Asia Pacific: An End-of-year Wrap-up

This year also began with worries that China, for years a stable powerhouse of annual double digit economic growth, was poised to slow sharply. More recently concerns on China have focused on a series of uncertain regulatory changes and an anti-bribery campaign, with international companies such as GlaxoSmithKline and Danone in the line of fire.

Nevertheless, even with the apparent turmoil it is curious to note that the role of the treasurer, while gaining in visibility, hasn’t fundamentally changed over the years. For the vast majority the core focus continues to be on streamlining and reducing transactional costs, providing an effective control framework and helping the business make the right decisions to improve funding and finance performance.

The top regional priorities of 2013, as outlined in the Bank of America Merrill Lynch (BofA Merrill) and SunGard Asia Pacific Treasury Barometer were:

  • Cash forecasting and visibility.
  • Connectivity.
  • Bank account rationalisation.

The treasury fundamentals of cash and visibility ranked as the most important, while yield enhancement and counterparty risk faded in comparison. It is clear that over the past year many have come to realise that the key challenge is execution. We have seen a number of the top performing treasury functions defining their success through a clear and a different vision, through focusing on internal processes, policies and procedures for the quickest wins, while leveraging technology for long-term engagement to make real progress on their operations.

Understanding the impact of pending regulatory change has also been a closely watched arena in 2013.There is a slew of impending changes across the region, predominantly in South East Asia, India and China, which have the potential to significantly impact on trapped cash, investment and financing options as well as internal structures around in-house banks (IHBs) and netting pooling facilities.

At this point appetite for these new regimes is limited, with many corporations taking a ‘wait and see’ perspective. For most, these changes remain a mere curiosity and will have limited impact in the coming several months. In many cases change has been deferred in favour of refinements or re-regulations, rather than the necessary deregulation. Change is badly needed to enable the truly global treasury where positive balances from one market can be used to be used to offset borrowings elsewhere in the business. However it will take time for the impact of these refinements on domestic regimes to filter through into any real operational structures. Inevitably, enthusiasm for these regulations will depend on the company’s business model, its cash needs, local law and regulation, the cost involved and its willingness to plan its liquidity strategy.

Moving into 2014

It is clear however that the cost/benefits to structures will be a hotly-discussed topic over the coming 12 months as treasuries access the impact on:

  •  Improvements in structural efficiencies.
  •  Reduction in operational costs and complexity.
  •  Overall integration of systems and operations.

Even more so the transfer pricing impact and cost benefits of onshore/offshore cash will continue throughout the year, as treasurers debate the redeployment of previously-trapped funds both at the local and regional/global levels of their organisation. Many already cite the attractive on-shore interest rates offered as key, outweighing the benefits of offshoring cash in their hesitation to make any real changes to their current treasury structures. For those with a preference for moving trapped cash offshore, transfer pricing and optimal funding structures will spark a heated debate; the choice between single or multiple centres in Hong Kong and/or Singapore to meet their regional funding requirements, and the potential tax implications.

Likewise centralisation will be back in the spotlight, with many industry commentators already discussing the relationships between regional treasury centres and the key decision makers on the strategy of the treasury. Many will be forced to reconsider the benefits of de-centralisation or the use of multi- jurisdictional models, which would move greater autonomy of higher strategic decisions to regional treasury centres while leaving relationship management with local banks back at local subsidiaries. Such multi-jurisdictional models would enable treasuries to focus on cost containment, through better management of tighter regionally localized policies and procedures, while maintaining tighter relationships with their local sources of finance. Leveraging technology will be paramount for long-term enablement of lean, efficient and highly transparent operations.

Talent and work force capabilities ranked low in the 2013 priorities, as most firms had little budget or plans for development or growth in teams. In 2014 finding, nurturing and developing talent is anticipated to take a greater priority, especially in those markets mentioned earlier that are under a flurry of regulatory change.

Overall, at least until we begin to see a marked change in the global economy, volatility, uncertainty and the new normal will persist. The sharp refocus on the role of treasurer will see a move from reactive to proactive management of cash and risk – for most this will mean a reflection on the internal barriers and bottlenecks across reporting, inter-connectivity of systems, policies and people.

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