Category: Banking

United States, June 18, 2019 – Facebook and 27 other partner companies formally announced Libra, a form of digital currency powered by blockchain technology. Facebook will launch a new subsidiary, Calibra, in 2020 that will offer a digital wallet for Libra and be available in Facebook Messenger and WhatsApp, as well as through a standalone app. At launch, Calibra will focus on peer-to-peer (P2P) transfers of Libra, but could later introduce the digital currency as an alternative for consumer-to-business (C2B) payments.
We see the launch as supporting Facebook’s efforts to integrate more deeply with its 2.4 billion users beyond social media platforms and to potentially attract new users. The launch could also help the company tap new data sources, making its advertising more efficient and boosting overall advertising revenue.

From the payment processing industry’s perspective, the launch of an alternative payments platform by a technology leader as ubiquitous as Facebook is likely to accelerate electronic payments’ share gains from cash and checks. The key issue that remains unclear at this time is how Libra will tie into the rest of the world’s financial ecosystem. Visa and Mastercard appear to be more natural partners for Libra than national automated clearing house systems in light of the global nature of Facebook’s effort.

Still, Libra faces a range of regulatory hurdles. The announcement has already attracted the attention of financial regulators globally. Some US lawmakers have been quick to raise privacy concerns, while national authorities in Europe and Asia have raised concerns regarding the stability of digital currencies. The adoption of new forms of currency that fall outside of a country’s control raise a variety of issues for sovereign issuers, in that digital currencies can adversely affect national and regional central banks’ ability to implement monetary policy. Governor of the Bank of England (BoE) Mark Carney signaled the BoE’s intent to engage with tech companies to ensure consistent regulatory treatment and ultimately allow payment providers access to central bank overnight accounts – similar to
commercial banks.

For potential efficiencies to be realized, Facebook and its partners will need to overcome a number of hurdles, in particular, regulatory acceptance, which will be a key determinant of Libra’s path. In addition, for Libra to develop economic characteristics associated with currencies, a critical mass of users will need to trust it, its price and liquidity will have to be relatively stable and there will need to be a means to control supply. It is unclear what other ‘money-like’ applications Libra will ultimately be used for beyond the ability to make P2P transfers within a relatively contained context.
According to the Libra white paper, the currency will be backed by reserve assets consisting of bank deposits and short-term government securities (in a basket of so-called stable currencies) to minimize price volatility. The reserve feature of Libra makes it distinct from Bitcoin and most other cryptocurrencies. A wide range of firms, including online payment processors, telecom companies and major merchants, will govern the new currency through a new group known as the Libra Association, as shown in the exhibit.

Libra is positioned as a stable, real asset-backed currency built on a secure and stable open-source blockchain. One of its primary goals is to improve access to financial services for the global underbanked population, which is estimated at 1.7 billion people.

The significant issue that remains unclear at this time is which processing infrastructure the new digital currency will use. On the network side, Visa Inc. (Aa3 stable) and MasterCard Incorporated (A1 stable) appear to be more natural partners for Libra than national automated clearing house (ACH) systems in light of the global nature of Facebook’s effort. If Facebook were to launch a separate payment processing network, it would be credit negative for the card networks. On the merchant processing side, there will be a role for processors to handle transactions settled with Libra, as they handle transactions in national currencies today. With operational details not yet available and the launch for C2B payment applications some time away, we believe that the impact to the industry will be broadly positive, but it is too early to judge the magnitude and timing.
The widening application of digital distribution and product development in financial services is materially changing the basic terms of competition across banking business segments, including payments, lending, capital markets, and wealth management. In the fast-evolving digital ecosystem, the largest technology firms are poised to become formidable competitors in retail financial services, undercutting banks’ transaction fees. Facebook is certainly not the first company to launch a crypto payment solution; however, with its immense user base it would pose a threat to the banking industry should the initiative gain traction with consumers and businesses.
In particular, this new platform could effectively provide an alternative ecosystem for payments, bypassing existing players and obviating some of the roles banks traditionally play. Another key factor to watch as the product evolves is whether Calibra and other Libra wallets ultimately offer deposit-like products and other financial services and, if so, to what extent clients, including consumers and businesses, use them.
As big tech companies like Facebook position themselves as financial service providers, their success could allow them to control not only a significant portion of distribution and customer mindshare, but also to compete more directly with incumbents by manufacturing financial products, controlling the user experience and, ultimately, capturing a greater share of associated profit.

Credit Outlook: 24 June 2019. Pg. 11
Moodys

SAO PAULO (S&P Global Ratings) July 29, 2019–S&P Global Ratings assigned its ‘A’ issue-level rating on Banco de Chile’s (A/Stable/A-1) proposed HKD372 million senior unsecured notes due July 29, 2031. The issuance is part of the bank’s $3 billion medium-term notes program. The bank will use the proceeds primarily for general corporate purposes.

Our rating on the notes reflects their pari passu ranking with the bank’s other senior unsecured debt obligations. As a result, the rating is the same as the long-term issuer credit rating on the bank. The notes constitute only about 0.1% of Banco de Chile’s total funding base. Therefore, this issuance doesn’t change our view of the bank’s funding profile and does not increment refinancing risk.

Banco de Chile has a well-established brand and diversified market access in the highly competitive Chilean banking system, factors that confer steady revenue flow. Moreover, the bank’s sound asset quality metrics and conservative underwriting standards continue to drive sound financial results, although pressured by lower inflation prospects in the country. Capital flexibility should improve after the bank repays the long-term subordinated obligations due to the central bank as part of the bailout following the economic and banking industry turmoil in 1982-1983. From now on, the bank would be better positioned to adopt new capital requirements that will come into force in the next few years. The ratings also reflect our view of a funding structure highly diversified across sources and counterparties and a high deposit base with a stable amount of retail deposits. Its liquidity position provides adequate cushion to cope with unexpected cash outflows over the next 12 months.

Madrid, June 12, 2018 — Moody’s has raised its outlook for Spain’s banking system to positive from stable, as robust economic growth and disposals of troubled assets help banks bolster their asset quality. In the rating agency’s view, other fundamental factors such as capital, funding and liquidity levels and profitability will remain stable.

Stocks of non-performing loans have been falling since peaking in January 2014 and Moody’s expects the improvement to continue over the 12 to 18 month outlook period.

Solid economic growth will support a stable operating environment. While Moody’s expects growth to slow to 2.7% in 2018 and 2.3% in 2019, Spain’s economy is still among the fastest growing in the euro area. This robust growth should extend a multi-year decline in unemployment and support improved credit conditions for Spanish banks.

Capital will remain stable at low levels for Spanish banks as their large volume of deferred tax assets, which Moody’s considers to be a low-quality form of capital, undermines their capital strength.

Moody’s forecasts that bank profitability will remain broadly stable over the next 12 to 18 months. Higher fee and commission income will compensate for declining net interest income, with revenues benefiting from more diverse earning sources. Moody’s also expects the cost of risk to remain broadly stable.

Funding and liquidity conditions will also be stable over the outlook period. Stable deposits and shrinking loan books have narrowed the funding gap at Spanish banks in recent years, though this process will decelerate as demand rises for credit.