Treasury Management in Central and Eastern Europe

Q1: What are the main payment methods and cash management techniques in Bulgaria?

A (Rob Ruhl, ING Amsterdam, and Vesselin Mollov, ING Bulgaria):

Payments/clearing systems/instruments

There are two main clearing systems in Bulgaria called RINGS and BISERA. RINGS is Bulgaria’s RTGS system, processing high value and urgent domestic payments. It is operated by the Bulgarian National Bank. BISERA is Bulgaria’s retail payment system, processing the majority of domestic payments. It is operated by Bankservice, a company owned jointly by the Bulgarian National Bank and a number of local commercial banks. Cash remains the dominant payment method in Bulgaria. Electronic credit transfers are the most popular cashless method of making payments, in terms of volume and value. The use of payment cards has increased over recent years. Overdrafts are permitted.

No distinction is made between high- or low-value cross-border payments. There is currently no dedicated mechanism (such as Target) for effecting urgent cross-border payments. In terms of non-urgent EU payments and other cross-border payments, all banks will have their own means of making cross-border payments. There are three different structures, which often work in concert, depending on each bank’s own international coverage.

Cash concentration/zero balancing/target balancing

Some domestic cash concentration techniques are available, although they are not in common use. The participation of accounts held by different legal entities in the same cash concentration structure is subject to restrictions. Specialist legal advice should be sought before a cash concentration structure is implemented. Foreign exchange controls mean that few Bulgarian companies participate in cross-border cash concentration schemes.

Notional pooling

Notional cash pooling is available, although legal advice should be sought before a cash pool is implemented. Cross-border notional cash pooling is not commonly available in Bulgaria.

*This answer is an excerpt from a full-length article by Rob Ruhl, ING Amsterdam, and Vesselin Mollov at ING Bulgaria Bulgaria’s Developing Treasury Environment

Q2: Are corporates in eastern Europe asking for financial supply chain solutions from banks? Are the banks offering such solutions?

A (Edward Till, director, head of trade for Citi, CEE):

The demand for financial supply chain solutions is actually larger in emerging Europe than in western Europe. CEE is becoming the workshop of the European Union (EU), with multinationals setting up production and service facilities across a whole range of industries. Many suppliers and distributors, local and international, are therefore setting up shop here to trade with these large companies, either as distributors or suppliers.

Despite economic growth across the region, access to capital is still well behind what is possible for SMEs further west. For newer companies (especially foreign ones), this problem is compounded by lack of track record or balance sheet to support significant traditional bank lending. The discounting of receivables in all forms (universally referred to as factoring) and pre-shipment financing (often called contract financing) has therefore grown exponentially across the region. It also has a cache, sometimes even a mystique, that seems unusual for those coming from more developed markets.

The main advantage of this kind of financing is that it is forward looking, providing finance against future growth in sales rather than last year’s balance sheet. I suppose in that sense, financial supply chain solutions are well suited to the dynamism of this region.

Q3: What is possible in terms of cash pooling/netting in eastern Europe?

A (Carmen Waaijer, Payments and Cash Management at ING):

Hungary, Czech Republic and Slovakia

There are no exchange controls in Hungary and very few exchange controls in the Czech Republic and Slovakia. Consequently, both cash concentration techniques and notional pooling are available in the three markets:

  • Domestic zero/target balancing – within one or multiple legal entities.
  • Domestic single currency notional pooling – within one or multiple legal entities.
  • Domestic cross-currency notional pooling – within one legal entity.
  • Cross-border zero/target balancing – within one or more legal entities.
  • Cross-border single or cross-currency notional pooling.
  • Domestic cross-currency notional pooling on top of a cross-border zero/target balancing structure.
Poland

Cash pooling is not regulated by Polish law and Poland is one of the few countries in Europe in which stamp duty taxation, knows as the tax on civil law transactions, is still in place. This makes the implementation of cash concentration techniques quite difficult. However, a few banks have created some cash concentration structures that can be implemented without negative stamp duty consequences.

Regarding notional pooling, genuine notional pooling is not allowed as the central bank reserve ratios imposed on banks are calculated on the gross positions. Instead of notional pooling, interest enhancement is available at the domestic level. This is relatively expensive to arrange and, therefore, not widely used. Consequently only a few banks offer it. The following cash pooling structures are available in Poland:

  • Domestic zero/target balancing – within one legal entity or multiple legal entities.
  • Domestic single currency interest enhancement – within one or multiple legal entities.
  • Domestic cross-currency interest enhancement – within one or multiple legal entities.
  • Cross-border zero/target balancing – within one or different legal entities.
  • Domestic cross-currency notional pooling on top of a cross-border zero/target balancing structure.
Romania and Bulgaria

Cash pooling is not regulated in either Romania or Bulgaria. The structures that can be implemented for the time being in these two countries are:

  • Domestic zero/target balancing – within one legal entity.
  • Domestic single currency interest enhancement – within one or multiple legal entities.
  • Domestic cross-currency interest enhancement – within one or multiple legal entities.
  • Cross-border zero/target balancing – within one legal entity.
  • Domestic cross-currency notional pooling on top of a cross-border zero/target balancing structure.
Russia and Ukraine

Due to the very restrictive legal and fiscal framework, domestic cash concentration techniques are not commonly used in either Russia or Ukraine. Resident and non-resident accounts cannot participate in the same cash concentration structure. For the time being, Russian and Ukrainian companies are not allowed to participate in a cross-border cash concentration structure.

*This answer is an answer from a full-length article by Carmen Waaijer, at ING: Cash Pooling in Central and Eastern Europe

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