Funding

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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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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Corporate Treasury Challenges in Argentina

Report date: 
6 Nov 2023

Every call on Argentina comes down to the same question: when are things going to improve? Sadly, the answer is usually the same: no improvement in sight, so companies are still dealing with the toxic mixture of high inflation, high currency depreciation, a rigid tax regime and severe exchange controls.

This call took place against the backdrop of the first round of the presidential election, with a real concern that one of the candidates would pursue some unorthodox policies, including fully dollarising the economy. The more conventional candidate won the first round, but the future remains uncertain. 

So this call was no exception: not only is there no improvement in sight, but the operating environment continues to get more difficult:

  • Even companies in high priority industries, such as health care, are finding it increasingly difficult to get foreign currency to settle import bills.
  • The 7.5% import tax has

 

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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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Banking & Treasury in Saudi Arabia

Report date: 
17 Apr 2023

Commentary

Saudi Arabia occupies a pivotal, and highly unusual, place in global politics and the world economy. As the world’s largest exporter of oil, and the holder of the second largest reserves of oil and gas, it is an essential part of the global economy – and has traditionally been relatively aligned with western and capitalistic countries. At the same time, it is a profoundly religious absolute monarchy, which practices a particularly conservative brand of Islam. This has always placed limits on its co-operation with western countries – limits which are being tested even more than usual in the current environment.

The current situation is particularly complex, as was clear in the call. Saudi Arabia has always imposed severe restrictions on foreign companies and banks, requiring local partners, and imposing local signatories and approvers for most, if not all, transactions. Limitations on where foreigners could live, and what they could do, have meant that many expatriate employees preferred to live with their families in Dubai, and commute to Saudi for the work week. However, the country has recently launched “Vision 2030”, which aims to open up the country and prepare it for a post oil future. This ranges from promoting tourism, allowing women to drive cars, and potentially allowing alcohol sales in specific places, to mega projects such as building a new city in the desert. It also includes pushing MNCs to transfer their regional headquarters to the kingdom. At the same time, foreign ownership is now allowed, either using a Saudi sponsor (with fees), or by paying 20% taxes. 

These developments are viewed positively by the participants – though several cautioned that there are many conflicting undercurrents in Saudi society, and the situation can always change at short notice. In all cases, Saudi Arabia is a large, and profitable, market, to which all our participants are fully committed, irrespective of the operational challenges.

Treasury practicalities:

  • Nearly all participants sell into Saudi from an offshore location, usually in USD. The currency is pegged to the USD, and there are no exchange controls, so things generally work well.
  • Several participants have opened local branches or subsidiaries, either to provide services or to act as sales offices, or technical offices to manage regulatory issues.
  • To participate in the mega projects being run by the government, it is a requirement to transfer any regional headquarters operation to the kingdom. There is direct competition with other countries in the region for this, particularly the UAE.
  • Saudi regulations state that the bank signatories and transactions mus
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Treasury & Banking in Brazil

Report date: 
10 Mar 2023

Commentary

Brazil never disappoints: the term “complex country” applies to it in nearly every respect.

Apart from the usual updates to the constantly changing environment, the purpose of this call was to see whether there is any improvement in the economic situation (inflation has recently been even higher than usual), and whether there is any visible impact from  the recent political turmoil and change of government.

The bottom line is that it is very much business as usual. The Brazilian economy continues to perform well, even if inflation persists and interest rates remain high. However, inflation and interest rates do seem to be levelling off, and the BRL has been relatively stable recently. The country remains a main engine of growth for the LATAM region, and most participants have significant operations there – though everyone finds it to be a tough and highly competitive market.

Brazil is continuing its efforts to simplify its complex tax laws and currency regulations: most people are managing to do cross border intercompany loans, both in and out, and the taxes are being reduced or eliminated. In the meantime, of course, there are still some significant taxes on some types of transactions, and daily operations remain burdensome and complex.

The country is also making big strides in electronic payments: boletos are widely used, and come participants are beginning to use PIX, at least for receipts. Electronic boletos are increasingly supported by even the international banks.

Banking in Brazil is very competitive: many participants use Citi, with varying levels of satisfaction, while JPMorgan are viewed as being aggressive and increasingly

 

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Treasury & FX in India

Report date: 
20 Feb 2023

Commentary

This Treasury Peer Call took place a few days after the announcement that India had officially overtaken China as the most populous country in the world. Given the increasing speculation that India might also replace China as the world’s fastest growing major economy, it seemed opportune to get a view on how things are developing.

All participants are bullish about their businesses in the country. Several already have significant operations, and most see major opportunities. The good news is that several participants are generating meaningful profits and cash – the bad news is that this creates issues in terms of cash investment and repatriation. And, of course, India is India – there are always plenty of regulations to navigate.

Main points and concerns:

  • For those companies who are generating cash, it is a challenge to invest it. Most retain a conservative approach, which means safe investments – these typically return a rate which is below inflation.
  • Cash repatriation is not without issues. The main vehicle is dividends: these attract withholding tax (the rate varies according to the jurisdictions), and are subject to complex tax rules. Cross border pooling is not allowed, and intercompany loans are subject to central bank approval.
  • Within India, cash pooling is
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Treasury & FX in Bangladesh, Pakistan & Sri Lanka

Report date: 
20 Jan 2023

Commentary

Pakistan, Bangladesh, Sri Lanka – three countries with sizeable populations and even bigger economic and social problems. They are difficult places to do business at the best of times – but they have become even more problematic with recent world events, limiting tourism receipts in Sri Lanka and restricting the apparel export business in Bangladesh.

The themes across the three countries were remarkably consistent, though there are variations in the detail:

  • For all our participants, these are important markets, so they are staying there, even though it is very difficult to get currency out. However, one participant is in the process of divesting their entity in Pakistan.
  • FX has always been an issue in these countries, but it has got worse recently. However, the prospect of an IMF package has led to some improvement in Sri Lanka.
  • Officially, none of the countries has strict exchange control regulations, but in practice, they are restricting the outflows of hard currency by a series of administrative measures. Goods imports tend to be prioritised over services, royalties and dividends.
  • In Pakistan, central bank approval is required for all
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