Latin America's fragmented treasury markets brought into focus
Bankers and corporates are establishing systems to facilitate cross-border payments and FX processes as intra-regional trade grows.
Corporates operating across Latin America navigate diverse, complex legal and FX systems across the continent. What's more, intra-regional trade is growing.
The founding of the Pacific Alliance in 2011 brought together Chile, Colombia, Mexico and Peru to facilitate the freer flow of trade and greater cooperation between the countries. In the Latin America and the Caribbean region, these countries account for 38% of the total GDP and 50% of total trade flows.
Latin America presents a high level of complexity for banks introducing products for global companies
During the past few years, efforts have been made to implement simpler cross-border payment capabilities focused on transferring FX between countries.
Jon Richman, head of trade finance and financial supply chain, Americas, Deutsche Bank, says: “While trade remains very US dollar-based, there is an increasing need for banks to enable corporates to pay or receive cash in their local currency. We are increasingly embedding FX into our trade finance solutions to accommodate this need of our clients' customers and suppliers.”
Banks are implementing FX and payment systems, which have been introduced in other regions.
Deutsche Bank has upped its product suite to meet the demand for more robust FX capabilities. The bank launched the FX4Cash Receivables in the Americas which allows corporates to invoice in 35 currencies and receive payments in their chosen currency.
As well as reducing risk on FX, it has mitigated the need for the corporate to hold multiple bank accounts. In turn, this has provided cost- and time efficiencies.
Bank of America Merrill Lynch (BAML) has developed digital signature capabilities for use in Brazil. Each individual that needs to give their approval on an FX contract can give their consent electronically in this system.
To create the digital signature capabilities, BAML had to account for the specific legal framework in Brazil, but differences in the legal structures across the region present challenges in developing systems that work beyond the confines of one border.
Jon Richman, Deutsche
Corporates also face federal, state and municipal taxes that vary between jurisdictions.
Steve Donovan, treasury and trade solutions head for Citi Latin America, says: “Latin America presents a high level of complexity for banks introducing products for global companies operating across the region.
"Each country has different regulations and market practices and the challenge is to create the connectivity among all countries for companies with centralized regional treasuries and shared service centres.”
Citi’s virtual accounts system in Mexico enables a corporate to identify and to reconcile all deposits, regardless of the method in which they were made.
Juan Pablo Cuevas, head of global transaction services in Latin America, BAML, says the role of the banks is vital in giving their clients the knowledge of the wider markets.
“Corporates are looking to their banks for experience and advice," he says. "They want to know what are the regulations and what impact will they have.
Juan Pablo Cuevas, BAML
“The relationship with the client needs to be treated as a partnership. Latin America has big populations and relevant markets. The corporates want to be able to centralize and concentrate their operations.”
The burgeoning ability to shift to a homogenized way of operating across the region has brought treasury practices into sharper focus.
"Working capital has become an important measure of corporate operating efficiency and, as a result, trade and supply chain finance is capturing the attention of the C-level,” says Deutsche’s Richman.
Donovan concludes: “Many multinational companies started centralizing their payments function and initially established payments factories. They are now incorporating new functions, including collections, and some have set-up full regional treasury centres also managing the financing function centrally.”