Asia’s companies refine treasury
Asia’s rapidly changing corporate sector is becoming increasingly advanced in how it runs its treasury operations.
Asia’s corporates are looking beyond their domestic bases for new opportunities. The emerging and established markets in the region offer a wide mixture of attractions for companies to grow their presence or find new supply chain partners. But they are not limiting their ambitions to their own continent.
John Laurens, head of global transaction services at DBS, says the region’s corporate sector is changing rapidly. The biggest opportunities for banks can be found by looking at those companies that are on the verge of expanding.
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“The middle market is seeing a lot of growth,” says Laurens. “Companies do not need to be MNC [multinational companies] size to be global today. We are seeing the smaller businesses selling globally, but this means they have to be sophisticated from the very start.”
China is setting the tone for how the other countries can expand. Its corporates are maturing and looking to how they can make the most of their treasury practices.
Amol Gupte, regional head of treasury and trade solutions, Citi Asia Pacific, says: “Chinese companies are becoming smarter about using liquidity. They want to optimise their own balance sheets through pooling and intercompany lending.”
Citi has assisted an Asian petroleum company in its long-term programme to update its treasury functions. The bank has implemented an integrated treasury system, enabling the company to reduce financial costs, improve liquidity management and enhance yields.
The trend is likely to spread to the region’s other corporates. Their growing understanding of what capabilities are available to them is also stemming from the greater availability of data. Corporates have access to freely-available data on their rivals, as well as the proprietary information their banks can add.
Citi has developed its data diagnostics programme to give clients an in-depth profile. It analyses three years’ worth of internal data and includes external information and credit ratings. The rolling programme refreshes the data each quarter to maintain a three-year analysis period.
“The future will be built on big data, but what’s important is how you use it to create value for clients,” Gupte says. “We offer meaningful value to our clients by crunching and analysing their data, overlaying other important external data such as credit ratings, and then developing real-time or event-based insights that a corporate treasurer can use to quickly make informed decisions. We use our own proprietary software and analytical tools for this and constantly update the data.”
DBS has a working capital advisory programme that uses big data and analytics to create industry benchmarks and perform deep-dive analytics on working capital. Through data analysis, the bank can advise clients on what to do with trapped cash and how best to make use of their available working capital.
The possibilities are not limited to the companies within their own industry. There are opportunities for corporates to learn from what is being experienced by corporates of an equivalent size in a different industry.
Laurens adds: “We give the clients the opportunity to benchmark their performance against their peers. They also have the chance to compare against companies outside obvious comparable industries.”
Chinese companies are becoming smarter about using liquidity. They want to optimise their own balance sheets through pooling and intercompany lending
Amol Gupte, Citi
Across Asia, China’s continued dominance sets the pace and the tone for the region. The country is experiencing a turbulent time, but it still exerts a dominant influence beyond its own borders, as demonstrated by how renminbi for trade continues to grow. RMB is now the fifth largest currency, according to Swift and is starting to challenge its regional rival the Japanese yen.
“The relevance of RMB has grown over the past four years from the trade settlement perspective,” says Gupte. “It will start to eat into the market share of other currencies in terms of the amount of trade settlement.”
China can still do more to open up the currency further, which will lead to even greater use of its currency as it becomes more accessible.
DBS, for example, advised European pharmaceuticals firm Roche on its implementation of the first automated RMB cross-border pooling structure. The company’s international cash pooling structure enables it to manage 90% of its global liquidity, pooled from 50 currencies.
“We will likely see more deregulation around the capital convertibility of the RMB,” Gupte adds.
Though China continues to be the driving force in the region, it is not the only story. Shariah banking products are growing steadily in use year-on-year. Malaysia’s Maybank has developed and expanded its product offering to meet the region’s increasing demand for Islamic banking products.
In 2014 the bank launched its Islamic liquidity concentration services, the country’s first Shariah-compliant sweeping and pooling solution. The bank picked up 11 clients in its first month of launch, and the average size of deposits has increased 300% to the end of the year. The bank has seen strong demand for the products in Malaysia, and is now seeing that push into its neighbouring countries.
The huge variations across the continent, from economics to populations, continue to create new opportunities.