By Ted Howard
Deutsche Bank looks to widen its footprint in fast-growing Asia with an emphasis on the Southeast Asia region.
Despite the slowed economic conditions in other regions around the world following the 2008 financial crisis, Asia has continued to have steady growth. But sometimes rapid growth moves faster than the banking infrastructures trying to keep up with it. That is, not all countries in Asia have the banking structures required to fulfill the needs of eager multinational corporations looking to plant their flags. Nor are many of the global banks operating in the area ready yet either.
But Deutsche Bank is one of the exceptions. Using innovative programs and its knowledge of local regulations, the bank is able to offer the seamless transaction banking services in Asia that multinational companies are already using in the US and Europe.
“One of the challenges for corporates operating in Asia is that there are only a handful of global banks really capable of offering a robust platform, as well as a strong level of service and support,” said Lisa Robins, Managing Director, Asia Pacific Head of Global Transaction Banking at Deutsche Bank. “And even among those few, that support is not always consistent in each market. This is something that Deutsche Bank is very focused on, particularly in the fast-growing and diverse South East Asia region.”
In an effort to continue growing its transaction banking franchise in Asia, Deutsche Bank has been focusing on three trends: the increasing importance internationally of the renminbi (RMB); helping to foster and support the increasing trade within the region; and finally, supporting Asian companies moving from export-driven business models to models for local domestic growth.
Global reach, local expertise
That final trend has been growing in importance, Robins said. That is because these local companies that have become bigger and stronger because of robust regional economies have been increasingly focusing on corporate outbound business. Therefore, they want to work with Deutsche Bank because of its global platform. “There is a share of Chinese companies that are in the Fortune 500, and with the growth of these companies comes the need for services from global banks,” said Robins. “And that growth is significant.”
But Western MNCs have also been able to benefit from Deutsche Bank’s expertise in the area. The bank has spent the past several years implementing a single global IT infrastructure that can provide end-to-end service for almost any organization—be it a corporate or a financial institution—looking to do business in Association of Southeast Asian (ASEAN) countries as well as across Asia.
To extend this infrastructure, Deutsche Bank works with local banks in a two-way, supplier-partner relationship that has proven to be very successful so far. “This construct allows Deutsche Bank to provide full local cash management capabilities in many markets. In particular, we are focusing on collection services, an area that tends to be paper-based and cumbersome as it often involves a substantial number of smaller in-country banks,” said Shahrokh Moinian, Managing Director and Head of Trade Finance and Cash Management Corporates Americas, Global Transaction Banking, at Deutsche Bank.
“Only a few institutions can match what Deutsche Bank can offer,” Moinian said. “In fact, we have successfully combined the benefits of our truly global, standardized transaction banking platform with strong local collection capabilities in many Asian markets. While we utilize partner bank services to increase our local reach, our clients deal solely with Deutsche Bank. This means that clients can continue on their path toward next-generation treasury solutions without the need to compromise in more complicated markets in Asia. Global trends such as centralization and automation are also supported in Asia through connectivity and format solutions, utilizing SWIFT and XML.”
Deutsche Bank is also taking advantage of the local preference for global banks to handle cross-border payments. “There is a strong demand for cash management services from global banks because collections are the bane of many banks’ existence,” said Robins. “But Deutsche Bank has excelled at making this work in a cost-effective way: operational efficiency, meaning a reduction in the number of bank accounts, and virtual account solutions including ‘pay on-behalf-of’ and ‘collect on-behalf-of’ solutions, which we recently launched in Asia.” She added that years ago this type of working capital management was theoretical. “Back then, there was no technology to back up the theories,” she said. “But now the theory is practice.”
Effect supply chain finance
The financial crisis made working capital management more critical than ever. That means when it came time to find new sources of funding, many treasuries began to recognize the importance of supply chain finance (SCF).
Global financial regulations have also exacerbated the need for alternate sources of funding for corporates. But many companies have discovered that this is not in fact an issue for them, but one for their smaller suppliers, many of whom are in Asia. This is having a big impact on the financial supply chain, Robins said. As a result, Deutsche Bank has been building on its expertise in the area.
And where is it working best? It is working well in China, Robins said, where the consumer sector is very export-oriented. “But it is working all over Asia, where we have a strong presence and commitment to our clients,” she added. And Deutsche Bank’s program is such that “once you get one country up and running, you then can quickly add on others.”
In terms of trends, Robins said that purchase order collateral is in high demand for large US consumer product companies, while supplier finance is more popular with large European consumer product companies.
What’s ahead for RMB?
Since the 2008 financial crisis, the RMB has grown exponentially, but it is still relatively small. According to SWIFT, RMB is the twelfth-most-traded currency in the world. And just recently, SWIFT reported, the currency is now the second-most-used currency in trade finance, overtaking the euro. Indeed, SWIFT’s RMB Tracker recently showed that the RMB now has a share of 8.66 percent in trade finance in October 2013 (see sidebar below).
RMB’s great leap still a small step
While the RMB did execute a great leap forward over the euro recently, it’s unlikely to become a major trade-finance currency in the foreseeable future, say experts.
The RMB’s share was 8.66 percent in October, up from 4.4 percent in October 2012 and 1.89 percent in January 2012, according to SWIFT.
But the USD remains king, with a share of 81.08 percent of trade-finance business. So the RMB’s advances are unlikely to reduce the buck’s role in trade finance significantly in the foreseeable future; at least not until the major commodities are traded in RMB and it’s freely convertible.
“The progress has been quite rapid,” Ms. Robins said. “In the beginning, there were only a few companies invoicing in RMB; now it is more prevalent. The next step is to make it more useful outside the country. Right now, companies still need permissions to use RMB offshore, but now it is much easier to get.
But it doesn’t mean it is easy overall, Robins noted. “More hedging instruments and places to invest RMB would be beneficial. But possible inflation remains a concern, so this has to be carefully balanced.”
Yet there is room for optimism that these issues will be smoothed over in the coming years. China’s borders are opening up to currency flows, at least on a limited basis. And while it is in its early stages, the initiatives being tested by the Chinese financial regulators are a big step for the country.
Chinese financial regulatory bodies, the State Administration of Foreign Exchange (SAFE) and the PBOC (People’s Bank of China) are testing several schemes where the currency could cross the border for both incoming and outgoing transactions. For a country that historically has been known for having conservative currency policies, this is major progress.
Deutsche Bank, with its service offerings in China and elsewhere in the Asia region, is helping foster that progress and growth—from its supply chain offerings and its standardized global platform to its market advocacy work.