Asia: from an emerging market to a unique opportunity
In the second of a series of articles on innovation in cash management, Michelle Wang (head of payments and cash management in China), Louis-David Rouyer (head of payments and cash management in Hong Kong & Singapore) and Benoit Desserre (global head of payments and cash management) at Société Générale discuss recent and future developments in cash management in Asia.
|Michelle Wang, Louis-David Rouyer and Benoit Desserre
Countries in Asia are actively seeking economic growth, undertaking deep economic and financial reform and promoting regional cooperation. The tremendous change in the business environment creates huge opportunities for financial services in Asia, particularly transactional banking services.
Asia is now the largest transaction banking market globally, according to McKinsey, with revenues estimated to reach $578 billion by 2017, of which China accounts for two-thirds.
Commit to Asia on cash management
Société Générale has had a presence in Asia for over 30 years, offering a broad range of banking services. Long aware of the huge potential of transaction banking in Asia (and particularly China), Société Générale has made a considerable investment in its cash management platform.
Over the past two years, significant investment has also been made to strengthen the bank’s cash management franchise in key locations such as Hong Kong, Singapore, India and mainland China.
The first initiative was the launch of Société Générale's e-banking platform in Mandarin in Hong Kong in June 2015, its liquidity management solution and the upgrade of the bank's platform in Hong Kong, Singapore and India via a new core banking system.
Investing in the region was a key objective for Société Générale in order to provide a consistent and homogeneous offer between Europe and Asia, but also between Africa and Asia, to better serve corporate clients.
“Other notable initiatives include the opening of a sub-branch in the Shanghai Free Trade Zone (SFTZ) in February 2015, which enables us to participate to the liberalisation of the RMB by offering RMB cross-border liquidity management solutions to Société Générale's corporate clients,” says Louis-David Rouyer.
“Through this sub-branch we will acquire first-hand knowledge and experience of doing business under the new financial policy framework, which will be expanded nationwide in the future. We will also benefit from SFTZ regulatory policies in relation to lending/borrowing funds overseas; the ability to open and operate accounts through the special Free Trade Account System, which is different from the existing Chinese local account system; and proximity to SFTZ clients.”
Société Générale teams are also working on new and innovative cash management solutions, especially RMB cross-border cash pooling between SFTZ, Hong Kong, Singapore and Paris.
Such local knowledge and expertise is vital in a region with multiple currencies and regulations. “For example, SFTZ is on the agenda of most of the multinationals we speak to, so there is a clear need to understand the requirements and benefits of incorporating a dedicated company there,” says Rouyer.
Ride on the wave of RMB internationalisation
Michelle Wang observes that SFTZ provides a favourable and less-regulated environment for foreign companies doing business in China, and its innovative and preferential policies have proved popular.
“Of the more than 22,000 companies that registered last year, almost 10% were foreign corporations – a 10-fold increase over 2013,” she says. “These companies operate across a range of sectors, for example financial services, manufacturing, logistics, warehousing, transportation, etc. As the regulatory environment improves, we expect more foreign companies to set up subsidiaries or move into SFTZ. Interest from clients across the world is increasing.”
Since the introduction of RMB internationalisation, the volume of cross-border RMB settlement and FX has risen significantly and there is growing interest in integrating RMB into corporate liquidity management structures.
As the currency is more widely accepted globally and China’s FX policy becomes more open, the growth potential of RMB cross-border liquidity management business will increase further.
As with a domestic cash-pooling solution, cross-border cash pooling can significantly reduce the funding cost and liquidity risk of a corporation. Currently, companies with short funds can enjoy a lower funding cost rate than the bank loan rate, while companies with surplus funds can still avail of a higher interest rate than bank deposit rate.
RMB cross-border liquidity management enables group companies to centralise liquidity, reducing risk considerably. It is also an attractive solution for global or regional treasury management. Many shared serviced centres across the region are able to leverage SFTZ RMB cross-border pooling and centralised payment/collection.
Société Générale anticipated growing demand for regional shared service or treasury centres in Asia, developing a series of solutions and products to help clients streamline and automate their payment processes. These include customised ERP solutions and centralised payment/collection and netting to facilitate shared service centre transaction processing.
Société Générale continues to invest in IT system and product innovation, for example the Group’s e-banking platform in Mandarin, its liquidity management solution and the upgrade of its platform in Hong Kong.
“Cross-border liquidity provides companies with a more efficient, automatic and flexible means of transferring funds across border in SFTZ,” says Wang. “For example, with the RMB cross-border liquidity management tool, a multinational can repatriate excess cash to support business overseas and local corporations can remit revenue generated from overseas projects.
“In addition to fund transfer, it also provides a financing channel for companies who have difficulty sourcing bank financing in their local market.”
Group treasury gains improved visibility and control on overall cash positions, and benefits from reduced volatility in daily cash flows at a group level. In addition, treasury doesn’t need to maintain surplus liquidity to avoid overdraft on the pooled accounts, particularly when balances in these accounts are negatively correlated.
© JULIEN MAGRE.2011
Play international strength
As EM companies expand internationally, they also need global cash management platforms, explains Benoit Desserre.
“These companies want to work with experienced service providers who can deliver a platform that will help them simplify overseas account structures and manage global liquidity centrally or regionally to achieve better visibility, control and efficiency, while providing local support when needed,” he says.
“Our long-established and extensive service network in Europe, Asia and Africa and our strong, integrated global cash management platform means clients can gain a single view of all accounts cross-country and cross-bank; process all countries’ payments/collections through a single point or shared service centre; and manage liquidity globally, for example through global cash pooling.”
In 2015, China will launch its long-awaited international payment system CIPS (China International Payment System) to process cross-border RMB transactions. This is expected to significantly increase global usage of the currency by cutting transaction costs and processing times, and will be an important component of cash management in the near future.
Cash management in Asia is going through a period of considerable change. Société Générale is uniquely positioned to help treasurers leverage recent and forthcoming developments.
Under a more open and cooperative economic environment in Asia, the Group should continue to make commitment to the development of Asia and steadily increase its footprint in Asia.