Damian Glendinning, President, Association of Corporate Treasurers (Singapore) and Treasurer, Lenovo, responded:
Selecting a banking partner is like most other activities: it is best to have clearly defined objectives. The main points to consider are:
Can the bank provide seamless service across all the countries in Asia? Typically, this means using an international bank. Some Asian banks are building networks across the region, but few have fully functioning structures as of yet.
Will the bank provide credit support, if needed, in each country? International banks are often reluctant to provide access to their balance sheets. Using Asian banks will usually mean a multi-bank structure. While the situation has improved, some Asian banks are still reluctant to provide MT940 reporting; and, if you have operations in remote locations, not all branches are on SWIFT.
Is cash pooling and sweeping needed? Many Asian countries still have exchange controls (different in each country, of course), so physical cash sweeps are usually not possible. Some international banks do provide notional pooling arrangements – but it is not necessarily plain sailing to use these.
Balance sheet strength: many Asian banks now have stronger balance sheets and capital ratios than their Western counterparts.
Are there services needed which can only be provided by local banks? This means using local banks and therefore will require a series of relationships, with the challenges of visibility and control. A company running a centralised operation using modern cash pooling techniques with daily information on cash balances in the centre will find itself gravitating towards international banks.
Alain Bridoux, Senior Advisor, Transnations, responded (with a focus on China):
The first question I would ask is how reliable is this bank worldwide and in China? Prudence would immediately disqualify any bank for which there is the slightest doubt about creditworthiness. Ratings might have some limitations but there is no reason on earth – including the strong recommendation of a local business unit manager – that should outweigh the credit rating established by reputable agencies.
The second question should verify the experience of the group in dealing with that bank in other countries. It is preferable to have a previously established relationship with that bank in other parts of the world. If no previous experience exists with the potential partner, my advice is to network with other clients using the bank for the same services in the specific province. Do not make your decision based on discussions with the international or global relationship staff of the Chinese bank. Despite being able to identify what you want, they do not have the authority over regional branches to deliver specific solutions. The reason is that all regional banks in China are essentially an extension of the economic policy of the central government.
The logical fall-back position is to select a new banking partner from the pool of banks used by the group or one of their associated banks in China. Chinese banks with some partnership or co-operation agreements with foreign banks are by definition still primarily the extended arms of the economic policy of the central government, as explained above. Therefore their links with a friendly home bank have limited value. A foreign bank established in China that is part of the bank pool in the home country of your group is obviously a safer choice. However, thinking that you will automatically obtain the “Rolls-Royce” treatment that your head office gets is an illusion.
Typically your global relationship manager will pledge that their Chinese subsidiary will mirror exactly what you have in other places, and they will probably do it in good faith. My experience is that they can be overruled by a local branch manager in China. In Hong Kong and Shanghai I received apologies from the global relationship manager when it emerged that the local branch manager had applied conditions based on the credit-worthiness of the local subsidiary of a group, while having told the global relationship manager that conditions applied were the best legally possible in the country.
The most difficult judgment to apply regards the ethics of the local bank manager of a possible new partner. Treasury personnel are often inexperienced in China and remote control from the head office is difficult. It is important that the new banking partner does not suggest products which may offer a small temporary advantage to the local subsidiary but could create a large risk for the group.
Lillian Sim, Head of Regional MNC Sales, Asia Pacific, J.P. Morgan Treasury Services, responded:
How do I improve my visibility?
Today, it’s not enough to have fragmented snapshots of cash holdings – a treasurer requires a holistic and consolidated view over all accounts, in all markets and regions, all of the time, in order to make the best decisions around the short-, medium- and long-term use of that cash. Treasurers need to consider whether their potential banking partner has the right infrastructure in place, and ideally ensure that rich information and analytics can be extracted quickly and easily at a number of different levels across a country, the region or even globally.
How can I grow the bottom line?
A significant trend over the past few years has been the focus by corporate treasurers on achieving greater efficiencies around their working capital. Largely driven by ongoing uncertainty globally and compression of margins, extracting the maximum value out of a company’s cash holdings is key.
An important consideration here is the extent to which a banking partner is able to offer automated solutions that drive high straight through processing (STP) rates across payables and receivables, both from a transaction and a reconciliation perspective. By eliminating manual processes as much as possible, the combination of faster, more accurate processing and reduced manual intervention results in savings across the board, and a better bottom line.
How do I mobilise my cash?
Once a treasurer has achieved enhanced visibility over their cash, and automated as much as possible its solutions and infrastructure, a final important question revolves around freeing up that cash and moving it across corporate entities, countries and regions. Doing this across multiple subsidiaries, parent companies and geographies – not to mention a wide and varied range of restricted markets – is a complex task, so a corporate treasurer must look at the synergies and strengths delivered by its banking partner. Fragmented banking relationships – or multiple banking partners – may not always be the right approach, as it can add complexity and challenges around harmonising banking platforms.
A treasurer should consider seeking a partner that is able to provide the right tools, technology and infrastructure, as well as the ability to automate the movement of cash, which will help that company achieve better yields, pay down debt and generate greater returns for their excess cash.
The next question:
“How can corporate treasurers best tackle the issue of trapped cash, especially in China?”