Moody’s assesses global economic impact of Ukraine war
Russia’s invasion of Ukraine is causing a commodity price and supply shock that will lead to higher interest rates and slower growth, increasing risks for banks and other parts of the finance sector, predict a report by Moody’s Investors Service.
The agency says that in its baseline scenario, GDP growth for the G-20 economies will slow to 3.6% in 2022, from an earlier forecast of 4.3% in February. Growth will further slow to 3.0% in 2023.
Moody’s hypothetical downside scenario assumes a sharp halt in oil and gas exports to Europe from Russia, a liquidity squeeze and widespread economic recession.
The exposure of financial sectors across the globe varies under these two scenarios. The sensitivity of each sector reflects four channels of risk transmission:
1) a commodity price shock, led by surging oil prices;
2) business disruption, mainly caused by prolonged supply chain hold-ups:
3) liquidity tightening and market volatility; and
4) security and operational risks.
“Banks in the Baltics and in the Commonwealth of Independent States are most exposed to spillover effects from the military conflict and have limited buffers to absorb the impact if it is prolonged,” said Olivier Panis, Senior Vice President at Moody’s Investors Service. “European, African and Turkish banks, aircraft lessors, non-life insurers, US non-bank residential mortgage lenders and business development companies are at highest risk under Moody’s downside scenarios.”
Louis Nonchez, AVP-Analyst at Moody’s Investors Service added: “The Russia-Ukraine crisis creates new risks for global insurers and asset managers. Neither sector has major direct exposure, but the conflict, to varying degrees, affects them via four indirect channels – a commodity price shock leading to higher inflation; business disruption due to supply chain logjams; liquidity tightening and market volatility; and security and operational risks. The effect on the credit quality of insurers and asset managers is low to moderate under our baseline scenario.”
Separately, analysts at Deutsche Bank have forecast that the US economy will enter a recession over the coming months.
“Two shocks in recent months, the war in Ukraine and the build-up of momentum in elevated US and European inflation, have caused us to revise down our forecast for global growth significantly,” Deutsche Bank’s economists, led by David Folkerts-Landau and Peter Hooper, wrote in a 68-page note to clients. “We are now projecting a recession in the US and a growth recession in the euro area within the next two years.”
IOSCO reviews liquidity risk in corporate bonds
Global regulatory body the International Organisation of Securities Commissions (IOSCO) is reviewing ways to improve the functioning and liquidity of corporate bonds in periods of stress and also good practices concerning exchange traded funds (ETFs).
Madrid-based IOSCO is publishing its report Corporate bond markets – drivers of liquidity during COVID-19 induced market stresses and wants stakeholder feedback to inform IOSCO’s ongoing review of the sector and future consideration on ways to improve market functioning and the resilience of liquidity supply under stress.
The organisation says that the corporate bond analysis provides the broader context on the underlying markets that buyside investors such as ETFs and traditional open-ended funds increasingly invest in, which “have grown exponentially since the Global Financial Crisis.”
Covid-19 induced market stress highlighted the potential systemic significance of disorderly corporate bond trading and liquidity dysfunction. While market dynamics are evolving with new entrants such as ETFs and increased electronification, secondary corporate bond trading remains mostly reliant on a small network of over-the-counter (OTC) dealers in markets that remain fairly illiquid. The stresses of March 2020 raised questions about market-functioning and whether improvements could be made to bolster liquidity and alleviate supply side constraints in stress.
IOSCO is today also consulting on good practices in the operation and trading of ETFs and to supplement its Principles for the Regulation of Exchange Traded Funds issued in 2013.
Ashley Alder, IOSCO Chair and CEO of the Securities and Futures Commission (SFC) of Hong Kong encouraged stakeholders to input into both processes: “Orderly corporate bond market functioning is critical to the needs of the real economy, and underpins many of the products that open-end funds (including ETFs) invest in. ETFs are an increasingly popular product and IOSCO’s good practices will help these products continue to function well and support the needs of investors. I encourage stakeholders to provide feedback on both publications.”
Intel suspends all Russia operations
Intel is the latest Western tech company to suspend all business operations in Russia in response to the country’s ongoing invasion of Ukraine. The US chipmaker previously suspended product shipments to Russia and political ally Belarus when the conflict began on 24 February but confirmed in a statement that it has now ceased all activities in Russia entirely.
“Intel continues to join the global community in condemning Russia’s war against Ukraine and calling for a swift return to peace. Effective immediately, we have suspended all business operations in Russia”, the statement reads.
“Our thoughts are with everyone who has been impacted by this war, particularly the people of Ukraine and the surrounding countries and all those around the world with family, friends and loved ones in the region.”
“We are working to support all of our employees through this difficult situation, including our 1,200 employees in Russia. We have also implemented business continuity measures to minimise disruption to our global operations.”
BNP Paribas adds green social bond ETF
BNP Paribas Asset Management (BNP PAM) has expanded its range of thematic exchange-traded funds (ETFs) with the launch of a green, social and sustainability bond ETF.
The BNP Paribas Easy JPM ESG Green Social and Sustainability IG EUR Bond ETF is listed on the Euronext Paris and Deutsche Boerse and tracks the JP Morgan ESG Green, Social and Sustainability IG EUR Bond index, comprising euro-denominated bonds from both developed and emerging markets. The new ETF will also target green bonds aligned with the objectives of the Paris Agreement and will be labelled Article 9 under the Sustainable Finance Disclosure Regulation (SFDR).
To select the best ESG issuers, the index will use a rating and selection methodology, designed to provide exposure to renewable energy infrastructure and social programmes to combat unemployment and projects that align with the United Nation’s Sustainable Development Goals. Selection will also be based on the Climate Bonds Initiative (CBI) and companies receiving revenue from thermal coal, tar sands, tobacco or weapons will be excluded.
“Growing client demand for sustainable bonds leads us to offer relevant long-term investment solutions,” said Denis Panel, head of multi-asset, quantitative and solutions at BNP PAM. “This ETF expands our range of sustainable fixed income index funds and demonstrates our desire to be a key provider of thematic ESG ETFs.”
The launch follows last month’s launch by BNP PAM of two other thematic ETFs: the BNP Paribas Easy ECPI Global ESG Med Tech UCITS ETF and BNP Paribas Easy ECPI Global Hydrogen Economy UCITS ETF are also listed on the Deutsche Boerse and Euronext Paris.
Plastiq introduces cash flow management software
Silicon Valley fintech Plastiq has announced the launch of its new cash flow management software Plastiq Pay, which the San Francisco company said will be marketed mainly to small and mid-sized business entities.
Features of the new software include:
- Invoice data capture that enables automatically creating and sending bills to vendors;
- Team workflow tools for bill routing, approvals and compliance;
- Automatic two-way sync for integration with QuickBooks Online, Xero and Sage Intacct (integrations to Oracle Netsuite and Freshbooks are expected later);
- A cash flow dashboard, allowing users to see all card and bank account balances and receive actionable information such as payments due, approvals required, and payment method recommendations;
- Short-term financing for vendor payments, allowing users to extend the term of a payment without applying for a bank loan; and,
- A mobile app to access each of the above features.
“Plastiq’s payment automation features are built for CFOs that want to upskill their teams, get people out of mundane and manual work, focus on more meaningful finance function optimization, and reduce cost with a more elegant, modern payables platform,” said Plastiq’s chief financial officer Amir Jafari, in a statement.
IBM adds AI to a chip to boost payment fraud detection
IBM has launched a new generation mainframe with artificial intelligence (AI) built into the chip to enable financial firms to conduct fraud analysis of transactions in real-time reports Forbes magazine, which says that IBM commissioned a Celent study without taking any editorial control.
Neil Katkov, who oversees the risk and compliance space at Celent, told Forbes the new IBM z16 mainframe with on-chip AI will permit high-speed payment processors to run all their transactions through fraud protection. Firms have until now been limited to around 10% of their transactions due to throughput and latency issues. Payment firms have two concerns when presented with a payment — preventing fraud and the second is turning down legitimate transactions, due to false positives.
IBM mainframes play a leading role in finance, with 45 of the top 50 global banks using its mainframes to process 70% of global transactions, on a value basis. Katkov said that the integrated AI could cut card declines by 46% and reduce losses by US$105 million at a Tier 1 bank and US$18 million at a Tier 2.
“The pandemic has led to an increase in digital banking and e-commerce, as consumers have avoided in-branch and in-store transactions,” Katkove tells Forbes. “Because card not present (CNP) transactions make up the lion’s share of card fraud—around 65%—card fraud losses have increased.” While deep learning models can improve accuracy in fraud detection in real-time payments by an estimated 60% “latency makes it impractical to pass all transactions through an AI detection platform in high-volume environments.”
Celent’s study finds that sending a transaction off the core system to a fraud detection platform can take 50 to 80 milliseconds or more, while throughput ranges from 1,000 to 1,500 transactions per second. It notes that by contrast, 32 of IBM’s new Telum mainframe processors running its AI accelerator on a single server could process 3.5 million inferences per second with 1.2 millisecond latency. IBM said the z16 can process 300 billion inference requests per day with just one millisecond of latency.
“For consumers, this could mean reducing the time and energy required to handle fraudulent transactions on their credit card,” said IBM's announcement. “For both merchants and card issuers, this could mean a reduction in revenue loss as consumers could avoid frustration associated with false declines where they might turn to other cards for future transactions.”
BankFi launches open cash management platform
UK-based banking technology provider BankFi has launched an open cash management platform for small to medium-sized enterprises (SMEs).
The Manchester firm, which entered the market at the start of 2018 , says the new service gives customers access to a litany of modern solutions, making business financial management easier.
Aimed at larger, more established SMEs, the platform allows customers to handle invoicing, payments, collections, accounting, cash forecasting and working capital optimisation insights. Described as a supercharged version of BankFi's existing service, it combines the benefits of embedded banking and open banking into one solution.
BankFi says that the new service can help banks to put their brand and associated digital channel at the heart of all relationships with business customers, regardless of whether that customer has an account with the bank or not.
“The open cash management platform is a business banking super app,” said Marijke Koninckx, BankFi’s chief product officer. “With open cash management, banks can offer their small business customers a full embedded banking service, which revolves around procure to pay and order to cash workflows.
“Instead of offering a banking channel for simple tasks, such as checking account balances and making payments, banks can instead offer a rich and comprehensive service to their SMBs centred around a bank’s brand and digital channel.”
The new solution requires no tech integration as it utilises a suite of pre-existing bank connectors in several geographies, which enables it to be efficiently onboarded by banks. The platform can also function alongside existing accounting packages without causing disruption.
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