The Banker's Central Bank Governor of the Year awards celebrates the officials that successfully steered their countries through the economic turbulence of 2012.
Central Banker of the Year,
Global and Europe
Erdem Basci, governor of the Central Bank of the Republic of Turkey
In December 2012, the International Monetary Fund (IMF) reversed its decades-old opposition to capital controls, in the face of ultra-low US and European interest rates and a resulting wall of money flowing to emerging market assets. Turkey, the world’s second fastest growing economy after China in 2011 but without the currency controls, had been a major destination for such hot money flows. This threatened an unsustainable appreciation of the lira. Yet Erdem Basci did not need to get too excited about the IMF’s dramatic policy change.
Editor's choice
“Increasing the stability of capital flows can be achieved even without resorting to capital flow measures, once carefully designed macroprudential tools are in place,” he says.
The reason for his calm response is that the Central Bank of the Republic of Turkey (CBRT) had moved ahead of other emerging markets, to adopt experimental measures designed to curb hot money inflows while maintaining a free-floating currency regime. From late-2010 onwards, Mr Basci was central in devising and executing a series of interest rate cuts to reduce lira appreciation. The CBRT also created a corridor around its policy rate. This meant that high inflows led to an even lower return, further discouraging foreign money seeking yield.
Since bank credit was growing at more than 30% per year, some form of monetary tightening was essential to offset low rates and prevent overheating. This was provided by higher deposit reserve requirements, to be held in Turkish lira. Banks initially reacted with some confusion, more used to the clear signal of interest rate hikes. But good co-operation between the CBRT and Turkish bank regulator BRSA ensured the message got through.
“The composition of demand and the quality of capital inflows started to move in the desired direction and a rebalancing between external and domestic demand was initiated as of mid-2011,” says Mr Basci.
More recently, the bank adopted a reserve options mechanism (ROM), allowing up to 60% of reserves against foreign exchange deposits to be held in foreign exchange, and up to 30% for gold. The exchange rate used to calculate the reserve requirement is moved depending on how high the ratio of non-lira reserves rises.
“This new mechanism has increased the flexibility of Turkish monetary policy and also works as an automatic stabiliser in face of the short-term capital flows to Turkey,” says Mr Basci.
The result, at least so far, is a soft landing for Turkey rather than the boom and bust scenario that was threatening to unfold. But Mr Basci is staying on full alert.
“The more urgently needed steps are being taken in the eurozone. The priority in the US and Japan is to reduce fiscal policy uncertainty as soon as possible. The perception that major central banks will keep interest rates at low levels for a prolonged period encourages a search for positive yields globally. Therefore, it is highly likely that short-term capital inflows will continue to be volatile in the forthcoming period. Under these conditions, a rich set of instruments will prove to be invaluable for emerging markets,” he says.
Central Banker of the Year, Americas
Mark Carney, governor of the Bank of Canada
The past year has been a good one for Canada. The country’s banks continued to perform strongly and one of them, Scotiabank, won The Banker’s Bank of the Year award. Additionally, the performance of Canada’s central bank governor did not go unnoticed, and Mark Carney was picked as the next governor of the Bank of England (BoE).
Mark Carney, Governor, Bank of Canada
Announcing the appointment of Mr Carney as the next BoE chief, the UK’s chancellor of the exchequer, George Osborne, described him as “the outstanding candidate to be governor of the Bank of England and help steer Britain through these difficult economic times. He is quite simply the best, most experienced and most qualified person in the world to do the job.”
Back in Canada, Mr Carney is a highly respected figure. He led the country’s central bank through the worst global crisis since the Great Depression in the 1930s – which only marginally affected the country and its highly capitalised and prudent financial institutions. A former Goldman Sachs banker and the youngest central bank governor in the G-8 nations when he took the Bank of Canada top job in 2007, Mr Carney took prompt and clear decisions throughout the financial crisis. Interest rate adjustments were perfectly synchronised to the country’s pro-cyclical policies during the worst periods of the crisis, leading to Canada’s subsequent impressive economic environment, and were carried out with minimum disruption to the markets.
Before moving to London and taking on his new role in July this year, Mr Carney will continue to monitor the Canadian housing sector and household debt market, which are at risk of overheating – a risk, he says, is common for markets that did not have a financial crisis, have well-functioning financial systems, and provided lots of stimulus to grow domestic demand during the crisis.
Mr Carney will also continue to drive the agenda for international regulation as chairman of the Financial Stability Board. Aside from developments and wider acceptance of Basel III capital rules – a process that would have been even more arduous without his strong leadership – Mr Carney has initiated discussion, to solve some of the financial markets’ most pressing issues, such as ‘too big to fail’ banks, shadow banking and over-the-counter derivatives.
In a speech late last year, Mr Carney said that a focus on nominal gross domestic product may be preferable to inflation targeting in exceptional circumstances. His tenure at the Bank of England could mark the beginning of a new era for central banking.
Central Banker of the Year, Asia-Pacific
Amando Tetangco, governor of Bangko Sentral ng Pilipinas
The Philippines’ economy has performed strongly in the past year, and its growth in the third quarter of 2012 was the second highest in Asia after China.
Ratings upgrades in the past year have put the Philippines just one notch away from investment grade – the level of Indonesia – which the country now has its sights on.
The sound monetary policy of the Bangko Sentral ng Pilipinas (BSP) and its governor, Amando Tetangco, has contributed to these improvements that have recently pushed the Philippines into the spotlight. “We are proud to have contributed to the macroeconomic stability that our country now enjoys,” says Mr Tetangco.
Inflation was 2.8% in November 2012, which was well within the central bank’s target of 3% to 5%. And this meant that 2012 was the fourth consecutive year the BSP has kept inflation within the target. “Such a benign inflation environment has allowed us to implement monetary policy supportive of economic growth, which was 6.5% for the first three quarters of 2012,” says Mr Tetangco.
The central bank is now considering lowering its inflation target range in 2015 to 2% to 4%. “This new target range should signal to the market we are serious about keeping prices low and stable,” says the central bank governor.
And the BSP has been lauded for placing importance on the stability of the banking system, as well as consumer protection. “Our banking system has remained sound. It is growing. It is liquid. It continues to intermediate funds to productive use, and its overall balance sheet remains healthy,” he says.
“In addition to our work along the traditional pillars of central banking, we have re-energised our advocacy on financial inclusion, financial education and consumer protection,” says the governor.
Although the Philippines is in good shape, there are still concerns with the global economy. “The global outlook is still patchy, which means the better economic growth prospects of emerging markets, including the Philippines, will continue to attract capital flows,” says Mr Tetangco, adding that policy will need to stay nimble to address these challenges.
One major challenge for the Philippines, according to the central bank governor, is the magnitude, speed and volatility of capital flows.
“Because there is a time lag between when the capital flows into the financial markets and when the funds are actually absorbed into the real economy, their presence makes policy-making more challenging,” he says.
He adds that this is a concern that other emerging markets share and central bankers face a dilemma. “The very tool which textbooks say we should employ in the face of surges of inflows – raise interest rates to combat the potential inflationary effect of increased domestic liquidity – could in fact attract more inflows and thus perpetrate the cycle,” he says.
Central Banker of the Year, Middle East
Fahad Al-Mubarak, governor of the Saudi Arabian Monetary Agency
Appointed as the governor of the Saudi Arabian Monetary Agency (SAMA) in December 2011, Fahad Al-Mubarak has not wasted any time in tackling the key challenges facing the Arab world’s biggest economy.
This was best highlighted by the central role he played in helping secure approval for the Saudi mortgage law in July 2012. His preparation of rules for the use of mortgage loans in the country is indisputably his most significant achievement; he has succeeded where countless governors and ministers before him have failed as the long-awaited legislation had been under discussion since the 1980s.
Previous attempts had been repeatedly torpedoed by Islamic scholars who claimed the bills were not compliant with sharia law, which forbids charging interest. However, the new legislation opens up the Saudi Arabian mortgage market to a larger customer base by stating that the homes can be used as collateral for loans instead of customers’ salaries.
Because of this, the mortgage law will have far-reaching positive effects in a country that suffers from an acute shortage of housing and where the mortgage market remains very much in its infancy. Saudi Arabia’s mortgage penetration rate is currently estimated at about 2%, compared with some 70% for a mature Western market such as the UK, while it is estimated that close to half the country’s 28.4 million population lives in rented accommodation.
In terms of monetary policy, Mr Al-Mubarak also deserves credit for cooling inflation during 2012, with it reaching a 35-month low in August, thanks in large part to the fall in housing prices, but also a decrease in food prices.
And after several years of muted credit growth and negative profit figures, Saudi banks delivered more than $5.6bn in net profits in the first seven months of 2012 as lending continued on an upward trend.
Analysts are forecasting that full-year profits at the country’s 12 commercial banks could hit the $8bn mark in 2012, which would be one of the best financial performances in Saudi banking history. The high earnings are a result of a surge in domestic credit as banks are scaling back their provisioning and taking advantage of an upswing in public sector projects and the Saudi Arabian economy.
Saudi Arabia’s projects market is forecast to have grown by 10% to $72bn-worth of contract awards in 2012, spurred on by increased investments in the construction, petrochemicals and power sectors.
As The Banker went to press, the country’s real gross domestic product was forecast to have grown by 6% in 2012, with the private sector again leading the way – reflecting its increased role in the economy.
Mr Al-Mubarak brings a wealth of market-oriented, private sector experience to his role as the governor of SAMA – having formerly served as the chairman of the Saudi Stock Exchange (Tadawul), as well as being a former chairman and managing director of Morgan Stanley Saudi Arabia.
Central Banker of the Year, Africa
José Massano, governor of Banco Nacional de Angola
José Massano may have only been governor of the Banco Nacional de Angola (BNA) since October 2010, but he has already done much to reform the Portuguese-speaking country’s monetary policy and banking system.
Mr Massano, who studied accounting in the UK and is in his early 40s, knew Angola’s financial sector well when he came to the central bank, having previously been head of Banco Angolano de Investimentos, the biggest local lender.
At the BNA, he moved quickly to bolster transparency by pushing banks to meet new money laundering requirements and introduced a monetary policy committee, reference interest rate and interbank rate in 2011 to try and develop what is, despite its rapid growth in the past 10 years, still in many ways an immature financial system. “One of the key things for us is to improve the channels to transfer monetary policies to the market,” says Mr Massano.
The BNA’s measures have been particularly effective in the past two years at curbing inflation, which has long blighted oil-rich Angola. It fell from 15% at the end of 2010 to less than 10% for the first time on record in August 2012.
The central bank has also done a good job keeping the exchange rate stable (even if it is helped by strict capital controls and a large current account surplus) and building up Angola’s foreign exchange (FX) reserves following their depletion from late 2008, when oil prices crashed. Having fallen to $14bn in 2009, they stood at $33bn at the end of October 2012, equating to almost nine months of import cover.
Mr Massano and the government have not been afraid to take controversial decisions. A new FX law for the hydrocarbon sector became applicable at the end of 2012, which makes oil producers pay their suppliers via local banks (previously, the payments were mostly made offshore). Despite resistance from oil companies – who felt that Angolan lenders were not ready to handle such big payments – policy-makers insisted the law was essential to their plans to de-dollarise the economy.
So far, the transition has been smooth. Mr Massano says it is already resulting in greater use of the kwanza. “For the first time, in 2012 the ratio between dollars and kwanzas in terms of loans was favourable towards kwanzas,” he says. “That’s critical. If we want to strengthen the BNA’s function as the conductor of monetary policy, we have to strengthen the role the kwanza plays in the economy.”
Mr Massano is also pleased with the recent reduction in Angola’s unbanked population, something which has been helped by the BNA launching a national financial education programme and encouraging banks to offer accounts which can be opened with deposits of just Kz100 ($1.04). “Eighteen months ago only 11% of Angolans had access to banking services,” he says.
“We are now talking about 23%. For us, that’s remarkable.”
