Intercompany loans

Managing Bank Relationships in Japan

Report date: 
18 Mar 2024

Commentary

With complex countries, we usually think of emerging markets. Japan is one of the most advanced, largest and affluent economies in the world – but it is also a very complex place for foreign companies to operate in.

Usually, the complexity for treasurers comes from regulation. In Japan, this is not the case: the yen is freely traded in one of the deepest markets; cash can be pooled and swept both within the country and across borders; one participant does POBO there; Japanese banks willingly report transactions and balances by MT 940; it has deep and open capital markets; and four of the world’s twenty largest banks by assets are Japanese. Instead, the complexity comes from a very strong culture, which is often not well understood by non Japanese, and which leads to a different way of doing business.

This call, which was well attended and quite animated, went into the challenges foreign treasurers face in this environment. Peers raised the following:

  • High bank fees: Japanese banks are reluctant to negotiate these down
  • Japanese banks are not used to RFPs for cash management – this is not how the domestic market operates. Many large Japanese companies have strong historical relationships with their banks, which often involve minority shareholdings.
  • While MT 940s are not an issue, one participant faced significant issues getting their Japanese bank to implement even a simple host to host communication
  • Communications challenges: it can be difficult to find Japanese employees who speak good English – very few bankers in domestic operations speak it.
  • The need to carefully manage business meetings: these are usually more formal than in many other cultures: deference to senior personnel is required
  • Difficulty managing onshore operations from a remote location: the local online banking tools are nearly all Japanese language only
  • The language issue is further complicated by the katakana character set
  • Resistance of local teams to change, especially if it involves working with foreign banks
  • Complexity in managing relationships and wallet share with Japanese banks, who are often key global providers of credit and FX
  • The use of company chops instead of signatures, and the related control issues
  • The requirement to use local bank accounts for certain types of tax payments
  • Security and confidentiality in Japanese online payment systems is not best in class – one participant had an issue with a single person (not in HR) making all payroll payments
  • Repatriating cash via dividends and intercompany loans is not a problem, but it brings the usual complications: the need for retained earnings (one participant’s business receives advance payments), withholding tax and currency hedging cost. 

How to handle these problems?

  • One peer did an RFP a few years ago, and awarded

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Topics covered in this report: 
Bank Relationships, Intercompany loans, Dividends, POBO/ROBO, RFPs, Cash Pooling - cross border, Cash Pooling - domestic
Service providers discussed in this report: 
BAML, JP Morgan, MUFG, Mizuho, SMBC, Citi, HSBC, Standard Chartered, Deutsche Bank

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India Corporate Treasury Update

Report date: 
20 Feb 2024

Commentary

Calls on India are always well attended: there is never a shortage of items to discuss. It is already a very large market, and it continues to grow – so all international companies are motivated to manage its many complexities. 

Complexity is something at which India excels: the regulations are many, varied, and never easy to navigate. It can be difficult to know exactly what they are: as often happens, we spent a lot of time trying to establish what is, and what is not, allowed. At the same time, the country has come a long way. Many things which used to be forbidden are now allowed: cash can be brought into and out of the country with relative ease, though not without red tape. The authorities are relatively flexible and business friendly. India is in the vanguard of efforts to move away from cash for retail transactions: this may be mostly for tax reasons, but it reflects the country’s leading position in technology.

At the same time, it remains a very large country, with significant regional variations, including language, climate, culture and religion – so differences will continue to exist. Our conversation covered the following points:

  • The economy continues to perform well, though competition is fierce – and, in some areas, India continues to favour national champions.
  • Operations: most peers had different legal entities in India involved in different activities: manufacturing, R&D, shared service centres, marketing, etc. Intercompany lending within the country, while permitted, can be complicated.
  • Onshore versus centralised treasury: many MNCs have local treasury teams, due to the regulations and complexity. This is beginning to change: several participants are starting to bring India into their centralised structures. 
  • Similarly, most peers are only using international banks in the country, and shutting down relationships with local banks. One participant attributed this in part to a regulatory requirement to link lending activity to transactional business – especially as the foreign banks can now provide complete services.
  • Another peer

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Topics covered in this report: 
Bank Relationships, FX, Hedging FX, Payments - cross border, Intercompany loans, Cash Pooling - domestic, Cash Repatriation, Payments - domestic, Funding
Service providers discussed in this report: 
Citi, HSBC, JP Morgan, BAML, Standard Chartered, BNP Paribas, Deutsche Bank

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Treasury, FX & Banking in Vietnam

Report date: 
10 Jul 2023

Commentary

There are some things in life which are always a fixed time in the future: the big joke about nuclear fusion is that it is 30 years away – and it was 30 years away back in 1970. Similar comments have been made about Vietnam’s economic potential: despite being hailed by many as the next China for economic growth, with its population of nearly 100 million people, and high levels of education and entrepreneurship, it has remained one of the more difficult places to do business and manage cash.

  • This call showed that the economy has made progress. Participants generally have businesses which are profitable and generating cash, and obtaining and remitting hard currency is not the major challenge it used to be. However, there is a lot of bureaucracy to be complied with, and it is not plain sailing.
  • Cash repatriation and trapped cash are issues. The only truly viable way of extracting cash from the country is via dividends – this means cash accumulates until the financial year has been closed, audited, and tax paid.
  • One participant has been involved in a situation where cash was repatriated via a prepayment of intercompany royalties – this required approval from the central bank.
  • Intercompany loans out of the country are
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Topics covered in this report: 
Hedging FX, Bank Relationships, Intercompany loans, Cash Repatriation, Trapped cash
Service providers discussed in this report: 
JP Morgan, Standard Chartered, HSBC, DBS, Citi, ANZ

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Banking & Treasury in Saudi Arabia

Report date: 
17 Apr 2023

Commentary

Saudi Arabia occupies a pivotal, and highly unusual, place in global politics and the world economy. As the world’s largest exporter of oil, and the holder of the second largest reserves of oil and gas, it is an essential part of the global economy – and has traditionally been relatively aligned with western and capitalistic countries. At the same time, it is a profoundly religious absolute monarchy, which practices a particularly conservative brand of Islam. This has always placed limits on its co-operation with western countries – limits which are being tested even more than usual in the current environment.

The current situation is particularly complex, as was clear in the call. Saudi Arabia has always imposed severe restrictions on foreign companies and banks, requiring local partners, and imposing local signatories and approvers for most, if not all, transactions. Limitations on where foreigners could live, and what they could do, have meant that many expatriate employees preferred to live with their families in Dubai, and commute to Saudi for the work week. However, the country has recently launched “Vision 2030”, which aims to open up the country and prepare it for a post oil future. This ranges from promoting tourism, allowing women to drive cars, and potentially allowing alcohol sales in specific places, to mega projects such as building a new city in the desert. It also includes pushing MNCs to transfer their regional headquarters to the kingdom. At the same time, foreign ownership is now allowed, either using a Saudi sponsor (with fees), or by paying 20% taxes. 

These developments are viewed positively by the participants – though several cautioned that there are many conflicting undercurrents in Saudi society, and the situation can always change at short notice. In all cases, Saudi Arabia is a large, and profitable, market, to which all our participants are fully committed, irrespective of the operational challenges.

Treasury practicalities:

  • Nearly all participants sell into Saudi from an offshore location, usually in USD. The currency is pegged to the USD, and there are no exchange controls, so things generally work well.
  • Several participants have opened local branches or subsidiaries, either to provide services or to act as sales offices, or technical offices to manage regulatory issues.
  • To participate in the mega projects being run by the government, it is a requirement to transfer any regional headquarters operation to the kingdom. There is direct competition with other countries in the region for this, particularly the UAE.
  • Saudi regulations state that the bank signatories and transactions mus
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Topics covered in this report: 
Bank Relationships, Banking, Funding, Intercompany loans, Payments - domestic, Payments - cross border
Service providers discussed in this report: 
JP Morgan, BNP Paribas, Citi, HSBC, SABB, National Commercial Bank

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Treasury & FX in India

Report date: 
20 Feb 2023

Commentary

This Treasury Peer Call took place a few days after the announcement that India had officially overtaken China as the most populous country in the world. Given the increasing speculation that India might also replace China as the world’s fastest growing major economy, it seemed opportune to get a view on how things are developing.

All participants are bullish about their businesses in the country. Several already have significant operations, and most see major opportunities. The good news is that several participants are generating meaningful profits and cash – the bad news is that this creates issues in terms of cash investment and repatriation. And, of course, India is India – there are always plenty of regulations to navigate.

Main points and concerns:

  • For those companies who are generating cash, it is a challenge to invest it. Most retain a conservative approach, which means safe investments – these typically return a rate which is below inflation.
  • Cash repatriation is not without issues. The main vehicle is dividends: these attract withholding tax (the rate varies according to the jurisdictions), and are subject to complex tax rules. Cross border pooling is not allowed, and intercompany loans are subject to central bank approval.
  • Within India, cash pooling is
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Topics covered in this report: 
Investments, Hedging FX, Cash Pooling - domestic, Supply Chain Finance, Intercompany loans, HR, Payments-digital, Funding, Cash Repatriation
Service providers discussed in this report: 
Barclays, JP Morgan, BAML, Citi, Standard Chartered, HSBC, Deutsche Bank, BNP Paribas, MUFG, ICICI, HDFC, Kotak Mahindra Bank

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Treasury & FX in Thailand

Report date: 
27 Sep 2022

Commentary

Thailand is a large and relatively prosperous country, with an area close to that of France and a population of nearly 70 million. It has a long tradition of fierce independence – it is the only country in the region which was never colonised. Today, the country participates actively in the global and regional economy – it is a member of ASEAN, but it retains a distinctive approach.

 

The result is a country which is modern and business friendly, but which continues to present some challenges. Generally, our participants find that it works: they are able to do cross-border funding into, and out of, Thailand, and include it in various cash pools. But there are remnants of FX controls – recently relaxed – and it can be challenging to know exactly what the rules are. 

 

Main highlights:

  • It is easy to convert Thai bhat (THB) into foreign currency, usually the USD. Traditionally, there have been documentation requirements, but many participants find these are being relaxed.
  • During the Asian crisis of 1997 to 1998, Thailand forbade the remittance of THB out of the country. This is now allowed, but apparently for the settlement of THB denominated invoices: the consensus was that it.......continues
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Topics covered in this report: 
Cash Pooling - domestic, Cash Pooling - cross border, Funding, Intercompany loans, intercompany netting, Investments
Service providers discussed in this report: 
HSBC, JP Morgan, BAML, Deutsche Bank, Kyriba

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