Germany Monitor

Derivatives markets form a major part of the regulatory reform agenda. While corner-stones of the reforms have been defined, some crucial issues such as the exact definition of standardised derivative contracts, the treatment of cross-border trades and CCP access to central bank liquidity are yet to be clarified. The decrease in volumes in derivatives markets can largely be explained by trade compression. Even though there is a notable shift from dealer to CCP trades for interest rate derivatives and a less remarkable shift for the credit derivatives, the actual capacity of the clearing market is much higher. Regulatory pressure to encourage standardisation seems to have created little impetus for greater standardisation to date and the use of exchange platforms seems to remain subdued. Even though collateral practices would become more expensive for all market participants, non-financial corporations as counterparties are more likely to be affected by collateralisation obligations in the future. A few CCPs dominate the market suggesting concentration issues. [more]

Frontier CIS economies have grown at a robust rate of 8% yoy on average since the turn of the century. Growth prospects for 2013-14 remain fairly positive at around 5% p.a., with stronger growth expected in the Central Asian CIS economies. Trade links with Russia have diminished significantly, although they remain substantial. China and emerging Asia are becoming increasingly important trade partners for the region. Some of the countries have been implementing structural reforms, but much needs to be done to strengthen institutional and policy frameworks, develop financial markets, diversify away from commodities and improve the business climate and governance more generally. [more]

The traditional, global power plant order is in a state of flux for a myriad of reasons. There is no doubt that in the days following Fukushima it was premature to predict a rapid end to the peaceful use of nuclear energy. Over the next 20 years the newly erupted gas vs. coal contest in the electricity market will not produce a single “global winner”. Whereas in the US gas continues to assert its dominance, in Asia coal remains the no. 1 source of energy. The power generation landscape is becoming more colourful: while Germany is banking on renewables, France is sticking with nuclear power generation and other nations retain their preference for coal. The continuing increase in the thirst for electricity over the next 20 years provides sufficient scope for the coexistence of the most diverse power generation alternatives. [more]

Sub-Saharan Africa (SSA) is growing fast with annual real GDP growth of over 5% in the last decade, second only to developing Asia. Medium-term growth remains robust, on the back of a recovering global economy, still high commodity prices and investment in productive capacity. SSA is at a crossroads. It has a window of opportunity to capitalise on its youth surge and resource wealth to create employment and inclusive growth. Political change and reforms are key. It will not be easy but democratisation, urbanisation and virtual connectedness bode well. Investments in infrastructure/logistics and education, economic diversification, market reforms and improved governance are critical for long-term success. [more]

The announcement of Fed tapering has boosted financial market volatility and high-yield spreads. This is an important development for private equity because debt markets are a major driver. However, historical patterns suggest that this spike may be a temporary phenomenon during which markets are weaned off the liquidity glut.
Over the medium term, monetary normalisation should be associated with stronger risk assets and better prospects for private equity. This is not because private equiteers would cheer a cut in liquidity supply. Instead they would cheer the underlying economic improvement that would allow cutting liquidity in the first place. [more]

Croatia’s membership: A success for Croatia and the EU. Croatia will join the European Union on July 1, 2013 as its 28th member. It will be the second ex-Yugoslav state to become an EU member after Slovenia, which joined in 2004. Germany was the last EU country to ratify Croatia’s accession treaty in May, clearing its way into the EU. [more]

ASEAN, a bloc of 10 nations with an aggregate economic size of USD 2.3 tr, is preparing to go through profound changes. Already today, ASEAN is the 3rd pillar of growth in Asia in addition to China and India, with average GDP growth over the past 15 years at around 6% p.a. The region’s prospects will be much enhanced by an ambitious integration effort which seeks to achieve a single market and production base. The ASEAN Economic Community (AEC)'s envisaged launch at the end of 2015 will be a potential game changer for ASEAN. [more]

This study reviews how Japanese banks have responded to the adverse macroeconomic environment during the past ten to twenty years. The experience of Japanese banks provides some valuable insights into the effect of a prolonged phase of low interest rates on bank balance sheets and profitability. Banks have adapted both the cost and income drivers of their business. Profitability and efficiency gains have been limited though. While Japanese banks have reduced their bad loan problem, they have also become increasingly exposed to their home sovereign. [more]

Demographic change has come far as an issue for medium-sized businesses. When it comes to the necessary investments, for example in further training, large family businesses are more advanced than small and medium-sized enterprises. Even though there is no threat of a general deficit in candidates for succession in the foreseeable future, succession arrangements need to be prioritised in many businesses as the number of companies ready for transfer is set to rise. Regardless of whether family succession or an external solution is chosen, transfers are often associated with significant risks. The economic and financial position of the company, the market environment and financial conditions play just as much a role as the motivation, interests and values of those involved. Given the complexity of the transfer and its huge importance in the company's history, experts recommend transfer management in which all the necessary steps are planned and implemented at an early stage. [more]

With banks searching for sources of income and growth and the relationship of trust with their customers being redefined, pricing is a key issue in retail banking. Price-setting calculations for retail financial products can be quite complex and one crucial factor for success is the capacity to identify and collate all necessary information to take sound decisions on this basis. While the range of analytical options has grown considerably in recent years, the challenge banks are facing is to use them intelligently to develop client-oriented offers. To complement their pricing, banks also need convincing strategies to communicate the prices and value-propositions of their products. [more]