The challenge

Sinopec operates two regional treasury centres in Asia, one in Singapore and another in Hong Kong. To manage liquidity positions across group entities, the treasury team in Singapore regularly initiated bank transfers to fund/defund each entity’s accounts, by accessing different banks e-banking systems. In doing so, the group’s liquidity position was not optimised; balances had to be moved before payment cut-off times. And process-wise, operations risk was higher than necessary with people performing cash management operations having to be authorised and trained/retrained on multiple banks e-banking systems and payment formatting procedures. DBS conducted discovery sessions with Sinopec to better understand the extent of these and any other issues with managing group liquidity.

During these meetings, DBS mapped out key employee and customer journeys with Sinopec’s working-level and middle-management teams to identify opportunities and agree on expectations for the scope of any transformation.

The following objectives for the treasury transformation were prioritised:

Improve visibility, control, cost optimisation, and speed – through (a) securing visibility of the group’s overall cash balances, (b) being able to optimally utilise internal funds across entities to reduce external borrowings, and (c) improving the ease and speed of sending cash instructions and processing cross-border payments/collections for time-critical trade transactions.

Engage a robust strategic banking partner – Sinopec required a strong bank partner in a business conducive location to manage its large volume of cross-border payments and collections.

Keep documentation simple – Sinopec’s treasury teams wanted a seamless solution that did not come with complex and heavy documentary requirements.

The solution

DBS defined and developed a liquidity management (LM) structure to be based in Singapore, to improve visibility and control for the Sinopec treasury team.

The LM solution involved establishing two domestic cash concentration structures – where multi-currency accounts (MCAs) are set-up for each of the treasury centres as master accounts – with the fees consolidated at master account level. MCAs are also set up for the trading entities, with these sub-accounts linked to the respective master accounts, to form the LM structure.

The structure has a two-way, end-of-day (EOD) sweep, where excess funds are swept to the master accounts or to their sub-accounts to achieve a zero balance for the trading entities at the end of each day. Overdraft limits are also set up to allow for ‘take-in-fund’ arrangements where the client can then optimally manage their outward remittances, even before inward funds are received.

To ensure seamless and efficient connectivity with the bank, cash instructions are sent to the bank digitally via DBS’ host-to-host channel.

Best practice and innovation

This digital liquidity management solution streamlined cash flow and improved control, visibility and flexibility across Sinopec’s multiple entities. The automated solution helped Sinopec optimise the use of their cash and internal funds effectively and efficiently and enabled them to gain operational efficiency through reducing transaction processing times, especially across borders.

The solution includes the following features:

• Holiday processing for inward and outward telegraphic transfers.
• Extended cut-off times.
• Overdraft limits to manage late inward telegraphic transfers.
• No need for cross guarantees in the documentation.
• DBS Priority Pay between accounts for cross-border payments within ten minutes.
• Digital and automated communication via a H2H channel.

Key benefits

• Cost savings.
• Headcount savings.
• Number of banking partners/bank accounts reduced.
• Process efficiencies.
• Return on investment (ROI).
• Increased automation.
• Risk mitigated.
• Improved visibility.
• Errors reduced.
• Manual intervention reduced.
• Increased system connectivity.