Greater financial market volatility presents an opportunity for banking operations as businesses seek to counter added risks, says Werner Steinmueller, chief executive officer for Asia Pacific with Deutsche Bank.
Global fund flow volatility is expected to increase this year given uncertainties over US President Donald Trump’s policies and expectations that the US Federal Reserve will raise interest rates as the US economy improves.
“Volatility is normally good for our markets business because [there will be] more hedging,” Mr Steinmueller told Asia Focus in an exclusive interview.
“When you project interest rates will stay low for another five years, [then] you do not need to hedge. But if you have an opinion in the next 12 or 24 months that interest rates will change, then you have to prepare for it.”
Higher financial volatility in Asia is projected with the large dependency in the region on the US dollar.
“When you have uncertainty, we have techniques like options or certain risk management strategies that we can discuss with clients,” said Mr Steinmueller. “There is a broad range of hedging products to manage [foreign-exchange and interest-rate] risks.”
Many market participants are concerned that US trade policies under Mr Trump will become more protectionist in the future, but Mr Steinmueller said it was too early to assess the situation.
In Southeast Asia, meanwhile, Deutsche Bank will continue to focus on corporate and investment banking.
“What we want to do is focus on cross-border transactions for corporates, financial institutions, such as dealers, brokers and asset managers, and also high net-worth clients. This is where we see our strength of Deutsche Bank,” said Mr Steinmueller.
“It is not in our plan to focus on retail, small and medium-sized enterprises, or mid-cap [companies] in Asia. We see enough business opportunities with our existing clients.”
An acquisition for Deutsche Bank is always a possibility, he said, but it is not currently on the agenda. Any acquisition would need to be “the right fit”, in terms of having a strong banking presence among large and local corporate clients.
“At the moment when you look to Deutsche Bank, we are focusing on strengths and leveraging our cross-border expertise.”
Deutsche Bank in Thailand has had a strong past two years, including advisory deals such as the Central Group’s US$1.1-billion acquisition of Big C Vietnam and Boon Rawd Brewery’s $1.1-billion investments in 2015 Masan Consumer Holdings and Masan Brewery.
Phumchai Kambhato, Deutsche Bank’s chief country officer in Bangkok, said there was positive sentiment about outbound investment by Thai clients for the future.
“There are areas where Deutsche Bank can leverage our platform to help our clients on the advisory side, the fundraising side, and managing liabilities, which are our core strengths. So we think 2017 will be quite another positive year for us in Thailand,” Mr Phumchai said.
Mr Steinmueller said client confidence in the bank had returned as it had moved forward from legacy issues.
In December, Deutsche Bank reached a $7.2-billion settlement with the US Justice Department to resolve an investigation into the bank’s dealings in mortgage-backed securities. The deal includes a $3.1-billion civil penalty.
Mr Steinmueller said Asia Pacific continued to contribute significantly to the bank’s bottom line, and that the region would remain a “focal point” for growth in the future.
Deutsche Bank is also increasing its global investment in new technology. It expects to begin a test using blockchain technology for securities clearing within the next few years.
Blockchain is a distributed database that maintains a continuously growing list of ordered records called blocks. Each block contains a timestamp and a link to a previous block. By design, blockchains are inherently resistant to modification of data — once recorded, the data in a block cannot be altered retroactively.
“We are working actively on blockchain technology, testing it in the market, and when it is working we can bring it to Asia,” said Mr Steinmueller. “We are also developing some technologies, like smart contract technology, that we will look to apply in Asia and also elsewhere in the world once they are more developed.”
Smart contracts are computer protocols that facilitate, verify or enforce the negotiation or performance of a contract, or that make a contractual clause unnecessary.
Deutsche Bank now has its own centre for developing digital banking products: the Digital Factory in Frankfurt. Around 400 software developers, IT specialists and financial experts from 14 nations are working together to develop digital products.
As well, the bank has innovation labs in Silicon Valley, Berlin and London, aiming to spend up to 1 billion euros ($1.05 billion) on digital initiatives over the next five years.