Tag: BCG

Shipping industry faces ESG heat from lenders, BFSI News, ET BFSI

Banking & Finance

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LONDON: Banks are demanding much stricter environmental criteria when financing shipping companies as investor pressure grows on the sector to accelerate going greener, according to Boston Consulting Group (BCG).

Shipping, which transports about 90% of world trade, accounts for nearly 3% of the world’s CO2 emissions and BCG forecast the industry will need $2.4 trillion to achieve net-zero emissions by 2050.

“ESG-driven requests are already prompting more action from banks. Shipping is already feeling it and they (shipping companies) are under pressure now,” said Peter Jameson, partner with BCG, which are consultants for the COP26 UN climate summit that starts on Oct. 31.

Standard Chartered has already provided loans linked to sustainability targets for drilling group Odfjell and the shipping division of Oman’s Asyad Group, the bank has said.

“When looking at lending on new assets, banks are going to create a bigger conduit for CO2 reductions through their policies,” Jameson told Reuters.

“The banks are also seeing insurance companies feeling shareholder pressure and this is also causing big pension funds to reassess.”

Leading shipping financiers currently provide close to $300 billion of lending to the industry annually, analysts estimate.

Of the $2.4 trillion that BCG estimates will be needed to achieve net-zero emissions by 2050, Jameson said $500 billion would be required between now and 2030 with the remaining $1.9 trillion between 2030-2050.

The bulk of the total amount – around $1.7 trillion – would go towards developing future fuels.

“Funding sources are already becoming available, yet plenty more are still required,” Jameson said.

ESG-related assets under management are estimated to represent up to 80% of total lending to shipping by 2030, BCG said.

UN shipping agency the International Maritime Organization (IMO) has said it aims to reduce overall greenhouse gas (GHG) emissions from ships by 50% from 2008 levels by 2050, but industry groups are calling for more progress from governments.

“The risks to balance sheets will start to force more questions being asked to the IMO,” said Ulrik Sanders, managing director at BCG, adding that this would “prompt more action towards decarbonisation”.



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Banks, experts pin hopes on bad bank to cut NPA pile, BFSI News, ET BFSI

Banking & Finance

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The National Asset Reconstruction Company (NARC) is likely to help banks cut their bad loan piles.

The bad bank and healthy provisioning buffers against doubtful advances should help India’s banks mitigate the impact of delinquencies and asset quality slippages in the aftermath of the second Covid wave, according to Boston Consultancy Group.

The formation of National Asset Reconstruction Co Ltd will help lenders keep up the momentum of recovery in stressed assets in 2021-22 (Apr-Mar), State Bank of India Chairman Dinesh Kumar Khara said.

Along with the resumption of courts and the roll-out of pre-package for resolution through the insolvency law, this will help banks make judicious use of recovery options, Khara said.

The NARC would help reduce sticky assets exposure to 1.8% – 2.3% of total loans, BCG said.

Asset quality is still a major concern for many Indian banks even as nonperforming assets (NPA), on average, could be contained, the global consultancy firm said.

Asset quality

“The second wave of the coronavirus pandemic poses risk to asset quality even as banks retain healthy provisioning buffers,” it said.

Banks have identified 22 bad loans totaling Rs 89,000 crore to be transferred to the NARC in the initial phase.

The State Bank of India plans to transfer bad loans worth around 200 bln rupees to NARCL.

The report also said that bad loans sold to asset reconstruction companies (ARCs) as a proportion of banking system stressed assets increased to about 34% at the end of FY20, up from 25% in FY18, with banks taking a much higher haircut on these sales.

Haircuts on sales to ARCs have risen to 66% in FY20 compared to 62% in the prior financial period, it said.

The bad bank

The bad bank was proposed in the Union Budget for 2021-22.

In the last financial stability report released in January, the central bank said that banks’ gross non-performing assets may rise to 13.5% by September 2021 from 7.5% as of September 2020. In the event of extreme stress, the ratio could rise to 14.8%.

Former Reserve Bank of India deputy governor Rakesh Mohan has also warned that higher stress on assets in the banking system threatens financial stability.

Recoveries through various channels have bounced back to about 16% in FY20 from decadal lows of about 10% in FY16 before the pandemic struck.



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BCG, BFSI News, ET BFSI

Personal Finance

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Financial wealth and people’s lives during the pandemic are inversely related to each other. According to a new report by Boston Consulting Group (BCG), financial wealth in India grew by 11% p.a. to USD 3.4 trillion from 2015 to 2020. In line with the emerging economic recovery, the report reveals growth in prosperity and wealth significantly through the crisis and is likely to expand in the next five years. India is expected to lead a percentage growth of fortunes worth $100 million in 2025.

Ashish Garg, a member of Boston Consulting Group’s Center for Digital Government, and a core member of the Financial Institutions and Public Sector practices said, “The next five years have the potential to usher in a wave of prosperity for individuals and wealth managers alike. They now have a chance to put that perspective into practice in their own work and pursue a client agenda. The report lays out what it takes to attract and retain clients and serve them in a competitively sustainable way.”

The report, titled ‘Global Wealth 2021: When Clients Take the Lead’ states that India represents 6.5% of the region’s financial wealth in 2020. 13.7% were the region’s real assets in 2020 which grew from 2015 to 2020 by 12.1% p.a. to USD 12.4 trillion. Liabilities grew by 13.3% p.a. to USD 0.9 trillion and Liabilities are expected to grow by 9.4% p.a. to USD 1.3 trillion by 2025. Bonds are expected to grow the fastest with 15.1% p.a. Life Insurance and Pensions will be the 3rd largest asset class in the future.

According to the report, North America, Asia (excluding Japan), and Western Europe will be the leading generators of financial wealth globally, accounting for 87% of new financial wealth growth worldwide between now and 2025.

Embracing fresh options

With the aim of earning higher returns than usual, many wealth management clients shifted away from low-yield debt securities in 2020. Hence, real assets, led primarily by real estate ownership, reached an all-time high of $235 trillion. Nevertheless, Asia, which has the largest concentration of wealth in real assets ($84 trillion, 64% of the regional total) will see financial asset growth exceed real asset growth (7.9% versus 6.7%) in coming years. In particular, investment funds in the region will become the fastest-growing financial asset class, with a projected compound annual growth rate (CAGR) of 11.6% through 2025, according to the report.

Attractive segments

The report talks about three market opportunities and segments for wealth managers. One consists of individuals with simple investment needs and financial wealth between $100,000 and $3 million. This “simple-needs segment” comprises 331 million individuals worldwide, holds $59 trillion in investable wealth, and has the potential to contribute $118 billion to the global wealth revenue pool.

“Wealth managers often underserve those in the simple-needs segment with a standardized set of products, and the result is a poor client experience with no “wow” factor. This is essentially a missed opportunity. To better serve this key segment, wealth managers must embrace a new approach that lets them reach a larger audience in a cost-effective and scalable way, but with a highly personalized offering.” said Anna Zakrzewski, a BCG managing director and partner, global leader of the firm’s wealth management segment.

Retirees form the second lucrative market, according to the report. Individuals over 65 own $29.3 trillion in financial assets accessible to wealth managers. This figure is expected to grow at a CAGR of close to 7% over the next five years. By 2050, 1.5 billion people globally will fall into the 65+ category, representing an enormous source of wealth.

The third category is the “ultra” wealth category—individuals whose personal wealth exceeds $100 million—expanded in 2020, with 6000 people joining the 60,000-strong cohort, which has seen year-on-year growth of 9% since 2015. The category currently holds a combined $22 trillion in investable wealth, 15% of the world’s total.

The BCG report reveals that China is on track to overtake the US as the country with the largest concentration of ultras by the end of the decade. If investable wealth continues to rise there at its current annual rate of 13%, China will host $10.4 trillion in ultra assets by 2029, more than any other market in the world. The US will be close behind, with a forecasted total of $9.9 trillion in such wealth by 2029.

“High-growth markets represent a massive opportunity, but wealth managers must build a genuine understanding of local differences and also key demographic changes.” said BCG’s Zakrzewski. “For example, women now account for 12% of ultras, most of whom are based in the US, Germany, and China. The next-gen segment is also going to be an influential driver of future growth in the next decade or so. Whether it’s a simple-needs or ultra-high-net-worth client, managers need to offer a personalized service in order to effectively capture the next wave of growth.”



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Move to use digital solutions helps Karnataka Bank in data-driven transformation: BCG

Banking & Finance

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The Mangaluru-based Karnataka Bank Ltd’s (KBL) decision to embrace digital and technology solutions under ‘Project KBL Vikaas’ has helped it to successfully achieve its goal and lead the data-driven transformation, according to Prateek Roongta, Managing Director and Partner at Boston Consulting Group (BCG).

In a recent interaction with BusinessLine, he said BCG had a three-year mandate from the bank in 2017 to transform it across various dimensions that would be technology and digital-driven.

BCG started laying the foundation of a better future for the 90-year-old Karnataka Bank, and put in place various HR-related elements to attract, retain and reward talent better.

“But more importantly, building on that foundation, we also layered a lot of digital front-end. Whether it was digitising their lending processes, account opening process, upgrading their mobile banking, internet banking across dimensions. We created a mini digital bank within KBL,” he said, adding: “I think what is most heartening is that if you look at the adoption of digital products, the bank today is doing much better than many of the leading private sector banks.”

Data analytics

He said BCG created a 300-member strong outbound sales force, both for retail and MSME, that would go out and seek business, and also built a software – lead management system (LMS). The leads that were generated using the bank’s data were posted on the LMS, and the respective sales personnel would call the customer, update the status and ensure that the lead was fulfilled. “That was one example of using the bank’s data and running analytics on it to generate new business. In fact, that was one of the visions that we set up at the start of the programme,” he said.

A lot of the digital and analytics work was done in retail and MSME segments only to ensure the increase of the proportion of these portfolios.

Referring to the establishment of ‘Digital Centre of Excellence’ (DCoE) of the bank in Bengaluru, Roongta said once a strong foundation for future growth was made this centre was set up that can almost culturally behave like a startup, and follow an agile way of creating these digital journeys. DCoE has developed many new products for the bank over the last two years.

Key takeaways

To a query on the key takeaways from this transformation journey with Karnataka Bank, he said: “I think what we learned is that in banks like this the support from top management is really critical. That helped us here. At the same time, you have to invest time and effort in also onboarding the middle layer leadership of the bank. I think this was instrumental in getting the success that we finally got over this three year period.”

He said the bank was at its right scale in its investments in digital solutions. “When we have done similar programmes for large banks it just takes much more time to make a similar impact. This bank was at the sweet spot of having a very manageable scale to take a programme like this, which can help them see dividends in a relatively short period of time,” he said.

Stating that the bank was open to trying many different things, he said the challenge at PSBs is that they are typically held close to trying many different things. KBL was very open to experiment, he added.

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