Regional Treasury Centres in Latin America

Regional Treasury Centres in Latin America

Call date: 19th May 2019

Senior treasurers from EU, Latin America and the U.S discussed: What aspects of treasury and cash management in Latin America are centralised and what are the challenges and benefits of centralisation in the region?

The call was chaired by Damian Glendinning, whose commentary appears below.

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Chairman’s commentary

Any discussion involving Latin America and Latin Americans will always be lively, and this one was no exception – though one participant did point out that the definition of Latin America is not always clear. For some companies, but not all, LatAm includes Mexico and Central America, and in some cases it also includes the Caribbean. 

The purpose of the series on Regional Treasury Centres (RTCs) is to contrast the role they play in different regions: depending on regulations and cultural preferences, they can either be full blown in-house banks, transacting with and on behalf of national subsidiaries, or simply regional advisory and co-ordination centres, acting as a regional HQs.

Most Latin American countries have some form of exchange control, and they nearly all have complex and ever changing regulations, which severely complicate the execution of offshore and intercompany transactions. As a result, most LatAm treasury centres play an advisory role: even where there are intercompany loans and hedging, these tend to be executed from HQ or an in-house bank or shared service centre (SSC) in another region, with the RTC acting as a facilitator and advisor.

Some participants’ companies have decided that the cost of having staff in the region to understand the regulations and the culture and advise HQ is justified. There was a common feeling amongst those who have not made this investment that their efficiency is significantly decreased by the time they spend fighting fires and resolving unnecessary operational issues. Also, it is not uncommon for them to incur fines and late payment fees.

A further problem where participants found an RTC to be helpful is regional banking relations. It is easier to run a region remotely if there is a single banking relationship. This is difficult in LatAm, where many banks do not have full coverage, and where large banks regularly exit certain markets. In addition, there is often a requirement to pay taxes from a local bank account, and an expectation that the payroll bank will provide advantageous services, such as on-site ATMs, mortgages and cheaper credit cards, to employees. This can be an issue if your main bank does not have a retail business, or branches in the same cities as your facilities. Some US banks have been relatively effective at providing servicing agreements with local banks in countries where they are not present.

The other issues raised were the difficulties encountered in automating processes (for example, the requirements placed on bank signatories in some countries, and resistance to SWIFT), and the need to have good relationships with local staff, especially the local finance managers, where the process relies on them to execute treasury related roles.

Finally, those with LatAm RTCs found they had been very helpful in managing liquidity and other issues arising from the COVID-19 crisis.

In conclusion: most LatAm treasury centres play an advisory role. With the complexity of the region, the ever-changing rules, the problems with bank coverage and the need to maintain good relationships with local staff, there are benefits to having a local presence, though it is possible to function without it. The trade-off has to be made by each company.

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