Treasurers should always know a country’s local banking environment; Canada’s no different.
As with any country in which you operate a treasury function, there’s always a need to “think globally and act locally.” Northern neighbor Canada is no exception.
Common treasury policies, corporate-wide initiatives and borderless solutions all help to streamline processes and create standardization. However, maintaining an in-country presence and nurturing local bank relations can add support to your foreign operations and provide needed assistance when credit tightens or other issues arise that are country-specific. But having “local knowledge” of your location is also critical. Here’s a look at some nuances on banking and operating treasury from a Maple Leaf perspective.
First, note that six of the largest Canadian banks once again enjoyed the distinction of being included among Global Finance’s list of “The World’s 50 Safest Banks” in August. The highest rated for Canada was Royal Bank of Canada (RBC), slipping from the top ten in 2010 to place number 11 this year. The strength and stability of the national banks coupled with Canada’s recent steady economic growth, AAA long-term country rating and lack of crisis in domestic affairs, results in a relatively easy environment in which to manage bank business and supporting operations.
However, in managing treasury – for both credit and non-credit elements – it is important to acknowledge the subtle differences in Canadian banking as compared to that of the US and, to a lesser extent, of that of other developed countries as highlighted here:
- Canadian payment systems are not owned/operated by the Federal government as in the US but by an association of member banks. Bank of Canada does not get involved with day-to-day clearing and operations of payments.
- Quicker adoption of electronic payments as compared to US. As a result, there has been less check-based improvements in technology such as check scanning and imaging.
- Because there are fewer banks in Canada and, of the 22 Schedule 1 banks, only 6 hold roughly 90 percent of the bank assets, corporates will typically have one major bank relationship rather than multiple. The larger banks span all of Canada and, therefore, banking specifically by region or state until recently as most of the US banks were organized, does not exist.
- Local accounts are available in foreign currency like many other countries, but not like in the US.
- Checks (“cheques”) have same-day clearing where as in the US they can take 1-3 days and in other countries not set up to handle paper checks, clearing can take weeks.
- Zero balancing for cash concentration is common although notional pooling is also available.
- 25 percent withholding tax is applied on dividends, royalties, and interest for foreign entities. To be considered a resident, generally you need to show central management and control is in the country e.g. director level business. One corporate, who had a single treasurer work for both the US and Canada operations, ensured that all signatures for Canadian operations was performed while in the Montreal office and vice versa for US business. Consult your legal team to ensure you are in compliance with resident restrictions to avoid any tax surprises and non-resident issues. Also, one Canadian business subsidiary experienced credit tightening at the local, in-country bank level that was reconsidered once the global relationship banking team got involved. Varying legal entities and levels within a bank can result in poor communications, so manage relationships locally while continue to access global resources. A balanced matrix- like approach to banking relationships is often the best way to go.
With Canada’s strong bank network, healthy economy and solid position as a major export/import partner with the US, it behooves treasurers to take an inside look at the country’s local banking environment while additionally maintaining a global view of corporate treasury initiatives.