Santander

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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Approaches to Investing Trapped Cash

Report date: 
2 May 2023

Commentary

All international companies put a lot of effort into avoiding having cash trapped in emerging countries. But, despite our best efforts, there are still situations where cash accumulates in places from which it can’t be repatriated. This quickly becomes a lose/lose situation for the MNC: often the countries involved have high rates of inflation, and usually provide low rates of return on bank deposits – or even no return at all. So the cash loses its economic value, while counterparty risk quickly becomes an issue, over and above the sovereign risk concerns. Further, depending on the company’s accounting policies, exchange losses can negatively impact reported profits, as the local currency depreciates.

The purpose of this call was to discuss how to make the best of this bad situation – to look for ways of managing the issue.

  • Generally, there was consensus that standard risk management approaches continue to apply. No-one is prepared to ignore their usual principles.
  • However, there was consensus that some flexibility may be appropriate. The question is – how much?
  • The first problem is bank deposits: all participants preferred to continue to use international banks, even if they often provide lower rates than local ones. The counterparty risk issues with local banks were not viewed as sufficient to offset any increased return.
  • Most participants were in favour of putting pressure on the international banks to increase rates: in Latin America,  the European banks were generally viewed as being more responsive than their American counterparts, with Santander being used frequently: BBVA was
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Topics covered in this report: 
Trapped cash
Service providers discussed in this report: 
BBVA, Santander

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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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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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