the bank in supporting business customers.

“We’re focused on delivering tailored asset finance solutions to enable businesses, big and small to innovate and grow. It’s great to see this reflected in strong levels of customer satisfaction across a range of different metrics.”

The report suggests that it comes amid significant growth in Australian asset finance, particularly among SMEs. Asset finance volumes have expanded by 10.9% in the past year, against the previous year forecast of 9.5%.

Chris Moldrich, CBA General Manager Asset Finance notes that more businesses are investing in resilience and improving performance and productivity. “Businesses are facing many challenges with rising inflation, energy costs and supply chain disruptions,” he said.

“We are concentrating on providing faster and simpler ways for businesses to access new equipment and technology to improve efficiencies and deliver greater value to their customers.”

Banca Mifel ramps up bid for Citi’s Mexican retail bank

Mexico's Banca Mifel has lined up investors including Apollo Global Management and the Abu Dhabi Investment Authority (ADIA) to amass US$2 billion of funding in its bid for Citigroup’s Mexican retail bank, according to a report citing two sources familiar with the matter.

Citi has already revealed plans to purchase Deutsche Bank’s licence in Mexican so it can maintain corporate and investment banking operations in the country once it sells its consumer business Citi Banamex, according to press reports. Buying the license “facilitates the pursuit of our consumer exit and ability to continue our institutional operations in Mexico” a Citi source told Reuters.

Mexico’s president Andres Manuel Lopez Obrador said last week that he approves of the two known remaining bidders for Banamex, after other potential buyers were derailed amid strict conditions imposed by Mexico’s leader.

Recent comments by Lopez Obrador criticising Grupo Mexico SAB were interpreted by local media as indicating he was opposed to a bid for Banamex by mining billionaire German Larrea, who is the other remaining contender to acquire Banamex.

While there is doubt over the future ownership of Citi's Mexico retail operation, HSBC continues to invest in its ambitious expansion plans for the country. Pablo Elek, head of wealth and personal banking for HSBC Mexico, has told Euromoney that the country is betting on the country’s growing economy and banking sector for organic growth.

Mexico is becoming increasingly important for HSBC and is now its fourth largest market in revenue terms, up from 16th in 2015 – a jump that is partly attributable to HSBC’s.divestiture from many smaller regional markets.

“Mexico is a scale market, which is always really important,” Elek says. "The economy is thriving as it comes out of the pandemic, the FX is performing strongly and we see a strong outlook for GDP growth driven by – among other things – marked increase in investment by our commercial partners due to the near-shoring phenomenon.”

Lithuania’s Paysera secures banking licence in Georgia

The Lithuania-based Paysera network of financial technology companies is expanding to Georgia, where the first Paysera bank will open. On 17 November the National Bank of Georgia granted the company 'Paysera Georgia' its 15th commercial bank licence and its first digital bank licence.

There will be two customer service centres in the country's capital, Tbilisi, with most services provided remotely. The bank will support single euro payments area (SEPA) and SEPA Instant payments, which means many transfers from Georgia to Europe will reach recipients in seconds. The bank will start providing services to clients in early 2023.

Gintautas Mezetis, CEO of Paysera LT, says: “The Bank in Georgia marks a new phase of our determined development. It is the first bank in our network, so we are eager to start operations in a country that ranks very high in the 'Doing Business' ranking of the best business conditions. In Georgia, we will witness how fintech technologies that have been tested in Europe and used by millions of people, are being applied in traditional banking.”

The Paysera brand and technology will be introduced to Georgia by local entrepreneurs, who include Dimitry Kumsishvili, a businessman and business angel, former minister of finance and economy, and former vice prime minister of Georgia.

Latin America’s Bladex joins strategic alliance with TradeAssets

Banco Latinoamericano de Comercio Exterior – aka Bladex – has announced a strategic alliance with Dubai-headquartered Fintech Innovations International DMCC, owner of the TradeAssets e-marketplace for financial institutions.

Partnering with TradeAssets will enable Panama City-based Bladex to further promote interbank relations, providing customers with greater access to trade-related financing solutions. As part of the alliance, Bladex has become the first bank in Latin America to join the TradeAssets platform.

Bladex and TradeAssets said they will collaborate to attract more Latin American banks to the platform. This will support flows through trade corridors connecting the region with Europe, the Middle East, Africa, and Asia, resulting in an attractive value proposal for Bladex’s stakeholders.

“Bladex is building its strategic plan on a unique business model that will benefit from a series of critical alliances, such as the one with TradeAssets, which aims to grasp the existing finance opportunities across important trade corridors for Latin America in an efficient and safe manner,” said Bladex’s CEO, Jorge Salas.

“We are enthusiastic about this strategic alliance as its value proposition meets several strategic goals for Bladex: it facilitates access to new markets; accelerates clients or counterparties growth and generates operational and efficiency improvements which contribute to adding technological strength. Additionally, it enables risk sharing and invites liquidity into Latin America.”

TradeAssets will facilitate the establishment of relationships and efficient deal-making in new geographies. For example, thanks to the initiative Bladex is already engaged in conversations with several banks in India, where the LatAm-India corridor has huge importance, with total trade flows reaching US$43 billion in 2021.

Particle Wallet introduces Alchemy Pay’s fiat onramp solution

Particle Network, the full-stack Web3 infrastructure provider, announced that it has gone live with the Alchemy Pay Onramp Solution for its wallet. Founded in Singapore in 2018, Alchemy Pay is described as “a payment gateway that seamlessly connects crypto and global fiat currencies for businesses, developers, and users.”

The integration will enable users to pay with their preferred fiat payment methods directly to seamlessly buy crypto and fund their Particle wallet. Alchemy Pay’s payment gateway supports payments with Visa and MasterCard in 173 nations, multiple domestic transfers, and popular mobile wallets in emerging markets.

As part of its Web3 dApp infrastructure services, Particle Wallet powers businesses to embed Web3 experiences across decentralised finance (DeFi), non-fungible tokens (NFTs), payments, social media, and more by using the most powerful wallet infrastructure application programming interface (API).

Among others, Alchemy Pay supports e-wallets such as: Pix in Brazil; GCash in the Philippines; OVO and Dana in Indonesia; Kakao Pay (NFT Checkout only) in Korea; MoMo in Vietnam; Paynow in Singapore; as well as EWallet in Brazil, Peru, Chile and Colombia. Single euro payment area (SEPA) transfers are also supported for payments in Europe.

Open banking platform Tink adds Balance Check facility

Open banking platform Tink has introduced a new feature called Balance Check in six European countries, which enables users to verify account balances. Tink says that Balance Check will simplify the setting up of direct debit mandates, supporting both businesses and consumers.

The new facility uses real time data for verification that is completed in seconds. Balance Check may be used as a tool to battle fraud, minimise failed payments, and protect customers from penalty fees.

Balance Check is initially launching in the UK, Sweden, France, Germany, the Netherlands and Italy, with plans by Tink to roll it out more widely across Europe in 2023.

Tom Pope, Tink’s head of payments and platforms, said that insufficient funds is the leading source of failed direct debit payments: “By using real-time data directly from the user’s bank account, Balance Check protects businesses by reducing the risk of non-payment, while also protecting consumers from missed payments and penalty fees – which will be fundamental as the cost of living rises.”