There are a number of factors driving demand for cash pooling among Asian corporates. As they expand their operations, managing multiple currencies and banking relationships becomes challenging. Cash pooling enables better visibility of funds and the ability to centralise liquidity, minimising external borrowing and maximising interest income on surplus funds, while a number of Asian countries have relaxed their regulations on FX controls and cross-border intercompany lending.
Elevated interest rates and the need to evolve supply chains and manufacturing models as a result of geopolitical risk are additional motivations, as are the willingness of banks to offer customised solutions and the challenges of supporting same day funding from a single global treasury centre.
Tariff-related economic slowdown has further encouraged the establishment of new cash pools and the restructuring of existing pools to increase reliance on internal liquidity rather than bank borrowings.
Add growing pressure to reduce banking costs and streamline operations, increased adoption of cash management systems and demand for more accurate cash forecasting from the mid-cap enterprise segment as well as corporates to the mix and the conditions are in place for widespread use of cash pools.
Energy equipment manufacturing and services company, GE Vernova, has a long-standing regional pool structure in Asia through which it has achieved a reduction of optimal buffer of cash of up to US$100m, with enhanced yield efficiency and reduction of operational swaps of nearly 70% explains Asia Regional Treasurer, Vibhash Joshi.
“In addition, consolidating cash within the walls of the same bank helps to tap into efficient cash management through book transfers, reduced optimal buffers, extended cut-offs and reduced disputes,” he adds. “It is one of the most important projects undertaken by treasury to date.”
The primary motivation for consolidating chemical and consumer goods company Henkel’s bank accounts into a single pool was to enhance liquidity management and optimise interest income. By centralising its cash reserves it can better manage cash flows across different entities and reduce external borrowing costs and it is highly efficient for the company to consolidate local cash to head office for cash concentration and trapped cash risk mitigation purposes.
“The single pool structure has not only enabled more efficient cash utilisation but also significantly improved our strategic financial planning capabilities,” observes Sophie Yang, Head of APAC Treasury. “It has also strengthened our negotiating position with banks and the enhanced financial stability and flexibility have been crucial in supporting our growth and expansion strategies in the region.”
Having a single currency notional pool has allowed Sydney-based biscuits and snack food producer, Arnott’s Group, to leverage surplus funds from well-funded accounts without manually transferring money. Building on the success of this approach, it has recently begun discussions with its bank about potentially expanding this arrangement into a cross-currency and cross-border structure involving accounts in New Zealand.
“The primary benefit we have seen from this structure is the ability to use funded accounts to offset deficits in other accounts automatically, eliminating the need to individually fund each account daily,” explains Company Treasurer, Joanne Parnell.
Rotork, which manufactures industrial flow control equipment, pools CNY offshore from China and USD across a handful of its APAC sites.
“The main objectives were to improve visibility and control, rationalise and simplify our account structure, improve process efficiency, reduce transaction costs and improve our liquidity,” says Group Treasurer, Nick Batty. “For instance, by pooling USD and CNY we have centralised access to funds that we would not normally have access to.”
Pooled balances can be moved to the UK for group activities and the company is also taking advantage of an interest optimisation structure, meaning balances in all currencies across the APAC banking structure held idle provide some interest returns.
The majority of multinational manufacturing company Jabil’s liquidity is centralised within the notional pooling structure. According to SVP and Corporate Treasurer, Ian VanBuskirk, this consolidation has enabled optimisation of global liquidity. “Minimising the number of banking partners has allowed us to set up a more efficient liquidity structure, for example minimising float between accounts and cash needed on hand while maximising visibility of cash balances and improving bank fee pricing and investment yields,” he says.
Manjiv Dodanwela, VP Group Treasury at private healthcare group IHH Healthcare describes the pooling process as a decisive first step towards cash centralisation and access to group funds to maximise investment returns, reduce external funding and create strategic levers for group treasury to provide inter-company funding.
“Before the cash pool was created, it was a repeated manual process to ask subsidiaries to evaluate available cash and organise manual transfer,” explains Natasha Fu, Treasury Manager APAC treasury management, group treasury at transport and logistics company DSV. “The subsidiary was inclined to keep more cash as a working capital buffer, reducing liquidity efficiency.” She believes cash pooling is one of the best practices a company can implement to assist cash management.
“Upstream cash to parent company is now more synchronised,” says Fu. “Cash can be managed more efficiently for yield enhancement, debt repayment or to support other business need. With a clear overview, we are also able to have faster decision-making.”
Consolidating bank accounts into a single pool has increased the visibility of all accounts and facilitates access to all accounts in one system, says Sam Yan, Group Treasury Director of a leading Asian metal producer. “It also enhances the efficiency of payment and interest revenue for the group since we have more bargaining power to ask for a higher interest rate,” he adds.
Cash pooling is regulated across South-East Asia, but the degree of control and complexity varies widely. For example, foreign entities may in certain jurisdictions be forbidden or restricted from carrying out cross-border cash pooling activities.
“Much of this variation is driven by local rules, including the tax environment, reporting compliance requirements – where the list of documents for cross-border transactions can change in nature and volume – as well as transfer pricing rules that may require interest rates on intercompany loans within a cash pool to align with market rates and comply with local regulations, and exchange controls or capital controls that can make cross-border cash pooling more difficult,” says Vincent Casanova, Managing Director APAC at GTreasury.
Gourang Shah, Head of Cash Management Solutions Sales for APAC & MEA at Deutsche Bank says regulatory standardisation remains limited except in open markets such as Singapore and Hong Kong.
Ankur Kanwar, Head of Transaction Banking & Cash Management Singapore & ASEAN, Global Head of Cash Structured Solutions Development at Standard Chartered refers to opportunities to implement liquidity structures to help clients access trapped cash in markets across the region and adds that regulations in China and India are evolving rapidly.
Whether cash sweeps require one time documentation or transaction level documentation varies across markets, especially for FX embedded sweeps explains Rupa Mankad, Managing Director, Head of Asia South & Singapore Liquidity Management Services for Citi.
“Corporate treasurers often rely on a combination of their own tax, legal, accounting and bank partners to structure a cash pooling structure that matches their incorporation and billing structure in each market and their global treasury construct and policies,” she says.
Sandip Patil, Head of Liquidity Management for Japan, Asia North and Australia at Citi adds that there are a number of options for clients to manage cash and liquidity in China, including schemes to consolidate cash across vehicles across RMB and USD and using nationwide or free trade zone pooling to allow controlled cross-border pooling.
In China, while there are complex regulations on cash pooling, it is possible to have an effective domestic and cross-border cash pooling structure with good support from your banking partner, suggests Alvin Poh, Asia head of Liquidity and Balance Sheet, Global Payments Solutions at Bank of America.
“In India, due to the relaxation of regulations in the recent years, corporates have more options on domestic cash pooling structures,” he says. “However, cross-border cash pooling is still not feasible due to local regulatory and tax restrictions.”
Companies can implement hybrid structures, such as establishing domestic cash pools linked to cross-border pools through free trade zones in China concurs Aidan McDonald, VP of Sales APAC at Kyriba.
“For India, organisations typically use structures that optimise domestic liquidity first, then work within regulatory frameworks for cross-border movements,” he says. “Many multinationals are now using solutions that combine domestic and cross-border pooling arrangements to maximise efficiency within regulatory constraints.”
However, Norbert Braspenning, Managing Director Asia Pacific at Bank Mendes Gans refers to client feedback suggesting that even with infrastructure in place, actual fund mobility is often challenged due to sudden regulatory shifts or opaque approval processes.
“India, similarly, maintains tight capital control, making it difficult to repatriate or pool funds cross- border without extensive compliance and approval,” he says.
One of the challenges was integrating in-country cash concentration structures with the multi-currency notional pool due to regulatory restrictions and exchange controls in some markets, observes Dodanwela.
“We overcame this by maximising the benefits of the in-country liquidity structures to support the local businesses and by exploring an interest enhancement facility for a portfolio of standalone accounts,” he adds.
One of the main challenges Henkel faced during the implementation process was aligning different banking systems and regulations across countries in the region. “Ensuring compliance with local financial regulations while trying to standardise procedures was a complex task that required careful planning and coordination,” agrees Yang.
VanBuskirk says that although Jabil received good support from banking and internal partners, implementation was particularly challenging as it has quite a few participants within the pooling structure that are in emerging markets.
“Managing foreign exchange control and regulatory requirements is a vital for daily cash management and our team has had to periodically update/modify the structure due to business requirements or regulatory changes,” he concludes.
