In this interview, Amol Gupte, Region Head for Citi’s Treasury and Trade Solutions (TTS) business in Asia Pacific explains how treasurers in the region are responding to the challenge of an uncertain economic outlook, and how Citi is developing its offerings to help them. He also discusses recent liberalisation initiatives in China, the growing popularity of mobile treasury solutions, and trends in trade finance.
Region Head, Treasury and Trade Solutions, Asia Pacific
Amol Gupte is Managing Director and Region Head of Treasury and Trade Solutions in Asia Pacific. Based in Hong Kong, Amol is responsible for the strategic direction and development of Citi’s comprehensive suite of solutions to meet the transaction banking needs of clients across the region and help emerging markets clients go global. A 25-year Citi veteran, Amol has extensive international banking experience including leadership roles as Region Head of Treasury and Trade Solutions in North America, Head of Payments for Europe, Middle East and Africa, Head of Cash Management for Western Europe, as well as Head of Transaction Services for sub-continent India.
What are the major challenges that corporate treasurers face in the Asia region today and how is this impacting their priorities?
There is growing uncertainty regarding the economic outlook in Asia and globally. In any situation where the direction of the economy is not clear, there are three main areas corporate treasurers in Asia need to focus on – maximising liquidity, optimising working capital, and increasing accuracy in their cash flow forecasting.
The first of these is the management of corporate liquidity pools across disparate local markets. For example, trapped cash or money stuck in restrictive markets for diverse reasons such as regulatory constraints, capital requirements, currency convertibility and transferability, and tax issues, is a real barrier to efficient global cash deployment for multinational companies that operate in Asia. In fact, the more successful a company becomes, the greater the need to effectively manage and mobilise profits or cash reserves to maintain competitive advantage. Leading companies in the region, whether they are western or emerging markets corporates, would generally pursue the dual strategy of generating cash and then optimising the cash generated.
In Asia, corporates have to navigate a diverse blend of markets. On the one hand, the region has highly developed markets such as Singapore and Hong Kong while, on the other, there are tightly regulated markets such as India, and Indonesia. Since corporate treasurers often find visibility over liquidity in such conditions difficult to achieve, we try to help our clients by performing diagnostics with them and assisting them to benchmark their performance against their peers. Once that has been achieved, we can also help them to mobilise their liquidity with pooling structures that can be used to distribute any excess liquidity they are holding across the operating accounts of business entities with liquidity shortages.
The second consideration is that volatile market conditions necessitate a stronger focus on working capital. That is not just for the benefit of the corporate’s own balance sheet, but also to lubricate their supply chain, both on the buy and the sell side. In certain markets – India, Korea, Hong Kong and, to an extent, China – we have seen growing interest amongst our clients in supplier finance solutions, both in terms of the financing of receivables and payables as a result.
The final item is cash flow forecasting, which nobody wants surprises with. It might be that there is a large debt payment suddenly due or a large inflow that the treasurer needs to find a good use for. Either way, the treasurer doesn’t want to be scrambling for cash or planning the allocation of funds at the last minute.
With those three macro challenges in mind, how does that correspond with your plans for Citi’s Treasury and Trade Solutions (TTS) going forward?
In Asia, one of our big strengths is our international footprint. Since many of our clients are large western multinationals or large local emerging market companies, both of which are also very international, our first priority is making sure our network is easy for our clients to access and use. That has been the driver of a significant proportion of our investment in recent years.
One of the other things we have been doing is expanding the size and the scale of our local product suite. This investment in the local capabilities of our network allows us to compete with local banks. But what we do then, and this is what really differentiates us from other banks, is to overlay that with a technology platform that is common across all countries. So, if you are a treasurer trying to deal with multiple markets, you can use tailored products for each local market and access them through our common horizontal technology layer. It is a very powerful combination.
We are also investing heavily in our liquidity management products and services. The cornerstone of our market-leading global liquidity network is something we call the Global Concentration Engine, a platform for automated cash mobilisation services that offers our clients a great deal of flexibility with respect to how they want to do their cash pooling. One of our main objectives at the moment is investing in this platform – making it available in even more markets. As a result of recent deregulatory initiatives, our clients are now able to use the platform in Singapore and Hong Kong for renminbi transactions.
With the increasing digitisation of financial services, more companies are now seeking efficient technology solutions to drive automation in their treasury services. Citi has continued to enhance our integrated set of channels, platforms and products to provide one-stop solutions for multinational clients. CitiDirect BE, our flagship next-generation corporate banking platform is core to our digital strategy, enabling access to comprehensive cash management capabilities and advanced analytical tools via a single, global portal. New e-channels such as mobile and tablet banking are also enabling clients to manage their accounts and transactions while on the go. For example, our CitiDirect BE Tablet, launched in Asia last year, provides treasurers with advanced data visualisation features, including geographical driven graphical results of account balances, and drill down options to global, regional, country or individual account level.
So, in summary, we are working to expand out our local capabilities while striving to have a uniform platform across the region’s markets. The investments we have made to this end over recent years have enabled us to roll out very sophisticated products across Asia’s markets. For instance, we recently concluded a pilot of a set of risk management tools to help clients identify and track occurrences of fraud or non-bona fide transactions, which we were then able to take and roll out across 16 markets in the region. Another example is a product we recently rolled out on the receivables side that can take invoice data and overlay it on top of an incoming payment, before it is automatically reconciled through the client’s ERP system. Again, we rolled this product out across all 16 countries – which is a great feat.
What is Citi’s involvement in helping liberalisation of the renminbi in China? What do you feel are the next big steps?
Since it is a constantly evolving issue, it is important to step back and take in the bigger picture. Looking back, the progress that has been made over the past 12 months has been truly phenomenal. It is amazing to think that just over a year ago there was little or no movement of money out of China and a lot of multinationals had years of cash just sitting in China. Suddenly, around June time last year we saw the first string of regulations and ever since then barely two weeks passes without another development. The first approvals were for one-way loans, but this was soon extended to an ongoing two-way sweep and further liberalisation within the recently established Shanghai Free Trade Zone (SFTZ).
Citi has, without a doubt, been at the forefront of these initiatives providing access for our clients as new capabilities are piloted and approved. This allows our clients to do two fundamental things. First and foremost, it allows them to release their trapped cash from China to aid group working capital, thereby reducing the dependence of other entities on bank finance for funding. Likewise, it allows China entities to access funding from the pool when they themselves are short of liquidity.
Liberalisation also presents other opportunities for multinationals. We are seeing a growing number of companies using RMB as an invoicing currency, for example. A lot of western multinationals that traditionally invoice in dollars are beginning to think about using renminbi for invoicing as it can offer a natural hedge for FX exposures.
Although we have seen enormous progress in terms of liberalisation, there is still work to do. The next step for the Chinese regulators in the coming years is to bring in measures that will improve the depth of offshore RMB markets because right now, China really has two separate currencies; onshore and offshore. I think there is also a need for a more sophisticated clearing infrastructure if we are to see the renminbi gain the robustness it needs to develop into a truly international currency.
How important is the Shanghai Free Trade Zone and what projects are we seeing there that are particularly significant at the moment?
It is hugely important. I visited our branch which we opened in the zone recently and believe the Chinese regulators are showing signs of serious intent with what they are doing there. Ultimately, if the zone is successful, the plan is to roll the pilots out into more geographies within China, as we saw previously with other economic initiatives such as the Shenzhen Special Economic Zone.
To what extent are treasurers in Asia embracing mobile technology?
I used to be quite sceptical about the application of mobile technology in the treasury space, but about three years ago my view began to change. At Citi we began to realise that consumer trends in mobile technology were really something we needed to embrace in our corporate finance offerings, to make it easier for the treasurer to access his or her work on the move.
Just over two years ago, we launched the award-winning CitiDirect® BE Mobile solution and we were amazed with the uptake and the sheer volume of transactions we saw flowing through the mobile channel. In 2013 alone, over 2 million transactions valued at more than $140 billion had flowed through our mobile platform, of which, over $36 billion has been in Asia.
What do you think are the key geographies to watch in Asia at the moment?
The China market is a hugely exciting and vibrant opportunity for us. The pace of liberalisation continues to step up, and the timing is opportune as we assist our clients to link their Chinese franchise with their existing global and regional treasury and liquidity structures. Also Chinese parented companies are increasingly widening their footprint around the world, and this once again is a very rich partnership for us as we support them in this journey.
India remains one of the world’s most important markets – and they are reforming their economy and financial system. We have been helping clients to evaluate treasury management changes and provide optimal structures and processes to take advantage of these reforms. These include optimisation of funding options for investments, digitisation of payments with the launch of their national automated clearing house, and growth in mobile payment solutions.
Markets such as Singapore and Hong Kong continue to have a high level of importance, given their status as regional hubs where corporate pooling is concentrated. But I also think the Korean and Taiwan markets are hugely significant at the moment, given that a large number of exporters are based there. Then there are key markets such as Australia and Indonesia. Both of these countries are important regional markets due to their size, more than anything, but are at opposite ends of the economic spectrum. Australia is highly developed and advanced while the other, Indonesia, is still an emerging economy. But that is precisely the fun of the Asia Pacific region!
What are your views on intra-Asian trade? From a trade finance perspective is the support always there for corporates?
Intra-Asia trade flows are continuing to give rise to new opportunities for companies in the region. If you look at the figures about 53% regional trade flows are directed to other Asian economies and, to add to that, more than half of Asia’s imports or exports end up or originate within the continent. So this is evidently a hugely important component of the Asian economy.
In terms of trade finance, there is no shortage of supply at the moment for large corporates across countries such as Singapore, Korea, India, Indonesia, Malaysia, Taiwan, and Australia. If anything, demand is now beginning to slow down as overall exports on the continent begin to drop off.
But if you go down a level, the story is rather different. For small and medium sized businesses trade finance is not so readily available. This is why, when we talk about trade finance with our clients, we try really hard to understand their ecosystem. For example, we try to find out who their obligors are, who they sell to and where they buy from, and try to provide liquidity to those counterparties for the benefit our client.
My answer goes back to the challenge of accurate cash flow forecasting which I raised earlier. Regrettably, that remains an unfulfilled challenge for many of our clients and one that we are working hard to resolve. If it could be solved in a bank agnostic fashion – not just between a client and Citi – it could be a tool that would make life for corporate treasurers in Asia considerably easier.
And then there would be further development of tools to take advantage of big data. This is already happening, it is no longer just an idea that we are toying with, it is actually driving our conversations with our clients. Having this more interactive way to communicate with clients, backed by analytics, is pretty transformational as far as transaction banking goes.