Turkey to continue monetary tightening, but at slower pace

Turkey’s central bank is expected to announce a further increase in its benchmark one-week repo rate, possibly to as much as 40%, later today.

However, while economists are unanimous that last month’s increase from 30% to 35% will be followed by the sixth rise in as many months, many expect a more modest hike of 250 basis points (bps) to 37.5%.

Since June, when President Recep Tayyip Erdoğan appointed former Wall Street banker Hafize Gaye Erkan as its governor, the Central Bank of the Republic of Türkiye (CBRT) has embarked on a tightening cycle that has include a hike of 750bps and two of 500bps in both September and October.

Earlier this month, the central bank again promised gradual monetary tightening to  tackle inflation. It expects the rate to rise from 61.4% last month to peak at 70%-75% next May before dipping to about 36% by the end of 2024.

Turkey’s inflation rate hit a 24-year peak of 85% in October 2022 and has surged again in recent months as the Turkish lira weakened after a long easing cycle that has been reversed by the new administration appointed after last May’s elections.

A Reuters poll found that economists expect another rate hike in December and should a policy rate of 40% not be reached today, it will be by the end of this year. The median of nine economists who contributed to the poll showed the policy rate is expected to stand at 35% at the end of 2024. The central bank is expected to cut rates in 2024 as inflation falls, according to the poll.

Analysts at both Morgan Stanley and Goldman Sachs agree that today’s decision will reflect a slower pace in the central bank’s tightening, predicting a 250 basis-point hike in the one-week repo rate.

Considering the policy preference for a moderate adjustment in growth and delays in monetary transmission, Morgan Stanley analysts said the CBRT is likely to slow down its rate hikes and assess the cumulative impact of tightening measures on economic activity and inflation.

“Since August, onshore and offshore rates have started to converge with 3M rates, reaching +40%, our terminal rate forecast for the year. Furthermore, Turkish lira (TRY) deposit rates resumed their sharp upward trend in the past two weeks,” Goldman Sachs said in a note to clients.

“We have argued that such a convergence of market rates was an integral part of returning to a more orthodox and rate-based monetary system, allowing the (central bank) to remove many of the macroprudential measures in place.”

Average lira deposit rates of up to three months rose to around 46% as of November 10 from around 15.5% at the beginning of 2023, according to central bank data.

• UPDATE : The CBRT has again belied expectations by raising its key interest rate to 40%, a 500bps hike that was double most economists’ expectations of a 250bps increase. “Really impressive move by the [Central Bank of the Republic of Turkey] - probing their orthodoxy and getting well ahead of expectations,” commented Timothy Ash, emerging markets strategist at BlueBay Asset Management, in a note.

 

Last year, Europe was helped by a milder-than-usual winter, and it begins this winter with gas storage facilities full thanks to a steady flow of LNG from the US. But as peak consumption season gets underway demand will rise in both Europa and Asia. Despite ample supply of LNG globally, prices could yet spike.

Ample supply has led to LNG prices softening in recent weeks. Yet the market’s vulnerability to any occurrence that can influence prices – especially for Europe—was evidenced earlier this week when European benchmark prices jumped after the news broke of Yemen’s Houthi rebels seizing a cargo ship in the Red Sea. The incident is one of a variety of geopolitical tensions that directly impact on European gas prices.

As the seized ship was linked to an Israeli company, the event was seen as signalling a possible escalation of the Middle Eastern war. Israel blamed Iran for the seizure, while Iran denied any involvement with sides using strong language in their respective statements.

Following the news, gas prices in Europe added 3% but in the US they edged slightly lower to reflect the fundamental difference between being a self-sufficient producer of a commodity and being dependent on imports.

Yet despite a heightened geopolitical risk in the Middle East, some in the gas trading industry believe LNG prices are unlikely to go much higher, according to S&P Global whose Commodity Insights service reports that some traders point to supply as the reason for only a limited impact of shipping news on LNG prices.

Others, however, note that shipping news is important than before for a variety of commodities now that movement via the Panama Canal has been restricted, and movement via the Suez Canal is perceived to have become riskier because of the Israel-Hamas war.

The Panama Canal situation—caused by a prolonged drought that has reduced water levels in the canal—has already pushed freight rates higher for all vessels. Not all US LNG cargo goes through the Panama Canal, but shipments for Asia do pass it. However, with the new restrictions in place, some, such as South Korean buyers, have opted to replace the Panama Canal route with one that passes through the Suez Canal. With the ship seizure in the Red Sea, some buyers may get nervous about this route, too.

Meanwhile, other Asian buyers of US LNG are also seeking alternative routes as the limited movement in the key chokepoint between North and South America looks unlikely to be resolved quickly. This would add to freight rates, too, even if the LNG supply in itself is plentiful.

Analysts also point to the June 2022 explosion and fire at the Freeport LNG terminal in Texas, which shut the facility down until February this year, as an example of unexpected disruption. Freeport had accounted for a tenth of European LNG imports before the blast and played a big part in the summer gas price spike.
 

Eurozone banks show early signs of ‘stress’ as loan defaults rise, ECB warns

The balance sheets of eurozone banks are showing “early signs of stress” that reflect a rise in loan defaults and late payments by customers, the European Central Bank (ECB) has warned.

The central bank reported that a series of interest rate increases s have boosted banks’ income and profits for the time being, the ECB said, but lenders are facing pressures from higher funding costs, worsening asset quality and lower lending volumes.

The ECB also warned in its twice-yearly financial stability review that higher interest rates and slower growth were creating problems for governments, companies and individuals in the euro area. Higher borrowing costs were likely to lead banks to set more money aside to cover bad debts, hitting future profitability, it said.

However, the rise in defaults and late payments has come from a historically low level, and the ECB believes the banking system should be able to cope with worsening asset quality thanks to strong capital buffers and liquidity levels.

The ECB’s vice-president, Luis de Guindos, said that the turbulence seen in the spring, when several lenders in the US and Switzerland, including Silicon Valley Bank and Credit Suisse, either collapsed or had to be rescued, had now abated, but “while risks to financial stability may appear less acute, they remain elevated”.

Although the tight financing conditions created by the ECB’s series of interest rate increases should help bring inflation back down to target, “they can also push overextended borrowers into financial distress”. He added that people’s disposable incomes, company revenues and government finances “may suffer an additional squeeze if economic activity disappoints further or if energy prices surge over the coming winter”.
 

Canadian government plans open banking push in 2024

The Canadian government plans to introduce legislation early next year to drive the broad development of open banking to create transparency for consumer finance, according to reports, with a new government-led entity overseeing the system.

The plans call for creating a road map to guide financial services data-sharing and collaboration with Payments Canada, which operates Canada's existing payment clearing and settlement system. The administration also plans to provide funding to bolster payments regulation within Canada.

The Liberal government intends to amend the Canadian Payments Act to expand membership eligibility for Payments Canada – which is currently spearheading the delivery of the country’s new Real-Time Rail payment system – to firms other than big banks, give the Competition Bureau more power to tackle anti-competitive deals and practices, and introduce legislation through Budget 2024 to make open banking a reality.

“This is the boldest move from the government to date: consumer-driven banking legislation in 2024, a policy statement signalling their direction, and amendments to the Canadian Payments Act later this year,” said Fintechs Canada executive director Alex Vronces.

Canadian fintech leaders have been lobbying the government to implement much-delayed open banking rules, which were previously promised for this year.

Last week, a group of Canadian tech leaders published an open to Deputy Prime Minister and Finance Minister Chrystia Freeland, urging her government to accelerate the rollout of Canada’s open banking framework. Others in Canada’s fintech space have launched public campaigns in recent months pushing for faster action on the implementation of both open banking and payments modernisation.
 

UK growth to continue weak, but avoid recession

The UK economy will avoid recession and achieve 0.6% growth this year according to the Office for Budget Responsibility (OBR), which had previously forecast a -0.2% contraction, but will do little better in 2024 when growth is now forecast to be only 0.7% against the previous estimate of 1.8%.

Inflation is proving stickier than anticipated and is now not expected to return to the Bank of England’s (BoE) official 2% target before the first half of 2025, a year later than previously forecast. An inflation rate that was due to average 0.5% next year will instead be 2.8%, the OBR said.

In an updated financial health check to accompany Chancellor Jeremy Hunt’s autumn statement, the government’s official forecaster said that a more resilient UK economy this year had resulted in a £27 billion (US$33,9 billion) budget windfall, but it warned of a more difficult outlook up to 2028 than previously forecast last March.

The Chancellor’s autumn statement contained 110 measures to “unlock investment” in Britain, which Hunt said would support growth in business spending in the economy by £20 billion a year – including steps to speed up planning approvals, subsidies for manufacturing and new investment zones.

Putting forward plans to help grow the economy, Hunt said he would reform and simplify taxes for the self-employed by abolishing class 2 national insurance (NI) for almost two million people. Small firms will also receive a £4.3 billion tax break through a freeze on business rates.

The Chancellor added that the “largest-ever cut” to employee NI would save the average worker £450 a year. The OBR said this would cost £10bn a year by 2028-29. The NI changes for the self-employed would be worth £350 a year and benefit almost two million people.

 

Citi “plans private credit launch in January”

Citigroup is the latest bank that plans to enter the booming US$1.6 trillion private credit market and is preparing to launch a new direct-lending strategy in the opening weeks of 2024, according to a report by Bloomberg.

The report cites an individual with knowledge of the matter as saying that the initiative would complement the bank’s existing broadly syndicated leveraged finance business and could involve teaming up with one or more outside partners that would provide capital for loans, which the bank would originate.

Citigroup wants to be able to offer potential borrowers, or their private equity owners, the choice of high-yield bonds, leveraged loans, or a private credit option.

Discussions are reportedly ongoing and details could still change with Citigroup as yet undecided on whether or not to use its balance sheet to win private credit deals.

The move follows similar private debt initiatives by other banks this year including Wells Fargo, Barclays Plc and Société Générale.

 

BNP Paribas to pick up HSBC’s hedge fund admin business

BNP Paribas is taking over part of HSBC Holdings' business that caters to hedge funds as the French lender looks to deepen its business with those asset managers.

BNP’s securities services unit signed an exclusive agreement to take over HSBC’s hedge funds administration business, according to a statement Tuesday. The agreement allows the 25 institutional clients affected by HSBC’s decision to shut down the business to transfer their hedge fund administration to BNP Paribas

The agreement covers HSBC’s hedge fund administration business, which will be transferred to BNP Paribas’ entities in several markets, including Hong Kong SAR, Singapore, Ireland and Luxembourg and will involve the integration of certain employees within BNP Paribas’ teams..

BNP Paribas’ clients will have access to services such as fund administration, depositary, custody, cash and foreign exchange as well as prime brokerage solutions.

The implementation of the agreement is expected to complete by the end of 2024.

Philippe Benoit, head of strategic business development and transformation at BNP Paribas Securities Services, said “The liquid alternatives and hedge funds sector is a focus area for BNP Paribas. We have steadily invested in this field, with a strong emphasis on our integrated and innovative banking solution range across BNP Paribas’ Securities Services and Global Markets business lines.

“The integration of HSBC’s hedge fund administration business is an opportunity to reinforce our position to meet the ever-evolving needs of hedge funds and grow alongside them through sustainable partnerships.”

An HSBC spokesperson commented “While HSBC’s Securities Services business has taken the decision to exit hedge fund administration services, the alternatives sector continues to be a focus of growth for us, including private assets fund administration and prime services, both of which have seen a strong performance over the course of the year.”
 

Remitly and Visa partner on cross-border money transfers

US online remittance service Remitly has announced a five-year extended partnership with Visa, focusing on enhancing the cross-border transfer of funds for Remitly’s customers. This development builds upon Remitly’s initial use of Visa Direct.

The extended partnership will enable Remitly users in over 15 countries, including the US, Canada, the UK, and Australia, to quickly transfer money to eligible Visa debit cards and bank accounts in more than 100 territories globally.

Remitly’s Co-founder and CEO, Matt Oppenheimer, commented: “At Remitly, we’re dedicated to providing our customers with a more seamless and trusted cross-border money transfer experience. To further enhance Remitly’s proprietary network which includes approximately four billion bank accounts, 1.2 billion mobile wallets, and 460,000 cash pickup locations, we are pleased to expand our long-standing collaboration with Visa so we can continue serving customers with faster payment options that help more money make it home.”

Remitly customers can now send money internationally with ease and security by entering a recipient’s name and their 16-digit Visa debit card number in the Remitly app, enabling direct transfers to eligible Visa debit cards and bank accounts.

Ruben Salazar, Global Head of Visa Direct, said: “With millions of migrant workers relying on remittances to send financial support to family and friends overseas, there’s an ever-increasing need to improve digital payment experiences and solutions to help remove barriers.”

“Our expanded collaboration with Remitly will enhance cross-border money movement and help foster new opportunities for financial inclusion through the innovative payment capabilities offered through Visa Direct.”

The deal comes after Remitly announced a partnership with Mastercard last month to expand cross-border payment services.

 

Mbanq and Qorbis form embedded finance technology partnership

Cloud banking technology specialistsMbanq has partnered with embedded finance provider Qorbis to introduce a fintech solution designed exclusively for the premium sports, entertainment, and event brands.

This partnership “unveils white-label cards, corporate travel and expense controls, and brand enhancement solutions designed to save premium sports, entertainment, and events businesses time and money as well as create new revenue opportunities.”

According to Qorbis officials, sports, entertainment, and events enterprises, with globally mobile teams and distinct cost centres, require the ability to distinguish profit and loss for each production. The Qorbis platform offers comprehensive financial control and visibility, facilitating swift transfers and real-time expense management across any scale.

The Qorbis platform, powered by Mbanq, “delivers a comprehensive digital banking experience for business customers seamlessly integrated into the identities of sports, entertainment, and events brands. This collaboration introduces a range of branded financial solutions, including unique, white-label cards, flexible corporate travel and expense controls, and new revenue streams from purchases by fans of teams, entertainment franchises, and events.

“This end-to-end solution provides businesses with real-time business spend and expense management solutions, offering unparalleled control and visibility into spending and flexible expense reporting, all accessible from a single device. The platform also enables the creation of branded digital revenue streams by sharing income from fan purchases; a game-changer for brands seeking to maximise monetisation opportunities.”

 

Former Revolut employees launch Zeal, a new crypto wallet

A group of former Revolut employees are entering the competitive digital-wallet space by launching Zeal, their own solution designed to help users both safely manage crypto assets and engage with decentralised applications.

“The status quo for wallets is not good enough. Clunky wallets built for technocrats or the casino are hard to use and easy to lose money with," said Hannes Graah, a former Revolut vice president of growth who started building Zeal in 2022. "People need a wallet that's safe, easy to use, and can be used seamlessly with blockchain networks and the real world."

Zeal is currently invite only and plans to officially launch in Q1 2024, the company said.

Graah and Zeal will be up against keen competition as companies jockey to be the digital wallet of choice for not only crypto enthusiasts concerned about protecting their digital assets but also curious newcomers keen to securely buy cryptocurrencies and use web3 applications.

Companies big and small are investing in the digital-wallet market in the hopes of standing out. The world's largest cryptocurrency exchange, Binance, irecently launched ts own self-custody wallet. Last month, leading software wallet provider Metamask announced a partnership with the security firm Blockaid in order to enhance security.

Zeal aims to solve issues related to scams and hacks with a wallet that the company said “solves the security problem with advanced security checks and previews for web3 transactions that keep people safe from scams.” Additionally, the Zeal wallet will allow users to transfer USDC stablecoins to their bank accounts for free, the company said in a statement.

Investors in Zeal include Galaxy, Framework, Variant Fund and Northzone, according to the statement. Zeal’s “knack for blending user-friendly design, robust security measures, and comprehensive on-chain asset visibility raises the bar for what we should demand from a wallet,” Will Nuelle, general partner of Galaxy, said in the statement.

Besides Revolut alumni, Zeal’s team also includes former Coinbase and Spotify employees, the company said.