With the eurozone seemingly teetering on the edge of an abyss and the US unable to reignite its dormant economy, it is tempting to think that there is no good news to be found in the banking world. However, yet again The Banker’s Bank of the Year awards show that beyond the negative headlines and protests lies an industry that is still innovating, still growing, and still generating money all around the world.

The Global and Regional Awards Winners 

Global Bank of the Year
HSBC

Western Europe
Santander
Central & Eastern Europe
Sberbank
Asia-Pacific
HSBC
Americas
Itaú Unibanco
Middle East
National Bank of Kuwait
Africa
Standard Bank
Global transaction services
Citi
Financial inclusion
Standard Chartered

 

 

Global winner & Asia-Pacific HSBC

Stuart Gulliver

HSBC is going through the biggest restructuring in its history. Having come through the crisis in good shape without any need for financial support, it might be assumed that the bank had its strategy all figured out.

But when Stuart Gulliver took over the role of CEO early this year – the culmination of a 30-year-plus career with the bank – he decided that a re-examination was needed. Like every bank, HSBC was faced with operating in a tougher business environment and adapting to a raft of new regulations. It simply could not just carry on as before.

The awards’ judges were impressed with the strategy laid out by Mr Gulliver at the bank’s investor day in May – the first proper investor day it has ever held – and at the progress made so far.

The basis of the rethink is that every business should be looked at afresh to decide whether it fits into the group’s international strategy, in terms of connectivity between the various parts and also its scope for rapid growth given the rebalancing of the world economy. On top of this, all businesses must meet criteria in terms of asset-deposit, cost-efficiency and return-on-equity ratios. Mr Gulliver has referred to this as the “five filters” approach and already 14 transactions have been completed releasing $40bn of risk-weighted assets and reducing the staff count by 14,000 (13,000 of these went to the new acquirers of the business). On the horizon are another 40 or so transactions, with Mr Gulliver aiming to have the process close to completion by the time of the next investors’ meeting in May 2012.

“What I am trying to do is create a cohesive logical argument as to why you should own HSBC as an investor, and it starts with the observation that we sit across a couple of the massive trends that are taking place in the world. I believe that the centre of the world economy has already moved from west to east and from north to south and we are sitting in those geographies and we have been there for a long time.

“If you believe in those big macro trends of trade and capital flows to and from and between emerging markets, then the way our businesses pick them up is firstly through the commercial banking and global markets areas, which is the network [the bank is present in more than 80 countries]. Then the wealth creation that takes place because of that massive gross domestic product growth is picked up effectively through the retail banking and wealth management and the private banking pieces.”  

Mr Gulliver says that what has happened over the years is that the bank has acquired all kinds of things that don’t necessarily fit into that logic. “So what I am doing is a portfolio optimisation. It’s the first time this has been done in the 32 years I have been in the firm.”

The judges were also impressed with HSBC’s financial performance in 2010 and the first half of 2011, with profits starting to return to pre-crisis levels and the bank benefiting from its strong position in Asia where it also picked up the regional award. There was a dip in the third quarter due to higher US impairments and the poor conditions in European capital markets, which have also hit competitors.

But overall there is reason to be optimistic about HSBC – it is in the right places and is making itself leaner and fitter to compensate for the tougher environment overall.

Western Europe Santander

Alfredo Saenz

While many European banks have retreated during the crisis, Santander has used this time as an opportunity to grow both organically and by acquisition. Last year it bought the German retail banking operations of Swedish bank SEB and 318 branches from Royal Bank of Scotland in the UK. In eastern Europe it acquired Bank Zachodni WBK in Poland, and in the process boosted its EU franchise.

With funding conditions uncertain, the bank has made raising deposits a key part of its strategy. Across the group they rose 22%, and in Spain by 21%. Cost control has always been a distinguishing feature of the bank and last year was no exception, with Santander recording a cost-to-income ratio of 43.3%.

In the bank’s home market, Spain, the economic challenge has been particularly acute, with high unemployment and falling property prices. An 8.5% fall in net profits therefore compares very favourably to the average drop across the sector of 27.4%. The bank’s two-pronged approach has been to help customers facing difficulties by easing mortgage repayments while at the same raising spirits through sports sponsorship.

Santander continued its successful sponsorship of Formula 1 motor racing while sister bank Banesto backed tennis champion Rafael Nadal and Spain’s World Cup-winning football team.  

CEO Alfredo Sáenz says: “Our model is clear. We have a structure of standalone subsidiaries with their own balance sheets, commercial strategy, boards of directors and local supervision. They manage their own liquidity and capital. However, they work according to the group’s model in several areas. In this way, they benefit from corporate policies and infrastructure in technology, branding, procurement, risk management and training and development. This model allows each unit to think globally and act locally, not only in western Europe but in Latin America as well.   

“[In Europe] we’re confident Poland will continue to grow, driven by our bank’s excellent commercial strategy and the solid economy. In Germany, we will continue to reap the benefits of the integration of the SEB retail banking business we acquired this year. We believe Spain can produce some positive surprises in the medium term. We expect the credit cycle to start improving in 2012, so that in 2013 and 2014 Spain and Portugal will generate an annual E2bn in free capital. Another driver of growth will be Santander Consumer, which specialises in auto financing through an unmatched franchise across Europe.”

Central and eastern Europe Sberbank

Anton Karamzin

A year after taking the reins at Sberbank in late 2007, chief executive German Gref and his newly assembled board approved a development plan to 2014. Targets included a build-out of investment banking, and the generation of 5% to 7% of net profits from outside Russia.

The past year represented a breakthrough in meeting those strategic goals, including the acquisition of investment bank Troika Dialog, and of a network in eight central and eastern Europe countries from Austria’s Volksbank. Already enjoying an extraordinary dominance in Russia, including a 48% share of household deposits, these moves could transform Sberbank into a genuine international player.
Sberbank is no stranger to managing scale, with a 20,000-branch network that dwarfs that of some global banking groups. A $29.5bn Tier 1 capital base is the 40th largest in the world, with a very strong Basel capital adequacy ratio of 16.8%. But despite that strength, Sberbank is approaching its international expansion carefully and systematically.

“It did not make sense to buy a huge network that brought with it asset quality problems, or to buy one country at a time. We wanted a cross-country platform that was compact, centrally managed and digestible. We want to train ourselves in the inter-country integration process on a small scale before building up the volume through this platform,” says Anton Karamzin, deputy chief executive and chief financial officer of Sberbank.

While Sberbank still has its eye on the giant markets of India and China, and on key eastern European markets such as Poland and Turkey, Volksbank International (VBI) was a straightforward acquisition at the right time and price. Valuations could go lower still over the coming year, but so might asset quality – which was the reason why Sberbank ejected VBI’s troubled Romanian unit from the deal.

Integration is also a challenge for Troika Dialog, a partnership structure absorbed into a giant state-owned retail and commercial lender. Mr Karamzin – who joined Sberbank from Morgan Stanley in 2008 – says Troika staff have found the culture of Sberbank’s senior managers and in-house corporate finance business is not so far removed from their own.

“The head of mergers and acquisitions for the combined business comes from Sberbank, and we have set aside money to allow all investment banking staff to share the same bonus pool. Even before closing the merger, we swelled the deal pipeline just by looking at prospects in our own client base,” he says.

Mr Karamzin says Sberbank’s management was keenly aware that “the history of universal banks entering investment banking is littered with corpses”. But he believes this deal will be successful because Sberbank is acquiring Troika for the right reasons – to extend the products it can offer to its client base that covers 75% of Russian companies.

Americas Itaú Unibanco

Roberto Setubal

With the merger of Itaú and Unibanco complete, the Brazilian bank is now focusing on regional expansion. It already has operations in all the other Mercosur countries – Argentina, Paraguay and Uruguay – as well as Chile and is now looking at expanding into key Latin American economies such as Mexico, Peru and Colombia. Last month it announced that it had obtained a banking licence in Colombia and intended to build a greenfield wholesale operation there.

Itaú Unibanco’s strategy is to develop both retail and wholesale operations across Latin America but it will only go for retail where it can make an acquisition. With wholesale it is content to start from scratch and grow organically. This approach may slow down further retail expansion, as the bank’s CEO, Roberto Setubal, feels that the high price of assets in Latin America now makes acquisitions quite difficult to justify.

“When we announced the merger with Unibanco [in November 2008], we also announced that we would like to expand internationally and we chose Latin America as the region that would make the most sense for us,” he says.

“We needed to prioritise the integration but now that this has been successfully completed we have more time to devote to regional expansion.”

Not that Itaú Unibanco has been entirely absent from this front. It already has close to $100bn of foreign assets (about 13% of the bank’s total assets) and nearly $14bn of foreign equity, which is why the judges were able to make this award. The majority of this is in Latin America.

Itaú’s Argentine operation was founded in 1994 and enlarged with the purchase of Banco del Buen Ayre in 1998. With the purchase of the Brazilian operations of BankBoston in 2006, the bank also gained the rights to purchase operations in Chile and Uruguay. These were exercised later that year and gave the bank an upmarket retail operation in these countries in contrast to the mass-market business in Brazil.

“We would like to have retail operations across the region,” says Mr Setubal. “But it depends on the acquisition opportunities. With wholesale we can go by ourselves and build from scratch, but [that is not the case] with retail. With acquisitions, one of the challenges is the high price of assets in Latin America.”

As long as this remains the case, it may be that the wholesale part of Itaú Unibanco’s international expansion is completed first.

Middle East National Bank of Kuwait

Ibrahim Dabdoub

In a year when most of the banks in the Middle East were exerting every effort to deal with asset quality issues, National Bank of Kuwait (NBK) was able to deliver strong profitability in 2010, owing to the impressive quality of its loan book and its robust risk management practices.

Net profits grew 14% to Kd302m ($1.09bn) and risks remained well controlled, with capital adequacy standing at a healthy 18.3% and non-performing loans declining to 1.6% from 1.8% in 2009.

The bank’s credit ratings bear testimony to the quality of its assets and the strength of its capital base; NBK remains the highest rated bank in the Middle East.  

As the global financial crisis continued to play out in 2010, NBK concentrated on strengthening its regional operations. The bank is now present in 10 countries in the Middle East and north Africa (MENA) region, as well as in seven other international locations covering the world’s financial centres. As of year-end 2010, NBK’s international operations contributed more than 20% of the group’s net profits.

“Our focus remained on strengthening our regional operations and increasing cross-selling among the bank’s networks and business lines. NBK’s Gulf Co-operation Council operations are becoming more vital for our growth,” says Ibrahim Dabdoub, group chief executive of NBK. “We have been trying to increase our exposure to Qatar to maximise our benefit from this promising market.”

NBK already owns and manages a 30% stake in the International Bank of Qatar. IBQ’s capital was doubled through a rights issue in September 2011, which will help support the impressive growth it has achieved – profits rose by more than 30% in 2010.

Meanwhile, the transformation of NBK’s other major acquisition – Al Watany Bank of Egypt – is also well under way. The bank acquired a 93.77% stake in Al Watany in October 2007 – marking the bank’s entry into the Egyptian market.

“Egypt remains our largest investment outside Kuwait and strategically Egypt will remain a core asset under the NBK group,” says Mr Dabdoub. “There is a significant opportunity to capture the benefits of the country’s recent reforms and an underserved, large population.”

To further complement NBK’s regional expansion, NBK Capital, the bank’s investment banking arm, expanded its asset management operations in early 2010 from Kuwait, Turkey and the United Arab Emirates to also cover the Egyptian market.

“NBK’s long-term vision is to be the leading regional bank, with a strategy that aims to grow the bank’s franchise in attractive markets in the MENA region, by combining high growth economies and the right demographic trends,” says Mr Dabdoub.

Africa Standard Bank

Clive Tasker

Standard Bank has firmly committed itself to Africa in the past year. This strategy was made clear in August when it sold 80% of its Argentine subsidiary, a deal which followed soon after it divested its 36% stake in Russian investment bank Troika Dialog.

The South African lender’s retrenchment to its traditional stronghold of Africa makes sense. It has long been a leading bank on the continent — it is Africa’s biggest by some way in terms of assets and Tier 1 capital — and it operates in 16 African countries outside of South Africa.

This leaves it well placed to exploit the rapid economic growth in sub-Saharan Africa, which is forecast to be about 5% to 6% in real terms in 2012. “We’ve continued to grow our businesses in all the countries we operate in,” says Clive Tasker, head of Standard Bank Africa. “We’ve invested in people, systems and our branch networks. We believe in Africa’s medium-term growth possibilities.”

In the past year, the bank has reinforced its strength in investment banking. It was a bookrunner on a $500m Eurobond for Senegal in May (only the country’s second to date) and Namibia’s $500m debut international deal in late October.

Its presence across the continent means it should be among the banks to benefit the most from the likelihood of increased sub-Saharan sovereign issuance in the next few years. “We have a close relationship with all the regulators and finance ministries in the countries we operate in,” says Mr Tasker. “We talk to them on a frequent basis about their financing needs.”

The bank has also been at the forefront of many of Africa’s infrastructure and project financings. In the past year, the deals it led included major financings for gas pipelines in Mozambique and Nigeria, and mines in Botswana and the Democratic Republic of Congo.

Standard Bank has also expanded its retail banking presence significantly. In Nigeria, it has opened about 60 branches this year alone. “You need to operate at scale [when it comes to retail banking],” says Mr Tasker. “That entails building a branch network that enables you to have a large footprint.”

The bank has managed its growth impressively. Its headline earnings in the first half of 2011 rose 11% year on year to R6.6bn ($833m), amounting to a return on equity (ROE) of 14.5%. Further expansion into Africa should see this rise, given the high profitability of some of its subsidiaries — ROEs in Uganda, Lesotho and Malawi were all above 30% in the first six months of the year.

Mr Tasker acknowledges that a looming slowdown in Europe would affect African economies, but says they are still likely to remain buoyant. “Growth in Africa is in all likelihood going to outstrip growth anywhere else in the world, irrespective of what happens in Europe,” he says.

If correct, Standard Bank’s decision to focus almost solely on Africa will be a very shrewd one.

Global Transaction services Citi

Francesco Vanni

Despite tough competition, Citi is The Banker’s Transaction Bank of the Year. The newly created award – which replaces the long-standing securities services and cash management categories – received more entries than both of its predecessors combined, and the overall standard was outstanding. Deutsche Bank, for example, particularly impressed the judging panel thanks to an innovative and successful year.

Transaction banking has been on the rise since the onset of the global crisis in 2008, but an unholy trinity of regulation, competition and macroeconomic woes have made operations increasingly tough. To be top of the pack, it is no longer enough to pipe cash and payments around the world on demand.

These fundamentals must remain in place of course, but successful transaction services houses must also help clients understand and deal with the complex network of trade flows and regulations on each end of a deal. Similarly, banks must also help their customers discover efficiencies and savings in their day-to-day operations. It is in this advisory-style role that Citi has excelled.

The bank’s treasury diagnostics offering, for example, was designed to help clients meet demands for improved visibility and centralised liquidity, working capital and risk management. The service allows customers to compare themselves against their peers in Citi’s user base via an online survey of their policies, processes and practices, which results in a confidential benchmarking report. Citi then helps companies to find opportunities to boost the efficiency of treasury operations including policy and governance, management of liquidity, working capital and systems and technology. The results have been dramatic; in some cases, large multinationals have achieved reductions in liquidity buffers and working capital cash conversion cycles of up to 30%.

It is all part of a broader trend in Citi’s operations, which changes the focus of transaction banking to the customer’s operations, an approach that is also apparent in the bank’s client executive technical consultancy service. This overall philosophy has attracted fulsome praise from customers large and small, impressed with the collaborative partnerships fostered by the bank.

“We are delighted that The Banker is recognising Citi’s global transaction services business with this inaugural award. Citi takes pride in delivering a comprehensive range of solutions to our clients, combined with the local expertise and talent that we offer through our network in 100 countries,” says Francesco Vanni d’Archirafi, CEO of Citi global transaction services. “The competitive landscape will be shaped by significant drivers of the global economy – globalisation, digitisation and urbanisation. These mega-trends present opportunities for us to increase our relevance to our clients.”

Financial Inclusion Standard Chartered

It is rare these days to come across a bank, whether in emerging markets or in the developed world, that does not engage in financial inclusion activities, and this year’s award in this category received a rich variety of entries from 53 participants, ranging from small, local lenders to global giants.

Standard Chartered’s financial inclusion portfolio is impressive for the breadth of its initiatives, the impact these initiatives have on local communities, and their international scope. Projects include: reaching rural villages throughout Asia by deploying mobile ATMs transported by special vehicles and bringing with them the bank’s staff to provide support, information and advice on financial planning, savings, loans and other products; to setting up branches in rural China, such as one in a small community in Inner Mongolia that provides unsecured loans to farmers; the development of agricultural finance products across Africa, Asia and the Middle East; and financial management training for small entrepreneurs, a programme that has been rolled out to 277 small and medium-sized companies.

The bank’s financial inclusion portfolio is also impressive for the level of success it has achieved. Of particular note is the village banking model that Standard Chartered developed with Thailand’s Population and Community Development Association (PDA) and piloted in the village of Ban Nong Pruek.

Standard Chartered designed a Village development bank (VDB), owned and operated by the villagers, which it provided with initial seed capital of $13,000, followed by other capital injections. The VDB’s rules are very simple: it provides credit for activities that will generate income and it encourages savings. The aim is to keep villagers out of usury lenders, who charge up to 20% daily interest. Once villagers have joined and deposited $2 a month for six consecutive months, they can apply for a loan, the amount and terms of which will be decided locally by the VDB committee. In two years, the VDG has gained 70 members, representing 55 of the 100 households of Ban Nong Pruek, and their savings have grown to $2850; it had also provided 83 loans to 41 borrowers for a total of $34,923 with interest rates of about 1% per month. As a result of VDB’s success, Standard Chartered and PDA plan to open other village banks elsewhere in Thailand.

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