BNP Paribas

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, Bank of America, Banco Davivienda, BNP Paribas, Scotia, Bancolombia, Banco de Bogotá, Banco de Credito del Peru

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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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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 & 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 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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Argentina Treasury & FX update

Report date: 
31 Jan 2022

Commentary

The Argentina saga continues, though there seems to be some evidence of stabilisation.

Inflation continues at about 50% per annum.

It seems to be reasonably possible to get hard currency to pay for imports from third parties, as long as the import has been properly registered and approved, is from a third party, and is more recent than March 2021.

On the other hand, it is very difficult to get approval for intercompany remittances, even if these are for goods. Old outstanding balances are basically frozen, with very little progress on remitting them out.

Currency hedging is difficult to obtain, and prohibitively expensive. Most participants have given up trying to hedge peso/dollar exposures.

Most people are seeing significant build ups of peso cash. It is difficult to earn a decent return on this cash – maximum interest paid tends to be between 20% and 30%, i.e., a net loss of value of 20% after inflation. Some foreign banks, such as Citi, will not accept peso deposits.

This situation can lead to significant P&L exposure, as companies record FX losses on their dollar denominated liabilities – especially the intercompany ones.

Most participants continue to do business in Argentina, because it is viewed as a strategic market. Also, many have to support international customers, who do business there. 

As always, our members are adopting a series of interesting and innovative measures to cope with this situation. There is a lot of detail below – the quick summary is:...please sign in to continue reading

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Topics covered in this report: 
Inflation, Payments - cross border, Payments - intercompany, Cash - deposits, Hedging FX, Bonds - US dollar linked, Cash Repatriation, Contado con Liqui, Blue chip swap, Invoicing
Service providers discussed in this report: 
Banco de la Nacion Argentina, Banco Galicia, BBVA, BNP Paribas, Citi, HSBC, Santander, ICBC

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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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