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"In most cases, they are stand-alone markets. Change is starting, especially in Asia"
Marilyn Spearing, Deutsche Bank |
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“The mood of Asia, Africa and the Middle East to that of Europe and the US is night and day,” says Karen Fawcett, group head, transaction banking, at Standard Chartered in Singapore. “Activity will inevitably be focused towards developing markets because the economies are more healthy.” As economic activity is refocused, the demand for improved liquidity management in emerging markets can only grow stronger.
Emerging markets exhibit many of the characteristics, requirements and challenges that applied in western Europe and other developed markets in previous years. Of course, the potential technology now available to a treasurer in Asia is vastly superior to that on offer to his counterpart in southern Europe in the 1980s. But how helpful is technology in heavily regulated markets with currency controls, for example?
Michael Cannon, head of payments and cash management, Europe, at HSBC, says that the bank’s inevitable focus is technology because international banks have only modest influence on policies in domestic markets and are therefore unlikely to achieve the regulatory change necessary to solve the problems associated with moving or making use of money in tricky markets. "Understanding regulations and finding ways to work with them – not getting around them – is the goal," he says.
The main question in relation to liquidity management in emerging markets is the extent to which they can be integrated into global solutions. "In most cases, they are still essentially stand-alone markets given their requirements," says Marilyn Spearing, global head of trade finance and cash management, corporates at Deutsche Bank. "However, change is starting, especially in Asia." Cannon says that the world is "edging closer" to a situation "when balances in every part of the world can be taken advantage of".
Crucially, liquidity management is bridging markets that transaction management hasn’t been able to – because many local transaction markets remain paper-based, making local solutions essential. "Even in markets with exchange controls, larger clients want the visibility and forecasting ability that liquidity management provides even if a broader notional pooling solution is not yet possible – and in markets such as China and India it remains a gleam in the eye of clients," says Spearing.
Show us the money
In addition to more restrictive regulations, one of the main characteristics of emerging markets cash management is the emphasis placed on credit. Of course, lending through liquidity provision is the bedrock of liquidity management in all markets. However, in developing markets there is an explicit link between winning business and balance sheet lending, in a way that has largely ceased in developed markets.
The credit crisis has had repercussions for both global and local banks in their lending capabilities – potentially making it harder for them to maintain their profile in liquidity management. "There is evidence that some international banks are reducing their focus on Asia and at the same time some local banks are facing balance-sheet issues," notes Chris Furness, global head, cash management, at Standard Chartered in Singapore.
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"Some international banks are reducing their focus on Asia and at the same time some local banks are facing balance-sheet issues"
Chris Furness, Standard Chartered |
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Furness says that the response of these international and local banks has been to try to decouple transaction flow business from balance-sheet lending – a move that doesn’t make sense in emerging markets. "Corporates expanding into China, for example, need capital, and provided banks actually have funds to make available it’s more efficient to supply finance if a bank can see the flows," he says.
Shortsightedness that results in reduced lending could prove fatal for a bank’s prospects in cash management, according to Spearing. "If you’re not in emerging markets then you won’t get the necessary growth to stay at the top of the game," she says. Spearing credits much of Deutsche Bank’s growth in transaction banking to its early involvement in central and eastern Europe and in Asia.
As some international banks are forced to curb lending – and consequently curtail their emerging markets ambitions – opportunities could emerge, according to Furness. "They are looking for partners to help them service corporate clients there," he notes. "As we don’t compete with OECD banks in their home markets we’re well positioned to provide our network to their clients – clients whom the OECD banks might not otherwise be able to access." Standard Chartered has recently worked with two US banks to access its network: one serving an oil company in Africa and another in Korea.