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Industry roundup: 25 November

Deutsche Bank launches SWIFT Beneficiary Account Validation service

Deutsche Bank has launched its SWIFT Beneficiary Account Validation (BAV) service, enabling clients to verify payee account details before an international payment instruction is sent. This minimises the risk of payment failure due to incorrect data, removing a key point of friction in cross-border transactions.

The BAV solution enables the Bank to ensure that payments from its clients are arriving at the intended beneficiary using the correct account details, by validating the information centrally via SWIFT. It also allows the Bank to support other participating banks by responding to incoming account validation requests – ultimately helping to create a secure and efficient cross-border payments systems where all parties can send payments with greater confidence.

The solution uses a real-time Application Programming Interface (API) to check the existence of beneficiaries from key account details, validating the end beneficiary before executing the actual payment. This has the potential to significantly reduce time spent by both banks and corporates on the management of fraudulent payments and payments made with incorrect details. The use of APIs also enables the service to be plugged into existing processes on the corporate client side, including supplier onboarding or vendor management.

Deutsche Bank offers the solution on a global basis. Having centralised core banking activities into a single platform in recent years, the Bank has been able to build a straightforward API layer on top to incorporate SWIFT’s new BAV service, enabling it to validate accounts across its global markets in real time.

In addition, the BAV service is expected to be incorporated into the Bank’s online cash management channel next year, where clients could pre-validate their beneficiary accounts while the payments are being created online.

“The BAV service not only addresses a key market problem prevalent today, but also brings significant operational benefits in terms of end-to-end efficiency and fraud reduction to our corporate clients,” says Jose-M Buey, Global Head of Core Platforms and Accounts Solutions, Deutsche Bank Corporate Bank. “It is also a clear example of how API technology can be used to create an innovative solution that perfectly aligns with our strategy to build a real-time API based accounts platform.”

According to SWIFT, the BAV service has more than 70 banks signed up worldwide. In the next quarter, SWIFT has plans to continue improving this coverage, onboarding more banks and taking more live with the service.

Hong Kong-listed China government bond ETFs a hit with investors

Hong Kong-listed exchange traded funds (ETFs) that invest in China Treasury and government bonds have attracted huge inflows from investors as the corporate bond market is rocked by an increasing number of defaults, reports the Financial Times.

The paper cites experts who say that interest in China’s government bonds has been spurred by investors seeking returns in a low-interest rate environment, as well as by the rising number of inclusions by major index providers.

BlackRock’s iShares China Government Bond ETF, listed on the Hong Kong exchange as recently as 21 October 21, had raised RMB3.25 billion (US$508.8 million) as of 18 November, according to the FT, while the iShares Short Duration China Policy Bank Bond ETF, listed on the same day, has now raised RMB265m. The ETFs track the FTSE Chinese Government Bond Index and Chinese Policy Bank Bond indices and were launched shortly before FTSE Russell started to include Chinese debt into its flagship World Government Bond Index from 29 October; a move expected to direct billions of dollars of global investor money into the Chinese onshore fixed-income market.

Overall, China’s onshore bond market ranks as the world’s second-largest and is valued at more than US $19 trillion, although China’s share of total fixed income securities issued globally is only 15%.

“The inclusion of Chinese government and policy bank bonds in key global indices widens the window of opportunity for investors who are keen to tap into China’s onshore bond market,” Peter Loehnert, head of iShares and index investments for Asia Pacific at BlackRock, told the FT.

However, the paper notes that not all international investors are being swayed by the prospect of China’s onshore government bond. One example is Japan’s ¥193.3 trillion (US$1.7 trillion) Government Pension Investment Fund (GPIF), which decided to exclude renminbi-denominated Chinese sovereign bonds from its portfolio despite FTSE’s inclusion of China’s government bonds into the flagship WGBI index.

The GPIF cited limited liquidity of the Chinese onshore bond market, limited futures trading options for non-Chinese investors and exclusion from international settlement systems as the reasons for deciding to exclude renminbi-denominated Chinese sovereign bonds from its portfolio.

The interest in onshore government bonds comes as China’s offshore corporate bonds industry is in crisis after several major Chinese real estate developers, including Evergrande and Sinic, missed deadlines to pay their coupons.

Fitch places Qatari banks’ ratings on negative watch

Fitch Ratings has placed all Qatari banks on its ratings watch list citing and says that it has concerns over the sector's increasing reliance on external funding.

The credit ratings agency placed all banks’ long-term issuer default ratings (IDRs) on rating watch negative (RWN) last month as they are the most dependent among the Gulf Cooperation Council banks on non-domestic funding.

Qatari banks’ increasing reliance on external funding makes them more vulnerable to external shocks and investor sentiment and could moderately weaken the sovereign's ability to support the sector, if needed, the agency said.

Foreign liabilities accounted for 48% of the sector’s funding at end-Q3 2021 (against 38% at end-2018) and net external debt increased to a substantial 80% of Qatar’s forecast 2021 GDP at end-Q3 2021 (30% at end-2018).

This dependence, coupled with the growing size of the banking system, could weaken the authorities’ ability to support the sector, said Fitch. Banking sector assets increased to 303% of forecast 2021 GDP at end-Q3 2021 from 212% of 2018 GDP.

However, the agency noted that near-term downside risks to Qatari banks’ credit profiles from the impact of the Covid-19 pandemic have been contained. The sector’s credit growth remained healthy at 7% in September 2021 (2020: 8.5%) despite cuts to government capital spending. Fitch recently revised the outlook on its operating environment score for the sector to stable from negative.

The government’s fiscal and monetary response to the pandemic has also helped to limit the impact on the banks’ financial profiles, Fitch added. “We expect the near-term risks to asset quality to remain largely contained, even when credit deferrals expire, given the recovering economy and the banks’ strong provisioning levels.”

According to the International Monetary Fund (IMF), Qatar, which is the world’s biggest exporter of liquefied natural gas, is set for growth of 3% this year.

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