Asiamoney Corporate Client Choice Awards 2017: A brave new world of corporate advisory

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Gone are the days when banks could coast along on processing letters of credit and servicing clients’ occasional foreign exchange transactions. To meet the increasingly complex needs of their corporate clients, the top Asian banks have had to rethink their service models.

by Paolo Danese

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Once upon a time, basic hedging solutions for foreign exchange and interest rate exposures would represent the higher end of Asian banks’ services to local corporates. Those might have involved FX options contracts, occasionally using non-deliverable contracts for restricted currencies, such as the renminbi.

But banks are experiencing a change in the type of value-added services demanded by clients. While this presents a challenge to the traditional relationship management model, it also leads to opportunities for making big fees from more complex solutions.

James Chen, president and chief executive of global institutional banking at CTBC, tells Asiamoney that being proactive is the key to success.

“This objective is underpinned by three pillars: a complete offering, the advisory value and customer-centric services,” he says.

Wee Wei Min, global head of treasury advisory at Singaporean lender OCBC, says the key lies in interpreting clients’ needs: “What we typically have to do is go down to the root of the clients’ concerns and suggest new and appropriate ideas that meet their needs.” 

OCBC and CTBC received the most votes in Singapore and Taiwan respectively for this year’s Asiamoney Corporate Client Choice Awards.

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 Wee Wei Min, OCBC

Interest rate hedging is one example of the changing challenges and opportunities.

Traditionally corporates would seek to hedge by converting floating rates to fixed rates via swaps. But the recent pace of Federal Reserve interest rate hikes and the slower-than-expected impact on the rise of Libor rates has offered an opportunity to approach hedging differently.

“We have offered structures to help our clients reduce costs, where instead of a fixed rate at 2.2% they now pay 1.8% as long as rates stay below a certain level,” Wee says. “However, if rates go above 1.8%, the clients are back to a floating rate with a subsidy.”

CTBC has found profitable niches in areas as diverse as custody and corporate trust business, syndicated loan structuring capabilities and M&A advisory.

The other key theme is servicing clients across borders. As trade within Asia expands, so does the number of markets where these corporate clients work. How banks choose to advise clients in their global ventures can end up setting apart those with regional ambitions from those that remain primarily domestic banks.

This starts with helping corporates at the first step, such as the setting up of overseas entities.

“When our clients decide to expand their business overseas, CTBC’s cross-border experts are able to assist them in proper planning of offshore capital management, financial supply chain efficiency and foreign currency risk management,” says Chen. “We also assist the second-generation entrepreneurs with a modernized treasury operating platform and a sophisticated financial management approach.”

International expansion increases the risk of clients being poached by global banks, of course, but Asian banks insist they have the advantage of having known these customers for years, with a level of detail that is not possible for their competitors. 

One solution is for locals to branch out beyond their home markets so that they can follow clients overseas. The current trend is to go one step further, by leveraging opportunities across the entire footprint.

One example revolves around satisfying a client’s funding needs in China.

“If the client is from Singapore and has good banking relationships in that market,” Wee says, “we suggest they borrow in Singapore, which would likely be cheaper as the banks would be familiar with the client, and then we work on a cross-border arrangement where they can access funding from our OCBC overseas branches. That way they can avoid injecting funds offshore as debt.”

As for the evolution of relationship management, it is clear that clients are less and less keen to have to maintain contact with a dozen different bank executives to find the solutions they need. 

Chu Kok Wei, group head of treasury and markets at CIMB Investment Bank, stresses the importance of this. “We provide a single focal point of contact, collectively referred to as our senior bankers group, comprising a dedicated coverage team, and complemented by sector specialists under CIMB’s regional operating model,” says Chu. “The client coverage team is supported by strong product capabilities across all asset classes to deliver the best solution for corporates’ needs in a seamless manner.”

The advantage of the integrated approach is especially clear when it comes to helping clients make the jump from bank borrowing to entering the capital markets for a bond issue in the home market or beyond.

“We have a capital markets and treasury team that is trained to understand and prioritize the requirements of corporates for the best-customized solutions, both conventional and Islamic,” says Chu. “Our well-established network in Asean is also a strong draw for corporates wishing to tap into the Asean capital market, regardless of their home base.”

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 Chu Kok Wei, CIMB

Rapid economic growth in some parts of the region is also pushing banks to review their business plans to benefit from Asia’s growing clout. Obviously one market that continues to attract plenty of attention is China, and banks around Asia are competing to build up a larger presence there so that they are able to respond to their clients’ needs. 

Given the breakneck speed of regulatory change in China, banks know they need to dedicate resources specifically to ensuring that employees who are in direct contact with clients are aware of what is and is not possible in that market.

The Belt and Road Initiative is one such policy-driven opportunity. 

While this is meant to focus primarily on infrastructure, there are large groups of corporates that might end up being involved in BRI projects, in one fashion or another. And given plans for financing around BRI to be denominated in renminbi, banks have had to boost their RMB service offering. 

The renminbi business extends beyond BRI, as a growing number of companies exporting or importing from China are invoicing or settling in RMB, despite some difficulties along the way.

“The RMB depreciation that started in 2015 and 2016 definitely choked the Taiwanese flow business as most solutions were around RMB appreciation,” says Wee. “So, the banks relying on that saw tremendous decreases in volumes. But we have tried to offer different solutions that focused on meeting our clients’ meaningful business needs involving RMB transactions, which could involve proper product solutions and not just directional plays. We have also worked with the respective regulators to get these structures approved and to help customers that have real operating needs.”

Local banks expect a resurgence of ambitions from the global players. A deregulation push in the US following the election of president Donald Trump, with a possible weakening of the Volcker Rule and the Dodd Frank Act, could mean a change. 

But this year’s survey winners are well aware the competition is no longer limited to just the big banks. FX is a classic example of that.

“For FX, the big boys are all electronic; there is really no money to be earned there,” Wee says. “It is only in the big advisory roles that we get a piece of the action, otherwise it is all going to the e-platforms. But the advisory piece, whether it is cross-border financing, cost reduction structures, or how to best raise funding – that is up our alley, it is very bespoke, you need the man hours. That type of work can replace the flow business that banks have lost to fintech firms, e-platforms and the other disruptors.”

CTBC has tried to plug that technology gap in at least one area.

“CTBC is the first financial institution in Taiwan to join a global blockchain consortium,” says Chen. “CTBC also established the Blockchain Lab in 2016, bringing local industry and academic leaders together to actively develop blockchain technology for innovative client solutions.”

CTBC has also worked with banking cooperative Swift on its Global Payment Innovation Initiative (GPII), which aims to improve payment technology.

And fintech firms taking the lead does not mean that banks can’t find opportunities.

“These solutions are becoming cheaper as fintech continues to develop, so we will want to weave them into our platforms and use them to spur growth,” says OCBC’s Wee. “If we want to achieve quantum leaps in the solutions we provide our customers, we need to utilize technology to get rid of unnecessary labour-intensive and expensive procedures.”