Standard Chartered

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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China Corporate Treasury Update

Report date: 
13 Nov 2023

Commentary

With recent events, there has been less media focus on China. The news related to China has been about trade tensions with the US, the extent of China’s relationship with Russia, and the issues related to the real estate sector. Even COVID has tended to fade into the background, with the economic impact of the extended lockdowns and the disappointing pace of the recovery.

The purpose of this call was to find out how our members are finding the business and regulatory environment in China, and the extent to which their operations and treasury management are being impacted.

The overwhelming response was that it is very much business as usual – both in the good and bad respects. Participants on the call come from a variety of industries: while some, especially those facing the consumer, are seeing a significant slowdown, some continue to see growth. Everyone saw current difficulties as being transient, and nobody was looking to reduce their presence. The call quickly got into the operational challenges China presents – it was the familiar scenario of regulations which are always changing, are often not totally clear, and surprises.

  • Chinese banks. One participant reported that one local bank, ICBC, had proved to be very proactive in helping their company automate several processes, using new technology. This is a big step forward, as Chinese banks have traditionally preferred to avoid this kind of engagement with foreign companies. 
  • At the same time, there was a feeling that, as their traditional real estate lending activities have come under pressure, several Chinese banks are now more willing to lend to foreign companies.
  • At the same time, most participants prefer to limit their relationships to the core foreign banks: this is becoming easier, as foreign banks are now able to provide services, such as the basic account, which used to be reserved to local banks. Several participants are reducing their banking relationships, usually focusing on core – international – banks.
  • Also, participants reported that FX payments are being approved more quickly, and regulations seem to be easing – there was a lot of discussion about the requirement to bring the balance
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Topics covered in this report: 
Cash Pooling - cross border, Cash Repatriation, Bank Relationships, Funding, FX, Dividends, Cash Pooling - domestic
Service providers discussed in this report: 
ICBC, HSBC, Citi, JP Morgan, Standard Chartered

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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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Treasury FX & Banking in Nigeria

Report date: 
12 Jun 2023

Commentary

If a country ever deserved the term “Complex Country”, it has to be Nigeria. The country itself has a complex composition: it is made up of many varied ethnic groups who have a long history of strife between each other, including a very bloody civil war in the twentieth century. It has immense mineral wealth, especially oil, and some very crowded cities, which are often home to massive traffic jams. Despite the oil riches, the country has huge economic issues and a long history of exchange controls and significant devaluations – the naira has gone from parity with the US dollar in the 1970s to between 450 and 600 to the dollar today – depending on whether you use the official or the black market rate.

This brings us to one of the key challenges facing international companies operating in the country. The many regulations are applied in ways which are not always transparent, and there are many local players who show astounding creativity in finding ways round them. So the MNC’s dilemma: how do I make sure these solutions are truly legal before I use them?

In short, welcome to Africa.

Whatever the regulatory situation, Nigeria has a population of 80 million people, oil wealth, and a large diaspora. So it is an important market that is difficult to ignore. Participants all face the same issues:

  • Difficulty accessing foreign currency
  • Assessing various proposals, including brokers, private FX sales, buying offshore bonds
  • Trapped cash, and how to invest it
  • Which banks to deal with? Local banks are needed for collections in remote areas, and they usually
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Topics covered in this report: 
Hedging FX, Cash - deposits, Cash Repatriation, Trapped cash, Investments
Service providers discussed in this report: 
Citi, Crown Agents Bank, Standard Chartered, Stanbic Asset Management, United Capital, Zenith Bank, Guaranty Trust

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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 Bangladesh, Pakistan & Sri Lanka

Report date: 
20 Jan 2023

Commentary

Pakistan, Bangladesh, Sri Lanka – three countries with sizeable populations and even bigger economic and social problems. They are difficult places to do business at the best of times – but they have become even more problematic with recent world events, limiting tourism receipts in Sri Lanka and restricting the apparel export business in Bangladesh.

The themes across the three countries were remarkably consistent, though there are variations in the detail:

  • For all our participants, these are important markets, so they are staying there, even though it is very difficult to get currency out. However, one participant is in the process of divesting their entity in Pakistan.
  • FX has always been an issue in these countries, but it has got worse recently. However, the prospect of an IMF package has led to some improvement in Sri Lanka.
  • Officially, none of the countries has strict exchange control regulations, but in practice, they are restricting the outflows of hard currency by a series of administrative measures. Goods imports tend to be prioritised over services, royalties and dividends.
  • In Pakistan, central bank approval is required for all
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Topics covered in this report: 
Hedging FX, Cash Repatriation, Dividends, Royalties, Funding, Intercompany invoices, Letters of Credit (LC), Bank Relationships, Investing, Imports, intercompany netting
Service providers discussed in this report: 
HSBC, Standard Chartered, Deutsche Bank, Citi, Sampath Bank, Habib Bank, Commercial Bank (Sri Lanka)

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FX & Treasury in South Korea

Report date: 
25 Nov 2022

Commentary

South Korea is a market which it is notoriously difficult for foreigners to penetrate: this applies as much to banks as it does to industrial companies. The culture is fiercely patriotic, and the vitality of South Korean industry means that most products are available from local companies, who are often world leaders.

The result is a situation where, despite the size of the economy – in 2021, it had the world’s 10th largest GDP, ahead of Brazil and Russia – it tends not to be a major market for most non South Korean MNCs. This was reflected in the call, where the country is complicated, and not a major focus for most participants. The situation is further complicated by language – English language skills can be rare amongst local staff and banks – and by a significant reluctance on the part of staff and customers to work with foreign banks. When you add in a series of specific, and very strong, local customs and processes, such as customers who often insist on making payments in person, you have a challenging situation.

Despite all of this, our participants manage to work successfully. Cross border cash pooling is possible, using the Consolidated Management of Funds (CMF) structure, which has to be approved by the Bank of Korea. The approval process is burdensome and requires a lot of work – and it all has to be done in Korean. But it works. 

Equally, dividends can be paid – but again, there is bureaucracy. Currency trades must be settled onshore, so many people find it easier to use the offshore NDF market, which is fairly liquid. Intercompany netting has to be gross in gross out – and the won can be remitted offshore. Cross border intercompany loans

 

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Topics covered in this report: 
Cash Pooling - cross border, Hedging FX, Bank Relationships, Collections - domestic, CMF, Netting, Dividends, Virtual accounts
Service providers discussed in this report: 
HSBC, JP Morgan, Standard Chartered, BAML, Citi

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Payment Platforms & Collections in China

Report date: 
22 Jun 2022

Commentary

Cryptocurrency, digital wallets, virtual everything – there is a huge amount of change. China has been at the forefront of a lot of digital trends, partly due to the fact it had an antiquated banking system which has been thoroughly modernised, and partly because the explosion of internet shopping in the country required a digital payments solution. This is a challenge when there are no credit cards. 

This report is based on a Treasury peer Call which explored how this is affecting members’ companies, and how they are adapting to this brave new, digital, world.

  • Most participants are accepting payment using WeChat Pay and Alipay. None is using these tools to make corporate payments.
  • The collections process using these tools is efficient and effective: you work with a third party (usually accessed via a banking provider), who will transfer the funds to your account the following day. One participant did an RFP, with two Chinese and two foreign banks, and found the service was identical – though pricing was different, and not transparent.
  • There was no mention of billbacks, the excessively high fees and acquirors which blight the use of credit cards in other countries
  • The one complaint all participants had was the difficulty linking this process to internal systems, for the reconciliation of receipts or for compliance purposes in terms of identifying the source of cash. The third party companies do provide detailed lists of payors, but it can be difficult to upload these into the ERP system.
  • There was a lot of discussion about....please sign in to continue
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Topics covered in this report: 
Payments - domestic, Collections - domestic, Bankers Acceptance Drafts, Crypto currency, eCNY, Entrustment loans, T&E Management, Supply Chain Finance, Cash Pooling - cross border, Cash Pooling - domestic
Service providers discussed in this report: 
Alipay, WeChat Pay, Bank of China, ICBC, Deutsche Bank, HSBC, Citi, JP Morgan, Standard Chartered, Concur, Conferma, Kyriba

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