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Brazil Corporate Treasury Update

Report date: 
27 Mar 2024

Commentary

Brazil is a success story. It often does not receive the credit it deserves, because it remains a difficult and complicated place to do business. But all the treasurers involved in this discussion have large and profitable businesses there – there was a time when most people lost money. On the political front, Brazil has recently seen both left and right wing governments, but both have respected election results, and the economy has continued to progress through it all.

Of course, it is not all rosy: though many rules and administrative processes have been relaxed, much complexity remains. In the past, a local treasury presence was required: it is now possible to run the country from offshore, though a specialist team may still be necessary.

The challenges discussed in the call:

  • Boletos: many customers in Brazil pay using boletos. These are a form of bill of exchange, where a document is prepared, usually by the seller, with all the payment information, including a barcode. This can then be presented by the payer in any location, and payment will be received by the seller in their bank account. This is a good system, but participants complained vehemently about the cost, and banks’ unwillingness to reduce the fees. Other issues:
  • Boletos are often cancelled when they are not paid on time and a new one is issued, instead of charging the intended late payment fees. 
  • Payment of a single invoice is often spread over several boletos, each with different due dates: this causes the very accounts receivable reconciliation issues the system is designed to avoid.
  • Boletos can be issued electronically (e-boletos): these reduce the amount of paper but, disappointingly, the fee reduction is not significant.
  • Some participants regularly do RFPs for this business, and frequently change banks. But fees remain high, and banks are often unwilling to continue.
  • Frequent changes in the process and rules present challenges in keeping the systems updated – this often results in manual processing.
  • One participant noted an improvement in service and processing efficiency.
  • PIX: the good news is that a form of on-line payment, PIX, is available and becoming increasingly popular, even for B2B transactions – and the fees are paid by the payor. The bad news is that the fees are also high, though not as high as for boletos. 
  • Tax payments: there is a requirement to maintain accounts with many local banks to make payments to tax authorities around the country. One participant is very happy with a JPMorgan tool to manage this and eliminate the related local accounts. Another used this tool in the past, but is now achieving the same result with Citi.
  • FX documentation

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Topics covered in this report: 
Bank Relationships, FX, Hedging FX, Receivables, Boletos, payroll, PIX, Tax, Supply Chain Finance
Service providers discussed in this report: 
Bradesco, Itau, Citi, BAML, JP Morgan, Santander, FXall

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Mexico - Corporate Treasury Update

Report date: 
12 Jan 2024

Commentary

In many ways, Mexico is a paradox. It has a vital, and complicated, relationship with its northern neighbour: apart from anything else, migration across its land border into the USA is a significant, and highly contentious, topic in US domestic politics.

But the reality is that Mexico has a thriving economy, and has modernised its financial and banking infrastructure to the point where the consensus on the call was that it is a country where it is relatively easy to work, and where most modern treasury management techniques can be used. There are no exchange controls, cash can be freely transferred across the national borders, and cross border cash pooling is regularly practiced. FX hedging can be done freely both onshore and offshore, and the country is well banked, with both good local banks and most international banks being well represented.

Despite this overall positive environment, we still had a lively call. There are a series of challenges, and some points were not always totally clear. None is particularly serious, but they still take up management time and attention:

  • Citibank operate through a relationship with Banamex. While this works well, several participants reported service level issues, and there were challenges with data not being transmitted through the IT systems. This resulted in manual interventions which should not have been required.
  • Consistent with their global strategy, Citi/Banamex are withdrawing from the retail banking sector. For some participants, this caused a problem, as banks in Mexico share the Latin American practice of giving employees a better deal on their retail banking services if the company pays payroll through them.
  • Otherwise, some participants reported issues setting up and managing local
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Topics covered in this report: 
Bank Accounts, Bank Relationships, Cash Pooling - cross border, intercompany netting, payroll, POBO/ROBO
Service providers discussed in this report: 
Banamex, JP Morgan, HSBC, Bank Mendes Gans, BAML, BBVA, Citi

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Treasury & Banking in Brazil

Report date: 
10 Mar 2023

Commentary

Brazil never disappoints: the term “complex country” applies to it in nearly every respect.

Apart from the usual updates to the constantly changing environment, the purpose of this call was to see whether there is any improvement in the economic situation (inflation has recently been even higher than usual), and whether there is any visible impact from  the recent political turmoil and change of government.

The bottom line is that it is very much business as usual. The Brazilian economy continues to perform well, even if inflation persists and interest rates remain high. However, inflation and interest rates do seem to be levelling off, and the BRL has been relatively stable recently. The country remains a main engine of growth for the LATAM region, and most participants have significant operations there – though everyone finds it to be a tough and highly competitive market.

Brazil is continuing its efforts to simplify its complex tax laws and currency regulations: most people are managing to do cross border intercompany loans, both in and out, and the taxes are being reduced or eliminated. In the meantime, of course, there are still some significant taxes on some types of transactions, and daily operations remain burdensome and complex.

The country is also making big strides in electronic payments: boletos are widely used, and come participants are beginning to use PIX, at least for receipts. Electronic boletos are increasingly supported by even the international banks.

Banking in Brazil is very competitive: many participants use Citi, with varying levels of satisfaction, while JPMorgan are viewed as being aggressive and increasingly

 

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Topics covered in this report: 
Hedging FX, FX, Funding, Investments, Collections - domestic, Tax, payroll, Offshore accounts
Service providers discussed in this report: 
JP Morgan, Citi, Banco de Brasil, Itau, Bradesco

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Winding Down Russia: Treasury Challenges

Report date: 
29 Apr 2022

Commentary

This was our third call on the situation in Russia. It focused on the practical challenges people are facing: nearly all participants are either running down their businesses or continuing on humanitarian grounds for products which are exempted from sanctions, particularly in the healthcare sector. However, as one participant put it, winding down is easier said than done.

Many businesses operate through franchises in foreign countries. Terminating the franchise agreement may not be enough to stop them continuing the business and using the brand name – some high profile companies which have stopped operations still have franchisees who are continuing to trade, using the name.

In some cases, the name remains on the business. This makes it difficult for the brand owner to walk away, as the reputational risk remains.

People in the healthcare sector feel a need to carry on for humanitarian reasons. For them, there are significant logistical challenges getting new shipments into the country: no flights, very little sea freight, so heavy dependency on road transport, with limited willing suppliers. They are encountering an additional issue: sanctions apply based on customs codes, and some health care products have not been appropriately coded.

In other sectors, companies continue to sell down their existing inventory – but even this can be complicated, as fresh inputs can be required to make goods saleable.

Still other participants have operations which are purely local, and do not require imports. These will typically continue to function, though moves are being made to make them fully independent.

Despite all the above, most participants continue to be able to pay down intercompany debt, pay dividends and settle outstanding intercompany invoices.

Cash operations are complicated by the need to segregate payments emanating from sanctioned banks. Again, this seems to work, and customers are usually willing to transfer their payments to non sanctioned banks.

Many Russian entities have taken steps to disguise their real ownership as a means of evading sanctions: some participants are using a database to identify the true beneficial owners to see whether sanctions apply.

Most international banks continue to function, but SocGen recently announced it is selling Rosbank. This raises the concern it may be sanctioned in the future.

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Topics covered in this report: 
Hedging FX, Risk - reputation, KYC, AML, Sanctions, FX, Bank Relationships, payroll, Supply chain, Dividends
Service providers discussed in this report: 
Société Générale, Rosbank, Raiffeisen, Unicredit, Intesa, Citi, HSBC

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