Treasury Today Country Profiles in association with Citi

All change in APAC transaction banking

A mix of different chairs floating

With a game of ‘musical chairs’ taking place at the executive level of many of the big banks in Asia and a handful of international players forced to cut-back their offerings in the region, it is certainly a dynamic time for the sector. But how is this impacting treasurers’ bank relationships and should they be concerned?

Last week, Treasury Today reported that Carole Berndt – currently Global Head, Transaction Services at RBS – will be joining Australian bank ANZ as its Managing Director of Global Transaction Banking in May. The hiring of this transaction banking heavyweight is not only a major coup for ANZ but also a sign of the shifting transaction banking sector in Asia Pacific (APAC).

In fact, recent people moves speak volumes of power struggles within the industry. In the last 12 months alone, ANZ has promoted Sameer Sawhney, the previous Managing Director of Global Transaction Banking to become Head of Global Banking, International and Institutional Banking. The bank also hired Farhan Faruqui from Citi, who was appointed CEO of International banking last year. And let’s not forget that Andrew Géczy, left the UK’s Lloyds Bank to become ANZ’s CEO International and Institutional Banking in 2013.

Other local banks, such as DBS, have also been aggressively hiring in order to keep up with increasing demand from multinational corporates looking to use regional financial institutions. DBS’s growing focus on its transaction business was highlighted by the recent hiring of 30 year industry veteran, John Laurens, from HSBC as the bank’s new Head of Global Transaction Services.

While the local banks – and many of the big global banks, predominantly the US ones, have been ramping up their corporate offerings in APAC, some of the established European names have been forced to scale down. Barclays, for example, announced last year that, as part of a strategic overhaul, it would be cutting back its Asian operations, including its investment bank. And only last week there were widespread reports that RBS will be streamlining its operations in Asia Pacific as the bank looks to continue to shed its non-UK banking operations.

Of course there are other elements to the picture: regional stalwart Standard Chartered has announced that it is to shut its stock-trading and underwriting business as well as cutting thousands of retail banking jobs. Elsewhere, ANZ has been losing executives, as well as hiring them. Hong Kong head, Susan Yuen, and China head, Charles Li, both resigned in mid-2014 with Yuen becoming chief executive officer (CEO) for The National Bank of Abu Dhabi in Asia.

Nevertheless, there is a clear power struggle – and talent war – going on between the international, regional and local banks in APAC. What are the impacts of these shifts on corporate treasury?

Number one priority

Data from the 2014 Treasury Today’s Asia Pacific Corporate Treasury Benchmarking Study suggests that corporates are aware of the changing dynamic in the Asian banking landscape – placing bank relationships as their top priority moving into 2015. It’s not all about the musical chairs, though.

The increasing regulatory burden was highlighted as a key reason that corporates are taking a closer look at their banking relationships. One of the main impacts of Basel III is that the banks can no longer afford to sustain certain operations and, as a result, are realigning their services in order to focus on those areas where they have a competitive advantage. And while this shift may leave some corporates needing to look elsewhere for bank support, the banks themselves – who did not want to comment on record for this article – believe that the overall effect may well be positive as the sector will be stronger and the offerings improved.

As of yet, corporates have not felt any of this benefit. But then again, neither have they been overly perturbed by shifts in the sector, it seems. “With the banks we work with, primarily international banks, we don’t see any retrenching. There are constantly new services and products that they are offering in China," says Sebastian Rieder, Treasury Manager Asia at Lenzing AG.

The share of business that Lenzing offers it banks – both local and international – in the region also has largely remained the same. “For our company, the local banks are still better for local business and the international banks are better for international business.” This is not to say that the international banks can’t meet Lenzing’s local needs, but it’s more a reflection on quality and value. “For local issues in China, the international banks just can’t match in terms of service and price. We constantly monitor this and until the international banks can match the local banks, there will be no fundamental changes.”

The majority of multinationals operating in Asia Pacific will be familiar with this need to leverage the region’s local banks to meet their local business needs. And it makes sense – the focus of many of these local banks has been to ensure that their domestic and regional offerings are as good as they can be, and suitable for increasingly complex domestic and multinational clients. They don’t have the complexities of global banks, nor do they want to directly compete with them.

However, some regional banks, such as DBS and ANZ, are stepping up to take on the global banks. In recent years, they have built up their cross-border offerings, taking advantage of their large domestic client base and the growing trade flows between their domestic market and the rest of Asia. By supporting these domestic corporates as they expand abroad, banks such as ANZ and DBS have been able to take advantage of the infrastructure they have built and challenge for business that they wouldn’t have been able to previously.

At ANZ, this is referred to as the bank’s super-regional strategy, which was launched in 2007 by CEO Mike Smith. The strategy focuses on obtaining an increasing proportion of earnings from Asia, the Pacific, Europe and America (APEA), rather than ANZ’s traditional markets in Australia and New Zealand.

The impact of top level appointments

Hiring Berndt, who brings a wealth of expertise to the role, can only help ANZ to fulfil this strategy. As Scott Engle, Group Treasurer at AIA Group Limited, puts it: “It has been my observation that when a bank goes ahead and hires a first class professional from the market in a space such as transaction banking they don’t do it without committing more resources to build that business.” They don’t pay a lot of money to get somebody from the market because they are a nice to have, he says. It is because they have a strategy behind a segment and are willing to pay top dollar to the crème-de-la-crème to lead the strategy.

“I don’t think these appointments will have a very big effect on corporates though,” admits Engle. “While I think the banks have some very good ideas in place when they make these decisions, at least – for now – these changes don’t have a huge impact. They may further down the line, however, once the new heads implement their changes and if a new strategy is announced.”

Sharing the region

Engle also believes that there is still a place for both the local and international banks in the region. “As the market and economies in the region continue to grow, and the trade flows continue to accelerate, there will be room for everybody in the market – as long as each bank understands what it does well and offers these services to their clients,” he notes.

However, the increasing importance of China will undoubtedly be a major factor in how the transaction banking story develops in the region. “Currently we are seeing a lot of the global banks enter the market and offer services that a lot of the Chinese banks have traditionally offered,” says Lenzing’s Rieder. “Yet, we don’t see that much the other way round, however, in regard to Chinese banks becoming more international. However, this is something that will happen and is just a matter of time.”

Engle also believes that the dominance of China will have – and is already having – an effect on how banks in the region manage their clients. “When one market segment dominates a market, the banks naturally align themselves to fit this client segment and capture the business,” he says. Engle highlights the debt market as one such example. “The Chinese have issued debt instruments into the Asian USD market in huge volumes and now the banks’ entire debt capital market services are geared up to cater to this segment. It’s not necessarily a negative, it’s just a realisation. China is the dominant flow, and therefore, is the target market and focus for the banks. Companies have now begun to adjust their business models in reaction to this, and this will no doubt continue.”

Overall, the message is that in 2015 treasurers should keep a close watch on their key banking partners’ strategies and ambitions in order to ensure they achieve full benefit from these relationships and leverage any opportunities that may arise.