This week’s iTreasurer editorial meeting brought up several topics that we will delve into in the coming weeks, including a discussion on share of wallet when it comes to banking and using CNH and CNY.
Share of wallet
When it comes to banking partners, treasurers often do a lot of thinking, usually as they score and assess and rationalize. They also think a lot about the role of metrics and share-of-wallet calculation. That’s because big decisions regarding the addition or removal of a bank, the award of additional business, or reduction of business cannot be made flippantly.
One company at the Neu Group’s European Treasurers’ Peer Group, in explaining how it allots business to its banks, says it doesn’t attempt to pinpoint its profitability to each bank. It instead focuses on revenue from each of the types of business it gives the banks. And the banks that are awarded cash management – for some companies a large portion of the business — are typically considered “well fed,” while others may be underfed relative to their proportion of the credit facility.
The bottom line is that a robust share-of-wallet analysis is a data-oriented and very useful in revealing what business banks have and determining how to reallocate that business when necessary.
CNY and CNH Use
At a recent NeuGroup FX Managers Peer Group meeting, members discussed their use of CNY (the onshore renminbi) and CNH, the offshore renminbi market. The onshore CNY market is a highly regulated market — access to the wholesale market is restricted to domestic entities, including, according to the BIS, banks, finance companies, and subsidiaries of foreign banks.
Perhaps more importantly, FX transactions between banks and their customers must be backed by underlying real demand so purely speculative trades are prohibited. The People’s Bank of China is also heavily involved. Still despite the heavy-handedness, onshore CNY average daily turnover surged from $600 million in 2004 to $20 billion in 2013, according to the latest BIS Triennial Survey.
The CNH market meanwhile, is a relatively free-range market with a more diversified range of products and neither the PBoC nor the Hong Kong Monetary Authorities intervenes.
Due to the differing rules, the CNH market has become popular for hedgers. For instance companies often accept CNY payments from, say, Chinese importers and change them into dollars at the more attractive offshore CNH rate. And borrowing costs are much cheaper in the CNH bond market than in mainland.