Treasury Practice

Home or away: a question of centralising treasury

Published: Jul 2018
Global network around the earth

The creation of a global or regional treasury centre can bring greater uniformity, visibility and control. It can also reduce costs and enable treasury to become more strategic in the way it supports the business. Here we talk about the different models of centralisation and where best to locate your treasury centre.

Treasury centralisation has been a hot topic for some time now. Indeed, over the past decade and more, corporations around the world have moved to established global treasury centres, often supported by regional outposts in places where they have significant overseas operations.

The centralisation trend has been especially prevalent in Asia Pacific, as multinational companies have built regional treasury centres to support the growth of the organisation. More recently, many Asia-domiciled multinationals have begun to follow suit, centralising their treasury operations as they expand overseas.

There are many benefits to centralising treasury. It can bring greater visibility; enable more efficient use of global/regional cash flows; improve pricing structures due to the extra leverage created by economies of scale; drive cost savings by removing duplicated tasks and effort and standardising procedures and techniques. Centralisation can also facilitate the rise of corporate treasury as a strategic partner to the business.

Levels of centralisation

Whilst the results of centralising treasury will be similar for all companies, there is no one-size-fits-all approach. Indeed, centralisation is a broad term and companies may vary in their understanding of what constitutes a centralised treasury. This is because the nature of a company’s business, its operating model and strategic objectives, dictate the level of centralisation that treasury can achieve.

Regulation is also a factor. For example, in Asia, cross-border flow restrictions mean that treasury may not be able to sweep and centralise liquidity. Thus a centralised treasury in Asia may look different from a centralised treasury in Europe where it is possible to centralise liquidity.

As a result, it can be helpful to bucket treasury departments into three broad categories of centralisation.


In a decentralised treasury structure, individual subsidiaries conduct policy-making, decision-making and functional activities. Subsidiaries may have their own local banking arrangements, will organise their own funding and handle cash management (including short-term borrowing and investments) locally. The company may still employ a small treasury team in it’s headquarters, acting as consultants to the subsidiaries.

Whilst decentralised treasury departments may not deliver the benefits of a centralised treasury, they can work well when subsidiaries are independent and autonomous units with limited complimentary needs. The local operational knowledge and risk awareness of each treasury team can also be beneficial – especially when the business needs to adapt to unexpected events.

Fully centralised

In a fully centralised structure, a global treasury centre will undertake policy-making decisions and most, if not all, banking and financial activities. These centres may offer 24-hour services to ensure round-the-clock coverage for all subsidiaries.

Centralisation ensures that group treasury has standardised operations, greater control across the company with streamlined bank accounts and improved transparency of cash flow. The natural hedge created by the matching of financial positions can result in better margins. A fully centralised model can also enable treasury to reduce costs through economies of scale.

However, such a degree of centralisation has its potential downsides. For example, it can lead to a lack of local expertise. In Asia, this can be a hindrance given the complexity of many of the region’s markets. Take China, for example: Treasury Today Asia has frequently heard from treasurers about the importance of having a treasury professional in-country, forging relationships with the regulators and ready to react to the sudden changes common in that market.

Furthermore, if the treasury is viewed as remote by the in-country teams, they may be less interested in treasury matters and, potentially, resistant to any measures that may be introduced, making it challenging for treasury to change processes.

Shared service centres

The shared service centre (SSC) is a common centralised structure found within organisations. SSCs are often located in low-cost markets, such as the Philippines, and can be defined as an entity that provides certain services to several different group entities. From a treasury and finance perspective, these services may range from managing payroll, accounts payable, foreign exchange dealing or even short-term cash management.

The advantages of operating a SSC include reduced operating costs, economies of scale, efficiency gains, improved control and better performance management. What is more, offloading routine operational tasks to a SSC can free up the treasury department’s time to focus on more value-adding strategic activities.

An interesting trend of late is the evolution of SSCs into value-adding centres of excellence through the adoption of technology. This can have a positive impact on treasury, as the SSC is able to support treasury at a more strategic level by providing accurate and granular data to drive more informed decision making.

Fully centralised with regional hubs

This model is nearly identical to the fully centralised structure. The difference is that treasury is coordinated regionally, with business units reporting to their respective regional treasury centre. The regional treasury centre model provides a comparable level of control to the fully centralised model centralisation, whilst ensuring that there is at least one member of treasury who has expertise in a particular region and is based in the relevant time zone.

Hybrid centralisation

Hybrid centralisation is known as a ‘best of both worlds’ approach that sees treasury centralise in global or regional teams. However, in complex markets that require special attention – think China – there will also be a treasurer within the subsidiary(s) in that country to carry out on-the-ground treasury operations – following the treasury policy set by a central or regional centralised treasury team.

In theory, the structure delivers more control than a decentralised model, whilst still enabling subsidiaries to maintain a degree of autonomy within the front office function. It can also help to increase uniformity in treasury policies and procedures across the group and allows key decisions to be made at a global level with a comprehensive view of cash flow.

However, by giving the local subsidiaries the mandate to execute certain transactions and control certain functions, central treasury can benefit from the ‘bottom-up’ view that the local subsidiaries can offer. For example, in some Asian markets, strong local banking relationships can be the best way to obtain favourable funding or liquidity terms.

In-house banks: the final stage of centralisation

The growth of centralised treasury models in Asia has led to the rise of the in-house bank (IHB) structure in the region – often regarded as the ultimate form of centralisation.

An IHB is best described as a centralised treasury organisation performing activities for subsidiaries that are otherwise performed by banks. These structures can enable treasury to reduce the company’s bank borrowing, reduce the cost of FX transactions, cut interest payments on debt and improve yield on investments.

Although it is possible to build these structures in Asia, it can be challenging given the region’s fragmented regulatory environment. This often means that corporates operating an IHB in Asia are unable to deploy the full range of solutions in the markets they operate in. Therefore, treasurers should work closely with the business and external advisors to weigh up the pros and cons of implementing an IHB in the region.

Prime location

With the structure of the treasury selected, the next big decision is where in Asia the treasury centre should be located. When making this choice, treasurers must consider numerous factors, including taxation, the regulatory environment, available talent and the location’s banking capabilities and access to capital markets. Perhaps most importantly, treasury should also consider the business’ overall strategy – if much of the company’s business is in China, basing the centre in or close to the mainland might be the most suitable location.


The Lion City is arguably the region’s prime treasury centre location and is the long-term home to the regional treasury centres of many multinationals including AkzoNobel, British American Tobacco, DHL, Johnson & Johnson, Lenovo and Nokia. In recent years, several Chinese companies have followed suit, building out treasury centres in Singapore to support regional and global growth ambitions.

Singapore is an attractive location because of its liberal regulatory environment, AAA sovereign credit rating, large number of free trade agreements, deep and liquid FX market and legal system based on English common law. As one of the world’s top financial centres, most, if not all the major Western and Asian banks have a significant presence in Singapore, giving treasurers access to best in class banking services.

The regulators have also developed a competitive incentive scheme to encourage companies to use Singapore as a base for conducting treasury management activities for the region. Most notably, an approved finance and treasury centre company is eligible for a reduced corporate tax rate of 8% on income derived from qualifying services. Approved companies are also eligible for withholding tax exemption on interest payments, such as interest on loans obtained from banks and non-bank financial institutions.

Hong Kong

Hong Kong also makes a strong case for a treasury centre location. The territory is frequently ranked as the world’s freest economy, has a legal system based on English common law and a liberal and well-developed regulatory framework. Like Singapore, its status as a global financial centre means that corporates have access to a wide range of banking services. It is also the world’s largest offshore RMB hub and a gateway to the international capital markets.

Despite these qualities, Hong Kong is home to fewer treasury centres than Singapore. This is largely due to its tax regime, which until recently did not extend concessions to companies with treasury centre activities, causing many companies to opt for Singapore. To close the gap and attract more treasury centres, the authorities in Hong Kong amended the law in 2016 offering almost identical tax incentives to Singapore.

By making this change, Hong Kong is hoping that it can convince Chinese companies going global to set up a treasury centre in the territory. It has already had some success, with at least three mainland Chinese companies announcing plans last year to set up treasury centres in Hong Kong, according to the Hong Kong Monetary Authority. At least 30 other companies are actively considering the move as well.

A comparison between Singapore and Hong Kong

Singapore Hong Kong
Income tax rate for qualifying treasury centres 8% 8.25%
Interest deductibility Yes Special provision to allow deduction of offshore interest
Withholding tax Waived None
Tax treaties 67 39
Entity Legal entity or profit centre Legal entity
Markets Better for FX Better for debt
Location and focus Better for ASEAN Better for China
Costs Similar Similar
Number of MNCs (roughly) 12,000 8,000

Source: DBS Prism

Alternative options

Whilst Singapore and Hong Kong stand out as the two most popular treasury centre locations in Asia, there are other options available to corporates. Shanghai, for example, offers an option to those companies wanting to be based in mainland China, although the restrictive nature of the economy limits its appeal.

Elsewhere, Malaysia offers an attractive Treasury Management Centre incentive package to encourage domestic corporates to build a treasury centre in the country. Thailand also operates a similar scheme. Meanwhile, Japanese firms have been bringing their treasury centres back home to Tokyo and other major cities in recent years.

Areas for consideration

Before making any shift in treasury model, no matter how extreme, treasurers must consider the short- and long-term impact of the upheaval. To ensure a smooth transition, treasury should consider the following points:

  • Cost and cost-saving:

    Treasury should complete a cost/benefit analysis to understand whether the cost of the centralisation project and ongoing costs are less than the potential benefits and savings.

  • Group-wide support:

    The centralisation project must have full support at management and board level. Local units must also understand what is happening and why.

  • Legal, regulatory and tax implications:

    Treasurers must consider how changing the treasury structure and establishing treasury centres in different locations will impact its legal, regulatory and tax arrangements. Particular attention should be given to the OECD’s BEPS initiative as any treasury centre will need to prove that it is staffed by people with adequate qualifications, experience and knowledge who will form part of the decision-making process for the transactions.

  • External relationships:

    Centralisation is likely to lead to a change in relationship with banks and vendors and the impact of this needs to be carefully managed. This includes negotiating advantageous terms and handling the share of wallet and business appropriately.

  • Technology:

    Treasurers should consider what technology is needed to support the new treasury structure. Of consideration here is whether legacy systems can be integrated or if they have to be renewed – this could have an impact on costs.

  • Operational aspects:

    Treasurers should address transition procedures, project management and staffing issues early on to limit the impact on daily treasury activities.

Case Study:

Delivering a world-class regional treasury centre: the DHL story

Stephen Hogan
Vice President Regional Treasury Asia Pacific

DHL has one of the most successful and respected centralised treasury departments in Asia. Here, Stephen Hogan, Vice President Regional Treasury Asia Pacific at Deutsche Post DHL, explains how the company’s treasury oversees the financial matters of 140 legal entities, spanning four business divisions and 42 countries.

DHL’s regional treasury centre supports the business across Asia Pacific in a wide variety of activities. These range from the typical treasury activities such as bank relationship management, cash and liquidity management, financing and debt management, and risk management. Treasury is also responsible for the legal structure of subsidiaries.

According to Hogan, the regional treasury can support the business across such a wide variety of areas because unlike other regional treasury departments, which are usually separate from the global organisation, DHL’s treasury is closely linked to the head office in Germany and operates as a corporate function.

“In many respects, the only reason we sit in Singapore and not in Germany is to be close to our business units in the region and their regional management,” Hogan says. “The treasury department in Germany manages all the treasury systems; they give us access to these and we get on with our work, avoiding some of the more mundane tasks that treasury can sometimes be associated with.”

On-the-ground support

When it comes to the in-country operations across Asia, Hogan believes it is important to forge strong relationships with the business units. To that end, his team is constantly seeking ways to add more value to the regional management and the local business units. Hogan personally visits the various businesses regularly, not only to understand their work more intimately but also to understand the cultural nuances across the region and the business environment.

In addition to these visits, Hogan has also utilised the power of modern communication channels, running regular training webinars. “This is in reaction to a major internal study where one of the key findings was that there is a real desire from employees to learn and understand what the various functions do and how,” he explains. “We don’t force people to attend but if it is on a topic of interest then they can join the webinar and learn. It is just another aspect of our continuous outreach.”

A central journey

There is no doubt that centralising some, if not all, treasury activity can benefit most organisations. However, there is no such thing as a standardised centralisation project and treasurers will need to set their objectives carefully by evaluating the business and its strategy. Ultimately, a move to centralise is not just about improving treasury – it is also about putting the department in a position to drive value for the organisation as a whole.

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