FX

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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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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Topics covered in this report: 
FX, Hedging FX, Cash Repatriation, Trapped cash, Blue chip swap, Funding

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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 Egypt

Report date: 
3 Jul 2023

Commentary

Egypt has been through a tumultuous period recently, with significant economic and political turmoil, severe foreign currency shortages, and a generally difficult operating environment. In this situation, it is a relief that the country is making the headlines a lot less, so it was time to see where things stand.

Overall, the message which emerged is that the country is indeed stable, but that the recovery is taking longer than hoped. The main issue appears to be an IMF package which was agreed at the end of 2022, but whose implementation seems to be bogged down by disagreements over the timetable. Two key elements of the agreement are the liberalisation of the FX market, and the sale of some 32 companies which are currently owned by the government. Unsurprisingly, the government is seeking a longer time to execute the company sales, while foreign investors are waiting for the inevitable currency devaluation before making any significant asset purchases. It was not clear how the country would get out of this impasse.

This leaves our participants to manage through the current situation. Many are in industries which receive preferential treatment for FX, such as pharmaceutical or food related industries. However, even they frequently struggle to get FX allocations. Also, they run a variety of business models, with offshore sales in hard currency and imports for onshore sales in EGP both being common.

The picture which emerged was interesting:

  • The allocation of FX is not decided by the central bank. It is the decision of each bank. However, when a bank runs out of foreign currency, it can no longer process foreign remittances.
  • The main source of the country’s foreign currency is Egyptians working abroad, especially in Saudi Arabia and other Gulf countries. 
  • This means it is better to work with banks who have

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Topics covered in this report: 
Hedging FX, FX, Cash Repatriation, Imports
Service providers discussed in this report: 
Citi, HSBC, Credit Agricole, National Bank of Egypt, Commercial International Bank Egypt, Abu Dhabi Islamic Bank, Mashreq Bank, First Abu Dhabi Bank, AHLI United 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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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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FX & Treasury in Chile

Report date: 
31 Oct 2022

Commentary

For many years, Chile has been the poster child for Latin America: after a very difficult period in the early 1970s, it has become a haven for economic and political stability, with an economy which works well, few or no exchange controls, and an environment which is more business friendly than virtually any other country in the region.

The scenario has been somewhat tarnished since 2019, with violent public protests against rises in the cost if living, and a contentious referendum on changing the constitution – changes which were rejected by a large majority. However, in fairness, it must be said that the current constitution dates from the rule of General Pinochet, and the reaction of all political parties appears to have been that the proposal was too radical, and needs to be modified to reflect the wishes of the electors.

Against this background, all participants in the call confirmed that Chile is business friendly. For one, it has become a major market, while several others have made significant recent investments and acquisitions there. No participant has any serious doubts about the country or its future, and all view the absence of FX controls as greatly simplifying their lives.

However, all is not roses, mostly due to slow progress in administrative areas:

  • There is a lot of bureaucracy. In particular, FX trades must be reported to the central bank, even though they are all allowed.
  • The country seems to be slower than most in adopting digitalised banking. Wet signatures are required for virtually every payment and transaction, with no exceptions, even during COVID. This adds a layer of cost and inefficiency, which is surprising – Argentina and Brazil score better on this.
  • Most foreign banks seem to have a weak presence. Citi operates through a partnership with a local bank, Banco de Chile. This works quite well, but you have to ask, for example, to get the benefit of group pricing or to access Citi’s banking platforms. These are available through Banco de Chile, but they do not necessarily advertise the fact.
  • Many other foreign banks are present, notably Santander and HSBC. But it does not seem to be a focus market for them. 
  • The regulations are onerous, and
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Topics covered in this report: 
Hedging FX, FX, Bank Relationships, KYC, Cash Pooling - cross border, Cash Pooling - domestic
Service providers discussed in this report: 
HSBC, Citi, Santander, BBVA, BAML, JP Morgan, Scotia, Banco de Chile, Banco BCI, BancoEstado, BancoSecurity, 360T, FXall, Deloittes

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