Banking & Cash Management Challenges in South East Asia

Commentary

ASEAN (The Association of South East Asian Nations) has a population of over 600 million. This is more than the EU (450m) or the United States (340m). Its ten member states provide an impressive level of diversity, for history and culture, but also in politics, economic development and prosperity. The broad range of rules and approaches make it a challenge to manage treasury operations. But the population, economic dynamism and key role in global supply chains make it a crucial player in world trade.

The pattern on this call is not a surprise: Singapore is the most advanced and open economy in ASEAN. For most companies, it is part of their international cash pooling and sweeping mechanisms, along with Hong Kong, Australia and, to some extent, China. The Philippines, Indonesia, Malaysia and Thailand are open economies, but they generally require FX to be executed onshore, and cash pooling is usually via intercompany loans: automated sweeping is not allowed. Vietnam remains more difficult. Myanmar, Cambodia and Laos, continue to be highly regulated and short of hard currency. 

Despite their FX restrictions, several countries have incentives for MNCs to set up Regional Treasury Centres (RTCs). These are usually able to transact outside the exchange controls – usually excluding domestic transactions.

• Cash pooling: Singapore is the only country in ASEAN where cross-border cash pooling does not present any issues. Regional cash pools are usually based there or in Hong Kong. Most of the other countries allow domestic pooling and sweeping, though experiences vary. They typically do not allow automated cross border pooling, which is instead achieved by making intercompany loans, usually manually, and subject to various approvals. 
• Exchange controls: most ASEAN currencies are convertible, at least for goods imports. However, in many cases (again, excluding Singapore), the FX trade has to be executed onshore, with the USD or EUR then transferred outside the country. These trades are usually done from an offshore location. Thai baht can be paid out of Thailand, but the regulation is not generally well understood. In many countries, it can be complicated to pay for services, and withholding tax can be an issue. Myanmar, Cambodia and Laos have shortage of hard currency: solutions exist, but they do not always pass internal compliance checks and the banks’ AML rules.
• One peer commented that this regulatory complexity is additionally unwelcome, given recent FX volatility. 
• Several peers complained that the regulations change frequently and are not always clear. In Malaysia, one peer found that a transaction which was fine under one central bank head was not allowed, and even had to be retroactively unwound, under their successor. It is not unusual to find different interpretations of the rules between different banks: in these situations, local banks are often more prepared to follow aggressive interpretations than the international ones. The consensus was that it was best to over-communicate with the authorities, rather than take risks – this can be positive, though it is not always the case. 
• DBS Bank offers a single account with up to 13 currencies in both Singapore and India. It appears JPMorgan have a similar offering. By definition, the currencies involved need to be convertible: while the EUR, USD, AUD and CNH work, this is not the case for the more restricted ASEAN currencies, such as the PHP.
• As always, MNC treasurers prefer to work with global relationship banks. This is not an issue in Singapore and Hong Kong. It can also work in Malaysia, Indonesia, Thailand and the Philippines, though local banks were still often used for payroll, taxes, and offices in remote up-country locations. There were differing experiences with using foreign banks for tax payments. 
• Standard Chartered (SCB) was the most frequently mentioned bank, followed by HSBC (generally positive comments) and JPMorgan. There was a general feeling that, except for SCB and JPMorgan, banks were cutting costs, reducing service levels and causing churn amongst RMs (Relationship Managers). Citi were singled out for this. 
• International banks have limited to no cover in Myanmar, Cambodia and Laos.
• Many local banks are used for historical reasons, particularly for payroll. Often, these banks have a relationship with an international bank to provide a complete service: Bank of the Philippine Islands (BPI) was mentioned in this context with HSBC. 
• Peers whose businesses have grown by acquisition face resistance to transitioning to the group relationships – this is not unusual. Regulations were often cited as a reason - but, on closer examination, the regulations do not always exist.
• Two peers had particular issues. As they are in primarily services industries, they felt keenly the more restrictive approach to cross border payments for services and intangibles. These payments can be executed, but there is a lot of paperwork. One is a B2C company: a lot of their collections are by credit card. This drives a need to use local banks.

Bottom line: ASEAN is not the EU, and probably never will be. It is an association, not a union – but its member countries have seen a lot of economic and political progress since its formation. Its location, population size and economic dynamism make it a very important part of the world.

The variety in the region is huge, with economies in very different stages of development, and very different rules and regulations. Three countries – Myanmar, Cambodia and Laos – are still extremely difficult places to do business. Indonesia, Thailand, Malaysia, the Philippines and Vietnam have regulations which are all challenging (and different from each other!), but where most treasury transactions can be executed, with sufficient care and structuring. And there is Singapore….

One way or another, the ASEAN countries cannot be ignored.