Bank Relationships

Approaches to Banking Relationships

Report date: 
5 Feb 2024

Commentary

Managing banking relations is one of a treasurer’s most important – and most challenging – responsibilities.

In this lively discussion – it always is – we went over a lot of familiar ground. As always, we got new insights, and perspectives on how the landscape is shifting.

General, and mostly shared, approach:

  • Nearly all treasurers try to manage wallet share as fairly as possible. A frequent comment is that the bank needs to view the corporate as a good and worthwhile customer: paying the lowest price is not always top priority.
    • COVID showed that banks will reduce support to corporates who they do not view as worthwhile clients.
    • A couple of participants said banks wanted to exit unprofitable relationships
  • This requires keeping track of what you spend with each bank – that presents a whole series of challenges.
  • It also means working out what money the banks make out of you. For obvious reasons, this involves quite a lot of guesswork. But it also means being sensitive to the fact that not all banks give the same weight to the same kind of business.
  • Everyone tries to make sure the banks which provide credit support receive the best deal when it comes to allocating business. In some cases this is quite formal: taking part in the credit facility is often a requirement to be allocated fee business.
  • This is all very well, but it presents challenges: 
    • Do you give FX business to a bank which is uncompetitive, just because they are in the RCF?  Generally, no.
    • Do you do cash management with a bank just because they are in the RCF? Here, it is nearly always no.
    • How do you handle debt and capital markets activity, where some of the major investment banks do not do corporate lending? This was a long discussion.
    • Travel cards and car leasing can help with the equation.
  • What is changing?
  • Most of our members on all calls prefer to work with local banks as little as possible, and deal with core international banks – preferably those who provide credit. Could this change as the global financial system may fragment? One participant is making preliminary moves in that direction. 
  • Most participants are moving in the direction of greater diversification, at least for deposits, mostly driven by risk management considerations (SVB). One participant did this after finding that a core relationship bank had been over pricing. 
  • Fintech solutions were discussed. Most participants prefer to
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Topics covered in this report: 
Bank Relationships

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Mexico - Corporate Treasury Update

Report date: 
12 Jan 2024

Commentary

In many ways, Mexico is a paradox. It has a vital, and complicated, relationship with its northern neighbour: apart from anything else, migration across its land border into the USA is a significant, and highly contentious, topic in US domestic politics.

But the reality is that Mexico has a thriving economy, and has modernised its financial and banking infrastructure to the point where the consensus on the call was that it is a country where it is relatively easy to work, and where most modern treasury management techniques can be used. There are no exchange controls, cash can be freely transferred across the national borders, and cross border cash pooling is regularly practiced. FX hedging can be done freely both onshore and offshore, and the country is well banked, with both good local banks and most international banks being well represented.

Despite this overall positive environment, we still had a lively call. There are a series of challenges, and some points were not always totally clear. None is particularly serious, but they still take up management time and attention:

  • Citibank operate through a relationship with Banamex. While this works well, several participants reported service level issues, and there were challenges with data not being transmitted through the IT systems. This resulted in manual interventions which should not have been required.
  • Consistent with their global strategy, Citi/Banamex are withdrawing from the retail banking sector. For some participants, this caused a problem, as banks in Mexico share the Latin American practice of giving employees a better deal on their retail banking services if the company pays payroll through them.
  • Otherwise, some participants reported issues setting up and managing local
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Topics covered in this report: 
Bank Accounts, Bank Relationships, Cash Pooling - cross border, intercompany netting, payroll, POBO/ROBO
Service providers discussed in this report: 
Banamex, JP Morgan, HSBC, Bank Mendes Gans, BAML, BBVA, Citi

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Turkey Corporate Treasury Update

Report date: 
20 Nov 2023

Commentary

Turkey is a challenging environment – but it works. Inflation is around 85%, the currency is depreciating rapidly and very expensive to hedge, and funding is regulated and very hard to obtain. Two years ago, restrictions were placed on the remittance of dividends, though today, those restrictions have been lifted and there are no formal exchange controls. 

Despite all this, participants on our call generally reported growing businesses, with positive results.

The main challenges:

  • Overdrafts are not available, or they are prohibitively expensive. This is not new: the country has always imposed cost penalties on short term borrowing. The central bank now requires a reserve deposit for all loans: one participant said this was 60%, while another reported 200%. Either way, this has effectively made local loans all but impossible.
  • One way of satisfying reserve requirements is to purchase Turkish government T-bills. No foreign bank is prepared to do this, so funding via international core relationship foreign banks is no longer possible. Local banks are generally also reluctant to lend: the few exceptions are government owned banks.
  • Bank deposits in foreign currency hardly receive any interest; local currency ones attract interest at around 30%, against an inflation rate of about 85%.
  • Given this, and given the high rate of inflation, there is a lot of pressure on working capital: customers are seeking longer payment terms, while suppliers are looking to be paid early. One participant has sought, without success, to put in place supply chain financing solutions.
  • Most participants manage to run their businesses with no debt. Cross border intercompany
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Topics covered in this report: 
Bank Relationships, Hedging FX, Funding, Cash Pooling - cross border, Cross border sweeping, Dividends
Service providers discussed in this report: 
BNP Paribas, Deutsche Bank, Citi, HSBC, TEB, ING, Yapi Kredi

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China Corporate Treasury Update

Report date: 
13 Nov 2023

Commentary

With recent events, there has been less media focus on China. The news related to China has been about trade tensions with the US, the extent of China’s relationship with Russia, and the issues related to the real estate sector. Even COVID has tended to fade into the background, with the economic impact of the extended lockdowns and the disappointing pace of the recovery.

The purpose of this call was to find out how our members are finding the business and regulatory environment in China, and the extent to which their operations and treasury management are being impacted.

The overwhelming response was that it is very much business as usual – both in the good and bad respects. Participants on the call come from a variety of industries: while some, especially those facing the consumer, are seeing a significant slowdown, some continue to see growth. Everyone saw current difficulties as being transient, and nobody was looking to reduce their presence. The call quickly got into the operational challenges China presents – it was the familiar scenario of regulations which are always changing, are often not totally clear, and surprises.

  • Chinese banks. One participant reported that one local bank, ICBC, had proved to be very proactive in helping their company automate several processes, using new technology. This is a big step forward, as Chinese banks have traditionally preferred to avoid this kind of engagement with foreign companies. 
  • At the same time, there was a feeling that, as their traditional real estate lending activities have come under pressure, several Chinese banks are now more willing to lend to foreign companies.
  • At the same time, most participants prefer to limit their relationships to the core foreign banks: this is becoming easier, as foreign banks are now able to provide services, such as the basic account, which used to be reserved to local banks. Several participants are reducing their banking relationships, usually focusing on core – international – banks.
  • Also, participants reported that FX payments are being approved more quickly, and regulations seem to be easing – there was a lot of discussion about the requirement to bring the balance
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Topics covered in this report: 
Cash Pooling - cross border, Cash Repatriation, Bank Relationships, Funding, FX, Dividends, Cash Pooling - domestic
Service providers discussed in this report: 
ICBC, HSBC, Citi, JP Morgan, Standard Chartered

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Treasury, FX & Banking in Colombia & Peru

Report date: 
24 Jul 2023

Commentary

In our last call on Colombia and Peru in October 2021[https://www.complexcountries.com/treasury-fx-in-colombia-peru], there were concerns about political uncertainty. Since then, the president of Peru has been impeached and a left wing former guerrilla elected president of Colombia has been beset by scandals. So how has this impacted the companies operating in the countries?

In short, not a great deal. Currency volatility continues to be a challenge and reduced foreign investment has hampered growth. But in terms of politics the markets are relatively sanguine as the respective governments stumble along without enough power to make radical changes and the long run potential remains.

From a Latin American perspective both countries are relatively easy to operate in for treasury, with local teams coping well with the challenges.  

Colombia:

  • Most companies repatriate cash via dividends and intercompany loans. The process involves a lot of admin, but it works.
  • Funding is relatively easy but also entails a lot of bureaucracy and it is essential to get communications with DIAN (the tax & customs agency) accurate.
  • Some companies avoid the transaction tax (‘cuatro por mil’) by parking cash in fiduciary accounts for 24 hours. It saves money but, again a lot of form filing.
  • The currency volatility also caused one participant to have their local credit dramatically reduced
  • Citi is the
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Topics covered in this report: 
Cash Repatriation, Bank Relationships, FX, Hedging FX, Funding, T&E Management
Service providers discussed in this report: 
Citi, JP Morgan, BBVA, Santander, BAML, Banco Davivienda, BNP Paribas, Scotia, Bancolombia, Banco de Bogotá, Banco de Credito del Peru

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Treasury, FX & Banking in Vietnam

Report date: 
10 Jul 2023

Commentary

There are some things in life which are always a fixed time in the future: the big joke about nuclear fusion is that it is 30 years away – and it was 30 years away back in 1970. Similar comments have been made about Vietnam’s economic potential: despite being hailed by many as the next China for economic growth, with its population of nearly 100 million people, and high levels of education and entrepreneurship, it has remained one of the more difficult places to do business and manage cash.

  • This call showed that the economy has made progress. Participants generally have businesses which are profitable and generating cash, and obtaining and remitting hard currency is not the major challenge it used to be. However, there is a lot of bureaucracy to be complied with, and it is not plain sailing.
  • Cash repatriation and trapped cash are issues. The only truly viable way of extracting cash from the country is via dividends – this means cash accumulates until the financial year has been closed, audited, and tax paid.
  • One participant has been involved in a situation where cash was repatriated via a prepayment of intercompany royalties – this required approval from the central bank.
  • Intercompany loans out of the country are
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Topics covered in this report: 
Hedging FX, Bank Relationships, Intercompany loans, Cash Repatriation, Trapped cash
Service providers discussed in this report: 
JP Morgan, Standard Chartered, HSBC, DBS, Citi, ANZ

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