With bank strategies less certain in today’s regulatory environment, the task of selecting a new banking partner has never been more demanding. But what are treasurers looking for in a transaction bank today? We asked treasurers and bankers for their take.

Selecting a new transactional banking partner will be on the agenda for many treasurers this year, and here in Asia the requests for proposals (RFPs) the banks are seeing are becoming ever more complex.

Just under half of the Asia Pacific treasurers that participated in the Association of Financial Professionals’ (AFP) 2015 Transaction Banking Survey confirmed they plan to review strategy with their banks in the year ahead. One in five indicated that they will be renegotiating their banking contracts, while a quarter are either actively seeking new banking partners in key areas or have plans to move their business accordingly.

Some of this upheaval can be accounted for by organisations looking to benefit from economies of scale through consolidating their banking relationships. In the search for optimal process efficiency, many corporates in Asia – of all types – still aspire to introduce standard banking structures and move away from in-country treasury processes.

But treasurers know that uniformity cannot come at the expense of local operations; they need banks that can get the job done at the domestic business level too. In-country capabilities will therefore be figuring high on the list of considerations of those treasuries now moving to a regional model. And it’s the tension between these two demands, in-country capabilities and global reach, which is seemingly giving rise to some of the more nuanced RFPs the banks have been seeing.

Local know-how

“I am seeing a bit more complexity in the RFPs coming through now as corporate treasury becomes much more involved in the day-to-day operating needs of the business,” says Jason Batman, Asia Pacific Product Sales Head, Treasury and Trade Solutions at Citi. “Some of them are becoming incredibly complex and contain a large number of very specific domestic requirements.”

The trend can be partly explained, says Batman, by reference to the evolving role of the corporate treasurer. With treasurers becoming more involved in driving operational efficiency initiatives, more attention is being given by companies tendering their cash management services to how certain services – payroll, tax, for instance – are delivered at the local level. The service received from a bank in one country, they often discover, is not the service provided in another. “There is much more specificity around what the bank can really do in the domestic market space,” Batman notes. “Treasurers want to know a bank can do what it says it can do at the local level.”

Sometimes banks with very sophisticated global structures simply do not live up to the treasurer’s expectations – or the bank assurances – in certain markets. “Banks sometimes tend to over-promise their local capabilities based on high service levels in major countries,” says Christopher Emslie, Country Treasurer, Singapore, at ABB. “Unfortunately a bank’s capabilities and structures in smaller countries cannot always facilitate or replicate the needs of those countries.”

That is why the most important question during the selection process, for Emslie, is delivery. The escalation process to resolve issues, should any arise, is key. “If the bank’s structure has an ultimate responsible party to assist the customer and a clear process for guidance, a solution can be found.”

Although a bank’s ability to deliver new innovative solutions and, of course, the cost of those solutions remain important considerations when selecting a bank, Emslie says finding a bank that has a footprint that works for the company will always be paramount.

“We look for banks that can be aligned with ourselves and can service our needs,” he says. “The usual parameters come into play such as price and value-add, but it also comes down to footprint and global compatibility for the organisation.”

This focus may explain the current vogue amongst the treasuries of multinational companies (MNCs) in opting for regional banking strategies. As Carole Berndt, Head, Global Transaction Banking at ANZ, notes: “Treasurers are looking for best in breed in a geography – and nobody can be the best everywhere.”

It is something Berndt has heard a lot since she joined ANZ in May 2015. She commented on this a few months into the role: “The first three client meetings I had here were all with MNCs who started the conversation by saying that they were talking to us because they were exploring a regional bank strategy,” she says. “Historically we would have had to pull clients in that direction, but now there is a trend towards it – and it is one which we are ideally placed to leverage.”

Testing the banks

For the treasury team at General Motors (GM), who recently implemented a regional bank strategy (for which it won an Adam Smith Award Asia), in-country capabilities are literally one of the first considerations of the selection process. It’s not merely a question of solutions and connectivity, however; treasury is also keen to ascertain the competencies of the shortlisted candidates on matters such as the local regulatory environment.

“For us the main purpose of that first RFP round is to truly understand what the banks’ local capabilities are in different countries,” says Ying Cao, Treasury Manager, International Operations at General Motors. “We will look, for example, at whether there is SWIFT connectivity in certain countries, whether they can support different languages, different ERP versions.”

Understanding what a bank can do at the local level is critical for treasury teams – including GM – because there are often limitations to what banks can do in countries, dependent on the bank’s strategy and organisational setup. For instance, some services might require the bank to have a physical branch; indeed foreign banks that are not fully licensed in countries like India and China are restricted from providing certain services. It is important to fully understand banks’ knowledge and expertise across different markets.

“We use the case study to test the banks’ knowledge of such things as local regulation,” says Cao. Although GM’s treasury do not typically see a huge difference in the responses that come back, it is the degree of confidence with which the bank answers the question that can often be telling. “Sometimes there are banks that answer the questions very clearly, whilst other banks would need to check and come back to us. Eventually they all come back with the right answer – but you have a sense with some that they are not quite so certain.”

The bigger picture

A renewed focus on what banks can do from country to country means that the single-regional-bank aspiration must sometimes give way to a more pragmatic approach. Treasurers still wish to rationalise bank structures across different countries; eliminating inconsistent accounting and treasury processes where possible. But when a single bank cannot be found that aligns well with the corporate’s structure and footprint, there is a tendency to split the region.

This ensures that the efficiency benefits of rationalisation are not offset by the loss of in-country capabilities. “It means that treasurers are now evaluating banks more extensively at the country level when making buying decisions in Asia,” says Citi’s Batman. “Depending on their business model and growth strategy, they could be picking different bank partners for North Asia or China, India, and ASEAN. Having said that, multinationals with a large, balanced global footprint continue to favour banks that are able to offer global connectivity with strong in-country capabilities. This provides the regional treasurer with optimal visibility and control to efficiently navigate the fast-evolving business environment across Asia’s heterogeneous markets.”

Splitting the region between multiple banks was the approach taken by GM when it began implementing a regional banking model several years ago. Before embarking on the project, treasury was using a handful of local banks for payments and cash management services across ten different countries in Asia. Multiple accounts were held with different banks in countries like Korea, Thailand, India and China; with a structure of such complexity core treasury activities had to be carried out by in-country treasury teams. Meanwhile, without a TMS in place, processes were largely manual, creating inconsistent accounting and treasury processes from country to country.

Despite the complexity of GM’s footprint in the region, a high level of uniformity was ultimately established by replacing local banks with two regional partner banks. Many core treasury activities are now performed at the regional level, rather than in-country. Information, meanwhile can be accessed via a TMS instead of consulting a number of different systems and teams.

“Before we started the project, we had different bank account structures in different countries,” says Niyant Shah, Manager, International Operations, GM. “Some countries had over 30 bank accounts with different counterparties. We wanted to make sure we were using a standard structure in each country.”

Best of both worlds

The story of GMs treasury transformation project in Asia demonstrates that a balance can be struck between the efficiencies treasuries can gain from having a global banking partner, and the flexibility and domestic competitiveness of a local bank. Regional banking arrangements often work well from a strategic standpoint for MNCs like GM because they mirror business organisations that are managed on a regional basis; regional management centres can, for that reason, serve as a natural point of contact for the bank. The model also avoids the fragmentation that can occur through local banking, while still offering a degree of counterparty risk diversification at the global level.

In terms of getting the implementation of a regional banking model right, there are a few things treasurers can learn from GM. First and foremost, when picking a regional bank it is vital to carefully assess the local, in-country capabilities of the banks, and the expertise of their teams. The service a bank delivers in one country is not always the same as it delivers in another country. Furthermore, should regulatory issues arise, treasurers will want a banking partner that knows the local market and can help them resolve the matter.

Secondly, look at the technological strengths of the selected candidates. As GMs story attests, it has become increasingly possible to have a one-bank-experience with several banks; and a TMS can serve as a single conduit to access reporting, payment services, credit and FX and commodities transactions across multiple banks.

Finally, in a region like Asia Pacific, made up as it is of a number of highly diverse markets and regulatory regimes, selecting one bank to cover an entire region may not be in treasury’s best interests. No bank is equally strong in all markets, and treasurers will want the best fit for whatever country they are operating in.

Providing the treasurer remembers these key points, treasurers should find themselves in a position to combine, like GM, the synergies of centralisation with local banking capability and expertise. One global transactional banking partner may not be as practical an ambition as it once was for every company, but there are many variations and alternative ways to centralise treasury operations. A regional banking model is evidently one which is proving especially popular with corporates in Asia Pacific at the moment.