Last week, over 7,000 delegates from the world of finance descended on Singapore for the annual SIBOS conference. Here, Treasury Today reviews some of the key discussion points from the event.
SIBOS has become the ‘must-attend’ conference for bankers, technology suppliers and consultants who are involved in all aspects of the transactional banking business. Increasingly, the conference is also becoming an important forum for corporate treasurers, thanks, for the most part, to the two-day stream dedicated to corporates. This year, Treasury Today and Treasury Today Asia, were delighted to be invited to facilitate part of the debate.
Treasury models in Asia Pacific, a topic that has received much attention in recent months, was the topic up for discussion. Richard Parkinson, Managing Director of the Treasury Today Group facilitated an impressive panel comprising: Dianne Challenor, Head of Transaction Services, Asia Pacific, J.P. Morgan, Bilie Huang, CFO at Chinese logistics company SinoTrans, Nicholas Soon, Finance Lead at British American Tobacco (BAT) and John Wong, Group Head Transaction Banking at Maybank.
Getting it right
Corporates have, of course, multiple options when shaping the structure of their treasury department a range which is determined by multiple factors including the type of organisation, its reach and even its culture. Yet, in recent years, there has been a trend across Asia Pacific (APAC) to centralise the treasury function.
As a result a number of different centralised functions can be found across the region depending on the needs and sophistication of the corporate. Regional treasury centres (RTCs) for example are used to centralise the treasury function and build a centre of excellence from which the region is managed. FinCo’s on the other hand are more focused specifically on centrally raising debt and conducting intercompany lending. Whilst Shared Service Centres (SSCs) are typically used to reduce costs and increase efficiency.
The panel explained how, in recent years, centralised functions have become increasingly sophisticated as treasurers adopt tools such as: in-house banks (IHBs), payment factories and also payment on behalf of and collection on behalf of (POBO/COBO) structures in order to drive further value from their centralisation projects.
Unsurprisingly the top choice for corporates when establishing a RTC is either Singapore or Hong Kong, the region’s two major financial centres. The panel explained that in many aspects these two locations are on par, despite Singapore having roughly 4,000 more corporates located there. The reason for this, it was explained, is tax. Currently, Singapore offers a more favourable treasury incentive package, although the speakers were keen to point out that this may change given the work being done by the Hong Kong Monetary Authority (HKMA) to offer an improved incentive package.
While Singapore and Hong Kong are leading the way in the race to become the region’s top treasury centre location, they are by no means the only cities vying for treasury business. The panel explained that a number of other countries were reviewing their incentive package to position themselves as a treasury centre location – most notably Malaysia.
Centralisation in action
The benefits that can be obtained by developing more centralised structures were outlined by the corporates represented on the panel. SinoTrans for example – a company which has operated a centralised treasury function since the 1990s – has been able to gain visibility and control over its liquidity and utilise this more efficiently through pooling structures, whilst also developing a strong centralised risk management framework. In addition, the centralised approach has allowed it to build strong banking relationships giving the treasury the opportunity to gain access to cheaper and easier credit.
BAT have also been able to derive these benefits from their centralisation project and the cost savings are particularity impressive – $50m per annum in treasury savings alone. Aside from this the treasury has also found it able to better support the business. The example offered was in regard to the launch of a new product to market. Whilst previously this would have taken some time, the standardisation on the treasury and finance side means that time to market has been significantly reduced and operations are seamlessly connected.
Despite the opportunities that these structures have presented for treasurers the panel also highlighted that Asia presents a unique challenge due to its diverse, economic, regulatory and legal landscape. As a result, a broad brush approach to centralisation cannot be taken and corporates are having to develop a hybrid approach and understand what can be centralised and what cannot.
Pushing the boundaries
Within this environment, banks have a vital role to play in helping their clients get the most from their centralisation projects. In reaction to this, the panel agreed that banks have had to change and develop their offering by investing in technology and providing more advisory services to their corporate clients, something that the corporates on the panel suggested they were willing to pay more for.
Corporate treasurers themselves are now taking the reins and driving innovation. For instance, SinoTrans have been actively exploring the potential of using Alipay for payments. Huang explained that these investigations have proved very interesting, and in using Alipay the treasury could obtain greater efficiency and cost savings without increased risk. The caveat, however, is that currently regulation prohibits its use for SinoTrans.
To close the discussion the panel left the audience with some words of advice. At the heart of this was the idea that centralisation is the way to drive greater efficiency and reduce costs in the treasury department. Treasurers should push for this within their company and also push the regulators and their banks to obtain the best from their project.
Business as usual
Elsewhere in the corporate stream it was largely business as usual. For instance in an earlier session titled ‘the future of corporate banking’ those in attendance were asked about their current top three treasury priorities which were: Working capital management, treasury technology and funding.
In the same session there was a lot of talk about the banking services corporates are currently receiving. Cost and transparency over pricing was raised as a big issue, know your customer (KYC) still remains a big pain point, as do some of the antiquated tools corporates are still being offered by their banks. One treasurer, for instance, found it incredible that as a consumer he received a better online banking portal than he does as the corporate treasurer of a global MNC.
The regulation being placed on banks and the fact that banks are having to become closer to regulators than their customers was offered as a reason for this. Another valid point raised was that implementing new technology into the banks monolithic architecture is a difficult and costly process. In some cases, however, the panel believed that corporates and their conservative nature were also to blame. The message was clear; banks need to invest in people, technology and the future. Corporates on the other hand need to start standing up together to help push the banks in the right direction.
The age of disruption
Away from the corporate stream much of the buzz around the conference was focused on technology and more specifically disruptive technology. The Innotribe sessions (the SIBOS stream which focuses on these technologies) was often packed to the rafters as those in attendance sought to get a glimpse of what just might be the future of banking.
Blockchain and the distributed ledger technology in particular was a topic that many wanted to hear about. Its ability to deliver cheaper, quicker and arguably less risky payments being something that stands out to banks and corporates alike. Interestingly, it was a company offering a distributed ledger solution, Hyperledger that won the Innotribe Startup Challenge.
From the discussions that Treasury Today had with those in attendance, there is a strong belief that we have entered into a new age of banking and that to ensure banks stay relevant they must keep ahead of the technological curve. This was reflected by Piyush Gupta, CEO at DBS in the opening plenary speech where he suggested that disruption needs to be redefined as transformation. It seems based on this that it is only a matter of time before this new technology begins to fundamentally transform the services offered to corporate treasurers from their banking partners.