Funding

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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Topics covered in this report: 
Bank Relationships, Banking, Funding, Intercompany loans, Payments - domestic, Payments - cross border
Service providers discussed in this report: 
JP Morgan, BNP Paribas, Citi, HSBC, SABB, National Commercial Bank

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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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Topics covered in this report: 
Hedging FX, FX, Funding, Investments, Collections - domestic, Tax, payroll, Offshore accounts
Service providers discussed in this report: 
JP Morgan, Citi, Banco de Brasil, Itau, Bradesco

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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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Topics covered in this report: 
Investments, Hedging FX, Cash Pooling - domestic, Supply Chain Finance, Intercompany loans, HR, Payments-digital, Funding, Cash Repatriation
Service providers discussed in this report: 
Barclays, JP Morgan, Bank of America, Citi, Standard Chartered, HSBC, Deutsche Bank, BNP Paribas, MUFG, ICICI, HDFC, Kotak Mahindra Bank

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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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Topics covered in this report: 
Hedging FX, Cash Repatriation, Dividends, Royalties, Funding, Intercompany invoices, Letters of Credit (LC), Bank Relationships, Investing, Imports, intercompany netting
Service providers discussed in this report: 
HSBC, Standard Chartered, Deutsche Bank, Citi, Sampath Bank, Habib Bank, Commercial Bank (Sri Lanka)

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FX & Treasury in Turkey

Report date: 
29 Nov 2022

Commentary

Europe meets Asia in Istanbul – and Turkey is very much at the crossroads when it comes to a lot of the cultural, geopolitical and even military issues which are currently roiling the world. Despite all the turmoil, Turkey remains a relatively open and thriving economy, and it is a significant market in its own right for several participants.

Turkey has been struggling for several years with a high inflation rate, and this is causing issues for all the participants. Despite this, business seems to continue and be reasonably healthy for all of them. The high inflation rate causes a series of problems, but all participants are able to fund their businesses and repatriate cash. The challenges:

  • High interest rates, though these have now fallen to a little over 10%
  • Inflation officially at 85% - but unofficial estimates are up to 150%
  • Scarcity of bank funding: given the above, it is not surprising that banks are not willing to lend – especially as the central bank now requires a deposit of 30% of the amount lent, at 0% for the first 30 days.
  • Some participants have moved to cross-border intercompany funding, onshore intercompany loans between entities, and equity, as required.
  • One participant is looking at cross border intercompany funding from a subsidiary in a third country which has excess cash. The documentation is proving very challenging.
  • Accounting: officially, Turkey has hyperinflation (over 100% in the last three years), which means the HQ’s currency has to be used as the functional currency for accounting, under both IFRS and US GAAP.
  • Hedging:
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Topics covered in this report: 
Inflation, Pricing, Hedging FX, Funding, Bank Relationships, Payments - cross border, Collections - domestic
Service providers discussed in this report: 
BNPP, TEB, Garanti BBVA, HSBC, Citi

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FX & Treasury in Egypt

Report date: 
1 Nov 2022

Commentary

Egypt is a challenging environment – but one which seems to work overall. The country went through a bad period in 2015/2017, when foreign currency was auctioned, and in very scarce supply. The situation then improved, but has recently deteriorated again. This is hardly surprising, given the role tourism plays in the economy, and the combined impacts of COVID and the Ukraine war.

The situation reported by all participants is that there are no formal exchange controls, but banks are rationing hard currency according to a priority system, under which essential goods, such as food and pharmaceutical goods, get paid first, and items such as services, royalties and intercompany debt are satisfied last – if there is any currency left. The way in which this is implemented varies from bank to bank, so it is vitally important to maintain good relationships with your banks. The common themes were:

  • Most participants sell hardware offshore in hard currency, and provide services onshore billed in Egyptian pounds. This has worked well, but the distributors are finding it increasingly difficult to get access to the hard currency.
  • Some are requiring LCs, on the grounds these improve the chances of getting hard currency when payment is due. However, banks are reluctant to issue them, and they can be very expensive.
  • Egypt is in advanced negotiations with the IMF over an aid package, which should ease the payment issues. This is expected to be accompanied by a devaluation: this is further complicating the FX
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Topics covered in this report: 
FX, Hedging FX, Letters of Credit (LC), Funding, Cash Repatriation
Service providers discussed in this report: 
Citi, HSBC

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Treasury & FX in Thailand

Report date: 
27 Sep 2022

Commentary

Thailand is a large and relatively prosperous country, with an area close to that of France and a population of nearly 70 million. It has a long tradition of fierce independence – it is the only country in the region which was never colonised. Today, the country participates actively in the global and regional economy – it is a member of ASEAN, but it retains a distinctive approach.

 

The result is a country which is modern and business friendly, but which continues to present some challenges. Generally, our participants find that it works: they are able to do cross-border funding into, and out of, Thailand, and include it in various cash pools. But there are remnants of FX controls – recently relaxed – and it can be challenging to know exactly what the rules are. 

 

Main highlights:

  • It is easy to convert Thai bhat (THB) into foreign currency, usually the USD. Traditionally, there have been documentation requirements, but many participants find these are being relaxed.
  • During the Asian crisis of 1997 to 1998, Thailand forbade the remittance of THB out of the country. This is now allowed, but apparently for the settlement of THB denominated invoices: the consensus was that it.......continues
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Topics covered in this report: 
Cash Pooling - domestic, Cash Pooling - cross border, Funding, Intercompany loans, intercompany netting, Investments
Service providers discussed in this report: 
HSBC, JP Morgan, Bank of America, Deutsche Bank, Kyriba

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