Regional Corporate Treasury Structures in Asia

Commentary

Discussions about treasury structures often become a sort of badge competition: how much have you managed to centralise, do you have treasury centres, do you pool cash, etc? In Asia, these solutions can be applied to some countries, but many still have exchange controls and complex regulations. So – how do you apply modern treasury practices in an area which contains nearly half the world’s population, but where countries have a bewildering range of sizes, complexities, regulations, levels of affluence and very different cultures?

In this call, peers displayed a high degree of pragmatism and consistency. Nearly all have centralised what can be centralised – many run regional treasury centres and pooling. All have a strong preference for using their global relationship banks – HSBC, JPMorgan, Bank of America, Citi, BNPP, Deutsche Bank were mentioned – and only use local banks where required by regulation or customer collection requirements. All manage FX and currency hedging from the centre, though some allow local spot transactions for small amounts or where required by regulation. Even this is often done by the centre in the name of the local entity. Funding is nearly always controlled by the centre, and, in most cases, cash is brought to the centre wherever possible.

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A company’s business and how it has developed also plays a big part in treasury structures: those which have grown organically have an advantage when it comes to implementing a standard approach, while services businesses have different requirements.

• All have centralised operations as much as possible. Where a treasury centre can execute operations, and where cash can be swept, this is done. Where this is not possible, local teams operate under strict instructions and controls from the centre.
• One participant maintains a regional treasury centre in Singapore, even though its activities could be centralised out of the region: the local knowledge and proximity to the business is valuable.
• All concentrate banking transactions into their core international relationship bank. Most major banks were mentioned: HSBC, JPMorgan, Bank of America, Citi, BNPParibas and Deutsche Bank in particular. Local banks are used where necessary, primarily for collections and tax payments – but their use is generally kept to a minimum, and occurs primarily in the more complicated countries.
• One peer found that some new payment methods, such as e-wallets, can only be used with local banks in some markets, such as Korea. This can be an obstacle to implementing these tools.
• Local staff is kept to a minimum – in most cases, there is no local treasury presence. Exceptions tend to be India, Korea, Japan and China, due to the mixture of size, complexity, language and local administration requirements.
• In many cases where there is no local treasury staff, there is a member of the local finance team who handles treasury operations under the instructions of the central team, even if they do not report into them.
• With local bank accounts and staff, the centre controls company chops, bank signatories and access to bank portals, often  by regular inspections.
• Where treasury operations are executed from a centre outside the region, it is not unusual to have staff in those centres with Korean and/or Japanese language skills. Increasingly, virtual accounts are being used to handle customer payment reconciliation issues.
• FX is highly centralised. All currency hedging operations are executed from the centre. In some cases, spot FX is executed by the local team – but this is usually for low value trades. Where exchange controls prohibit the execution of FX offshore, trades are still usually executed by the central team in the name of the local entity.
• Several peers insulate the local entities from FX risk, even when they are importing goods for resale, by billing them from a central location in their local currency. In some countries, such as Malaysia and Indonesia, the local currency cannot be remitted offshore, so the invoices are actually settled in USD which is purchased locally. The centre will then hedge using deliverable forwards and NDFs. This leaves a basis risk, which is not usually material.
• Interestingly, no participant had become involved in the operational complexity caused by billing from the centre in local currency: the centre needs to maintain pricing files in multiple currencies, and try to ensure consistency between the resulting prices across different countries. 
• Where possible, pooling is practiced, as is intercompany netting. This tends to be limited to the more freely traded currencies: AUD, NZD, HKD, SGD, JPY, KRW, with some, such as CNY, allowing pooling but not netting. One participant uses BMG for notional pooling.
• A key factor in structure, apart from the nature of the industry, was how the company grew. Participants whose businesses have grown through acquisition have the same issues in Asia as elsewhere: imposing group structures and rules on people who are used to doing things their way, and are independently minded, is always a challenge. Similarly, moving from existing banking relations to the group’s banks often meets fierce resistance. Where a company has grown organically, those structures, rules and relationships are naturally baked in from the start.
• There is use of additional banking products, such as bank guarantees, SBLCs, vendor financing, and so on: these are usually managed by staff in the region.

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Bottom line: companies operating in Asia have the same centralisation objectives as elsewhere. Asia is a region where business works, and most things can be achieved. However, given the complex regulatory and cultural issues, treasurers still need to be able, and willing, to adapt to the local realities.

Asia is a large, and increasingly prosperous, region. It is not easy to find the right balance between enforcing company policies and being sensitive to local requirements – but this skill is becoming ever more important for treasurers.