Corporations across the world saw a paradigm shift in
growth and funding from September 2008 onwards. The latter, once inexpensive
and easily accessible, has become increasingly difficult and expensive to
obtain; indeed in many cases available only to the largest of corporates. The
new normal has also seen a sharp refocus on treasury and growth in the role of
the treasurer, who is now tasked with increasing responsibilities and pressures
around the new challenges of balancing liquidity and risk.
outset of the crisis many of Asia’s corporates were better prepared after
having learnt first-hand from the experiences of the 1997-98 Asian financial
crisis. Likewise, the complexities of regional bank lending regimes has long
ensured that local firms were familiar with alternative financing sources, now
a critical driver of success in overcoming the reduction in available bank
lending. Even so, at the depths of the crisis most companies came to the
realisation that these dilemmas of growth, funding and risk mixed, with the
realities of low cash reserves, put them at real and significant risk. For many
it was most likely that the markets could stay irrational far longer than they
could stay solvent. This hastened their need to shore up financing and a slew
of firms across the region, even those with limited or no exposure to troubled
markets, rushed to issue bonds and secure financing before the markets dried
Most firms have now come to terms with the realities of the new
normal. Some endeavour to exploit the changes through aggressive international
growth or bargain hunting for prime assets within international markets, as we
have seen with some deals coming from India, China and the Philippines into
Europe and the US. However, the majority of firms continue to place a higher
priority on stability and caution with an increased focus on risk, including
measuring counterparty risks and implementing more sophisticated systems to
monitor and measure risk.
While measuring risk remains a priority,
it is interesting to note that risk teams themselves have been traditionally
overlooked, understaffed and largely underfunded. However, with risk and
compliance now a top issue concerning long-term security for most c-level
executives, we will see a focused interest on building out of risk teams.
Likewise, most firms in Asia have experienced years of unhindered growth, but
now many have begun a journey to ‘right-sizing’, or identifying the true focus
of their business and reducing costs in areas that fall outside that focus,
often among top-heavy executive structures across their organizations.
A Changed Stance
Shifting from a reactive to
proactive stance to deal with changes and challenges, treasurers and CFOs are
being forced to become forward-looking, steering the company towards safety and
implementing more consistent monitoring to ensure that they then remain there.
Firms have grown more conservative by reducing debt and stockpiling cash. As a
result, the treasury department continues to grow in prominence and many
treasurers have introduced new systems and protocols to manage the increase in
Improving working capital management continues to
be a top priority, as the importance of a functional cash flow structure has
become vital. Among the biggest challenges to a functional cash flow structure
has been poor cash visibility. Indeed, in a recent survey conducted jointly by
SunGard and Bank of America Merrill Lynch (BAML), treasurers in the
Asia-Pacific region identified cash visibility as their most pressing concern,
with more than 60% of treasurers indicating its improvement as a top priority
in the next year. With good reason – optimal cash visibility enables the
treasurer to effectively move cash around their organisation and provide
internal funding rather than relying on more expensive or increasingly
inaccessible external funding. Treasurers can prevent not only a negative
working capital cycle, but can even provide capital for growth during times of
Even before the new normal, optimal cash visibility had
been a challenge, especially given the years of inorganic and international
growth, with many firms struggling across multiple platforms that are not
integrated with the main office systems. Visibility continues to be hampered by
the tools utilised in the treasury department as many firms operate with
multiple ad-hoc spreadsheets that must be manually consolidated, a process that
is not only time-consuming but also creates a high likelihood for operational
risk. In the current environment, having a window into cash and reducing risk
has been not only a critical driver of success but, for many, solvency itself.
Visibility can also be hampered by multiple bank accounts.
Maintaining bank accounts in each country where a company does business and
accessing those accounts regularly to update information can greatly reduce
visibility into cash, as treasurers often use each banks’ e-banking site to
view their balances and then manually input that information into their system.
Bank account management is often handled locally by a subsidiary, rather than
in a centralised location, creating additional steps in the communications
process. Many companies identified rationalizing bank accounts as another top
priority for the next 12-24 months. However, this is an area where regulations
can hinder advancements.
While connecting to banks via SWIFT can
vastly simplify information gathering, across Asia many individual countries
still have requirements for formats that can prevent bank account management
from being handled centrally. For example, only Australia, Hong Kong and
Singapore support digital signatures. In many countries, accounts must still be
opened in person at the local bank branch. In order to effectively compete in
the new environment, improving visibility through better bank account
management will be a key issue for firms in Asia. Moreover it is likely that we
will also see a significant push for bank relationship rationalisation, with
firms looking to gain an edge by leveraging economies of scale with their
bankers by moving to a two or three core banks structure
A further key to cash management is functional
cash flow forecasting. Working across different time zones, subsidiaries,
regulatory regimes and internal systems, many of which lack integration, it is
easy to understand why treasurers so frequently complain of lack of reporting
processes, limited resources and inaccurate sales projections. A common concern
across the globe, it is only further compounded by language, culture and the
regional fragmentation across Asia and a critical barrier to proper cash
management. Improving processes is a key area where treasurers can make strides
to implement changes. While they may have less control over resources and sales
projections, they can strive to increase awareness in the organisation of the
effect that these issues can have on cash management.
optimal cash visibility, treasurers still face challenges to effective cash
flow management. Across Asia in particular, the challenge of multiple
currencies, combined with strict country-specific laws regarding currency
movements and finance structures, can thwart intercompany lending. While
in-house banking remains a logical next step for many of Asia’s largest
organisations, for most it will remain elusive for some time, in part because
of the depth of organisational complexities but also due to the myriad web of
fragmented regulations across the region. For those contemplating such a
structure the most likely approach will be step-by-step, initially rolling out
to countries such as Hong Kong, Singapore, Australia and New Zealand which pose
little difficulty to cross-border cash flow. Then, as regulatory regimes ease,
expanding to other more strictly controlled countries like China, Indonesia,
India or Vietnam.
In short, five years on from the collapse of
Lehman Brothers and following a series of country-specific natural disasters,
firms across both Asia and elsewhere in the world were shocked into action. The
results of this shock are still being seen as the treasury and compliance
departments have gained in prominence and increased functions. An increased
focus on cash flow management and overall efficiency are a few of the changes
seen in firms to manage the heightened uncertainty.
We have been witness to a series of significant security events recently around payment execution, from Leoni in Germany through to ABB in South Korea and SWIFT in Bangladesh to name a few of the major headlines.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?