Bank of America

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

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

Commentary

The way treasurers manage banking relations provides a key insight into how they approach their job. This session was no exception – and we had the additional benefit of input from senior banker in Asia and Advisory Board member John Laurens, who shared his view from the other side of the fence.

• Nearly everyone had the same goal: try to get the most efficient banking structure.
• This nearly always involves a general preference for dealing with core international relationship banks over having many local relationships
• However, one participant commented that local banks in Asia often have excellent technology and services – but it is difficult to get HQ to agree to go with them
• In any case, there are many situations where local banks are still required, to support tax payments or local payment systems. China, India, Korea and Japan were the countries where this was most frequent.
• In awarding business to banks, most companies tend to give a preference to the institutions who participate in credit facilities. Exceptions were made when justified by a specific service, but this could become an issue when credit needs increased.
• Several participants have either recently restructured their banking relationships, or are currently doing so. Comments:
  • It is very important to get the local team on board. They will usually accept the outcome and help if they own the decision, and can see clear benefits.
  • The RFP process is useful, but it is important to carefully check the responses. One participant found that banks often tried to sell capabilities they did not yet have – it is important to focus on what they can deliver today. They also found it was beneficial to use...please sign in to continue reading