Treasury Practice

Treasury strategy for a modern Asia

Published: Jul 2016

Corporates operating in Asia Pacific (APAC) have been faced with many changes and challenges of late. Take, for instance, the numerous regulatory changes taking place across the region’s diverse economies, the slowdown in China, or the changing strategies of many international banks.

Portrait of Sanjeev Chatrath, Region Head and Managing Director, Asia, Thomson Reuters, Financial & Risk

Sanjeev Chatrath

Region Head and Managing Director, Asia, Thomson Reuters, Financial & Risk

Portrait of Jarno Timmerman, Head of Treasury Asia Pacific, AkzoNobel

Jarno Timmerman

Head of Treasury Asia Pacific

Portrait of Sonia Clifton-Bligh, Head of Regional Treasury Centre Asia Pacific, Johnson & Johnson

Sonia Clifton-Bligh

Head of Regional Treasury Centre Asia Pacific

Portrait of Damian Glendinning, Corporate Treasurer, Lenovo

Damian Glendinning

Corporate Treasurer

Portrait of Bernard Wee, Executive Director, Financial Markets Development and Payments & Technology Solutions, Monetary Authority of Singapore (MAS)

Bernard Wee

Executive Director, Financial Markets Development and Payments & Technology Solutions


Portrait of Richard Parkinson, Managing Director, Treasury Today Group

Richard Parkinson

Managing Director, Treasury Today Group

Whichever way one looks at it, the demands being placed on corporate treasurers have never been greater and new innovative strategies and approaches to treasury management are needed in response. But corporates cannot be alone in this endeavour. To overcome these challenges there is a need to work with best-in-class partners and also operate in an environment that offers the full spectrum of treasury solutions and expertise.

Here, three highly experienced treasury practitioners, the Monetary Authority of Singapore (MAS) and Thomson Reuters, discuss the treasury landscape in Asia and whether a centralised operation based in Singapore might help corporates meet the challenges of both today and tomorrow.

Let’s start by asking the corporates – why have you centralised and why are you based here in Singapore?

Jarno Timmerman, Head of Treasury Asia Pacific, AkzoNobel: There have always been discussions around the centralisation and regionalisation of treasury activities and how processes can be automated centrally using various systems. And there is lots of value to be had by empowering a hub, be it here in Singapore or elsewhere, to support business operations in the region. It has enabled us to develop an in-depth understanding of the difficulties faced in each country across the region.

At AkzoNobel we have quite a complex organisation with entities that do business-to-business or business-to-consumer and given the different regulations and complexities in the region there is a lot of value for us to have the hub here. It has enabled us to develop an in-depth understanding of the difficulties faced in each country.

Sonia Clifton-Bligh, Head of Regional Treasury Centre Asia Pacific, Johnson & Johnson: Whilst Johnson & Johnson’s treasury function (J&J) is centralised and primarily run out of Europe, there is huge benefit to us being in APAC and here in Singapore. The country has numerous benefits including its well-developed infrastructure, the talent pool and ability to access experts across all areas of finance. Moreover, there is core business leadership based in Singapore as well. Treasury is very much an advisor to the business so we really do need to be close to the business.

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Damian Glendinning, Corporate Treasurer, Lenovo: We have taken a slightly different route in that we are highly centralised and don’t operate regional hubs – everything is done out of Singapore with very few exceptions.

Why Singapore? When Lenovo bought IBM’s PC division 11 years ago we ended up with a business structure where all of the international flows, and of course in our case international flows means flows outside China, were all going through Singapore. So Singapore was the logical place for treasury to be located.

It continues to be here primarily because we have found that it works very well. There is a deep talent pool and also there is a huge pool of resources in terms of banks, service providers and so on.

Sanjeev Chatrath, Region Head and Managing Director, Asia, Thomson Reuters, Financial & Risk: From a Thomson Reuters perspective, we have been in Singapore for more than 100 years and given its position as a financial hub it is really important for our business to be present here. We have nearly a thousand people based here, as well as operating data centres which again is testimony to the infrastructure in Singapore, and this supports us across the entire region.

Also, there are some well-developed economies in Asia where the rule of law governs the conduct of commerce. Singapore is definitely one such market, which is hence very attractive to us from a corporate point of view.

So there are various factors that make Singapore an attractive hub. But it seems that treasury also has to be close to the business?

Bernard Wee, Executive Director, Financial Markets Development and Payments & Technology Solutions, Monetary Authority of Singapore (MAS): The treasury function follows the business. And Singapore has traditionally been a regional hub for MNCs doing business across ASEAN. But today, being located in Singapore is not just about being in ASEAN or even selling into ASEAN, it is about selling to emerging economies such as India and China as well and as the business grows, and its regional functions grow, it just makes sense to put that treasury in Singapore to manage FX risk and cash flows.

In addition, it is interesting to see that everybody around the table is from a different country. Singapore is a multicultural and cosmopolitan hub – it is able to be a home to people from different parts of the world and offer an attractive community and environment for both businesses and families.

Chatrath, Thomson Reuters: Adding to what Bernard said, Singapore certainly has a lot to offer. It must be remembered however that for treasury centres it really depends on where the weight in that organisation is. If you have got relatively small business in Asia and are heavily weighted towards US and Europe, maybe London is a good alternative to consider, as opposed to having an outpost sitting in Asia. Moreover, those companies with a substantial presence in China might operate a treasury centre on the mainland dedicated to managing China operations, and then another that manages the rest of Asia.

The location of choice ultimately depends on the context of the organisation. Additionally, in the 21st century, with advanced technology, I think organisations are finding that they don’t have to be geographically located in a particular centre, because a lot of day-to-day operations can be off-shored. Treasury is really about policies and setting the right processes in the organisations.

Portrait of Sonia Clifton-Bligh, Johnson & Johnson
Sonia Clifton-Bligh, Johnson & Johnson

Clifton-Bligh, Johnson & Johnson: Yes, I would agree with that, but I think it is not just about what a business is doing today, it is about how it will grow and where this growth will occur. Treasury needs to be close to this growth and help support the business in navigating the various nuanced rules found across the region’s markets. And when you take on an advisory role to the business I think that being close to the geographies you are dealing with makes a lot of sense.

Glendinning, Lenovo: I completely agree. Also, I think a lot depends on the business and how it has chosen to organise itself. Empowered regional hubs are great, provided the organisation can sustain the cost that it brings and get a benefit from it.

Obviously, treasury is there to support the business and not the other way round. But technically, you can actually do everything from everywhere.The issue is what additional benefit you get from having people in a certain place rather than another.

What can Singapore do to encourage more corporates to come as well as maintaining its current position?

Wee, MAS: When we look at various surveys, Singapore typically emerges as the number one location for those companies looking to establish a treasury centre in the region. But close behind are Hong Kong and Shanghai.

So how is Singapore looking to maintain its position? If you look at how Asia is developing, you have the large economies of Japan and China. But there are also other huge emerging economies, most notably India and Indonesia. Both these countries have tremendous growth potentially and for businesses the growth potentially comes from being able to do business in these two big economies.

The challenge for Singapore is to maintain access and be conducive to developments in these diverse markets in Asia for those corporates domiciled here. Moreover, we have to understand the difficulties that companies face when doing business in these countries and help treasury centres manage this risk. To do this effectively, treasurers require access to a comprehensive ecosystem of financial services. Essentially, we are positioning Singapore to be a node amongst these diverse markets, be it as an offshore RMB hub, a yen FX risk management centre, or an offshore rupee bond raising venue.

And how are you looking to develop this ecosystem?

Wee, MAS: Singapore is taking a broad view and I am not just speaking about creating an ecosystem of treasury services. Take, for example, insurance. Corporates need access to trade credit insurance, political risk insurance, or even marine hull insurance. These products enable trade, which allows investment to be safeguarded in difficult markets.

There is a good ecosystem of providers of insurance who are able to offer these solutions. But also we are working on developing new solutions for new types of risks. For example, countries in Asia Pacific sit on the Ring of Fire, where roughly 90% of all earthquakes occur. And if you look at the past ten years, there have been numerous incidents that have not only impacted the location of the disasters but also the wider region. One of the things that we are therefore working on is enabling natural catastrophe insurance protection.

But back to the original question on ‘how are you protecting Singapore’s role as a leading financial centre and as a leading location for treasury centres?’ For me we are doing this by not just looking to be a good treasury hub, but by being a centre that offers complete financial solutions for all parts of the business.

Glendinning, Lenovo: It’s very interesting to hear that and I think we all agree that whilst theoretically you can manage your treasury operations with a computer linked to the internet from anywhere, there is additional value to be obtained by being based in a finance centre. The main benefit being that you are able to talk to industry experts across a whole spectrum of things, not just in terms of things like cash management.

However, another challenge I see in the region is protectionism. India and Indonesia were previously mentioned, these are two countries which present a lot of challenges, and one of the challenges is a slight tendency towards protectionism, particularly in the financial services area. So how do you see this impacting what Singapore can offer?

Wee, MAS: Protectionism occurs in different ways and this is occurring across the region. If you look at Singapore however and its network of trade agreements, we have 21 free trade agreements, and the ASEAN Economic Committee is only something that you can only participate in if you are in ASEAN.

In addition, we strike strategic partnerships with our neighbours. We have a comprehensive economic cooperation agreement with India which is highly favourable. So whilst some markets are turning inwards, we are working very hard to build bilateral access channels for all companies that are operating in Singapore.

Are these new challenges or more of the same?

Portrait of Sanjeev Chatrath, Thomson Reuters
Sanjeev Chatrath, Thomson Reuters

Chatrath, Thomson Reuters: If we sat together having a similar conversation, perhaps 15 years ago, it actually would not have been very different. At that time there was talk about the tiger economies, the potential that Asia had in terms of growth and the fact that you could cover a lot of the region from a hub like Singapore. There has been a lot of growth in the region past few decades.

What seems to be different now, is that alongside that focus on growth is an equal focus on it being sustainable growth. I think that sustainability is becoming critical especially in terms of risk and compliance.

The second thing is the quantum of volatility in the markets. It has been fairly unprecedented if you think across every asset class. That poses its own set of challenges to many of the treasurers.

A third challenge that jumps up is the point Bernard made around risk management. A number of risks that most of the companies are exposed to – whether it is operational risk, FX risk or regulatory risk – tend to be very high. A lot of these risks are perhaps even extraterritorial. The quantum of the regulatory network and the implication of that tends to be far reaching.

And the last difference is the advent of new technology, which has encouraged a number of companies to actually look at establishing offshore centres to become more efficient and achieve benefits of scale. But at the same time this has also brought in a number of new challenges because it means that data is actually being stored outside of a particular jurisdiction. This means cyber security is becoming a bigger focus.

Treasury departments and the role of the treasurer has evolved significantly over the years, and there is a greater need to be agile, while also doing more with less, often remotely.

As a result, I see the role actually gaining more stature within the corporate hierarchy, because treasury has to be a custodian of the organisation’s assets, whether these be financial assets or even cash flows. And to fulfil that responsibility, treasury needs to be thinking much broader now than what it was many years ago.

Timmerman, AkzoNobel: What you also see happening is that because the technology is there and you can do everything from everywhere, everything also needs to happen faster. But, when everything is automated and real-time, it creates additional risk and increased volatility.

Further complexity is added because in Asia regulation means that we cannot optimally use the technology at our disposal. For instance, we have our electronic trading platforms integrated into our daily operations, but sometimes it is very difficult to apply that in different countries. Not technically, but because you still need to have the discussion with the regulator.

So it all needs to happen today. Complexity and uncertainty and the fact that it all needs to go quicker adds to the volatility already in the market. And that is the biggest struggle I see today for us as a regional centre: how do we manage that?

Clifton-Bligh, Johnson & Johnson: I think there is a lot of risk. We have core policies and globally we’ll manage those policies but you have to balance that with the agility that’s often warranted in markets where you do have to move a lot faster. The balance is the biggest challenge and that’s where you need the expertise in the market. And the closer you are to the market, the deeper that expertise.

Portrait of Jarno Timmerman, AkzoNobel
Jarno Timmerman, AkzoNobel

Timmerman, AkzoNobel: And often it is not only the in-country regulations. As previously mentioned, extraterritorial regulations are also a challenge. For instance, if I want to set up a new FX relationship in a particular country, and doing this involves a European bank. Then I will need to speak with my local CFO or to my local controller about EMIR and help them to complete the documentation.

How on earth am I going to explain to a local controller what EMIR is about? He sometimes doesn’t even know the difference between spot and forward, right? So this is a very difficult and time consuming process for the treasury.

Chatrath, Thomson Reuters: That’s a great point. Last year we tracked about 600 different regulators around the world and there were over 50,000 regulatory changes just in 2015. That is over 150 regulatory changes every single day.

Now, whilst the vast majority of those don’t directly impact a particular corporate. They often impact the financial institutions that you do business with, and hence in turn it impacts you because their view of you is going to evolve. It is not static.

Take for example Basel III, this has far reaching consequences because as a corporate you now have to think very carefully about your service providers and who can provide you with more sustainable capital commitment and resilient infrastructure going forward.

Glendinning, Lenovo: You raise a very good point, but when I look at which of the countries give me the most concern from a regulatory point of view, it’s not Asia. It’s not the emerging markets. It is the United States and it is Europe, where frankly there’s a complete avalanche of regulations.

I would say a lot of the developed markets have taken their cue from Asia – regulate first and think second. As a result, there are just so many different regulations and so many contradictions because the EU and the US can’t agree on all manner of things. This often means that you can be in compliance with one and not with the other at any given time.

We are beginning to see the same thing here in Asia however. For example, when it comes to trying to manage FX risk, one of the most important tools in the international treasurer’s toolkit is the offshore NDF (non-deliverable forward) market, particularly if you’re dealing with a regulated currency. Yet, a lot of the rules around derivatives have had a negative impact on liquidity in these markets and therefore a negative impact on pricing, at least from the corporates’ point of view. The regulations which are designed to protect the system are in fact increasing the cost of risk management and making it much more difficult to do it.

Can I ask you, Bernard, to respond on these regulatory points? Does over-regulation worry you?

Portrait of Bernard Wee, MAS
Bernard Wee, MAS

Wee, MAS: No. When it comes to regulation, it is about striking a good balance between meeting international standards, being a responsible international financial centre to avoid regulatory arbitrage and yet catering to our own market characteristics.

It is also about keeping regulation flexible enough so that business can continue to operate. We are a small country with a strong financial centre and we do what we can to keep regulation sensible for companies. When you look at, say, setting thresholds for companies to clear derivative transactions like interest rate swaps, I think you have to be very sensible about what sizes of companies you really want to include.

And while there is an international trend in the years since the financial crisis, towards more transparency, more reporting, and more regulation, we have to also strike a balance to the value add of the increased transparency and use of these reported information.

Glendinning, Lenovo: You have also got the Volcker Rule which means that in the past they could warehouse the risk and now they can’t.

Wee, MAS: Exactly. And many of these things are really outside of our control. So what can we do within our control to provide alternate solutions to companies to manage FX risk. As an example, we have worked with the exchange to launch a suite of Asian currency futures as a transparent and well-regulated alternative for risk management. The suite is not all comprehensive yet but we are building it up.

What other challenges are there or what else is on the corporate wish list at present?

Glendinning, Lenovo: We are all struggling with the regulations, but very clearly that is not an Asian phenomenon, it is coming from the West. So it doesn’t matter where you are based, there will always be issues with this. I do think however, that any regulator in the region that can try and alleviate some of the regulatory pressure and make it easier for corporates to operate will be very welcomed by the corporate community.

Another challenge and opportunity is the huge change that we are seeing in the financial system at present. The advent of fintech now means that transactions can be made using a host of non-bank providers who often have much better technology than the banks, and who often are not so strictly regulated.

Personally I think that the whole transaction world is going to look very different in a few years’ time. That obviously is going to have another big impact on the banks and on the way we work. For me, that is probably the biggest challenge that we all face.

Timmerman, AkzoNobel: I agree, fintech is a big focus and it is a space that is developing very quickly. The more cutting edge technology corporates can use, the better it will be for the whole industry.

But, at present, what is even more pressing is the environment that we as corporates are operating in. There has been lots of work done to develop ASEAN as an economic community that includes initiatives around the standardisation of bilateral activity when it comes to trade. But it still remains a very difficult environment and the countries and their currencies remain individual and it is not a unified region.

As a treasury department we are not only looking to optimise what we do, but also work together with the business to optimise it end-to-end. So given Singapore’s position as a financial centre for ASEAN and Asia more broadly we would like to see it play a driving role to ensure that there can at least be the free flow of capital within ASEAN. This would help a lot when we work with procurement who are currently sourcing raw materials in some of the regions highly restricted economies. Then if the financial flow and invoicing goes through Singapore this will allow us to fine tune the FX flows, which permits us to lead and lag internally when it comes to working capital flows.

Chatrath, Thomson Reuters: It is a really good discussion. I think it is a credit to MAS that we are able to engage in a conversation such as this across the table. It is reflective of the progressive nature of the economy and I find many progressive regulators engaging in a similar conversation, trying to understand what are the intended and unintended consequences of their regulations. So I think it is really great to see a regulator that is keen to engage and support the economy.

When it comes to Fintech, I see a number of developments which will be very important for us to observe closely moving forward. Payments industry is at an exciting stage in its evolution. Similarly, new crowd funding and visualisation solutions are surfacing regularly.

There is also a lot of interest in fintech, but it is still very early days. We will have to watch how that plays out.

What about KYC, this is a big issue at present, can technology help with this?

Chatrath, Thomson Reuters: KYC has been a pressing issue for corporates for a while now and it is an interesting phenomena where the cost of compliance is borne by the corporate treasurer either directly or indirectly. And there is clearly a lot of demand to reduce this cost and make the process easier. A desire to move to a utility-like model, because not every financial institution is able to develop a solution by themselves, may therefore be the answer.

And I am very encouraged to see the trend of moving toward a common industry-wide utility in a market so that the buy side and the corporate provides documentation one time and authorises access to it, to the different financial institutions. That I think is a more sustainable, efficient, and more compliant way of doing it as opposed to everybody doing it individually.

I am also seeing a lot of those tools around KYC being deployed around supply chain and counterparty management. In particular we have seen a strong interest around supply chain due diligence solutions. Corporates now want to know that the people they are doing business with, are who they say they are.

Many Corporates are building up their war chest because they are realising that they have got to have a sufficient amount of liquid assets to respond to geopolitical risk, whether terrorism-linked, environmentally-linked or politically-linked, and hence you are seeing liquid assets continuing to build up, maybe perhaps as a consequence of quantitative easing.

I am also finding many of them using technology to become more agile and precise. I think cash forecasting is a good example of it, where companies are deploying augmented intelligence to get an accurate insight into their positions. Decision are being made on data, not gut-feel and this will only grow in the future.

China was previously mentioned and this is a country that of course receives massive amounts of attention. Damian, given that you work for a Chinese corporate, what are your views on what is happening?

Portrait of Damian Glendinning, Lenovo
Damian Glendinning, Lenovo

Glendinning, Lenovo: China is obviously a huge and very important market. And clearly China is under-represented in the global financial system compared to its weight in the global economy, and that is something which cannot, and will not, last. So we are seeing that change.

In terms of the renminbi, I guess I am a little bit of a heretic because I just view it as another currency. It happens to have more regulations around it than most other currencies and China being China those regulations are usually not clear, at least until you find you have done something wrong. But those regulations are evolving.

The situation today is not normal. The world’s second-largest economy has a currency which is not the second most traded currency. There are reasons why the currency is being held back however, and those reasons have everything to do with China’s stage of development in the management of its economy and that will be resolved over time.

So for most corporates, it is just another currency, but one that cannot be traded as freely as you would like. The infrastructure is being put in place to do so but challenges remain. For example, hedging the renminbi is still extremely expensive and has just been made more expensive. Again, part of that is due to some of the distortions in the international financial market, and nothing to do with China. But these things will even out over time.

How can Singapore become a better platform for corporates to manage their China treasury activities?

Chatrath, Thomson Reuters: There is a lot of opportunity here and I think Singapore is favourably placed not just to assist with the inbound business, but also the outbound business. With the ‘One Belt, One Road’ initiative, I am beginning to see real traction around how China is investing in infrastructure both in ASEAN and beyond which is very encouraging. I also see that there is more and more desire for Chinese institutions to go global.

There are now more than 100 Chinese corporates listed on Singapore Stock Exchange (SGX), for instance, and there are more than a 100 renminbi-dominated bonds that are traded on SGX. These are the early shoots that are beginning to grow the renminbi into a more mainstream currency. So clearly corporates see the potential that the renminbi and China has going forward.

Bernard, what else is Singapore doing to maintain its position as an attractive treasury hub for corporates?

Wee, MAS: The key area is documentary trade: we talk about invoicing through Singapore. The next generation national trade platform aims to on board the financial institutions (FI) as well.

FIs need to be able to see to all the documents from the freight forwarder. If your bank can streamline its collection of documents through a single portal, it really enables the bank to provide more streamlined services to companies, to treasurers, without having to collect paper documents. And as you are able to digitise more invoices, you are actually also able to create a marketplace for invoice financing.

We are also enabling banks to recycle their balance sheets so those invoices that have already been financed can be accrued in alternative capital from non-banks and banks which are not currently participating in trade financing, to securitise those invoices they already finance. That is how we see the national trade platform, building out over the next three to five years.

The final area is around payments. Faster payments are an important development in ASEAN. Singapore has built the real-time 24/7 faster payments platform. We know that Thailand and Malaysia are building their own faster payments platforms. If you can make real-time payments around the clock in each market in local currency that enables interoperability between faster payments in different markets.

In addition, at the recent Singapore Budget, the Minister of Finance has extended the Finance and Treasury Centre (FTC) incentive until 31st March 2021. The scheme has also been enhanced in three key ways. Firstly, it will grant approved treasury centres a reduced concessionary 8% tax rate, of course with additional substance requirements as a quid pro quo. Secondly, the fund sourcing rules are relaxed so that funds can come indirectly from associated companies now. Finally, the withholding tax exemption will now include interest on deposits placed by non-resident approved offices and associated companies, provided the funds are used for qualifying purposes. While tax is not the most important factor, as reflected by other participants at the roundtable, we hope this attributes to many of the factors that have kept Singapore attractive as the regional treasury hub.

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