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TREASURY

Market volatility drives inter-company lending

Patchy inter-company loan administration has the potential to leave corporates exposed to breaches of transfer pricing guidance.

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There are many reasons why corporates favour inter-company loans over other forms of finance. The ability to pre-empt constraints, such as sudden capital controls, and the avoidance of FX volatility feature high on the list.

The uncertain global business environment of rising interest rates and volatile stock market valuations has created a difficult debt funding environment. This makes effective liquidity management more important in providing funding stability and cost optimization, says Amy Eckhoff, Asia-Pacific head of liquidity and account solutions specialists at JPMorgan.

“Inter-company loans are one of the most common ways to move funds in and out of markets, leveraging the excess cash from one entity to fund the borrowing needs of another, replacing bank loans to avoid bank spreads and fees,” she says.

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Amy Eckhoff, JPMorgan

Many corporates centralize inter-company lending to treasury centres for efficiency and control reasons, enabling the treasury centre to offset its excess and deficit positions across the whole group while centralizing FX exposures and management.

Leveraging idle internal cash is one of the most cost-efficient sources of funding a company has and is preferable to short-term credit facilities, freeing up reserves to target growth strategies.

“We


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