Streamlining clients’ cash flows as part of proactive risk management


Perspectives on Operating Risk

Streamlining clients’ cash flows as part of proactive risk management

The rapid growth of Asian economies combined with memories of the global financial crisis has led regional corporates and Financial Institutions to want better risk management, increased liquidity and more cash flow certainty than ever before.

The credit crunch and subsequent economic crisis provided a sobering reality check on risk management practices for both Financial Institutions and corporates. Many Asian companies have now realised that their risk management approach significantly lags the investment capabilities they have developed over the past decade. However, they have also recognised that risk management practices are not only a key driver in stabilising franchise operations and protecting their firms, but also in helping to increase the company’s value. Alan Goodyear, Head of Global Transaction Services Asia Pacific, explains what RBS is doing to help meet these client needs.

What have been the most important impacts of revised corporate risk strategies on cash management in Asia over the past year?

In the last eight to twelve months we have seen a growing number of multi-national clients setting up regional treasury centres in Asia from Singapore and Hong Kong to India and China, in a bid to make their cash and liquidity management more efficient, as well as to diversify risk.

The most obvious change is the increasing concern over operational, concentration and counterparty risk. As such the likelihood of any treasurers choosing just one bank for their services is now reduced. With a local on–the–ground presence in ten countries across the region, and 37 globally as well as partnerships with network banks, RBS is well-placed to help such clients establish regional treasury centres across Asia. Furthermore we have the expertise to advise our clients on risk management, from regulatory risk to counterparty risk and everything in between.

Trade backdrop

Growth in trade is even higher than booming economic numbers would suggest; cross-border trade in India for example, is growing by high double digits. The traditional trade patterns of exporting and importing with the West are growing, but intra-Asian trade flows are growing much faster. We have concentrated on tapping into this market and directing our resources to meeting client needs in these areas through innovative solutions such as East to West sweeps, which provide the benefits of same-day value transfers, as well as connecting regional treasury centres to the global treasury centre located in Asia.

How can cash management providers best protect themselves against counterparty risk?

As already pointed out, risk is becoming an ever more important topic for treasurers and we have seen an increased focus on all areas of risk this year. One of the most common developments is for treasurers to look at the number of bank relationships they hold, with many becoming much more open to working with more than one bank per region. We are also seeing an increasing number of clients using a mix of local and foreign banks. Clients are seeking to avoid or protect themselves from another credit crisis, whereby some single banks rationalised relationships and limited the facilities they were willing to offer clients.

At RBS we have looked at widening our product capabilities to make sure that all of our services come with risk management tools. Frequently, this means treasurers are provided with more detail and an easier way to monitor cash balances and the like, including from a regional perspective. By providing clients with more sophisticated and streamlined management information, we enable them to make more risk conscious decisions in a more timely manner.

How are you helping clients unlock trapped cash on their balance sheets?

We recently conducted a survey with CFO Research Services, which showed that companies in Asia are looking to improve every aspect of their working capital cycle. Sixty-six percent of respondents sought moderate or substantial improvements in days sales outstanding over the next year. Similar numbers of respondents were looking to improve their days payables outstanding (66%) and days inventory outstanding (62%).

Our Online Client Service – a round the clock client support service – and Electronic Bank Account Management (eBAM) facilities already allow existing clients located in any of over 37 countries to request an account (and associated products) to be opened in any one of those countries. This allows treasurers to be in control from the start of the account opening process and to process changes as and when they want to, helping meet the client needs identified by the survey.

What new cash management tools are you creating to help improve transparency?

Tougher market conditions have made it more difficult to accurately predict cash flows and current market volatility has made it more challenging for treasurers to manage cash. Added to that are concerns that liquidity could get tighter due to inflation and volatile exchange rates. At RBS we have been working closely with clients to help them gain a better understanding of their cash flows by enhancing the responsiveness of our services. This year we launched an improved online client service capability that allows existing clients to communicate with our team through a dedicated online service request system, 24 hours a day. We also have a feature which allows clients to change signatories or alter authorities in payment instructions via online requests.

RBS has a comprehensive product roll-out plan for 2011, including a single access cash and trade portal, which will provide a robust and easy to use single sign-on feature to access our comprehensive cash, investment and trade related services. Via this portal, our clients can access our channel offerings such as Online Client Service, MaxTradTM – a scalable trade solution designed to access and execute supply chain solutions; and Access Online – our cash platform which enables transaction initiation, such as payments, multi-bank reporting and cash concentration.

In the Asia Pacific region we have just launched a complete cash management proposition in Australia. We were also one of the first global banks to facilitate cross-border trade settlement to financial institutions in renminbi (RMB) and to offer RMB accounts, currency exchange, and transaction and trade finance services to both corporates and financial institutions.

How can banks help improve the supply chain cash management?

Cash management complements trade tools in the supply chain system. The flow of cash makes it easier to link client and supplier information and allows both parties to use that information more effectively, facilitating a more effective flow of funds. This is becoming increasingly important as an increasing number of corporates move to use open account financing.

Are all of your clients familiar and comfortable with electronic cash management tools? What technological innovations (across the market) do you think will gain more interest among your customers?

The economic crisis has lead to a significant focus on the treasurer’s position and has increased the demand for financial reporting and risk control. In order to reduce treasurers’ workload, there is a demand for simple and easy to use systems across all areas, including electronic cash management tools. The general rule of thumb for clients and treasurers in particular, is that if a product or system can make their life easier, they will be interested in learning about it and becoming familiar with it.

This has been evidenced in the development of our online client services facility. In order to help our clients achieve better visibility of their cash flow, we have enhanced the responsiveness of our services to them. Clients who take advantage of these channels can now communicate with us around the clock through a dedicated online service request system. In addition, our electronic bank accounts give clients the ability to change signatories or alter authorities in payment instructions via online requests.

What is the best strategy to succeed in China, whose local bank market and services are still restricted? Do you anticipate any regulatory changes that will make it easier to succeed?

In China, CFOs and treasurers of global companies are taking an ever increasing interest in the development of the RMB and it is clear that China is looking at the longer-term internationalisation and full convertibility of the renminbi. This will be especially useful as companies look to minimise their foreign exchange exposure and we have already seen that deposits have grown substantially as a result of the liberalisation to date.

Further success of the liberalisation scheme will be dependent upon the development and deployment of more RMB liquidity and RMB hedging products in the market, offering a greater variety of investment products denominated in the currency with different yield curves to meet market demand.

Additionally, as the RMB becomes fully convertible and adds liquidity to the market – and as the regulatory situation settles – we should see continued growth in RMB payments, liquidity, trade, foreign exchange and the bond market. RBS will continue to offer RMB account opening and expand its RMB-related products and services (payment and collection, liquidity management, trade services and finance, and foreign exchange) to help our clients.

Furthermore we can give treasurers a clear and transparent view on current regulation and upcoming regulatory changes as well as help our clients understand the impact these can have on their business.

Do you anticipate any sizeable financial markets/regulatory changes in Asia’s cash management industry in the coming 12 months? If so, how are you helping clients to anticipate them?

It is always difficult to predict regulatory changes. If we look back over the past year, we can see that whilst some governments and regulators have been allowing their currencies to appreciate, to some extent, they have at the same time been taking more interventionist measures in their approaches to onshore processing, loan-to-deposit ratios and capital ratios.

Asia is a high growth area with diverse needs and it is natural that we will see more such changes in the coming year. As with this year, we will work closely with both regulators and our clients in order to make sure that they can best deal with these changes.

As pointed out earlier, helping our clients understand risk management better – which obviously includes regulatory risk - will certainly remain a focus of our work. We’re as much affected by reassessing and redefining our risk management guidelines and procedures as our clients, and whether we’re talking to corporate firms or to financial institutions, we have the expertise and local market insight to help them establish an active and conscious management of all their business risks.




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