All change in APAC transaction banking

Published: Mar 2015
Train stopped at a railway statinon in the evening sunset

In recent months, the APAC region’s banking sector has been undergoing significant change, as banks shuffle their packs, revisit their offerings, and they look to promote themselves as the corporate bank of choice in the region.

The most obvious sign of all this jostling for position is the number and level of seniority of new appointments in the region. As Treasury Today Asia recently reported, Carole Berndt – who held the role of Global Head, Transaction Services at RBS – will be joining Australian bank ANZ as its Managing Director of Global Transaction Banking in May. And 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.

Of course, there are other elements to the picture: 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. But overall, the trend for aggressive hiring within the top echelons of the regional banks is hard to ignore.

DBS, for example, has also joined the war for talent – largely 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.

The story is quite different for some of the established European names in the region, however. RBS have announced that it will be substantially reducing its market presence in APAC, including its cash management business, as the bank looks to continue to shed its non-UK banking operations and focus on its UK and Western European customers. Last year, Barclays also announced that it would be cutting back its Asian operations, including its investment bank.

Drivers of change

Before we analyse the impact of these recent changes on both corporates and the banking sector itself, it is important to understand why they are happening.

“Banks are prioritising more, in regard to both the geographies they operate in and the clients they service,” says Alan Huse, Acting Managing Director of Global Transaction Banking at ANZ. “There is also a more disciplined approach across the banks surrounding cost and capital management and the focus has shifted away from trying to be everything to everyone to deepening relationships with fewer clients.” Basel III is exacerbating this trend as some banks are finding it increasingly difficult to support, or at least justify, certain business areas.

Other reasons for the shifts in the region’s banks are more fundamental, and localised. Dianne Challenor, Head of Treasury Services, Asia Pacific at J.P. Morgan explained: “A large part of the evolution in the region’s banking landscape has been driven by the increasing sophistication and expansion of the banking infrastructure.”

The payments infrastructure is one area in particular that has been bolstered in recent years. The Faster Payments initiative is already live in Singapore and both India and Australia are currently in the processes of establishing more sophisticated payment systems. “Once these are live there will be another step change in the way that banking services are offered in these countries,” adds Challenor. But what does all this mean for corporate treasurers and how is it impacting their day-to-day banking?

Number one priority

Data from the 2014 Treasury Today Asia Pacific Corporate Treasury Benchmarking Study suggests that corporates are at least aware of the changing dynamic in the Asian banking landscape – placing bank relationships as their top priority moving into 2015.

The increasing regulatory burden was highlighted as a key reason that corporates are taking a closer look at their banking relationships, if the banks are pulling away from areas that they don’t have a competitive advantage in, some corporates may need to look elsewhere for bank support. The alternative argument put forth by the regulators and some of the banks is that this shift will actually benefit corporates through the ability to offer more focused services.

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,” says Sebastian Rieder, Treasury Manager Asia at Lenzing AG. “There are constantly new services and products that they are offering in China”.

The share of business that Lenzing offers it banks – both local and international – in the region has also 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.”

Targeting the market

What Rieder is highlighting is that all banks in the region have their own particular areas of strength. Munir Nanji, Regional Head of Sales for Treasury and Trade Solutions at Citi Asia Pacific pointed out: “The banks in the region can be segmented by those international players who have a significant local footprint, such as Citi, HSBC and Standard Chartered. This is arguably the most competitive sector as we are not only competing for the business flowing into Asia but also the outflow business from Asia into Europe and the Americas.” Nanji highlights that to compete successfully in the sector requires an international outlook with a local focus. “We have a global platform that corporates around the world use, but we also have on the ground teams that can assist our clients with their local needs.”

The other international banks in the region operate slightly differently in so far has having a reduced local footprint in a number of the region’s key markets. Instead of having their own presence, these banks leverage the local banks’ reach in these markets and build correspondent banking networks which their clients can leverage. The ‘bread and butter’ of these banks has historically been the inbound business from multinationals coming from Europe and the US into the region, with a strong focus on payments and liquidity. However, as corporates in the region have grown and expanded beyond the region, these banks have also been able to capture a portion of the outbound business in their areas of strength.

The final sector of banks to include is the Asian-parented banks that operate primarily on a local level, leveraging their branch network and strong balance sheet to offer collections and local credit facilities, mainly to local corporates. 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.

Regional players rising

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. “It is our ambition to be the leading bank in APAC and to be the Asian bank of choice globally,” says John Laurens, Managing Director and Head of Global Transaction Services at DBS. “We aim to make banking simpler, smarter and more intuitive through our digital agenda and we are very much on this journey.”

ANZ has implemented a 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. “We are the most international of the Australian banks and the most Australian of the international banks and already well established in the trade finance space,” says Huse. “We are therefore building our regional cash capability across the markets in which we operate and looking to provide single-country and pan-regional cash management and trade solutions using our home markets of Australia and New Zealand as an anchor.”

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.”

Across the region, healthy competition for experienced executives is instrumental in spurring the sector’s development. “From my perspective, it is great that the region is attracting such talent,” says J.P. Morgan’s Challenor. “These people will ultimately bring different experiences and expertise into the region that will facilitate further innovation and also drive up the already outstanding level of talent in the region. In turn, this can only improve the range of services that we offer corporates in the market.”

For corporates, the impact of these hires is less important. “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,” says Engle.

Something that may have a more direct impact on corporates in APAC, however, is the commitment the banks have to the market. ANZ and DBS show signals of intent with their appointments, but for George Nast, Global Head of Product Management and Client Access, Transaction Banking at Standard Chartered, corporates need to dig further than the headlines. “Corporates in the region shouldn’t be concerned about the movements of executives in the region’s banks,” he says. “The key area that they should focus on when deciding which bank to work with is the bank’s commitment to the market. The last decade has been riddled with banks that have entered the market and then left because it has been too difficult and expensive a region to crack. So corporates need to ask their banks what their commitment to the market is and then to see how their bank can achieve this.”

Sharing the region

But with the regional banks expanding will there be space for both the regional and global banks moving forward? “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,” Engle notes.

Standard Chartered’s Nast also believes that there is space for both in the region and doesn’t see the challenge from the regional players manifesting anytime soon. “The reality is that it took Standard Chartered 160 years to build the 70 market network that we have,” he comments. “It takes a lot of time to build a global mandate and even a pan-Asian mandate. Currently these banks are good in single markets, but they are yet to be material players on pan-regional mandates.” It may also be difficult for these banks to reach global status, he believes. “The environment that we now operate in will mean that it is increasingly expensive and difficult due to a host of factors which include regulation, compliance and the cost of infrastructure.”

Citi’s Munir Nanji highlights another challenge facing the regional banks. “Transaction banking is not a very complex business,” he says, “you need to offer a current account, but the challenge then is how to nurture these accounts and extract maximum value. This is done by offering value add services such as advisory, analytics, thought leadership and a global standardised network that is intuitive. It is in these spaces where it becomes harder for regional banks to match the global banks.”

On the other hand, Laurens believes that some banks in the region, such as DBS, are already matching the global banks in certain areas of transaction banking, having received global awards highlighting their progress. “If you look at DBS in areas such as supply chain finance, then I would argue that we are already ahead of the global banks in this space and this is then leading us to improve in other areas such as working capital advisory and put further investment in our core cash management capabilities in both presence and non-presence markets.”

Looking to the future, Laurens believes that there will be additional shifts in the banking landscape due to new technology. “Banks such as DBS are not burdened by the legacy technology that many banks have and we are therefore able to build from a modern platform that puts the customer and the heart of what we do in order to be ahead of the curve in meeting their demands.”

But the real lynchpin for deciding which bank wins pole position in the region will be China. Some banks in the country are as large, if not larger, than the global banks in terms of total assets managed. However, many have yet to make their mark outside of China and remain largely domestic in focus. It seems only a matter of time before these banks enter the regional and global marketplace, potentially causing a seismic shift. For the time being however, the trend seems to be for outsiders to capture market share in China.

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.

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