Strategic Cash Management in Asia

Participants in the recent gtnews International Cash Management Strategy course in Singapore gained a wealth of knowledge about all aspects of the vital cash management function. Trainer Michèle Allman-Ward combined her long experience in cash management at banks with strategic insights gained through consulting for clients worldwide to provide valuable learning on cash management. Allman-Ward shared her thoughts on key trends in cash management in the Asia-Pacific region with gtnews.

Rise of the Renminbi

The most notable development, she said, is the growth in importance of the renminbi in the region outside China. The renminbi trade settlement scheme in Asia and beyond continues to expand, for example, and some forecasters foresee the renminbi accounting for over 30% of settlement in the Association of Southeast Asian Nations (ASEAN) and over half in Hong Kong within just a few years. Further changes in the exchange rates for the renminbi may also further heighten cash managers’ focus on the renminbi. Perhaps we should forget the euro becoming the next reserve currency, she said, and ‘think renminbi’.

A related trend is the ongoing development of creative solutions for cash management in China. While “the actual products and services that banks can provide to both domestic and multinational clients is still quite limited,” as Zennon Kapron noted in gtnews last month, some companies are finding ways to manage liquidity effectively. As one example, Allman-Ward surprised some cash managers in the course when she mentioned that at least one company has found a way to use notional pooling in China. She expects the move towards creative solutions like this to increase, and some of the methods may well be exported to other markets.

While there is a broad trend towards treasury department centralisation, Allman-Ward said, there is also a move to limited devolvement, returning some responsibility to the local level so that staff in each location take greater responsibility and have greater accountability for their work. Even as Singapore and Hong Kong vie to be hubs for treasury centralisation, some companies may leverage the hubs while still increasing local responsibilities for daily transactions.

Trends in Technology

Increased use of technology, which is another key trend Allman-Ward noted, can be one of the enablers for both the centralisation of cash management as well as greater responsibility at the local level. Technology can also enable greater visibility of cash throughout the organisation. In some companies there is also more outsourcing of this technology, she noted, as IT grows increasingly complex and as treasury managers prefer to use their scarce resources to focus more on their core business than on technology implementation.

Allman-Ward noted that there is a trend towards shortening cycles in net settlement systems. Whereas the focus before was on the value of the transaction, she said, the focus is moving towards speed and finality of settlement.

Optimising Working Capital

One of the biggest challenges for management of working capital, Allman-Ward noted, is managing through influence. Departments ranging from sales to operations and IT are all involved in processes that could optimise working capital. Since treasury obviously does not have direct responsibility for all these functions, managers need to increase their influencing skills to ensure cooperation that will enable optimal levels of working capital.

A major bright spot for cash management professionals is that the strategic importance of treasury and cash management should remain quite high even as the financial crisis eases and economic growth in Asia increases. Effective cash management is such an ingrained part of the strategic framework in most companies now, Allman-Ward said, that there is little chance of it reverting back to the lower focus it had previously.

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