360T

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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Treasury & FX in Colombia & Peru

Report date: 
25 Nov 2021

Commentary

It is a rare pleasure to have a call on Latin America where the conclusion is that things work well, but that is the case with these two countries. This is even better news, given the turbulent pasts both countries have.

Of course, our Latin American treasurers always enjoy a lively discussion, and this session was no exception. It is still Latin America, so things will never be 100% plain sailing. 

Generally, funding is no problem. Extensive use is made of intercompany loans, and currency hedging is only complicated by the bouts of volatility. One participant has also encountered issues with the value dating of hedges.

The relationships with local banks are strong, and there is often resistance to centralising banking relationships. This usually results in a mix of local and international banks – the local banks are viewed as being necessary, anyway.

As this is Latin America, taxes and the bureaucracy can be onerous. In Colombia, people tend to use trustees to get round a financial transaction tax – the same tax exists in ...please sign in to continue reading

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Topics covered in this report: 
Bank Relationships, Cash Repatriation, Corporate Treasury, FX, Political Risk
Service providers discussed in this report: 
360T, Banco Davivienda, BBVA, BNP Paribas, JP Morgan, Citi

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Treasury & Banking in India

Report date: 
25 Apr 2022

Commentary

This call took place against the background of the war in Ukraine – but it was a useful chance to catch up on the ever improving situation in India.

India has always been complex, with many regulations and poor clarity. This is clear from the comments below, where participants often have different experiences on the same topic. But, overall, the economy is working well, people are making profits (this was not always the case), and regulations are becoming more user friendly, even if they remain challenging.

Business structure: most participants have one legal entity which faces customers, and a different one which acts as an international shared service centre, invoicing other companies in the group on a cost plus basis. This can lead to inefficiencies in cash management: everyone struggles with domestic cash pooling and intercompany loans, while the shared service centre has guaranteed profits and cash generation. One participant has all activities in the same legal entity, which makes life easier.

Intercompany loans within India create transfer pricing and tax challenges: there is a required or recommended interest rate of 8%, compared to deposit rates of 4% to 4.5%.

Cross border cash pooling and intercompany loans are generally very difficult: many approvals are required. Dividends are subjected to withholding tax of 15%, which is sufficient to deter some, but not all, participants from paying dividends. However, this is an improvement on the previous 22% dividend tax, which was often not creditable against tax in the receiving country.

Netting of intercompany invoices is not allowed. However, one participant is using an Indian entity to centralise all invoices within the country using a POBO/ROBO process, and limiting the transactions to a single, large, gross in/gross out settlement. They are also looking at a non resident INR account.

Participants mostly use deposits for investing their excess cash. One is using the TIDE deposit: the bank automatically sweeps fixed amounts of cash above a defined threshold into deposits. These receive a higher rate if they remain for more than two weeks, but can be released if needed, with a lower interest rate being paid.

Most participants use international banks, mainly Citi and BNPP. Most complained that Citi are reluctant to...please sign in to continue reading

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Topics covered in this report: 
Bank Accounts, Tide deposits, POBO/ROBO, Cash Repatriation, FX, Cash Pooling - domestic, Intercompany loans, Cash Pooling - cross border, Dividends, Netting, Tax
Service providers discussed in this report: 
JP Morgan, HSBC, BNP Paribas, Citi, ICICI, FXall, 360T, CoProcess

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