Banks Prove Key Partners in Asia Growth

Treasurers facing layered and fractured markets across Asia look for opportunity and rely on support from bankers. 

The ATPG met in September to discuss growing challenges and opportunities with regard to volatility in Asia markets and new customer-centric trends and requirements. Also on the docket for this meeting, sponsored by Citi, treasurers discussed the regulatory climate and the value of banking partners in fast-growing, but heavily regulated markets.

1) Value Creation for Treasury Leaders. Recent market volatility is not a result of broken fundamentals but of a fundamental transition in China’s economy. Monitor, but don’t worry.

2) Coping with Asia’s Ever-Changing Regulatory Environment. Bank partners are the best source for regulatory updates and information, but are also a big source of some of the frustration, such as Know Your Customer (KYC) requirements.

3) An Ecosystem to Support the Corporate Treasury Function. The Monetary Authority of Singapore is seeking to continue to build the city-state as a global financial hub and seeks input from corporate practitioners about pain points they have due to bank regulations.

Sponsored by:
 

Value Creation for Treasury Leaders

The team from meeting sponsor Citi shared insights on current themes of growth, return on capital and managing risks and discussed value creation opportunities for treasurers.

Key Takeaways

1) Priorities for treasurers and liquidity impact. Recent volatility in the markets is seen as a short-term shock, which the system should easily absorb and which should not distract from long-term economic growth. Three themes are observed in Citi’s discussions with its client base:

• Growth in APAC: Growth potential in APAC remains strong, so there is momentum, and Asia treasurers are staying busy supporting business units to achieve sales targets. However, headwinds are increasing as challenges build up in the competitive business environment.
• Profitability: Growth is not always bottom-line accretive. Often businesses have to subsidize their growth trajectory with trade-offs in profitability, and this creates resource constraints in the longer term. Thus, Asia treasurers find themselves being the forceful control point in assisting the company’s balance between sales growth, profitability and cash-flow.
• Managing contingencies and risks: The regulatory landscape is changing for every country. Regulatory change is a significant inhibitor with regard to treasury process efficiency. There is a greater need for visibility (i.e., right information at the right time and distilled information for decision-making) to manage risks. Risk management is gaining traction because communication with global stakeholders is less onerous as their understanding of Asia’s complexities improves.

2) China — making progress in liberalization, and too big to be ignored. The pace of regulatory change in China and the huge market it represents for most companies mean that China stays on the Asia treasurers’ radar screen most of the time. The nearby chart is an illustration of how regulatory changes in China put the application of global treasury processes within reach for China.

3) Basel III. Previously all deposits had the same value contribution toward the bank’s reserves. Now under Basel III regulations, different types and sources of deposits are evaluated based on “stickiness” in a crisis. Asian banks are starting to implement Basel III, and the multiple bank regulators have different implementation timelines and interpretations of Basel III rules. Expected impact on physical liquidity pools (i.e., concentration accounts) will be nil, but notional pooling structures will be negatively affected.

Outlook

Asia regulations change so quickly (see section below) that one has to review treasury activities and processes regularly to understand the implications relevant for one’s company. There are always opportunities for treasury value-add in Asia’s complex environment. Citi noted virtual card accounts and embedded FX in payment processes as examples of how incremental process changes bring significant value-add over time.

Coping with Asia’s Ever-Changing Regulatory Environment

The pace of regulatory change is intense in Asia, especially with the fragmented regulatory landscape across countries. Regional treasurers are constantly preoccupied with just keeping up-to-date with regulatory change and its impact on their respective organizations.

Key Takeaways

1) High reliance on banking partners for regulatory guidance. Our pre-meeting survey results showed that more than 90% of members state that bank partners are their most reliable source for regulatory guidance.

2) How to make bank’s regulation updates more reader friendly for corporates? The group debated about what media and format of regulation updates would be most effective and useful for them, given this topic area is already such a pain point for many.

• Email push with short “teaser” paragraphs, instead of long, detailed reports, are preferred and easier to plow through.
• Updates should be written with the corporate reader in mind, e.g., with analysis of implications, rather than just paraphrasing government-written policy documents.
• Members expect relationship managers to know clients well enough to sift through overloaded regulation information to discuss relevant issues with clients as part of the deep and trusted advisory role.

3) KYC compliance requirements now too onerous. Regulators are getting more stringent with banks regarding customer reviews and KYC matters. Banks are governed by multiple national regulators that have different requirements for KYC, thus banks have to step up to the highest required standards among these multiple regulators.

4) Sanctioned countries causing payment delays. One of the group’s guest participants noted that their company’s payments process is now delayed or disrupted more frequently due to new burdensome compliance checks on sanctioned countries. Citi commented that it has a team that works with clients to consult on the required compliance regarding sanctioned countries to improve and enhance payments process.

Outlook

Trusted bank partners have an increasingly important role in assisting corporate treasurers with navigating through this ever-changing regulatory environment in Asia. This context presents challenges and opportunities for banks and corporates, and deeply entrenched banking relationships should ensue.

An Ecosystem to Support the Corporate Treasury Function

The Monetary Authority of Singapore (MAS) develops and promotes Singapore as a regional and international financial center. Guest speaker Bernard Wee from MAS spent an hour with the group sharing thoughts on the importance of multinational corporations (MNCs) to Singapore’s finance sector. He was joined by two representatives from the Economic Development Board (EDB). The strong base of non-bank and non-FI deposits makes corporations important participants in Singapore’s financial sector.

Key Takeaways

1) Trade finance support. MAS sees value in supporting trade finance activities to boost the real economy and international trade, so it is investing in technology to automate trade finance workflows and capabilities. Its vision is that trade finance can be fully automated, using Trade Net which is an electronic automated trade documents system that is being developed by the Singapore government.

2) Know Your Customer (KYC). Members voiced complaints about KYC currently being rather onerous, and asked MAS about their approach regarding “setting the bar” in this area. MAS acknowledged that KYC requirements in Singapore have increased, but commented that these are well-aligned with international standards and trends to keep money-laundering activities at bay. Nonetheless, some banks have experienced recent incidents of huge penalties internationally, and thus have self-imposed more stringent KYC processes. MAS has established a team to optimize KYC processes within Singapore for consumer banking, by building a “KYC utility” that uses all information the government already has on citizens and residents to ease banks’ customer onboarding process. Upon the success of this project, it can be explored how this can be applied to corporate banking.

3) Regional leadership. Members asked MAS about how the government agency saw itself taking a role in harmonizing policies across the region. MAS commented that the policy is to some extent already being set. It sees itself taking a leadership role among neighboring countries to raise standards in using information and information technology (IT) to support financial services, and setting best practices in this area. MAS will pursue process advancements enabled by new technology if there is a greater social good in the long run. For example, a credit card chip was first adopted by Singapore in the region, and this resulted in a massive fall in credit card fraud cases, and upon showcasing this to neighboring countries, others have quickly adopted.

4) Tax and access to markets. Singapore is known for its low tax rates, but that is not the only area in which the country is competitive. It offers political stability, a sizable talent pool, and sensible regulations as some valuable considerations. Tax is an important component of one’s cost base, but it is just a “hygiene” factor. The Singapore government has been developing access to key markets like China, India and Indonesia, negotiating strong tax treaties with these countries, and enabling capital flows. Today, Singapore is a main source of external financing into India. MAS has taken an active role in building the infrastructure to support the internationalization of the RMB. Singapore was one of the first of a few countries to become a RMB clearing center, using ICBC as the clearing bank. MAS sees value in having an open regional zone for financial services and is working on initiatives to achieve this objective.

Outlook

The Singapore government sees multinational corporations as an important component in building Singapore as a financial center, and it welcomes feedback and dialogue with them. MAS is encouraged to interact more with corporate treasurers going forward. Mr. Wee mentioned a recent dialogue with some corporate treasurers on the redesign of the benchmark Swap Offer Rate (SOR) as useful and constructive. MAS wants to listen to the pain points of corporates to then see how they can address and fix the issues. But of course their first priority as a regulator is to protect the stability of the country’s financial system and the individuals in that system.