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Inside:
The 2013 guide
to liquidity
management
What to expect at this
year’s Sibos
Banks and Bitcoin
convergence unlikely
anytime soon
Corporates behind
schedule as Sepa
deadline looms
Behold the great
transaction banking
convergence
EU card-fee cap move
sparks backlash
Middle East
cash management
debate
000 OFC Dibos.indd 1
30/08/2013 12:21
CONTENTS
SIBOS 2013
The 2013 guide to
September 2013
Published in conjunction with:
ABN Amro
BNP Paribas
Citi
RBS
Standard Chartered Bank
Liquidity
Management
What to expect at this year’s Sibos
Financial crime, cyber security, implementation of new regulation and innovation will all
feature on the agenda of the 35th annual Sibos event. Rebecca Brace
2
Behold the great transaction banking convergence
Transaction bankers have been talking about the convergence of different corporate
banking products and services for a number of years. Is it now happening?
Rebecca Brace
3
EU card-fee cap move sparks backlash
Analysts warn the proposal could wipe out billions of profit in the payment industry,
transfer costs to consumers and negatively change payment behaviour.
Sid Verma and Solomon Teague
5
Euromoney’s 2013 guide to liquidity management
7
Worlds apart: banks and Bitcoin convergence unlikely
anytime soon
Banks remain disinterested or wary of Bitcoin but there is a growing acknowledgement
that the digital currency’s popularity cannot be overlooked indefinitely.
Solomon Teague
4
Corporates behind schedule as Sepa deadline looms
Most corporates are still wholly unprepared for mandatory compliance with the Single
Euro Payments Area, the EU’s flagship cross-border payments system, with a lack of
understanding of its scope and impact. Rebecca Brace
6
Middle East cash management debate
Gulf dynamism drives regional transaction banking
Euromoney speaks to providers and users of transaction banking in the Gulf region
about the market’s growing importance and the localization of expertise
29
Euromoney’s 2013 cash
management survey goes live
online on October 8
@ euromoney.com
Contents 2.indd 1
29/08/2013 17:08
Financial crime, cyber security, implementation
of new regulation and innovation will all feature
on the agenda of the 35th annual Sibos event
What to expect at
this year’s Sibos
By: Rebecca Brace
Sibos 2013 www.euromoney.com
2
Sibos
T
he !nancial community is
set to converge upon the
Dubai World Trade Centre
for the 35th annual Sibos
event between September 16
and 19. While the European Sibos events
tend to receive the highest attendance levels
– the 2010 Amsterdam event was attended
by 8,900 delegates – organizers Swift is
expecting this year’s conference to attract
7,000 delegates, up from 6,250 in Osaka
in 2012.
As the biggest gathering of the world’s
!nancial community, Sibos offers delegates
the opportunity to discuss and hear about
the most pressing topics and trends affect-
ing the industry.
Sibos 2013 will focus on three key
themes: regulation, operational excellence
and worldwide shifts.
While regulation has been a recurring
theme in recent years, this year’s event will
focus in particular on the challenges as-
sociated with implementation, according to
Arun Aggarwal, Swift’s head of UK, Ireland
and Nordics.
“We’ve had a long period of seeing a
tsunami of new regulations coming into
the industry,” says Aggarwal. “It’s not at an
end, but the broad structure of the !nancial
industry is becoming much clearer as big
pieces of legislation such as Dodd-Frank
and EMIR [European Market Infrastruc-
ture Regulation] come into force.”
As a result, Aggarwal says banks are
able to take a more holistic approach
when deciding how to implement the new
regulations ef!ciently and effectively – not
only for compliance purposes but also for
business-bene!t purposes.
Re"ecting this focus on regulation and
compliance, the conference programme will
include a two-day compliance forum.
Financial crime and cyber security will
also feature prominently throughout the
event. “We are quite heavily involved in this
area at Swift,” says Aggarwal. “Many peo-
ple are taking the view they need to switch
their transaction processing away from the
internet and to use more secure networks
such as Swift as part of their strategy
against cybercrime.”
The second theme of operational excel-
lence is one that Aggarwal describes as
a “continuing theme at Sibos”, as banks
strive towards ef!ciency, cost-effectiveness,
transparency and risk management.
While this is not a hot topic per se, it
continues to be a key area for delegates and
as such will continue to attract substantial
airtime at this year’s event.
Meanwhile, the theme of worldwide
shifts will focus on changing global dynam-
ics and regional trends – and, in keeping
with this year’s location in Dubai, the con-
tinuing economic shift from west to east.
“For delegates in a global business plan-
ning role, this theme will be particularly
interesting,” says Aggarwal. “Included
within this area will be some interesting
topics including !nancial inclusion and the
challenge of bringing more people into the
!nancial services industry.”
In terms of other speci!c topics, Aggarwal
highlights Target2-Securities (T2S), a new
securities settlement engine that is intended
to remove fragmentation in the post-trading
sector and remove barriers between coun-
tries when it is introduced in 2015.
Another important subject is that of big
data and what can be done to leverage the
mass of data "owing through the industry.
As well as general interest sessions, the
conference will include a number of forums
focusing on different topics, including
technology, corporates, compliance and
standards. The last day of the conference
will include an Africa and Middle East day.
With such a varied audience and confer-
ence programme, it is dif!cult to pick out
particular sessions delegates should attend,
but Aggarwal highlights the big debate on
regulation as one that would be particularly
worth hearing.
To navigate the event, delegates can ac-
cess presentations and exhibitor informa-
tion, network with other attendees and
watch videos of the event after its conclu-
sion at Sibos Online, a portal for delegates
and exhibitors.
Information about the conference pro-
gramme, speakers, exhibitors and travel
information can also be accessed via the
SibosApp, which is available for iOS and
Android.
Innovation will also feature prominently
in this year’s event in the form of the In-
notribe space, complete with art installa-
tions and a high-tech camp!re.
In addition to keynote sessions, case
studies and interactive discussions, the
programme includes the !nal of the 2013
Innotribe start-up challenge, featuring 15
start-ups selected during regional showcas-
es in the Americas, EMEA and Apac.
Innotribe’s themes for 2013 include
Value/Wealth 3.0, which will look at the re-
de!nition of wealth and well-being; Innova-
tion 3.0, which will focus on new models
of innovation; and Network Insights 3.0,
which will include topics such as network
cartography, fraud detection and pattern
recognition.
In addition to the Start-Up Challenge
!nal, there will be a focus on other innova-
tions already under way.
While Swift often takes the opportunity
to launch new products and initiatives at
Sibos, nothing has been announced as yet
for 2013, but Aggarwal says that in some
of the most important areas of focus – such
as !nancial crime, regulation and compli-
ance, cyber security and big data – “we feel
Swift has an increasingly relevant role to
play”.
He adds: “We are exploring ideas in all
of these areas and will continue to explore
them at Sibos.”
What to expect p1.indd 2
29/08/2013 15:56
Transaction bankers have been talking about
the convergence of different corporate banking
products and services for a number of years. Is it
now happening?
Behold the great
transaction banking
convergence
By: Rebecca Brace
3
www.euromoney.com Sibos 2013
B
ankers like to talk the talk
about convergence but
evidence is emerging that
!nancial institutions are now
slowly but surely converging
their multi-product corporate-focused busi-
ness streams.
Initially, banks have focused on bringing
together their cash management and trade
!nance activities.
According to a report on trends in transac-
tion banking published last year by Misys – a
!nancial-services software provider – 47% of
respondents have created a transaction bank-
ing group combining, at a minimum, cash
management and trade !nance, while 34%
said they had integrated the group, combin-
ing cash management and trade !nance at an
operational level.
Nine percent were planning to create such
a group in the near future, while only 10%
intended to keep the different areas of the
business separate.
This convergence has been driven by the
changing role of corporate treasurers, who
have gained responsibility for a wider range
of activities during the past few years and are
expecting their banks to deliver integrated
solutions and a single point of contact.
Jiten Arora, global head of sales for trans-
action banking at Standard Chartered, says
the bank began converging its cash manage-
ment and trade !nance activities into a more
integrated working capital management
offering six or seven years ago.
“After hearing the feedback from clients,
we decided to evolve our sales teams into a
working capital sales team on the corporate
side,” says Arora. “We brought cash and
trade together and evolved the sales team to
be more multinational and more client seg-
ment based.”
According to Arora, these changes gave the
bank the capability to address clients’ needs
across the whole area of transaction banking.
Standard Chartered subsequently aligned
its product team in a similar way so the solu-
tions available began to be more integrated.
In the past two years, the bank has begun to
create what Arora describes as “synergistic
loops” with the rest of wholesale banking.
While a number of banks have converged
their corporate products and services in
recent years, Arora points out that different
banks are adopting different organizational
models as they do so.
“We have seen some banks gravitate to
the model we put in place seven years back,
which is making sure you have a centre-
piece transaction banking team, which is
more of a client-aligned solution-oriented
team, with synergies into the rest of the
bank,” he says.
“But we’ve also seen some banks that are
breaking transaction banking into different
parts and attaching those to some other prod-
uct areas according to their strengths.”
The trend towards increased integration
continues. Research published by Celent in
February found 82% of respondents had
reorganized their transaction banking opera-
tions within the past three years, and that
more than half of those had done so in 2012.
While banks initially focused on bringing
together their cash and trade activities, some
have more recently bolted on other activi-
ties such as FX and securities services. And
further convergence might be on its way.
Enrico Camerinelli, senior analyst at Aite
Group, says banks are reconsidering the role
of transaction banking within their businesses
on a more fundamental level. Whereas trans-
action banking was once seen as a source of
safe revenue, providing services with a price
tag, he argues, this is no longer what corpo-
rate customers are demanding.
According to Camerinelli, the integration
exercises that have been done by western
banks have tended to focus on reducing costs
and complying with regulations in a more
reactive way.
In Asia Paci!c, he says banks are taking a
more proactive approach and are looking at
this area with a greater awareness of how the
different services can be brought together.
Now, he says, transaction banking might
be seen as a gateway for any interaction with
corporate clients, bringing together the full
range of corporate business lines, including
capital markets and investments, as well as
cash management and trade !nance.
Camerinelli cites the recent restructuring
of Citi’s institutional clients group (ICG) as
a step in this direction. The bank’s securities
and fund services, and treasury and trade
solutions business lines were previously
managed together as Citi transaction services,
but both lines now report directly to Jamie
Forese, CEO of the ICG.
Beyond the convergence of products and
services that has taken place, further changes
could be on the way.
Camerinelli says banks are becoming
interested in the concept of transaction bank-
ing lifecycle management – in other words,
focusing on all the different steps involved in
a transaction, from the issuing of a purchase
order to the !nal payment.
While the overall cycle includes actions
within a company’s physical supply chain as
well as !nancial actions, he argues banks can
gain more visibility over this cycle by looking
at it in a holistic way. Eventually it could be
possible to monitor the status of a payment
in the same way parcels can be tracked.
At the same time, Camerinelli says banks
are beginning to look at using methodolo-
gies such as Six Sigma in the banking world.
While Six Sigma is more traditionally used in
manufacturing, he says the same principles
could be used by banks to improve ef!cien-
cies – and that there is a growing interest in
this subject.
Banks have been on the road to conver-
gence for a few years, but this trend shows
no signs of slowing. The walls that have tra-
ditionally existed between different banking
activities are still being knocked down – and
could lead to some interesting new models
and opportunities in the coming years.
Convergence p1.indd 3
29/08/2013 14:47
Banks remain disinterested or wary of Bitcoin
but there is a growing acknowledgement that
the digital currency’s popularity cannot be
overlooked indefinitely
Worlds apart: banks
and Bitcoin convergence
unlikely anytime soon
By: Solomon Teague
Sibos 2013 www.euromoney.com
4
Sibos
A
t a recent Docklands con-
ference, it was standing-
room only as hundreds of
people gathered at One
Canada Square to listen to
the latest developments in the world of Bit-
coin. It was an incredible turnout for a cur-
rency that most people in the room would
not have heard of a year or two before.
Yet, with the imposing towers of Canary
Wharf – home to London’s banking com-
munity – visible out of the window, the
people who work in them were conspicu-
ous by their absence. The room was long
entrepreneurs, investors and journalists, but
short bankers.
Their absence illustrates banks’ ambiva-
lence towards Bitcoin, a feeling that is re-
ciprocated – and then some – by the Bitcoin
community.
Zach Harvey, co-founder of Lamassu,
showcasing his Bitcoin ATM machine,
summed up the mood. When asked why
his machine would only convert notes into
bitcoins, and did not accept debit cards, he
responded: “I didn’t want to have to deal
with the banks.”
There is a feeling among many in the
cryptocurrency community that the banks
are part of the ancient regime that will be
swept away by the rising tide of Bitcoin.
Speakers and delegates were united by the
view that Bitcoin represents a new !nancial
paradigm, making existing !nancial infra-
structure and practices obsolete.
In a de"ationary world of !nite capital,
there will be more pressure on those decid-
ing how that capital is allocated. If quantita-
tive easing has been the main weapon in
the war on economic contraction, Bitcoin
proposes unilateral disarmament mid-battle.
It is a scary thought, but for those who
subscribe to the view that using this weapon
does more harm than good, it is less scary
than continuing down the path of QE.
“Bitcoin is the most disruptive thing to
happen to !nancial systems for decades,”
says Nick Shalek of Ribbit Capital. Creating
something entirely new allows for a greater
level of innovation than trying to build on
existing infrastructure, he says.
Bitcoin is a currency but it is also a pay-
ment network, and its value in the latter
function is “an order of magnitude or more
higher” than its market cap as a currency,
estimated at around $1.5 billion, says Tamás
Blummer, CEO of Bits of Proof, a technol-
ogy start-up that allows its clients to harness
the power of the Bitcoin network.
The ability to create rules for a Bitcoin
trade, for example transacting with two
separate organizations at once and stipulat-
ing the funds can only be accessed by both
together, allows people to create their own
trustee agreements.
Letters of credit, used in trade !nance,
could easily be replaced by Bitcoin as the
banks, lawyers and other middlemen are
disintermediated, says Blummer, a former
investment banker. “Bitcoin will eliminate
many of those hurdles that are only there to
create economic activity where there isn’t a
real need for it,” he says.
The Bitcoin community can be divided
into three groups, says Shakil Khan, angel
investor and founder of Coindesk: anarchists
who see Bitcoin as a way to bring down the
system; idealists who lack business experi-
ence; and capitalists who see an opportunity
to make money but have little interest in the
ecosystem surrounding Bitcoin.
The ideal Bitcoin start-ups would have a
mix of the latter two groups, he says, but an-
archists are not people an investor would be
comfortable having running a company.
Some explicitly believe both sides must
learn to live with – even love – each other
for either to thrive. Others – such as Ripple
– are consciously positioning themselves as
the future bridge between the Bitcoin and
!nancial communities.
This will be evident if and when banks
start coming on to the Ripple system as
gateways, as they are ultimately expected to.
A number are known to be considering such
a move, though they are neither showing
their cards yet, nor are expected to make a
move imminently.
The problem is they do not fully under-
stand Bitcoin, and therefore are unable to
quantify the risks. It is easier to just sit on
the sidelines until they understand it better.
However, it is a misunderstanding to equate
their seeming lack of interest with antipathy.
“There will always be a need for banks to
make loans and ameliorate credit quality,”
says Blummer. “If they are clever, they will
embrace the technology, not oppose it.”
However, he fears this is not happen-
ing. “It is natural that illegal industries are
leading the way – there is nowhere more
competitive than the black market,” says
Blummer. “But as more merchants learn
about Bitcoin, that will force the banks
to pay attention. They will follow their
clients.”
There might be some limited scope for
taking deposits of bitcoins and lending, but
the peer-to-peer nature of the market means
borrowers will be more likely to appeal
directly to investors. If payments and trading
is free, banks will not earn commission as
the gateways to exchanges.
There is potentially an opportunity for
Bitcoin to simplify interbank trading and
settlement. And Bitcoin could also be a level-
ler among the banks themselves.
Bitcoin provides small banks lacking a
global footprint with access to a free, global
settlement system of the quality only top-tier
banks would previously have been able to
afford.
Banks will, therefore, have to be creative
and open-minded in how they approach
Bitcoin, conceiving new ways to serve their
clients.
Bitcoin p1.indd 4
29/08/2013 14:43
Analysts warn the proposal could wipe out
billions of profit in the payment industry, transfer
costs to consumers and negatively change
payment behaviour
EU card-fee cap move
sparks backlash
By: Sid Verma and Solomon Teague
5
www.euromoney.com Sibos 2013
T
he EU’s attempt to moder-
ate card charges, levelled by
merchants for retail transac-
tions, could have the perverse
result in pushing up the cost
of using debit cards in the UK and elsewhere,
say analysts.
The comments come as the European
Commission’s revised Payment Services
Directive, announced on July 24, proposed a
cap on the interchange fees charged on Visa-
and MasterCard-branded cards to 0.3% and
0.2% respectively for credit and debit cards.
Internal market and services commissioner
Michel Barnier hit out at card companies,
insisting the interchange fees were contribut-
ing to the EU’s economic malaise.
“The payment market in the EU is frag-
mented and expensive, with a cost of more
than 1% of EU GDP or !130 billion a year,”
he says. “These are costs our economy cannot
afford. Our proposal will promote the digital
single market by making internet payments
cheaper and safer, both for retailers and
consumers.”
In a directive that will make grim reading
for the card issuing banks, “the proposed
changes to interchange fees will remove an
important barrier between national payment
markets and "nally put an end to the unjusti-
"ed high level of these fees,” says Barnier.
And although consumers have, in theory,
been shielded from the interchange fees,
which are paid by the retailers, EU Commis-
sion vice-president Joaquín Almunia argues
consumers do ultimately bear the cost. “Not
only are consumers generally unaware of this,
they are even encouraged through reward
systems to use the cards that provide their
banks with the highest revenues,” he says.
Cards are big business in the EU, with
around 9% of all European payments made
by card. The fee cap could save EU merchants
up to !3 billion per annum for credit and
!1.7 billion for debit cards, says Peter Jones,
managing director at PSE Consulting, a pay-
ments consultancy. That money will come
directly from card issuers’ pro"ts.
The directive will also encourage “the
use of low-cost internet payment services
by including within its scope new so-called
payment initiation services,” says the Com-
mission in a statement. “These are services
that operate between the merchant and the
purchaser’s bank, allowing for cheap and
ef"cient electronic payments without the use
of a credit card.”
The rules will come into force after a
22-month transition period, during which
time they will only apply to cross-border
transactions.
Once in force, their impact will be felt
differently around Europe. Neither are they
universally good news for merchants – or
consumers – especially those using debit
cards.
In the UK, the interchange fee for such
transactions is lower than 0.2%, meaning the
changes could, in theory, constitute a rise in
debit-card charges. In Denmark, there is pres-
ently no charge associated with debit-card
transactions.
Nevertheless, the countries at risk of a rise
are in a minority. The average interchange
fee on debit-card transactions is 0.31% of
its value, well above the new cap, so most
countries will see a fall in charges.
For credit cards, the cap is even further
below the current EU average interchange
fee of 0.92%, a boon for merchants who will
pocket the small saving on each transaction,
rather than passing it to consumers, says
Jones. In some countries, such as Germany,
where the interchange fee on credit cards is
1.5%, the drop will be substantial.
The issuers will surely attempt to claw-
back these losses, warns Jones. This will be
achieved partly through a scaling back of
their reward schemes, less incentivization to
displace cash, less spend on innovation and
probably the reintroduction of annual card
charges.
The UK Card Association says: “All the
evidence from other countries where similar
laws have been introduced is that while retail-
ers have bene"ted, this has not resulted in
lower prices for consumers.”
“The European Commission’s model
brings a risk that banks and other card issu-
ers will be forced to implement new fees, be-
cause the reduced income from retailers will
mean that the substantial costs of providing
cards, and the systems which enable custom-
ers to pay for things safely and speedily, will
have to be funded by card-holders in other
ways.”
The interchange fees are a legitimate cost
that re#ects the service banks provide in
guaranteeing payments in an ef"cient fashion
while incurring the risks of fraudulent pay-
ment activity and credit losses, says Richard
Koch, head of policy at the UK Cards As-
sociation.
He adds: “If you start to increase fees
for card-holders, you run the risk of pushing
them into other forms of payment – such as
cash or online payment options – which are
less ef"cient and less secure.”
The impact of the EU’s proposals will be
felt proportionately more in the UK, as 70%
of EU credit cards are UK-based, he says.
Barnier’s view that reducing payment
charges will boost economic activity among
consumers is “bizarre”, says Koch, citing a
leaked of"cial report that suggests a maxi-
mum of !700 million of savings could #ow to
EU consumers.
More generally, the regulatory push to cap
payment costs – interchange fees as well as
default fees and other costs – means “it is dif-
"cult to see how banks will generate earnings,
after the proposed interchange cap, other
than levying an annual fee for credit cards
and raising interest rates,” says Koch, adding
that 40% of outstanding credit card balances
are repaid within a given month, without
attracting interest costs.
Backlash p1.indd 5
29/08/2013 15:23
Most corporates are still wholly unprepared for
mandatory compliance with the Single Euro
Payments Area, the EU’s flagship cross-border
payments system, with a lack of understanding
of its scope and impact
Corporates behind
schedule as Sepa
deadline looms
By: Rebecca Brace
Sibos 2013 www.euromoney.com
6
Sibos
W
ith less than seven
months to go until
the Sepa migration
end-date, there is little
sign of a tidal wave of
corporate adoption.
As of April, Sepa credit transfers (SCT) ac-
counted for almost 42% of total transactions,
but for Sepa direct debit (SDD) the !gure was
a dismal 2.45%.
Meanwhile, surveys continue to show that
a substantial percentage of companies in
Europe have not yet begun their migration
projects.
JPMorgan, for example, carried out a
survey earlier this year and found that, of
around 160 respondents, almost 40% had
not yet set their objectives for their Sepa
migration.
“One of the reasons for the slow start is
that the end-date was announced in 2012,
after budgets for that year had been set,”
says Wilco Dado, head of cash management
for EMEA in JPMorgan’s treasury services
division. “As a result, many companies did
not take any action last year and only started
in 2013.”
For these companies, migrating before Feb-
ruary 2014 will be challenging – especially
as, in reality, the time companies have left to
migrate might be less seven months.
“The concern I have – and a lot of col-
leagues in other banks may share – is that
some of the IT infrastructure may scale down
for December at year-end,” says Ray Fattell,
HSBC’s payments and cash management
global head of product. “Companies may
only have six months left at this point.”
While it is looking likely that a sizeable
portion of companies will not be Sepa ready
by February, there has been no indication
that the migration end-date will be moved.
Neither is it clear what the consequences or
penalties will be for any companies that are
not ready on time.
Paul Taylor, head of regional sales, GTS
EMEA at Bank of America Merrill Lynch,
says the way in which companies have ap-
proached Sepa varies considerably.
“For some companies, Sepa was never
something they were going to be able to put
off,” he says. “Those are the ones that have
accounts in multiple countries, legal environ-
ments and jurisdictions, or which have to pay
people in a number of different markets. For
these companies, Sepa has been looming for
some time.”
The companies that might be facing a
greater challenge at this point are what Tay-
lor calls the silent majority: the companies for
which the majority of payments do not fall
within the scope of Sepa, and for which Sepa
migration might not be life changing.
“While these companies may have previ-
ously focused on whether or not they can
send and receive Sepa-compliant payment
instruments, they are only now beginning
to understand the full brunt of the impact
on their supply chain, such as the impact on
payroll and whether their suppliers, banks
and systems are Sepa compliant,” he says.
Taylor adds that many of these companies
are becoming concerned they might not be
Sepa compliant by February 2014.
With the deadline rapidly approaching,
companies that have not yet begun migration
are focusing on achieving compliance rather
than on leveraging Sepa to achieve bene!ts
for their companies.
JPMorgan’s Dado points out that most
companies would prefer to adopt XML them-
selves, although they might hire a consultant
to help with the conversion process. “But
right now the timing issue might make more
companies ask a bank or third party to un-
dertake the conversion as a temporary meas-
ure, or as a contingency in case the company
is not ready by February 2014,” he says.
The problem is that by undertaking Sepa
migration as a compliance exercise, compa-
nies might not only miss the opportunity to
bene!t from the exercise but might end up
with processes that are less ef!cient than the
existing ones.
Where credit transfers are concerned, it is
likely the majority of corporates will be Sepa
compliant by February – but that does not
mean they will be able to operate at the same
level of ef!ciency as they do today, says Jens
Mikolajczak, co-head of cash management
corporates, EMEA at Deutsche Bank.
“It might take manual intervention on
their side,” he says. “There might also be
broken interfaces within the company, when
they look at end-to-end processing.”
In some cases, inef!ciencies might arise
when companies have left their migration
plans to the last minute and are !nding
themselves in a position of having to migrate
as quickly as possible, without necessarily
bene!ting from the ef!ciency gains that Sepa
has to offer.
“If I have a straight-through process-
ing level of 95% on my systems, I might be
forced to give that up temporarily to get the
basics right and produce Sepa-compliant
credit transfers,” says Mikolajczak. “It’s a
form of risk mitigation.”
In light of a possible avalanche of Sepa
migration towards the end of this year, banks
are taking more action to ease their clients
through the transition. Deutsche Bank has
run a number of corporate workshops,
enabling clients who have undertaken their
Sepa migration to share their experiences
with others.
JPMorgan has launched an interactive Sepa
checklist. HSBC, meanwhile, has set up four
dedicated Sepa migration centres to engage
clients about their migration projects.
Corps behind p1.indd 6
29/08/2013 14:51
The 2013 guide to
September 2013
Published in conjunction with:
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BNP Paribas
Citi
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Staying liquid, staying alert 2

How regulation is reshaping corporate
liquidity management
Citi 8
Table 1: Euromoney 2013
Liquidity Management Survey 10
A reliable partner in a changing landscape
BNP Paribas 12
Dealing with risks in international
cash management
Standard Chartered 14
Liquidity management:
Insight and control are essential
ABN AMRO 16
Beyond compliance:
Strategies for a post-Basel III landscape
RBS 18
Bank contacts 20
Contents
!is guide is for the use of professionals only. It states the position of the market as
at the time of going to press and is not a substitute for detailed local knowledge.
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Kingdom.
At a time of continuing economic uncertainty and unprecedented regulatory change, corporates
are focusing on how to make their cash work more e!ciently even as they move into sometimes
challenging new markets. Euromoney’s 2013 Liquidity Management Survey shows how their
banks are adapting their o"erings in response
Staying liquid, staying alert
How companies manage their liquidity – both in terms of how they
move it between subsidiaries and how it is invested – is a!ected by
a myriad of forces. The operational goals of the company inevitably
dictate many of its treasury decisions. However, broader economic
forces, regulatory changes, shifts in the banking landscape and
advances in technology all have an impact on corporations’ liquidity
management strategies. All of these forces are subject to change –
and in recent years that change has been accelerated by the impact of
the "nancial crisis and its aftermath.
For example, many multinationals have responded to the economic
downturn in many developed markets by expanding in faster-
growing emerging markets, introducing greater complexity into their
operating and treasury models. More generally, the global economic
outlook remains uncertain: the US economy is at last gaining
momentum and there are even tentative signs of recovery in the
eurozone. At the same time, growth in some emerging markets, most
notably China, is slowing.
The regulatory environment is central to what companies can achieve
in their liquidity management: structures are de"ned by what is
permissible. The extent of regulatory change in the post-crisis period
– including changes that indirectly a!ect corporates, such as Basel III,
and those with direct implications, such as the liberalization of China’s
renminbi – is unprecedented. While regulatory change can present
signi"cant challenges and require sizeable investment, it can also
o!er huge opportunities to improve liquidity management.
Meanwhile, advances in technology continue to lower costs and
increase the granularity of data and its immediacy. Banks are still
investing in new products and enhancing the functionality of
existing o!erings. As importantly, many are working to deliver
global consistency and visibility across their liquidity management
services (and integrate liquidity management more fully with cash
management, trade, foreign exchange and other services to align
more accurately with how corporate treasuries work).
Elyse Weiner, global head of liquidity management services, treasury
and trade solutions, at Citi, sums up the liquidity environment in
three words: “Complex. Changing. Challenging.” She explains: “In an
environment of continuing economic uncertainty and huge shifts in
markets where companies are generating and using cash, a prime
focus for treasurers of global enterprises is making better use of
internal liquidity and funding.” While the depths of the crisis are over
and in some instances companies are looking to grow (potentially
changing their liquidity management strategy), liquidity – however it
is to be used – remains of critical importance for companies.
Strategic imperatives
One hallmark of the post-crisis era has been growing cash reserves
at many companies. This growth has been driven by corporates’
negative experiences during the crisis, when access to liquidity was
constrained, relatively strong continuing cash#ows (despite weak
global economic growth) and limited opportunities to put cash to
work for organic or inorganic growth given poor visibility of the
economic outlook. “Companies have parked more than £1 trillion
at banks, including £500 million in demand deposit accounts,” says
Yera Hagopian, head of liquidity product management at Barclays.
“Corporate clients are deliberately keeping their balance sheets liquid
even as corporate pro"ts rebound.”
Creating a global multi-currency notional pool
A leading international healthcare, medical assistance and security services company, working with Bank of America Merrill Lynch, faced
a set of challenges familiar to many global companies. It had limited, unsophisticated liquidity management techniques – employed in-
country – that were not linked to a liquidity management structure. Entities in each country built up or used cash in their local currencies and
did not settle inter-company receivables on a timely basis. Moreover, the company had growing inter-company receivables denominated
in various currencies, which exacerbated foreign exchange exposure and were not being e!ectively managed. Overall, the company had
limited visibility of its cash positioning.
Bank of America Merrill Lynch proposed the creation of a global multi-currency notional cash pool in Singapore, covering eight currencies.
The pool automates data integration for cash reporting and consolidation. Implementation was achieved with minimal disruption to
ongoing business activities. As a result of the project, the company has consolidated multiple currencies to achieve a net notional position
in a single currency without the need to perform traditional foreign exchanges or swaps. It now bene"ts from intra-day monitoring of its net
pool position using a current day reporting tool. In addition, the corporate has maximized its internal cash #ow from overseas entities to its
Singapore head o$ce, minimized its foreign exchange risk exposure and reduced its borrowing costs in a tax-e!ective manner.
Staying liquid, staying alert
3
Increasing cash piles at corporates has resulted in a greater emphasis
on ensuring proper structures are devised to facilitate the e!cient
management of cash positions, notes Lee Swee Siong, global head of
global corporate product, transaction banking, at Standard Chartered
(see box on ‘Creating a global multi-currency notional pool, opposite).
According to Jan Rottiers, head of liquidity management at BNP
Paribas, corporates continue to pile up cash but the drivers for doing
so are changing. “While safety and "exibility remain key, considerations
for seizing new opportunities are becoming increasingly important.”
The nascent recovery of the US economy has prompted corporates to
become “slightly more active with their cash and cash reserves by using
funds more for capital investments,” notes Suzanne Janse van Rensburg,
EMEA head of liquidity and investments and managed treasury liquidity
services at Bank of America Merrill Lynch.
In addition, many companies are looking to emerging markets as
sources of future growth. Necessarily, emerging markets present
greater liquidity management challenges and banks are investing
accordingly. “As companies expand into new markets, they must keep
up with rapid changes in capital and currency controls, especially in
emerging and frontier markets, given their direct impact on treasury’s
ability to manage cash e!ciently and alleviate trapped cash,” explains
Weiner. Tarek Elya#, managing director, transaction banking, at
Standard Chartered, says that in the past year the bank has launched
a global liquidity management system designed to cater to local
nuances and o$er sophisticated intercompany lending and limit
management functionality.
!e impact of regulations
The liquidity management environment is in a continual state of "ux
– largely due to the onset of new regulatory initiatives, according to
Lisa Rossi, global head of liquidity management, global transaction
banking at Deutsche Bank. “With regulation impacting business
lines in di$erent ways and according to di$erent time frames, it is
all too easy to focus on the sum of regulation’s parts rather than the
whole,” she notes. “However, we must not overlook the importance of
determining – or doing our best to determine – what the cumulative
e$ect of new local and global adherence measures will be, particularly
where overlaps and disconnects appear to exist.”
Uncertainty over the cumulative impact of regulations means
questions remain over the short-term impact of regulation on
liquidity management, the longer-term e$ect on banks’ balance
sheets and the impact on liquidity products and solutions for
corporate treasurers, according to Rossi. “These are, undoubtedly,
di!cult issues, but hypotheses are beginning to emerge as to how the
industry may address the combined impact of regulation across the
entire liquidity management landscape.”
Basel III in particular looks set to shake up the liquidity environment,
according to Barclays’s Hagopian, given its requirements for high levels,
and better quality, of capital, appropriate levels of stable liquidity for
funding, matching of long-term assets with liabilities and the need
to manage pricing to account for the increased capital, liquidity and
leverage requirements. “As banks come under pressure to be more
vigilant in their use of capital and maximize their return on equity they
will, inevitably, be more expensive to run,” she explains. “This will have a
knock-on impact for corporates, increasing the price for certain banking
services. Just as banks have done, corporates need to adapt to a post-
Basel III era and to do so will mean taking a fresh look at cash pooling
and even their operating relationship with their bank.”
Tom Schickler, global head of liquidity and investments, global
payments and cash management, at HSBC, says that combined with
continuing concerns about sovereign and counterparty exposure,
the expectation of increasing bank borrowing costs is a major
in"uence on decisions made by treasurers and CFOs about liquidity
management. “As a response, corporates have heightened their
focus on securing alternative liquidity sources and accelerating the
globalization of their self-funding solutions to enable timely access to
cash and optimize the interest returns and costs,” he notes.
Rossi says that the increased importance of regulation to liquidity
management is also having other consequences. “Historically,
corporate liquidity management has concentrated on automation
and e!ciency, and the simpli#cation of cash concentration, pooling
and investment options,” she says. “As a result, the points of interface
were largely driven by systems and technological requirements.
However, the present focus on regulatory and economic changes has
stimulated a renewed emphasis on the value of relationships and the
need for increased communication between corporates and their
bank partners.”
Impact on investment options
Corporates’ investment options are being directly and indirectly
a$ected by changing regulations, notes Hagopian at Barclays.
Tarek Elya",
managing director,
transaction banking,
Standard Chartered
Yera Hagopian,
head of liquidity product
management, Barclays
“Expiration of unlimited Federal Deposit Insurance Corporation
[FDIC] deposit insurance has increased the challenge of managing
bank counterparty risk while safely deploying excess cash for US-
based entities,” she notes. BAML’s Janse van Rensburg says that FDIC
deposit insurance caused some reallocation but overall changes
were less than many had predicted. “Recently, the unanticipated
sharp uptick in long-term rates coming o! the back of taper talk
has somewhat jolted the market,” she adds. “Talk of rising rates can
now be done with a straight face, though with short-term rates
continuing to be anchored this may not translate into an increased
demand for deposit rates any time soon. In the near term, time
deposits could start to rise.”
Money market reform also remains on the horizon, which could further
limit access to a perceived safer and more "exible cash management
alternative, resulting in money market funds no longer being seen as
fungible with bank deposits, according to Hagopian. “Banks are already
motivated to comply with Basel III’s more stringent liquidity rules, even
though full implementation is a few years o!,” she adds. Janse van
Rensburg agrees: “Staying on top of these changes is critical to ensure
that we are adjusting our product o!erings appropriately to sustain and
grow our liability balance and investment market share.”
A historical change
China’s liberalization of its currency – the renminbi – began three
years ago but has accelerated recently, according to Lee at Standard
Chartered. “In July, the People’s Bank of China pilot scheme for
cross-border renminbi intercompany loan from key China cities was
broadened signi#cantly to one that has a pan-China coverage which
also encompassed a greatly reduced regulatory oversight requirements
where banks can exercise ‘Know Your Customer’ initiatives.”
As Elya# at Standard Chartered notes, liberalization represents a
signi#cant opportunity for many corporates (see box on ‘Taking
advantage of renminbi liberalization’, above). “Trapped cash in China
is often cited by many global corporates as a key area of ine$ciency
for their intergroup liquidity utilization,” he notes. “This deregulation
will open up the option for multinationals to tap their China liquidity
for utilization across other group entities globally.”
Adam Hayter, head of iLIM market management, EMEA, at RBS,
agrees: “The loosening of exchange controls in China is very positive
given the ongoing focus on releasing trapped cash. At RBS, we have
enhanced our capability to automate sweeping of renminbi from
China to Hong Kong, Singapore, the Netherlands or UK, where this
currency can be included in centralized physical or notional pooling.”
New technology and strategies
Many large corporates continue to organize and manage banking
by region, often implementing a single or multi-currency liquidity
pool at the consolidation level. However, Citi’s Weiner notes that,
with the growing deployment of advanced treasury structures (such
as in-house banks), rapid shifts in regulation, and rising trade "ows
and cash generation in emerging markets, many companies are
re-evaluating existing structures and strategies (see box on ‘Global
in-house banking’, opposite).
Lisa Rossi,
global head of liquidity
management, global
transaction banking,
Deutsche Bank
Taking advantage of renminbi liberalization
Companies – and their banks – have been quick to use changes to rules surrounding the use of renminbi and foreign currencies generated in
China. In January 2013, Standard Chartered and Shell announced that they had been granted approval to set up a foreign currency cross-border
sweeping structure. The structure, approved by the Chinese government following its pilot scheme to centralize foreign currency management
for multinationals, allows Shell China to use surplus cash for business needs elsewhere in the group.
As a result, the company reduces trapped cash – a common problem faced by global corporates – enabling greater working capital e$ciency.
The structure means that Shell can enhance its liquidity through the automatic sweeping of its onshore and o!shore excess foreign currency
(within an approved foreign debt quota and overseas lending quota). It will not only simplify the process of quota registration, drawdown and
repayment, but will also reduce the cost of funds and enable greater working capital e$ciency.
“The ability to e!ectively manage excess foreign currency liquidity globally is paramount to optimising cash management for multinationals,”
says Sridhar Kanthadai, regional head, transaction banking, North East Asia, at Standard Chartered. “This will encourage them to increase their
trade and investment in China as it gradually opens up to the rest of the world. This scheme is a signi#cant step that reiterates the commitment
and intent by China to support global companies in helping them integrate their #nancial practices. It also signi#es how China is establishing its
position as an international #nancial centre.”
In July, Standard Chartered took advantage of another regulatory change when it completed a cross-border lending deal for a worldwide
manufacturer. Renminbi cross-border lending business enables foreign and local multinationals to lend renminbi to their overseas companies:
as a result they can make full use of surplus renminbi in mainland China and support their needs for renminbi in o!shore markets. The deal
allows the manufacturer’s headquarters in China to lend a total amount of RMB2.7 billion to o!shore related companies with a tenor of one year.
Staying liquid, staying alert
5
“Today’s optimal global liquidity management strategy often calls
for concentration of cash by key currencies into the IHB, agnostic to
the regional organization,” says Weiner. “This is complemented by
coordinated management of local liquidity and funding requirements
by the central/regional treasury organization and deployment of
structured techniques to alleviate trapped cash in regulated markets.”
Schickler at HSBC agrees that the continued focus on e!ciency has
seen leading corporate treasuries striving to achieve improvements
in liquidity management through more advanced treasury structures,
driving down costs and achieving consistent, integrated liquidity
management practices. “Banks o"ering best-in-class liquidity
management services have the products and footprint to deliver
e!ciency and value to an enterprise’s trading, treasury and working
capital models, enabling corporate treasury to broaden their control
over advanced treasury models such as in-house banks, payments/
receipts on behalf of structures and shared service centres.”
!e 2013 Liquidity Management Survey
A total of 18 banks participated in this year’s Euromoney Liquidity
Management Survey: ABN Amro, Bank of America Merrill Lynch,
Barclays, BNP Paribas, Citi, Commerzbank, Danske Bank, Deutsche
Bank, Handelsbanken, HSBC, ING, KBC, PostFinance, RBS, Santander,
SEB, Société Générale and UniCredit. Each bank completed a
questionnaire covering its cash position reporting services, liquidity
management infrastructure, sweeping and cash pooling services,
investment services and liquidity management support (see table 1).
Companies’ experiences during the #nancial crisis continue to
inform many of their actions in relation to liquidity management.
For example, the scarcity and increased cost of liquidity during the
worst periods of the crisis made it more important for companies to
understand where their cash was (and be able to predict with some
accuracy where it would be in the future). This has prompted banks
to enhance their reporting capabilities so as to improve corporates’
visibility of cash and ability to forecast cash$ows.
“A global economy necessitates international systems and the cross-
border dissemination of reliable market and transaction-related data
and information,” explains Rossi at Deutsche Bank. “Given that this
is impossible without technology, Deutsche Bank has continued to
prioritize platform development to allow us to o"er clients global
visibility over cash positions.” Rottiers at BNP Paribas says that the bank
has also continued to develop “state-of-the-art electronic channels with
global reach in order to increase visibility and control on cash positions,
and to support decisions on investment and #nancing”.
All the participating banks in the survey now provide end-of-day
reports from their own branches. Many banks that took part in
the survey now o"er own bank branch intra-day reporting in as
many countries as end-of-day reports, highlighting the increased
importance of up-to-the-minute information. “We continue to
enhance our reporting capabilities to provide greater visibility and
control,” says Janse van Rensburg at BAML. “We made a substantial
enhancement early in the year which dramatically improved our cut-
o" times, helping clients around the globe to obtain earlier reporting
on US balances and achieve greater bene#t across a number of other
currencies outside the US.”
Liquidity management infrastructure
The composition of this year’s survey di"ers from that of 2012, making
comparison di!cult, but around half of the participating banks now
Suzanne Janse van
Rensburg, EMEA
head of liquidity
and investments and
managed treasury
liquidity services,
Bank of America
Merrill Lynch
Global in-house banking
A Fortune 100 global technology company had complex commercial and inter-company $ows. Treasury management functions were dispersed
over numerous locations, multiple cash pools and stand-alone bank accounts, with no overarching liquidity structure. The result was poor cash
access and utilization, added to eroding interest margins and process ine!ciencies.
The company used Citi Treasury Diagnostics to benchmark its treasury operations and gain insights on opportunities for improvement.
To centralize control and visibility, Citi recommended a global cash pool for G3 and other major currencies; global cash aggregation with
automated end-of-day zero balance sweeps ‘with the sun’ and ‘against the sun’ – moving liquidity positions to the appropriate concentration
header account as the trading day moves – and, in addition, a multi-currency notional pool. Citi also assisted the company in de#ning a path
towards consolidation of multiple #nance companies and pool headers into a single o"shore in-house bank (IHB) to manage centrally all
liquidity outside the US; and in establishing a full-service inter-company netting centre within the IHB.
Tom Schickler,
global head of liquidity
and investments,
global payments and
cash management,
HSBC
o!er a single account for all cash management and 13 provide pooling
on the same liquidity management platform for all regions. BAML’s
Global Liquidity Platform (recently extended to all Asian branches)
“continues to be one of our most important technology developments,
o!ering a level of liquidity control and "exibility that is unavailable in
o!-the-shelf products,” says Janse van Rensburg.
The mechanics of moving cash – either physically or notionally – is at
the heart of liquidity management. Banks have continued to invest in
liquidity structure capabilities: Barclays has expanded the number of
locations it o!ers for single-currency physical pooling from seven last
year to 22 this year, while BNP Paribas, KBC and Santander have also
increased physical pooling locations. Other banks have widened the
range of countries that can be included in single currency notional
pools. “With the Chinese regulations loosening, RBS has developed
the inclusion of mainland China liquidity in an o!shore liquidity
management solution,” says Hayter at RBS. “Onshore renminbi can
now be included in a balance compensation solution at any of our
central hubs in Asia or Europe.”
For a number of banks, increasing the number of currencies that
can be included in a multi-currency notional pool in Asia has
been a priority, with BNP Paribas increasing from zero last year to
23 currencies this year. “An additional number of countries in our
Asian-Paci#c network are part of our global cash pooling solutions
both for cash concentration and notional pooling,” explains Rottiers
at the bank. “As a result, cash [from] less regulated countries can
be part of cross-border sweeping solutions while surplus cash in
more regulated countries can be included in interest and balance
optimization schemes.”
Weiner at Citi says that the bank’s most important development
in liquidity management in the past year has been its Global
Concentration Engine. “This next-generation platform ties together
Citi’s worldwide branch network and liquidity management
services into a single global network for liquidity management,”
she says. “Citi’s cash aggregation services provide clients with cash
centralization and pooling across some 50 countries, mobilizing
trillions of dollars a month in liquidity "ows.” The platform provides
multiple tiers and sweep parameters, including proportional sweeps
and interest reallocation. It will be extended to emerging markets as
regulations evolve, so that clients have a consistent set of services to
the widest extent possible.
Citi’s investment in global platforms, locally delivered, produces
results, according to Weiner, providing clients with “a common
experience across markets, o!ering fully automated, cross-border
cash centralization and pooling across more countries than any other
bank. As a consequence, Citi clients have optimized full end-of-day
global liquidity across countries and regions, without loss of value or
the limitations faced when dealing with a bank’ reliance on partner
bank networks and cut-o!s. Our clients’ adoption of cross-border
sweeping and pooling structures has increased at an average
annualized growth rate of over 20% for each of the past two years.”
Citi has also placed great emphasis on using data e!ectively.
“Pooling and concentration services are linked into Citi’s liquidity
analytics capabilities,” says Weiner. “While Citi clients generally
have treasury workstations, our web-based information delivery
platforms provide companies with customized views of their global
liquidity/pooling structures and consolidated liquidity positions
throughout the business day.” Additional modules and work"ow
tools support cash "ow forecasting and intercompany loan
management. “With access to online trading of investments and FX,
clients can e$ciently determine cash positions and place trades to
KrisEnergy: passive investment management
KrisEnergy is an independent upstream oil and gas company established in September 2009. It has grown rapidly and has consequently needed
"exible banking arrangements to meet its evolving needs. Most recently, the company required a passive investment strategy for working
capital across the region, which RBS was able to deliver with its Cross-Border Cash Optimisation programme. “It maintains local autonomy while
maximizing liquidity, enhancing yield and operational e$ciency,” explains Steve Cli!ord, chief strategy o$cer and vice president, treasury, at
KrisEnergy. “It also gives us fully automated management information.”
The programme for KrisEnergy covers several countries, currencies and entities across Asia Paci#c. However, as a virtual overlay structure, the
arrangement is simple to deploy. It involves no physical movement or commingling of funds, no lock-in periods or amounts, and no conversion
of account positions. Recently, capital injections supporting the next phase of KrisEnergy’s development prompted a heightened focus on its
investment approach. KrisEnergy required a liquidity structure weighted towards shorter-term investments – but at the same time the company
wanted to retain the "exibility to redeploy funds when needed.
RBS proposed its Yield Call Demand Account investment management solution. The product o!ers a transparent benchmark-linked interest rate
and in addition, for balances that remain stable over a pre-agreed period, a bonus yield based on a term rate. Moreover, it does not have the
restrictive characteristics of a traditional time/notice deposit: liquidity can be accessed instantly if necessary.
Lee Swee Siong,
global head of global
corporate product,
transaction banking,
Standard Chartered
Staying liquid, staying alert
7
manage investments, bene!ting from greater control and !nancial
e"ciency,” she adds.
All of the banks in the survey can now ensure that a sweep is the
last transaction of the day and many have increased the number of
countries where this service is available (Citi o#ers the largest number
in this year’s survey). Just one bank does not provide automated back
values for transactions with previous value dates. As in last year’s
survey (which had slightly di#erent participants) all but !ve of the
banks o#er overnight return sweeps, most triggered by balance or
time. All the banks o#er automated intra-day sweeps within cut-o#
times, with the vast majority being conducted automatically.
Investment capabilities
This year’s survey shows that all but two of the banks accept a range
of 10 currencies or more for cash investments. Five banks – Danske
Bank, HSBC, KBC, Société Générale and UniCredit – accept 50
currencies. In line with previous year’s surveys, this year’s shows that
all the banks provide both an investment desk and an investment
portal, with two-thirds providing investment instruments from other
!nancial institutions as well as their own bank.
The investment climate remains di"cult for corporates. “Corporate
treasurers remain liquidity-conscious, maintaining signi!cant surplus
liquidity, which given extended low rates is a challenge for revenue
and yields,” explains Hayter at RBS. “While corporate treasurers
continue to balance this yield challenge with counterparty risk, we
are still seeing this translating into increased pressure to ensure
the most optimal account and liquidity structures to consolidate
operational cash and ensure maximum return.”
Deutsche Bank has expanded its end-of-day investment o#erings
to align with corporate investment policies that require broader
diversi!cation, according to Rossi. “Di#erent investment choices
comprise di#erent risks (proprietary and non-proprietary) and we
are able to o#er access to not only a broader range of investment
vehicles, but also the information that these investments require –
including non-Deutsche Bank speci!c data,” she says. “This enables
us to o#er a true view of liquidity and investment allocation beyond
Deutsche Bank products.”
However, despite the breadth of investment options available,
corporate treasurers remain conservative, notes Rossi. “Low interest
rates and a propensity for lower-risk investments have been the norm
since the global !nancial crisis of 2008, and sparked a trend among
corporates for accumulating large cash positions,” he says. “As a
result, we continue to see corporates with substantial cash positions
and, for such corporates, the key to future changes will be linked to
how cash can be best optimized and deployed in an e"cient and
prudent manner. A positive development – which comes despite
some ongoing concerns over the e#ects of regulation – is a return to
cautious optimism among corporates.”
Large cash positions mean that corporates continue to pay close
attention to counterparty risk. “There is now more focus on the
operating relationships that corporates have with banks,” says
Barclays’ Hagopian. “If you look at operating cash being held at banks,
this is cash that can provide a tremendous source of value in times of
crisis. Key elements to consider are the complexity of managing cash
$ows across operating relationships, particularly in times of market
stress, and the importance placed on having the right partnership
with your primary operating bank.”
Combined with the evolving regulatory landscape, counterparty
risk concerns mean that the inter-dependence of banks and their
corporate clients is increasing. “By working more closely together to
determine the optimal duration of liquidity, banks and corporates
can reach mutually-bene!cial solutions,” says Rossi. “They allow
corporates to receive maximum rates of return, and banks to optimize
balance sheet management.”
At many banks, this reciprocal relationship is re$ected in new
products that invest a set amount of cash for a de!ned period that
rolls over until called by the client (see box on KrisEnergy). “The
advantage of such accounts is that corporates can bene!t from
improved working capital – as they know the deposit amount will
be fully invested earning a higher rate due to the pre-agreed notice
period for their reserve or strategic cash,” says Rossi. “Banks, for their
part, can retain strong balance sheet management by capturing
longer-dated, stable deposits which are given increased liquidity
value by regulators.”
Such a partnership approach to liquidity management – more akin
perhaps to trade !nance – is largely related to Basel III and its stringent
capital adequacy requirements that may restrict banks’ ability to
lend, and thereby reinforce the need for companies to maximize
available resources, according to Rossi. “Assessing corporate liquidity
management in a more structured, mutually-bene!cial way, therefore,
is arguably the next step for the industry, and is one that requires
considerable technology capability to support.”
Adam Hayter,
head of iLIM market
management, EMEA,
RBS
Elyse Weiner,
global head,
Citi Liquidity
Management Services
Elyse Weiner, global head, Citi Liquidity Management Services, describes how
treasurers are revisiting liquidity management strategies
How regulation is reshaping
corporate liquidity
management
What are you hearing from corporate treasurers in
regard to the environment they face today?
That it is complex, changing and challenging. This is a period of huge
shifts in markets where companies are operating, generating and
using cash. But, even as conditions evolve and economic uncertainty
continues, the C-suite is set on achieving higher levels of operating
e!ciency and return.
A prime focus for treasurers of global enterprises is therefore making
better use of internal liquidity resources. While the criticality of
liquidity management was highlighted by the onset of the global
"nancial crisis, market shifts are raising the bar as treasurers are
being called upon to manage liquidity and funding e!ciently across
a wider network of operating entities, in more complex operating
environments and with an increasing reliance on technology to bring
things together e!ciently.
What has been the biggest change over the past year?
The main change has been more regulatory upheaval and, at the
same time, greater acknowledgment and recognition of the potential
downstream implications to treasury management.
First, regulations ranging from Dodd-Frank to the European Markets
and Infrastructure Regulation (EMIR) are being implemented and
treasurers are challenged to ensure that their organizations are
compliant. Second, as businesses expand globally, treasurers are trying
to keep abreast of rapid changes in capital and currency controls
across more markets. These controls directly impact their ability
to manage liquidity e!ciency and alleviate trapped cash and are
especially relevant in the more highly regulated emerging and ‘frontier’
markets into which companies are expanding. Finally, treasurers now
acknowledge the need to plan and prepare for the implications of
"nancial industry regulation on the products and services o#ered by
their banking partners and adapt accordingly.
A fundamental question in the minds of treasurers today is how
regulatory changes, both at the national and global levels, will a#ect
their ability to manage liquidity on a global basis, mitigate risk and
ensure an e!cient capital structure.
Why should !nancial industry regulation be at the
forefront for corporate treasurers?
The global Basel III regulatory standards on capital, liquidity and
leverage are in$uencing how banks approach the provision, cost
and return of a broad range of services - from long-dated derivatives
to trade "nancing to cash management. While Basel III may in all
likelihood be subject to an extended phase-in period until 2019, and
some details are still uncertain, national regulators and the "nancial
services industry are in a race to comply to ensure comfort with clients,
stockholders and bondholders.
Companies are preparing for how banks may re-price or retreat from
services that are no longer "nancially or operationally attractive.
Trade "nancing is one area that has seen some pullback as US dollar
liquidity becomes more expensive and spreads compress. On the
other hand, banks are seeking out corporates for a share of their
cash management business, as transaction banking has lower capital
requirements and provides attractive funding under Basel liquidity
ratio frameworks. Risk distribution strategies – where banks act as
intermediaries between corporates and investors, rather than buying
and holding assets – are likely to increase in popularity. Moreover, the
increased cost of capital may spur some consolidation in the banking
industry to build scale and lower costs.
“Treasurers are being called upon to manage liquidity and funding e"ciently across
a wider network of operating entities, in more complex operating environments and
with an increasing reliance on technology to bring things together e"ciently”
Citi OHow regulation is reshaping corporate liquidity management
9
Although adding more bank providers may further diversify sources of
funding and requisite services, as well as dilute counterparty exposure,
the operational results will be diametrically opposed to the strategy
of becoming more e!cient in managing internal liquidity. There is a
marked trend towards rationalization and consolidation on the part of
both clients and providers to build e!ciencies of scale and mitigate risk
through improved management processes.
While Basel III sets global principles, it’s important to keep in mind
that "nancial services and bank regulation is imposed by national
regulators, at best loosely coordinated across borders. The reality is
that national regulators are implementing new standards on bank
capital, liquidity ratios, leverage ratios and bank ‘resolution’ regimes in
di#erent ways, often imposing higher standards. One such example
is the supplementary leverage ratio proposed by US regulators that
e#ectively doubles the Basel requirement for banks. The overall objective
is to ensure stability of the "nancial sector, but di#erences in regulatory
regimes may in combination have further, unexpected impacts to the free
$ow of capital and create a form of regulatory arbitrage among banks.
How should companies respond to this?
Ultimately, external "nancing may become more expensive, so
companies should continue to focus on diversifying their funding
alternatives and achieving maximum utilization of internally generated
funds by releasing cash from the operating cycle and applying it where it
delivers the best return. Centralizing treasury operations and streamlining
banking will help improve cash e!ciency. Corporates should also take
into account the impact of higher bank capital standards on their supply
chain partners, which may "nd it harder to secure funding. Supply chain
"nance o#ers a way to de-risk the supply chain.
Perhaps most importantly, corporates should work with their banking
partners to discuss the implications of Basel III and other regulations on
their bilateral relationships and proactively develop strategies to drive
value creation for both parties. Bank relationship management and
wallet allocation strategies will need to be re"ned as di#erent institutions
respond in diverse ways to pricing and appetite for providing "nancial
services, depending on how they are positioned in regard to capital,
liquidity, and business scale.
Taking all of this into consideration, what do you see
companies doing in practice?
Let me illustrate by example. Many large companies are re-evaluating
their internal treasury processes and current banking arrangements.
In the recent past, a common approach was to organize and manage
banking on a region-by-region basis, with ‘overlay’ liquidity pools to
help consolidate operational liquidity management. With the advent
of more advanced treasury structures, such as in-house banks (IHBs),
and access to globally deployed technology, this approach may no
longer su!ce as businesses extend into new markets and operating
complexity increases.
Many are deciding to undertake a more regionally-agnostic view
towards global re-engineering of treasury processes and organization.
For example, with e#ective liquidity management as a key driver, a
more e!cient structure may be concentration of cash by key operating
currencies into the IHB, complemented by tightly coordinated
management of local liquidity and funding by the central/regional
treasury organization. The deployment of structures and techniques
to control $ow of funds can help avoid or alleviate trapped cash in
regulated markets.
Companies are also deploying global cash forecasting programmes for
more accurate and timely understanding of local liquidity needs and
better forward planning.
In closing, what has Citi been doing in response to
these trends?
As a global banking partner for multinationals headquartered in the
developed and emerging markets, we often provide both services and
technical advisory to help clients in the formulation and execution of
treasury management strategies.
Clients are asking for increased geographic $exibility and ability to make
liquidity ‘fungible’ across more currencies and geographies. In response,
we have further expanded and enhanced our global network for liquidity
management, focusing on providing clients with a common experience
and funnelling cash into liquidity hubs where they may place treasury
centers and "nancing vehicles, taking into consideration the unique
tax, regulatory and operational requirements that drive their decision-
making. Further, we have continually invested in our liquidity analytics
and information delivery platforms, providing clients with real-time
reporting of positions.
Clients have made a step-change in optimizing full end-of-day global
liquidity across countries and regions. Several have won industry
awards over the past year – partly as a consequence of deploying the
functionality provided by Citi to enhance their liquidity management
processes. The roadmap and milestones are re$ected in Citi Treasury
Diagnostics, a tool provided to clients to benchmark performance across
treasury processes, identify areas for improvement, and track their
progress in achieving best practice.
www.transactionservices.citi.com
For further information, please contact:
Elyse Weiner,
global head,
Citi Liquidity
Management Services
Cash Position Reporting
Intra-day reporting of transactions:
How many own bank branch countries reporting? 7 37 7 60 101 20 12
34 19 71 21 10 1 37 7 14 19 13
Are Third Party Banks’ transactions accepted and processed? : Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
End Of Day Reports:
How many own bank branch countries reporting? 7 37 23 60 101 20 12
35 19 71 21 13 1 42 7 16 57 17
Are there Third Party report monitoring & chasing services? No Yes Yes Yes Yes Yes No
No Yes Yes Yes Yes No No Yes Yes No Yes
Is there real-time reporting of account balances? Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes No Yes Yes Yes No Yes
What reporting channels are used? S, OP, S, OP, O S, OP S, OP, O S, OP, E S, OP, E S, OP,
S, OP, E S, OP, S, OP, E, O S, OP, O S, OP S, OP, S, OP, O S, OP, O S, OP, E, O S, OP, O S, OP, E, O
(Swift (S), Online portal (OP), Email (E), Other (O)) Access Direct Host-to-host,
di!erent "le Paper, TBS, FDS
Webservices
formats
What is the level of liquidity forecasting service functionality? None Medium Medium None Medium Comprehensive Little
Medium Little Medium Comprehensive Medium Little Medium None Comprehensive Little Medium
Liquidity Management Infrastructure
Do you provide a single global DDA for all cash management? No Yes No No No Yes Yes
No No Yes Yes No No Yes Yes No Yes No
Do you provide pooling on the same liquidity management
platform for all regions? Yes Yes No Yes Yes Yes Yes
No Yes Yes No No Yes Yes Yes Yes Yes No
Sweeping and Pooling Services
Header/Master Account Locations
Single Currency Pool (No. of countries): physical 7 37 22 32 69 16 9
35 19 51 10 8 1 35 5 15 29 14
notional 1 36 2 22 11 14 3
29 12 30 28 8 1 16 2 11 15 8
Cross-Border Sweeping Between Own Branches
End Of Day Sweeps:
No. of countries where sweep can be last transaction* of day: 7 37 5 31 40 16 12
35 19 19 28 8 1 25 7 8 19 14
Automated back-values for transactions with previous value date Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes
Overnight return sweeps Yes Yes Yes Yes Yes No Yes
Yes Yes Yes No No Yes No Yes No Yes
Intra-day sweeps within cut-o! times: - No. of countries 5 36 10 31 43 16 12
18 19 30 28 8 1 35 6 11 18 14
- How swept: Auto Auto Auto Auto Auto Auto Auto
Auto Auto/man Auto Auto Auto/man Man Auto Auto Auto Auto Auto/man
- How sweeps triggered: Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time
Balance/time Balance/time Balance/time Time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time
Cross-Border Multi-Bank Sweeping
No. of existing MT 101 agreements: 200+ 200+ 200+ 200+ 200+ 200+ 101-199
50-99 50-100 200+ 200+ 200+ 400+ >50 100-199 200+ 200+
Target End Of Day Sweeps - No. of countries: 57 36 32 29 25 9
26 40 18 28 8 1 0 23 19 15 24
- How swept: Auto Auto Auto Auto Auto Auto Auto
Auto Auto/man Auto Auto/man Auto/man Man NA Auto Auto Auto Auto/man
- How sweep triggered: Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Time
Balance/time Balance/time Balance/time Balance Balance/time Balance/time NA Balance/time Balance/time Balance/time Balance/time
Cross-border, cross-currency sweeping with auto FX-conversion Yes Yes No No Yes Yes Yes
No No Yes Yes Yes No No no No
Intra-day sweeps: - No. of countries: 57 36 32 29 Unlimited 25 31
14 0 8 28 8 0 36 19 11
- How swept: Auto Auto Auto Auto Auto/man Auto Auto
Auto Auto/man Auto Auto/man Auto/man Auto Auto Auto
- How sweep triggered: Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time
Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time
Notional Pooling Services
Single Country (all accounts in same country)
Single Currency - Full o! set (No. of countries): 1 35 2 6 11 14 3
14 12 20 2 1 1 16 11 15 12
% optimisation (No. of countries): 1 36 3 22 25 14 9
29 0 30 2 8 5 2 11 0 12
Multi-Currency - Full o! set (No. of countries): 1 35 1 6 3 14 1
3 6 10 43 1 0 4 11 1 1
% optimisation (No. of countries): 1 36 1 22 25 14 9
29 0 22 43 8 5 2 11 1 1
No. of pooling currencies supported: 40 46 15 23 25 10 44
50 34 50 28 50 1 29 1 45 16 18
Multi-Country (leave funds in each country)
Single Currency - % optimisation (No. of countries): 0 36 0 22 25 14 8
29 6 53 15 8 0 34 12 0 8
Multi-Currency - % optimisation (No. of countries): 0 36 0 22 25 14 8
29 6 53 9 0 0 34 12 0 8
No. of pooling currencies supported 0 46 0 23 26 10 44
50 34 50 4 50 1 29 45 0 6
Investment of Excess Cash
Bank Risk Pro"le: Credit rating of bank (S&P or Moody rating): A/A2 S&P BANA A A2 (Negative) A+ A-1 A/A-1 A-
Moodys A2/S+P A AA- A+ on Moody’s A3, A3 stable AA+ A3 BBB (S&P) A+ A S&P & AG:A/

HSBC Holdings S&P A A2 Moodys Spa:BBB+
Tier One Capital Ratio (%) 12.40% 9.60% 11.00% 11.70% ? 12.30% 15.10%
15.10% 18.20% 10.40% 9.20% 15.40% 10.80% 11.17% 16.71% 10.70% 11.03%
Investment Options: No. of currencies accepted for cash investments 40 46 40 4 19 11 50
26 13 50 12 50 2 30 21 23 50 50
Money Market Funds No. of funds - freely negotiable currencies 0 0 0 12 158 4 5
26 0 5 3 0 2 150 21 10 0 50
No. of funds - restricted currencies 0 0 0 0 0 0
0 0 4 2 0 0 0 0
Investment Channels: Dedicated Investment Desk Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes yes Yes
On-line Portal: - provided Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes Yes yes Yes
- instruments available (Bank (B), third-party (3)) B B, 3 B B, 3 B, 3 B B
B, 3 B, 3 B B B B B, 3 B B, 3 B, 3 B, 3
To Money Market Funds - automated sweeps to No Yes No No Yes No No
Yes Yes Yes No No No No No No no Yes
- automated redemptions from No Yes No No Yes No No
Yes No Yes No No Yes No No No no Yes
To Other Instruments - automated sweeps to Yes Yes No Yes Yes No No
Yes No Yes Yes No Yes Yes No Yes no No
- automated redemptions from Yes Yes No Yes Yes No No
Yes No Yes Yes No Yes Yes No Yes no No
Liquidity Management Support
Dedicated operational and customer support: Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes Yes yes Yes
Liquidity models for client’s private use
Analysis of cost of holding cash: No Yes No No Yes No No
No Yes Yes No Yes No Yes No No no No
Showing impact of new structures: No No Yes No Yes No No
No No Yes No Yes No Yes No Yes no No
* = except for investment
Table 1 - Euromoney 2013 Liquidity Management Survey
BANK NAME ABN AMRO BANK OF AMERICA BARCLAYS BNP PARIBAS CITI COMMERZBANK DANSKE
DEUTSCHE HANDELSBANKEN HSBC ING BANK KBC POSTFINANCE RBS SANTANDER SEB SOCIÉTÉ UNICREDIT
MERRILL LYNCH BANK
BANK GÉNÉRALE
Number of sites (S) and currencies (C) S C S C S C S C S C S C S C
S C S C S C S C S C S C S C S C S C S C S C
Multi-Currency Notional Pool (sites & currencies): Asia-Paci"c: 0 0 12 46 0 0 3 23 2 9 2 11
14 16 0 10 26 0 0 0 0 0 0 2 29 0 0 1 45 0 0 0 0
Europe: 1 40 21 46 1 15 19 23 1 23 13 11 9 44
14 50 6 34 4 50 1 43 8 50 0 0 2 29 0 0 9 45 1 16 12 14
Latin America: 0 0 2 46 0 0 0 0 0 0 0 0
1 1 0 2 14 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
NAFTA: 0 0 2 46 0 0 0 0 0 0 1 11
1 4 0 1 18 0 0 0 0 0 0 0 0 0 0 1 45 0 0 0 0
Middle East & Africa: 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 5 10 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Cash Position Reporting
Intra-day reporting of transactions:
How many own bank branch countries reporting? 7 37 7 60 101 20 12
34 19 71 21 10 1 37 7 14 19 13
Are Third Party Banks’ transactions accepted and processed? : Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
End Of Day Reports:
How many own bank branch countries reporting? 7 37 23 60 101 20 12
35 19 71 21 13 1 42 7 16 57 17
Are there Third Party report monitoring & chasing services? No Yes Yes Yes Yes Yes No
No Yes Yes Yes Yes No No Yes Yes No Yes
Is there real-time reporting of account balances? Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes No Yes Yes Yes No Yes
What reporting channels are used? S, OP, S, OP, O S, OP S, OP, O S, OP, E S, OP, E S, OP,
S, OP, E S, OP, S, OP, E, O S, OP, O S, OP S, OP, S, OP, O S, OP, O S, OP, E, O S, OP, O S, OP, E, O
(Swift (S), Online portal (OP), Email (E), Other (O)) Access Direct Host-to-host,
di!erent "le Paper, TBS, FDS
Webservices
formats
What is the level of liquidity forecasting service functionality? None Medium Medium None Medium Comprehensive Little
Medium Little Medium Comprehensive Medium Little Medium None Comprehensive Little Medium
Liquidity Management Infrastructure
Do you provide a single global DDA for all cash management? No Yes No No No Yes Yes
No No Yes Yes No No Yes Yes No Yes No
Do you provide pooling on the same liquidity management
platform for all regions? Yes Yes No Yes Yes Yes Yes
No Yes Yes No No Yes Yes Yes Yes Yes No
Sweeping and Pooling Services
Header/Master Account Locations
Single Currency Pool (No. of countries): physical 7 37 22 32 69 16 9
35 19 51 10 8 1 35 5 15 29 14
notional 1 36 2 22 11 14 3
29 12 30 28 8 1 16 2 11 15 8
Cross-Border Sweeping Between Own Branches
End Of Day Sweeps:
No. of countries where sweep can be last transaction* of day: 7 37 5 31 40 16 12
35 19 19 28 8 1 25 7 8 19 14
Automated back-values for transactions with previous value date Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes
Overnight return sweeps Yes Yes Yes Yes Yes No Yes
Yes Yes Yes No No Yes No Yes No Yes
Intra-day sweeps within cut-o! times: - No. of countries 5 36 10 31 43 16 12
18 19 30 28 8 1 35 6 11 18 14
- How swept: Auto Auto Auto Auto Auto Auto Auto
Auto Auto/man Auto Auto Auto/man Man Auto Auto Auto Auto Auto/man
- How sweeps triggered: Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time
Balance/time Balance/time Balance/time Time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time
Cross-Border Multi-Bank Sweeping
No. of existing MT 101 agreements: 200+ 200+ 200+ 200+ 200+ 200+ 101-199
50-99 50-100 200+ 200+ 200+ 400+ >50 100-199 200+ 200+
Target End Of Day Sweeps - No. of countries: 57 36 32 29 25 9
26 40 18 28 8 1 0 23 19 15 24
- How swept: Auto Auto Auto Auto Auto Auto Auto
Auto Auto/man Auto Auto/man Auto/man Man NA Auto Auto Auto Auto/man
- How sweep triggered: Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Time
Balance/time Balance/time Balance/time Balance Balance/time Balance/time NA Balance/time Balance/time Balance/time Balance/time
Cross-border, cross-currency sweeping with auto FX-conversion Yes Yes No No Yes Yes Yes
No No Yes Yes Yes No No no No
Intra-day sweeps: - No. of countries: 57 36 32 29 Unlimited 25 31
14 0 8 28 8 0 36 19 11
- How swept: Auto Auto Auto Auto Auto/man Auto Auto
Auto Auto/man Auto Auto/man Auto/man Auto Auto Auto
- How sweep triggered: Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time
Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time Balance/time
Notional Pooling Services
Single Country (all accounts in same country)
Single Currency - Full o! set (No. of countries): 1 35 2 6 11 14 3
14 12 20 2 1 1 16 11 15 12
% optimisation (No. of countries): 1 36 3 22 25 14 9
29 0 30 2 8 5 2 11 0 12
Multi-Currency - Full o! set (No. of countries): 1 35 1 6 3 14 1
3 6 10 43 1 0 4 11 1 1
% optimisation (No. of countries): 1 36 1 22 25 14 9
29 0 22 43 8 5 2 11 1 1
No. of pooling currencies supported: 40 46 15 23 25 10 44
50 34 50 28 50 1 29 1 45 16 18
Multi-Country (leave funds in each country)
Single Currency - % optimisation (No. of countries): 0 36 0 22 25 14 8
29 6 53 15 8 0 34 12 0 8
Multi-Currency - % optimisation (No. of countries): 0 36 0 22 25 14 8
29 6 53 9 0 0 34 12 0 8
No. of pooling currencies supported 0 46 0 23 26 10 44
50 34 50 4 50 1 29 45 0 6
Investment of Excess Cash
Bank Risk Pro"le: Credit rating of bank (S&P or Moody rating): A/A2 S&P BANA A A2 (Negative) A+ A-1 A/A-1 A-
Moodys A2/S+P A AA- A+ on Moody’s A3, A3 stable AA+ A3 BBB (S&P) A+ A S&P & AG:A/

HSBC Holdings S&P A A2 Moodys Spa:BBB+
Tier One Capital Ratio (%) 12.40% 9.60% 11.00% 11.70% ? 12.30% 15.10%
15.10% 18.20% 10.40% 9.20% 15.40% 10.80% 11.17% 16.71% 10.70% 11.03%
Investment Options: No. of currencies accepted for cash investments 40 46 40 4 19 11 50
26 13 50 12 50 2 30 21 23 50 50
Money Market Funds No. of funds - freely negotiable currencies 0 0 0 12 158 4 5
26 0 5 3 0 2 150 21 10 0 50
No. of funds - restricted currencies 0 0 0 0 0 0
0 0 4 2 0 0 0 0
Investment Channels: Dedicated Investment Desk Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes yes Yes
On-line Portal: - provided Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes Yes yes Yes
- instruments available (Bank (B), third-party (3)) B B, 3 B B, 3 B, 3 B B
B, 3 B, 3 B B B B B, 3 B B, 3 B, 3 B, 3
To Money Market Funds - automated sweeps to No Yes No No Yes No No
Yes Yes Yes No No No No No No no Yes
- automated redemptions from No Yes No No Yes No No
Yes No Yes No No Yes No No No no Yes
To Other Instruments - automated sweeps to Yes Yes No Yes Yes No No
Yes No Yes Yes No Yes Yes No Yes no No
- automated redemptions from Yes Yes No Yes Yes No No
Yes No Yes Yes No Yes Yes No Yes no No
Liquidity Management Support
Dedicated operational and customer support: Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes Yes yes Yes
Liquidity models for client’s private use
Analysis of cost of holding cash: No Yes No No Yes No No
No Yes Yes No Yes No Yes No No no No
Showing impact of new structures: No No Yes No Yes No No
No No Yes No Yes No Yes No Yes no No
Source: Euromoney
BANK NAME ABN AMRO BANK OF AMERICA BARCLAYS BNP PARIBAS CITI COMMERZBANK DANSKE
DEUTSCHE HANDELSBANKEN HSBC ING BANK KBC POSTFINANCE RBS SANTANDER SEB SOCIÉTÉ UNICREDIT
MERRILL LYNCH BANK
BANK GÉNÉRALE
Number of sites (S) and currencies (C) S C S C S C S C S C S C S C
S C S C S C S C S C S C S C S C S C S C S C
Multi-Currency Notional Pool (sites & currencies): Asia-Paci"c: 0 0 12 46 0 0 3 23 2 9 2 11
14 16 0 10 26 0 0 0 0 0 0 2 29 0 0 1 45 0 0 0 0
Europe: 1 40 21 46 1 15 19 23 1 23 13 11 9 44
14 50 6 34 4 50 1 43 8 50 0 0 2 29 0 0 9 45 1 16 12 14
Latin America: 0 0 2 46 0 0 0 0 0 0 0 0
1 1 0 2 14 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
NAFTA: 0 0 2 46 0 0 0 0 0 0 1 11
1 4 0 1 18 0 0 0 0 0 0 0 0 0 0 1 45 0 0 0 0
Middle East & Africa: 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 5 10 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Against a background of improving economic prospects and continuing regulatory and technological
change, corporates are sensing new opportunities and need the support of a committed banking
partner to manage their liquidity requirements
A reliable partner in a
changing landscape
The liquidity environment has, in many respects, scarcely changed in
the past year. Corporates still sit on record piles of cash, partly because
of greater caution given their experience during the !nancial crisis.
However, while the size of corporates’ cash balances may be similar to
a year ago, the economic, regulatory and technological backdrop has
continued to evolve.
Although uncertainties remain, the economic outlook has improved
for much of the world, with the US economy performing strongly and
the eurozone beginning to get to grips with its debt crises. At the same
time, the impact of regulatory changes such as Basel III is becoming
clearer and banks are introducing new products in anticipation.
Other regulatory changes include the ongoing liberalization of
China’s renminbi. Trapped cash remains a challenge in China but the
situation is changing fast, with new regulations on overseas lending
of renminbi opening up new possibilities for treasurers. Meanwhile,
new International Accounting Standards will be introduced in
January 2014, with potential implications for corporate liquidity
management structures.
Finally, in technology, visibility and control remain priorities for
corporate treasurers, with forecasting a critical capability. However,
banks are also changing how they deliver products and services, with
mobile becoming an ever more important delivery channel.
Cash continues to be hoarded
Companies’ cash positions remain signi!cantly larger than in the
pre-crisis period. However, the drivers for this hoarding of cash have
changed. Two years ago, liquidity was being built up primarily because
of fears over instability in the !nancial system – a rational response
to companies’ experience during the !nancial crisis. Now there are
additional motivations.
Chief among these is the improving economic environment. According
to the IMF, global growth increased only slightly from an annualized rate
of 2.5% in the second half of 2012 to 2.75% in the !rst quarter of 2013
and is on track to be slightly above 3% for 2013 overall – the same as
in 2012. However, with recovery in the US economy under way and the
eurozone crisis subdued (if not resolved) there is a greater con!dence
among corporates.
Consequently, a large part of corporates’ cash hoarding now re"ects an
anticipation of future opportunities for mergers and acquisitions and
organic growth opportunities that will require investment.
Basel III
While Basel III is aimed at improving the stability of the global
!nancial system and primarily targets the banking sector, it will have
profound implications for corporates. New requirements, such as the
Liquidity Coverage Ratio (LCR), change the value of di#erent types
of cash to banks. Banks are responding by adjusting their product
o#ering and introducing greater variation, in terms of expiry and
tenor dates, in their range of time deposits to re"ect the increased
value of call deposits beyond 30 days, for example, in the calculation
of banks’ LCR.
“A large part of corporates’ cash hoarding now re!ects an anticipation of future
opportunities for mergers and acquisitions and organic growth opportunities that
will require investment”
Jan Rottiers, Head of
Liquidity Management,
BNP Paribas
BNP Paribas
OA reliable partner in a changing landscape
13
More generally, operational cash, related to cash management, for
example, will become more valuable to banks. As a result, there will
be increased competition among banks to win companies’ cash
management business to capture that cash.
International Accounting Standards
The introduction of a new version of International Accounting Standards
(IAS) becoming e!ective in 2014 will change the rules regarding
accounting treatment of some instruments by banks and corporates.
For example, the netting of loans and deposits could become more
challenging. This could lead to a restructuring of clients’ notional pools.
However, while the introduction of the new IAS rules is imminent there
remains some uncertainty about the potential implications for corporates
and banks working together to limit the impact of the changes on
companies’ notional pooling structures.
Mobile becoming important
Technology is becoming increasingly prevalent in most people’s lives
and use of smartphones and tablets has increased dramatically in
recent years, with many retail banking services now available for mobile
devices, for example. As a result, corporates’ expectations of how liquidity
management products and services are delivered are changing. Banks are
responding by improving their mobile o!erings.
Banks are bringing new functionality to mobile platforms to improve
convenience and allow treasurers to complete tasks wherever they
are, at a time that suits them. For example, trigger alerts can be set up
to bring new opportunities to treasurers’ attention or enable them to
approve payments, signi"cantly improving #exibility and productivity.
At the moment, mobile services related to liquidity management
are mostly focused on providing access to information and giving
approval. Over time, increased functionality will be added. Ultimately
it is expected that the full functionality of a desktop platform will be
available for mobile.
Renminbi revolution
The gradual liberalization of China’s renminbi has gathered pace in
the past year, with a number of changes improving access to o!shore
renminbi. In particular, there has been an evolution in the regulatory
framework to allow the transfer of renminbi out of China more easily.
Consequently, corporates have begun to look at the opportunities to
"nance their activities elsewhere using renminbi and are also making
other changes to their treasury operations to re#ect the new rules.
While the pace of regulatory change in China remains unknown, the
direction of change – toward further liberalization of renminbi – is certain.
Moreover, there are now clear opportunities to optimize "nancing
in China and integrate the country more fully into regional or global
liquidity management solutions.
How BNP Paribas is helping clients
BNP Paribas is responding to the changing liquidity, economic, regulatory
and technological landscape by investing in technology. The Connexis
Cash and Liquidity platform has been extended to deliver improved
visibility of cash positions: it o!ers real-time views of all cash balances and
improved cash consolidation (including accruals) and control. Access to
investment solutions, including deposits and money market funds, has
also been enhanced.
One of BNP Paribas’s strengths is its unique geographical coverage, which
enables the bank to meet its clients’ needs across 57 countries worldwide.
BNP Paribas has reinforced the geographical coverage of its cash and
liquidity management o!ering in Asia and is now present across 14
countries in Asia Paci"c, in line with clients’ growth in the region.
Anne Dugied
Deputy Head of Communication for Cash Management
anne.dugiedbnpparibas.com
“Banks are bringing new functionality to mobile platforms to improve convenience
and allow treasurers to complete tasks wherever they are, at a time that suits them”
BNP Paribas Corporate Deposit Line
BNP Paribas o!ers a deposit and liquidity advisory service to help
corporate treasurers make the best use of their cash, from operating
to surplus. In today’s fast-changing "nancial environment, it’s vital
that corporate treasurers have a solid long-term relationship with
their banking partner and "nd the right balance between risk,
liquidity and yield. Balancing these competing demands requires a
partner that takes a holistic view, allowing corporate treasurers to
explore new liquidity management solutions to meet their speci"c
requirements.
Our advisers work at understanding our clients’ balances and
requirements for operational, reserve and strategic cash surpluses to
enable them to o!er the most appropriate solution. The team, which
is not tied to a speci"c product area, draws on the full breadth of the
bank’s product portfolio to develop the most e!ective solution. Our
teams have extensive corporate banking experience and are located
in the major markets around the world, o!ering comprehensive
global coverage to our clients.
As companies expand beyond their home base, additional risks need to be addressed – from location
and personnel risks to !nancial risks and bank counterparty exposures. "ese risks can be mitigated
by careful assessment and selection of key factors. Tarek El-Ya!, Managing Director and Head
of Cash Transformation, Transaction Banking, and Tariq Hoodbhoy, Director and Head of Cash
Commercialisation, Transaction Banking, at Standard Chartered Bank, explain how.
Dealing with risks in
international cash management
As international trade barriers fall, corporations are expanding beyond
their home base, raising the need for group treasurers to manage and
control operational cash !ows centrally. When branches or subsidiar-
ies are set up in more than three or four countries, centralized cash
management becomes important - sometimes critical - to managing
cash e"ectively. Liquidity solutions such as inter-company #nancing en-
able corporations to use their cash more e$ciently. International cash
management structures also allow them to:
O
Gain visibility on all balances across countries;
O
Get insight into payment and collection patterns;
O
Enforce due diligence for new banking relationships;
O
Replicate best practices across all countries; and
O
Monitor the global and regional counterparty risks of banks, vendors
and clients.
Below are some of the key risks and mitigating factors to help treasur-
ers embark on their international cash management journey.
"e right location
The most important question is: in which country should the consoli-
dated cash structure be based? If the parent company is located in
a liberal foreign exchange environment, the cash structure could be
based there. Otherwise it should be in a country with:
O
No restrictions on in!ow and out!ow of funds;
O
Stable socio-political conditions;
O
Withholding and corporate tax bene#ts;
O
A well-established infrastructure including strong governance and
judicial structure; and
O
Minimum geopolitical risk.
Green#eld investment incentives must be weighed against the risks. It
is also mandatory to engage with the government on all bene#ts that
might be o"ered, such as reduction of stamp duties, or corporate and
withholding tax exemptions. The corporation should also understand
the government’s attitude to importing expertise.
"e right currency
If the parent company’s base currency is freely traded, the net position
from all subsidiaries should be converted into that currency. If the corpo-
rate is based in a market with currency restrictions, a decision needs to
be based on the maximum exposure the corporate has to the currency.
To mitigate risk associated with the local currency, balances in the
current account can be hedged. If treasury guidelines are standard-
ized, hedging can be outsourced to a bank, based on pre-determined
parameters, reducing the temptation for speculation.
Su#cient liquidity
Lack of freely available cash can be a concern if cash management is
centralized in a country that employs capital controls. Government
measures may reduce currency in circulation, either because of in!a-
tionary pressures or because it is looking to manage the appreciation of
the currency.
Cash centralization can help. A global relationship bank can provide
support and information. A bank partner can help ensure local subsidi-
aries always have the funding they need and do not su"er reputational
risk – for example, because of an inability to pay suppliers.
"e right expertise
The specialized skills needed for centralizing cash management may
not be locally available. For such markets, these skills are usually im-
ported by contracting with a consulting company.
Partnering with a bank is another option. Many banks have recruited
treasury professionals with this expertise and developed solution teams
to assist in cash centralization. Engaging audit #rms or ex-treasury
professionals are also viable options.
Needs versus wants
Corporations must identify the business needs they want to address.
A corporate in the business-to-consumer space may #nd it best to
leverage local banks for domestic cash management and set up an
overlay structure with an international bank to consolidate funds at
group level.
An overlay structure can be o"ered by a regional or global bank. Local
accounts are opened and used to pull funds and information from local
banks. These accounts are incorporated in a regional/global liquidity
structure and the information consolidated for the corporate.
A complete assessment of the operational and technical impacts of
centralization should be commissioned. A consultancy or a bank can be
enlisted to provide impartial views and the skills required. For govern-
ance, a steering committee of senior sta" members should be set up to
monitor the bene#ts of the project.
Liquidity management structure versus treasury centre
Will an overlay liquidity management structure su$ce or should the
corporate set up a treasury centre to manage the structure as well as
foreign exchange (FX) trading and other risks?
Standard Chartered
ODealing with risks in international cash management
15
The key advantage of a liquidity management structure is the ability to
net o! balances and cosmetically improve the consolidated balance sheet.
It also has lower set-up costs. The corporate should also consider future
funding or investment requirements, as a treasury centre may be used as a
"nance company to hold investments and raise debt. In this case, centraliz-
ing the cash management structure as part of the "nance company would
make more sense. Other considerations are listed in Figure 1.
Compliance and control
Controls are needed to ensure that centralized bank exposures are within
counterparty limits. These limits need to be monitored and managed,
with active mitigation strategies if limits are breached. Some treasury
management systems block transactions if limits are breached or if the
receiving bank does not have a limit in place. Internal audit, controllers,
risk and compliance need to ensure controls relating to treasury policy
and procedures are in place and positions within the risk framework ap-
proved by the board.
Managing foreign currency risks
Most businesses are exposed to currencies other than their own. There
is a need to streamline and automate these transactions. One way is
by agreeing on a "xed spread with the bank over a benchmark rate or
establishing inter-company netting processes. Some banks can o!er
pre-agreed FX spreads for payments and/or collections at either a global
or local level.
Where a corporate depends on a commodity that is not priced in the base
currency, it can explore whether changes in the exchange rate can be
passed through to clients. Alternatively, it can adopt a hedging strategy.
Technological infrastructure
A common platform will reap the maximum bene"t from centralizing
cash management but is not a prerequisite. Most banks can take feeds
from various enterprise resource planning (ERP) systems. Future migra-
tions are easier and more cost-e!ective if ERP systems are standardized.
Depending on the end solution, the need for a treasury management
system must be assessed. Banks can provide tools on their web portals
allowing corporates to change sweeping parameters when they wish.
These tools not only help them make changes in near real time, but
also reduce the need to invest in treasury management systems simply
to manage inter-company borrowing and lending. A thorough needs
analysis study should be conducted to determine a portable and bank-
agnostic solution that provides the #exibility to change service provider
with limited costs.
!e right banking partner
The chosen banking partner must complement the corporate’s growth
plans. It should either have a presence in the corporate’s geographies
or work with local banks there. Other considerations include: the bank’s
credit standing, capitalization, track record of growth and ability to
withstand any credit crisis, investment in infrastructure and development
of new solutions.
With ever-evolving changes in regulatory reporting or the internationali-
zation of currencies, it is critical that the bank is plugged into all markets
where the corporate operates and is able to o!er local solutions ahead of
the market.
Senior management buy-in
Last but not least, a strong project management and governance struc-
ture with senior management endorsement will ensure optimal results.
Conclusion
The risks involved as companies expand beyond their home base can be
mitigated by implementing a few key steps:
O
Work with a bank that has successfully implemented solutions across
the region, making sure that it has local expertise as well as strong experi-
ence in managing cross-border #ows;
O
Use tools built to manage international risk exposures o!ered by banks
or others to help with cross-border work#ows and provide real-time vis-
ibility of your company’s activities;
O
Consider using consultants and advisers that can make impartial rec-
ommendations; and
O
Ensure that any project has the right level of internal support.
www.standardchartered.com
Tasks for centralization of treasury Liquidity management structure Treasury centre
Short-term inter-company loans Bank can support reporting, interest allocation Can be managed by a bank or monitored
and limit monitoring from its platform. through a treasury management system (TMS)
Short-term external borrowing Third-party bank sweeps are possible through Can be managed by a bank or monitored
the primary bank and all external borrowings through a TMS
can be consolidated.
Long-term inter-company loans Cannot be supported. More appropriate for the treasury centre to
manage through a TMS
Long-term external loans Cannot be supported. More appropriate for the treasury centre to
manage through a TMS
Joint-venture "nancing Proportionate sweeping and short-term Short-term "nancing through a liquidity
"nancing can be executed. management structure can be managed by a
bank; long-term "nancing management
through a TMS
Cross-currency interest rate swaps Not part of the structure Managing and monitoring through a TMS
Figure 1: Liquidity management structure vs. treasury structure
In an economic climate that remains challenging, insight and control over cash management are more
important than ever. ABN AMRO o!ers its clients cash pooling solutions that enable them to manage
their cash positions in one system, real time, with clear insight and complete control at all times
Liquidity management:
Insight and control are essential
Drivers of change
Erica Kostelijk, head of working capital at ABN AMRO, sees three
important drivers that have an impact on the way corporations manage
their cash !ows.
The "rst is the economic climate. “As economic conditions remain
challenging, our clients increasingly want to have a clear insight into
their working capital conditions and liquidity,” Kostelijk says. Businesses
wish to reduce their reliance on credit facilities, she adds, as liquidity
in the market has become scarce. At the same time, by reducing their
cash cycles, they can deploy their available cash more e#ciently and
enhance the yield on their cash positions. “This requires insight and
control over corporate cash !ows. Forecasting has gained signi"cance
for corporate treasurers.”
Secondly, she says, “technology is booming and innovations are
more readily available than ever, enabling real-time insight into
cash positions at any time and in any place.” Corporations can gain
advantage from these technological innovations which allow, among
other things, for even more accurate forecasting. “We are pleased we
can now o$er our clients cash pooling solutions which are based on the
newest technologies and which we have developed in-house. This is a
step forward and it enables our clients to gain full control and optimize
their cash !ow,” Kostelijk says.
Thirdly, evolving regulation drives change. “Basel III will change liquidity
management as banks are required to maintain strong liquidity
bu$ers. Thus, banks will start to provide more incentives to hold on to
operating account balances from their clients. Making it more attractive
for corporations to keep operating cash at the bank for a longer period
of time will result in higher yields,” Kostelijk says.
In addition, Kostelijk says the introduction of the Single European
Payment Area (SEPA) puts a burden on corporations in terms
of resources and costs of implementation. “But it will also lead
to standardized payments and collections in Europe, o$ering a
level playing "eld for "nancial institutions and corporates, more
transparency in products and conditions, while increased competition
will bring more innovation. SEPA will ease transactions, which allows for
more e#cient cash management solutions.”
Changing needs
Kostelijk notes that the role of the corporate treasurer has changed
in recent years. “The responsibilities of the treasurer have expanded
and added weight. The scope may now, for example, also include
procurement or inventory planning. This illustrates cash management
has become more of a priority for corporations.” Kostelijk stresses that
e#cient use of the available cash to reduce dependence on external
funding is here to stay.
Although the demand for !exible cash management has increased as
a result of the economic downturn, Kostelijk says it will remain a focus
area for companies. “Regardless of economic developments, companies
will continue to aim to reduce their reliance on credit facilities.
Treasurers will aim for accurate insight and control over their cash
positions, anywhere and anytime, at their convenience.”
Cash pooling
As part of its international services, ABN AMRO o$ers its clients both
physical and notional cash pooling solutions. International servicing
is a strategic priority for ABN AMRO as corporations are increasingly
internationally active. Being able to service its clients across borders is
important for ABN AMRO as it is a global player in certain niche areas.
To meet the needs of its clients, ABN AMRO developed a new cash
pooling system. “In the majority of cash pooling systems, it is only
possible to sweep between the various accounts at a "xed time or
a limited number of times a day, whereas we o$er our clients the
!exibility to sweep intraday,” Kostelijk says.
Kostelijk adds that intraday sweeping or target balancing o$ers
companies the possibility to deploy their available cash much more
e#ciently. “Also, clients are able to centralize cash that is spread over
multiple banks into one position.”
E$ective cash management also requires access to a cash management
platform that gives clients timely and accurate information on all cash
positions, preferably on a real-time basis. This allows full insight and
control over cash !ows and o$ers the !exibility to make changes if
required for payment or collection adjustments.
Matthijs Visser, product manager liquidity products at ABN AMRO,
states that clients are increasingly demanding real-time insight
into their cash positions, and wish to be able to adjust positions at
a moment’s notice. “There is a growing emphasis on accurate, real-
time cash forecasting and in-depth reporting, allowing corporate
treasurers to gain more insight and control over their working capital,”
Kostelijk adds.
Bene"ts
ABN AMRO’s clients will be able to use the interactive portal for
cash pooling, which gives them even more direct control, !exibility
ABN AMRO has a strong international tradition and consequently the
skills and knowledge to advise its clients on the various aspects of
operating across borders and e!ectively managing cash "ows abroad.
ABN AMRO has branches in the most important #nancial and economic
global centres in Western Europe and Asia, and representative o$ces
for example in the United States and China. The bank aims to o!er
its clients a full range of services, including cash pooling. ABN AMRO
has set up partnerships to service its clients globally. Thanks to an
integrated partnership with Royal Bank of Scotland, ABN AMRO is able
to o!er its services worldwide and meet the needs of its clients.
ABN AMRO
O Insight and control are essential
17
and insight. Visser says: “Businesses will be able to structure the pool
themselves in terms of timing, targets, number of sweeps per day,
intraday, end of day, single bank or multi bank. The di!erent techniques
allow clients to bene#t from their own cash, reducing #nancing needs
while optimizing returns.”
With the Inter Company Loan Administration, all intercompany loans
resulting from the sweeps are automatically tracked and reported. It is
possible to con#gure interest rates in several manners and to calculate
withholding tax per entity. ABN AMRO’s cash pooling solutions o!er
clients a "exible way to have complete visibility of, access to and control
over their global cash positions.
Visser explains "exibility for clients is possible because the entire cash
pooling system was developed in-house. This allows the bank to act
quickly and to implement timely changes, to be able to meet the client’s
changing needs at short notice. The client can be served faster in its
changing needs.
How it works in real life, two cases
Visser illustrates the solutions with an example of a client who runs petrol
stations across the Benelux and needs to settle a central oil invoice daily
at 2pm. “Just before two o’clock, all revenues from the local accounts
are swept to the central account. This enables the company to meet
its payment deadline without having to rely on a credit facility. At the
same time, it o!ers the company insight into all transactions until two
o’clock, as opposed to an end-of-day statement following the next day.
This allows the company to optimize its working capital,” Visser says. “Our
client requires real-time insight and control, up to the minute, therefore
this solution perfectly meets his need.”
Visser points out another example of a client with subsidiaries across
Europe. “Some subsidiaries relied heavily on local #nancing for working
capital purposes. By making use of ABN AMRO’s cash pooling solutions,
we were able to restructure the credit facility and centralize it in the
Netherlands. The excess cash of the subsidiaries was swept to the
holding company by the end of the day to reduce overnight usage of
the credit facility. At one o’clock in the morning, by using the return
sweep, #xed and variable amounts are swept back to the subsidiaries
across Europe. This way, the subsidiaries reduced their reliance on
local credit facilities for their working capital needs. Instead, this way
of cash pooling allows them to leverage on internal #nancing. This is a
useful solution for our clients, as it reduces their borrowing costs and
optimizes their working capital.”
Matthijs Visser
Gustav Mahlerlaan 10
1082PP Amsterdam
31 623124891
matthijs.vissernl.abnamro.com
AA_fullcolourC.eps
ABN AMRO full-colour for coated paper
Width shield: 20 mm
Overlap: 0,05 mm
Matthijs Visser is product manager liquidity management, at ABN AMRO Commercial &
Merchant Banking. He is responsible for cash pooling products for ABN AMRO’s wholesale
clients. Visser graduated from the Hotelschool in The Hague in marketing and #nance.
After his graduation in 2005 he started as a trainee at ABN AMRO. During the takeover
Visser worked in a transition group divesting various parts of ABN AMRO’s commercial
activities to Deutsche Bank and returned to ABN AMRO two years later.
Erica Kostelijk is head of the department Working Capital Commercial & Merchant
Banking, part of Marketing & Products. She is responsible for product management of
payments, cash, cards, liquidity management (cash pooling and corporate savings) and
documentary credits for ABN AMRO’s commercial clients. She is also a member of the
supervisory board of Equens SA.
After her graduation from the Amsterdam Academy for Banking & Finance, Erica Kostelijk
joined ABN AMRO as a trainee in 1993. During her career, she worked in various disciplines
in the bank, such as correspondent banking, markets, risk and talent management. Since
2007 she has been active in the payments area.
Basel III presents many challenges for treasurers. Steve Everett, Global Head of Cash
Management at Royal Bank of Scotland plc, looks at how getting to grips with trapped cash
and rethinking investment strategies can help to address them
Beyond compliance:
Strategies for a post-Basel III
landscape
Basel III reforms imposing stricter capital and liquidity requirements on
banks may signi!cantly reduce their ability to lend to clients. As a result,
lending rates are expected to rise and a signi!cant amount of liquidity
may be removed from the market.
Releasing trapped cash
In light of this, post-Basel III, companies will need to maximize internal
liquidity to reduce their reliance on other sources. The need to release
trapped cash will therefore move higher up the treasurer’s agenda.
Trapped cash, most signi!cantly, prevents companies from using surplus
funds they hold in one part of the world to o"set their borrowing
elsewhere. It can also restrict key strategic investment decisions and
impede global plans for a business’s growth, by keeping cash within the
country where it was generated. In this context, strict rules on releasing
funds from emerging markets – where many companies have invested
heavily – are a major roadblock.
Broadly speaking, cash may be trapped in some parts of the world due
to local or external factors, or the !rm holding minority shares in that
market. Limitations on certain !nancial structures, regulatory insistence
on compulsory reserves for loans and deposits, or tax implications
for !nancial transactions, are all key factors. External causes include
restrictions on investing abroad or intercompany lending, controls on
converting and transferring currencies and high withholding taxes on
dividends paid.
Opportunities as well as challenges
The good news is that cash previously caught behind a country’s borders
is becoming more accessible. Regulatory reforms dealing with the issue
in countries such as China, India, Russia and Turkey are easing the cross-
border #ow of funds and helping companies ensure strong liquidity
management across their business.
For example, companies in India are now able to lend money to their
overseas subsidiaries, as long as it doesn’t exceed 400% of their net
worth. Central bank-approved pilot schemes in China that target
cross-border intercompany lending (in both renminbi and foreign
currencies), and cross-border netting, are enabling !rms to tap into
internal sources of liquidity and reduce funding costs. To ensure they
manage their liquidity in the best way possible, companies need to
understand fully what these reforms can enable and how they can use
them in a way that facilitates liquidity and easier cash #ow across their
global operations.
At the same time, companies can also bene!t from !nancial structures
designed by banks to help clients manage their global currency
positions. These include cross-border cash optimization and cross-
currency notional pooling, both of which drive greater value from cash
balances that would otherwise remain trapped in either the a"ected
jurisdiction or a subsidiary.
Realizing the bene!ts – a case study
Maximizing the value of trapped cash involves managing cash across
borders, while maximizing liquidity throughout the business and
aggregating balances to drive improved returns.
One RBS client – a leading provider of wireless technology and services
with global operations – was looking to do just this. Of particular
concern was how to enhance the management of, and interest result
on, its growing portfolio of local currency accounts. The treasury team
was looking for a way to increase the interest earned from its operating
balances, without losing the convenience of local accounts or entering
into complex pooling structures. This was achieved by using our Cross
Border Cash Optimization (CBCO) solution, part of our wider award-
winning liquidity o"ering, a far less labour-intensive and more cost-
e"ective alternative to sweeping balances into notional pools according
to region and currency.
Without having to centralize accounts to a single location, CBCO
automatically adds up the di"erent balances and uses the total –
notionally converted into an agreed base currency – to calculate a
bonus interest payment. This bene!t is paid monthly in the currency
of the company’s choice, in addition to the monthly interest earned by
each local account.
Steve Everett,
global head of cash
management, RBS
Please note that the above is published for information and general circulation purposes only and does not constitute nor purport to constitute any form of advice,
recommendation or o!er to sell or buy or issue, or invitation to o!er, or solicitation to buy, invest in or subscribe for any product or service.
The Royal Bank of Scotland plc. Registered in Scotland No. 90312. Registered O"ce: 36 St Andrew Square, Edinburgh EH2 2YB. The Royal Bank of Scotland plc is Authorised by
the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The Royal Bank of Scotland N.V. is incorporated
in the Netherlands.
The Royal Bank of Scotland plc and The Royal Bank of Scotland N.V. are in certain jurisdictions authorised agents for each other.
RBS
OBeyond compliance: Strategies for a post-Basel III landscape
19
The company can now enjoy the interest rate advantages of a single
account, together with the practical bene#ts of local accounts, while
minimizing the time and resources needed to fund its local operations.
Of course, this is just one of the solutions available, and the needs of each
company should be carefully understood, through working with banking,
tax and legal partners, before taking action.
Any approach to releasing trapped cash needs to be tailor-made to the
company and the regulations involved. For example, it requires in-depth
analysis of the relevant countries’ laws, the business’s organizational
structure and its tax set-up.
Companies need to work with banks that have both the global reach and
the local expertise to help them address local conditions and regulations,
so that they can simultaneously minimize their trapped balances and
maximize their liquidity and working capital e"ciency.
Businesses that really grasp all of this, and work with their banking partners
to align their bank’s solutions to their strategic plans, will #nd themselves
a big step closer to managing their liquidity in the most e"cient and
e!ective way.
Regulatory reform and investment returns
Once trapped cash has been released, the potential to generate investment
returns is signi#cantly enhanced. Yet, here again, regulatory reform will
have a major impact. Under Basel III, new liquidity rules could increase the
cost of cash management and dent returns on corporate deposits.
The rules, updated in January 2013 and due to be phased in from 2015,
are designed to ensure banks have a su"cient cash bu!er in place to
cover withdrawals in a stress situation. While January’s announcement
actually lightened some requirements, the Basel III method for calculating
this bu!er – the Liquidity Coverage Ratio – is still based on somewhat
conservative assumptions for corporate deposits. As a result, corporate
deposits in general are likely to attract relatively lower returns than in
previous years.
Some potential good news is that the Basel III liquidity coverage rules apply
to cash that can be withdrawn within 30 days. This will potentially drive
banks to o!er new products and services/pricing models to encourage
contractual terms longer than 30 days.
Another key factor in the new regulation is the split of deposit types
into operational or non-operational. According to Basel III, corporate
operational deposits can relate to payment clearing arrangements or to a
company’s working cash used for payments, collections and the day-to-
day running of its businesses. Operational deposits are considered ‘stickier’
because companies use the money constantly and are likely to keep doing
so, even if unforeseen events occur. Non-operational deposits involve
‘surplus’ money that is not needed for immediate daily activities. Businesses
tend to use these for liquidity purposes or short-term investments and they
tend to be more rate-driven.
The interest rate a company gets on a deposit will be heavily in$uenced by
which of these two categories it falls into, so it is vital that both banks and
businesses fully understand the regulator’s de#nition of them. The complex
set of tests required to classify deposits could result in some of them being
classi#ed as non-operational, even if the money is used for day-to-day
purposes. For example, if the bank cannot clearly articulate what portion
of the balances on an account is operational, or if the interest rate o!ered
appears to encourage surplus cash being placed in that account, the
regulator will classify it as non-operational – costing the bank more.
In terms of the amounts involved, Basel III requires banks to hold a liquidity
bu!er against 25% of all their corporate operational balances. The January
announcement reduced the non-operational balance requirement to
40%, down from 75% previously – another positive change. In both cases,
however, these percentages may represent an increase from what is
required under current, local liquidity requirements.
The new landscape means that companies will need to take a broader,
more holistic approach to their banking relationships when managing
cash, to ensure a mutually bene#cial partnership. It may also encourage
#rms to spread their business across fewer banks – a challenge, considering
the trend in recent years to work with more banking partners to spread
counterparty risk.
Although some of the #ner points are yet to emerge, the imperatives facing
corporate organizations are clear. To get the best value overall, businesses
need to review their core banking relationships, fully understand the
regulator’s new deposit de#nitions and be more vigilant than ever in their
cash $ow forecasts and account structures.
Outlook
Basel III presents treasurers with a number of challenges, many of which
are yet to be fully de#ned. Yet it is already clear that both liquidity and
investment return rates are likely to be negatively impacted. Understanding
how to leverage regulatory reforms to release trapped cash, and then
manage it e!ectively across borders, is therefore vital to improving both
liquidity and investment returns in the post-Basel III environment.
Steve Everett
Global Head of Cash Management
Steve.Everettrbs.com
http://mib.rbs.com
Summary box
O
Companies’ cash trapped behind borders is becoming more
accessible, thanks to regulatory reforms.
O
Releasing trapped cash can mitigate the impact of Basel III
regulations on banks ability to provide liquidity.
O
Investment returns from companies’ cash balances are also under
threat from Basel III.
O
By keeping abreast of these changes, and using cross-border cash
tools, companies can maximize both liquidity and return rates.
ABN AMRO
Matthijs Visser
The Netherlands
+31206297332
matthijs.visser@nl.abnamro.com
BANK OF AMERICA MERRILL LYNCH
Greg Kavanaugh
greg.kavanaugh@baml.com
001 312 904 8123
greg.kavanaugh@baml.com
BARCLAYS
Andy Rudge
UK
07826 945146
andrew.rudge@barclays.com
BNP PARIBAS
Jan ROTTIERS
Belgium
(322) 565 00 82
jan.rottiers@bnpparibasfortis.com
CITI
Elyse Weiner
U.S.
(212) 816-0470
elyse.weiner@citi.com
COMMERZBANK
Stephanie Schönewolf
Germany
69 136 41835
stephanie.schoenewolf@commerzbank.com
DANSKE BANK
Erik Zingmark, Global Head of CM
Based in Denmark
45 29 60 98 57
erz@danskebank.dk
DEUTSCHE BANK
Lisa Rossi
United States / United Kingdom
212-250-1138
Lisa.Rossi@db.com
HANDELSBANKEN
Beatrice Wassing
Sweden
+ (468) 701-8697
bewa07@handelsbanken.se
HSBC
Alkie Gan
Hong Kong
852-2822 4062
alkiehkgan@hsbc.com.hk
ING BANK
Willem Dokkum
Netherlands
+31 (0)20-6523300
willem.dokkum@ing.nl
KBC
Jan Gysbregts
Belgium
+32 2 429 42 89
jangysbregts@kbc.be
POSTFINANCE
Stephan Bucher
Switzerland
41794413664
stephan.bucher@post!nance.ch
RBS
Michiel Ranke
NL & UK
0031 204641423
michiel.ranke@rbs.com
SANTANDER
Javier Carralero
Spain
(34) 91 289 1271
fcarralero@gruposantander.com
SEB
Robert Pehrson
Sweden
46(0)705158786
robert.pehrson@seb.se
SOCIÉTÉ GÉNÉRALE
Sophie Tarralle
France
(33)142144284
sophie.tarralle@socgen.com
UNICREDIT BANK
Markus Straußfeld
Germany
+49 211 89 86 780
markus.straussfeld@unicreditgroup.de
Bank contacts
www.euromoney.com Reprinted from September 2013 ∙ EUROMONEY
29
Middle East debate
Elliot Wilson, Euromoney What is the business climate like here,
given the uncertainties elsewhere in the world?
HG, ADCB Growth levels vary across the Gulf Cooperation Coun-
cil countries – for example, it’s higher by far in the UAE and in
Saudi Arabia, key coverage countries for ADCB. Within the UAE,
Dubai is doing better than Abu Dhabi, notably in residential and
commercial real estate. There are pockets of excellence in the
UAE and trade has come back pretty strongly, particularly with
other GCC countries. And that in turn has also created a fairly
high level of competition between banks seeking to fund this
current boom. We are all fighting for every asset penny we can
find, and that’s a big challenge for all of us.
JH, Sorouh The flight to safety is at the heart of this process: the
UAE is still a safe haven within the region, and that helps liquid-
ity flow into the country, which is a bonus for local banks and
corporates.
CF, ADCB We now see the economy coming back strongly across
the Emirates: in Dubai, port throughput was up 12% last year,
with passenger throughput at the airport also up sharply, all of
which is boosting rehiring across all sectors. And that is aiding
the process of real estate absorption. I think the real estate sector
will continue to move positively, in both Dubai and Abu Dhabi.
JH, Sorouh On the Abu Dhabi side, I would point to the many
government initiatives for infrastructure development: the air-
port, the museum district, new investments into education and
healthcare. All of this will bring in additional professionals who
will fill up new units and towers. Cleveland Clinic is building
a new facility in Abu Dhabi with 450 beds, and to support that
they will need 4,000 doctors, specialists and technicians, all of
whom will need somewhere to stay.
Euromoney What about the broader region: how is that performing?
OP, Abu Dhabi Terminals If you look at the container transport
and logistics side, volumes across the region have been broadly
stable, both in the UAE and across the wider GCC. There hasn’t
been much in the way of growth in terms of throughput on
the container side for the GCC, so a lot of the growth must
be driven by real estate and other factors. In Abu Dhabi, we
have, however, been fortunate to see double-digit growth this
year. I think some of the bigger projects in the region will drive
increased growth in housing and education, but within the GCC
it’s probably the UAE that is best placed for future growth.
AC, Ducab Our experience is very much construction-related.
Oil and gas has been a very good segment for us. The general
contractor segment is pretty flat, and even in Abu Dhabi we
haven’t seen that much activity lately except in the utilities and
infrastructure segment, so we believe that Dubai is again the
dominant factor in the region. Oman is showing good progress:
they seem to be investing in infrastructure again. We were
expecting a lot from Qatar – that country is coming through
but very slowly; we will need to wait and see when all those big
plans for the 2022 World Cup will be put in place.
OP, Abu Dhabi Terminals What we have seen with the port’s
general cargo segment, especially project cargo, this year is that
basically volumes have halved compared with last year, so we
get the sense that the Abu Dhabi government has curtailed or
delayed a lot of spending in the oil and gas sector, which typi-
cally is the main driver for project cargoes.
MS, ADCB There is clearly development taking place across
infrastructure, both in successful countries as well as nations
that have undergone some sort of turmoil. But there has been
less spectacular development in terms of financial infrastructure
across the region, and that’s what makes the Middle East unique
Gulf dynamism drives regional
transaction banking


Euromoney speaks to providers and users of transaction banking in the Gulf
region about the market’s growing importance and the localization of expertise
EXECUTIVE SUMMARY
• Economic buoyancy in the Gulf is sufficient to promote
strong competition between banks
• And flight to safety to UAE is good for banks there
• Regional gaps in capital markets and value-transfer systems
create opportunities for banks
• A greater professionalization of corporate treasuries is driving
best practice among providers
• Desire to export is growing and driving demand for
transaction banking
• Local banks are more than measuring up to international
competitors
• Cultural obstacles to introducing modern cash management
are being overcome
• Sanctions against Iran complicate regional transaction
banking
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30
Middle East debate
in my view. In this part of the world there are gaps in the capital
markets and in terms of the diversity and current capability of
value-transfer systems, and that creates opportunities. Admit-
tedly there are big plans on the drawing board, and that’s
what makes the region so attractive to banks. The other factor
affecting the region is monetary easing, which has helped boost
liquidity and companies across the region, but which is now
probably coming to an end.
Euromoney Does foreign interest in the region remain high?
And in terms of cash management, are corporates demanding
increasingly sophisticated services?
HG, ADCB This is a big emerging theme: foreign banks, some
with no track record in the Middle East at all, are having to ex-
pand into the region to follow their middle-market clients. And
banks are hearing the same refrain from these clients, which
may no longer need advice domestically, but who really covet
advice on money transfer transparency and so on.
JH, Sorouh We certainly welcome that opportunity on the client
side. If this is indicative of the international banking commu-
nity taking a new look at the UAE, that’s beneficial to everyone.
HG, ADCB During the economic downturn, we decided to re-
price most of our clients. Some of that re-pricing was permitted
by contract; in other cases it took place through negotiation.
One of our local competitors here, a well-known international
bank, re-priced customer contracts unilaterally and without
discussion. With every single re-pricing we undertook – 800
or 900 of them – we sat across the table and had some fairly
difficult and frank discussions with clients, but ultimately we
came to some sort of an understanding. In every case, even with
customers with overstretched balance sheets, or in sectors that
we didn’t like, we stayed with those clients, and that has broadly
paid off.
MS, ADCB By aligning ourselves with key international and
regional lenders, we can provide our clients with banking access
in multiple jurisdictions. Another common trend across the
corporate spectrum is that of professionalizing treasuries. This
has meant the introduction of infrastructure such as enterprise
resource planning, shared service centres, liquidity and risk-
management expertise, and growing sophistication in funding
and strategy execution. Government entities and GREs [gov-
ernment-related entities] in the UAE, especially Abu Dhabi and
Dubai, are already operating at this level, and have driven best
practice in the marketplace.
CF, ADCB International bank performance has been some-
what mixed here. Given the region’s shallow capital markets,
international banks have found the investment banking wallet
very hard to find, and that has led to many of them exiting
the market. But what makes the UAE exciting is that when one
institution leaves, others rush in. We talk about the UAE being
overbanked, with 54 lenders – well, there are now 700 banks in
Singapore. Client demand for sophisticated transaction-banking
services has also soared. Corporates and GREs are rapidly mov-
ing to automation: they want straight-through processing and
reduced manual intervention. Four years ago, we positioned our
institution precisely in this context, believing that this trend
toward greater automation was inevitable.
OP, Abu Dhabi Terminals I would agree with that. GREs increas-
ingly have the drive and the desire to automate more and to use
internet banking in a more sophisticated way.
Euromoney Was there a determination made at any point where
companies suddenly decided they needed complex transaction-
banking services?
MS, ADCB Two factors have driven this process. One was the
financial crisis, during which balance-sheet funding was hard to
come by. The other trend involved the trickle-through process
of new regulations such as Basle III, which requires collateral-
ized forms of lending. This has large bold letters on it saying:
“Professionalize your working-capital management.” Only
recently have companies started to consider doing their cash
management more professionally. It’s now seen universally as a
front-office business driven by treasurers with seats at the table
and with big investments going in. Banks have a key role in this
transformation, by helping corporate treasurers evolve to a more
visible role within their companies: that of a portfolio risk and
liquidity manager, not just a manager of cost reduction.
HG, ADCB We recently sat with a very large regional client
operating in the region that does mobile wallet. His main con-
cern was not ease of transfer, but having predictability on how
much would arrive at the other end – he wants to know that
the amount he expects to arrive on his end actually will arrive.
What clients want today is not just speed or online processing
but they want to be able to promise the beneficiary how much
money they will receive during a transaction. They want accu-
racy and they are willing to pay for it.
OP, Abu Dhabi Terminals It’s also because the average amount of
time a finance department spends on international payments
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31
S Howard Gaunt (HG) is executive
vice-president, head of corporate
and business banking group, at Abu
Dhabi Commercial Bank.
Colin Fraser (CF) is executive vice-
president, group head – wholesale
banking, at Abu Dhabi Commercial
Bank.
Arif Choksy (AC) is chief financial
officer at Dubai-based electrical
cables manufacturer Ducab.
Participants
Murali Subramanian (MS) is
executive vice-president, transaction
banking head, wholesale banking
group, at Abu Dhabi Commercial
Bank.
John Hopley (JH) is executive
director, corporate finance, treasury
and investor relations at Abu Dhabi-
based property developer Sorouh.
Ole Pugholm (OP) is chief financial
officer at ports operator Abu Dhabi
Terminals.
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32
Middle East debate
where fee deductions are not clear upfront is just ridiculous.
AC, Ducab Another phenomenon that cuts to the heart of ef-
ficient cash management is the increasing desire among UAE
corporates to boost exports. While foreign investors are looking
to GCC markets, regional producers are looking overseas. This
leads to a need for better banking products such as efficient cash
management and trackability, letters of credit management, and
the need to service clients from different banking regimes. GCC
corporates are still learning about taxation, legal set-ups, export
credit risks: all of this is very new to us.
MS, ADCB Would you say this is linked to the evolving profes-
sionalism of corporate treasurers? That has been a powerful
driver of strategy execution as more functions come within the
treasurer’s remit.
AC, Ducab Necessity is the mother of invention. I’ve been in
business in good times and bad. People at corporate treasuries
have become more sophisticated for two reasons. First, in the
past the products weren’t there, and neither was the marketing
push. And second, the financial crisis forced treasurers to tighten
up their financial divisions and keep a close track on where the
money is going.
Euromoney Arif, do you find that your banking providers are
getting better?
AC, Ducab We sometimes struggle to believe that local banks
are capable of meeting our export transaction needs. This may
be just a perception. But this presents both a challenge and an
opportunity to local banking providers, as there is clearly a lot
of drive on the part of GREs across the region to manage their
risk levels and expand their business profile overseas. The banks
that can meet these challenges are the ones that will profit most
handsomely.
MS, ADCB Clearly the opportunity is there. Global banks have
grown far more risk-averse. They are more conservative, hold
less cash on their books, and may walk away from transactions
unless there are long, systemic relationships involved. There’s
also a preoccupation with regulatory compliance among global
banks, with many rethinking their strategy in markets they
don’t view as essential to their future.
Euromoney Do corporates typically find that banking service is
consistent across all regional markets?
AC, Ducab The UAE is certainly number one regionally in terms
of service. Wherever we venture across the region, we prefer
to take our UAE banking partners with us. But if we had to use
banks in other countries beyond the region, we might struggle
to find the same level of efficiency, service and comfort.
OP, Abu Dhabi Terminals Right now we are heavily reliant on lo-
cal bank relationships. In fact, we only use UAE banks. The prob-
lem then is two-fold. On the one hand, if we pursue internation-
al deals, our local banking providers may struggle to support our
aspirations. On the other, currently we don’t have established
relationships with any international lenders.
CF, ADCB I think that’s an issue for local banks in terms of being
able to follow their clients. We are starting to see local banks
across the GCC becoming far more internationalized. Look at
Qatar First Bank, now I think the largest bank in the GCC, with
assets of around $250 billion. The extent to which QFB is taking
on the world is quite extraordinary.
Euromoney Do you find that local banks are increasingly as good
as international banks?
CF, ADCB At ADCB, we have built up correspondent relation-
ships with around 200 banks worldwide, as well as hammer-
ing out strategic alliances with Bank of America Merrill Lynch,
Santander Group and Kookmin Bank of Korea. There are three or
four other strategic alliances in various stages of discussion. This
makes it much easier if we look to, say, help Abu Dhabi Termi-
nals build a port terminal in Kenya, as we can work together
with an African strategic partner or correspondent partner to
ameliorate risk and ensure the project runs smoothly.
HG, ADCB Another point to make is that there is a real exodus
of high-quality bankers from international banks to join GCC
lenders such as ADCB. There is not a single senior manager in
our team who is not from a big western bank. We are proud that
we stand shoulder to shoulder with the best international banks,
and even drive the conversation in the crowded large-corporate
market – and our clients tell us as much.
CF, ADCB This is such an international place, so it’s not just a
case of saying: “Well, it’s just a bunch of corporate executives
being transferred from London.” This is people coming into the
UAE and the GCC from all over the world.
AC, Ducab The challenge now is being able to incorporate all
these talented people. Banks and corporates across the region are
improving governance and management, but that process does
need to accelerate. Talent and ability needs to be more effec-
tively absorbed into the system and to be encouraged to flourish.
HG, ADCB In the west, a young educated person can sit across
the table from a grey-haired chief financial officer and command
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33
a discussion and that CFO will listen, and might act on that in-
formation. In this part of the world, there’s a different dynamic,
where cultural norms are as important as credentials.
Euromoney Does that make it harder at some level to instil mod-
ern governance and management across the region?
HG, ADCB There’s a large retailer on the ground here that under
western rules would be bankrupt. It has a good brand but very
poor managerial controls, and it’s a firm we are talking to con-
stantly. The CFO, who is a highly paid westerner, spends every
Thursday signing cheques. A colleague had a conversation with
the CFO, who said the owners wanted control and were worried
about fraud. We talked to them about the services we offer –
auto reconciliation, remote signing, facsimile signatures, things
that can materially change your life. Their answer was clear.
They didn’t want any of those new services, even if they were
free. This is a big challenge for all of us here – and bear in mind
that this retailer is a first-rate company.
OP, Abu Dhabi Terminals When we talked about the internet and
automated banking with you guys, I made the mistake of telling
the board about it, and they were not in favour of going down
this route. But I discussed it with my CEO and we decided we
had to try it, so we rolled it out anyway and later on we pre-
sented it to them and now they are very impressed.
AC, Ducab Having sat on boards here for the past decade, I
would say that this thinking can be changed – and indeed is
changing. You just need to work at it. Actually, the concept of
governance is a pretty hot topic with local corporates, and they
are all learning quickly. When I first came to the UAE everything
seemed very temporary: short-term contracts, a lack of career de-
velopment plans, joint ventures that dissolved when a contract
ran its course. That feeling of impermanence bred distrust and
created an environment where owners demand to see a CFO’s
signature on everything. But our firm now has appropriate au-
thorization matrices in place. So things have improved.
CF, ADCB When we kicked off our cash management services
in 2009, you could have counted our roster of automation
mandates on the fingers of one hand. But that number has
grown exponentially since then, and we executed more cash
management mandates in the first half of 2013 than we did in
the whole of last year. There is trepidation of going first, but
what helps here is the sheer amount of human interconnectiv-
ity. There are so many communities here: people are always
talking, sharing what is happening, so if one company launches
high-end cash management operations, everyone hears about it,
and that breeds confidence. We see this happening on the cash
management side, where there is more of a willingness to bring
in sophisticated services.
MS, ADCB In the Middle East, especially the UAE, it is govern-
ment and GREs that drive better governance. Ten years ago I
remember calling on a government-owned confectionery factory
in eastern Europe. We were there to talk about treasury automa-
tion and cash management. The CFO greeted us in his office.
There were no computers anywhere, and he said: “It’s all paper-
based here; we need to start at a very early stage.” In this region,
there are definite drivers among both government and central
banks to modernize and improve governance.
AC, Ducab There was an incident recently that gave our board
pause for thought. A local company lost a lot of money when a
single payroll employee allegedly made a fraudulent error and
ended up causing a considerable loss. It’s that sort of event that
leaves local companies wondering if they are ready to embrace
technology.
CF, ADCB The biggest companies in the world can still get hacked
at a corporate level. This isn’t Nirvana here – these are things
you have to think about. If you don’t have any computers, you
can’t be hacked.
MS, ADCB But then again the bigger issue is that automation is
necessitated by the relative ease with which manual processes
can be fraudulently replicated or signatures forged. That has
driven automation everywhere consistently.
HG, ADCB The frauds that take place in branches or lending pro-
cessing centres rarely have anything to do with computers. In
most cases they are low-tech incidents like reaching into a vault
door when the camera is sweeping in another. Incidents like
someone stealing a password or getting a higher level of access
than they are entitled to are extremely rare.
OP, Abu Dhabi Terminals From an internal-control point of view,
automated banking tends to be safer. Say you have 200 cheques
to sign. You may reject the first three or four, but at some point
you just decide OK, no problem, and you start approving them
far more easily. There is a much higher chance of error in
approving a cheque than in transferring money. Second, at a
company I used to work for outside the UAE there were limited
numbers of people who could sign off on something. When
my boss was travelling, he’d give me a stamp that authorized
cheques, and that was considered an acceptable form of internal
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Middle East debate
control. With automated banking that is no longer a concern.
Euromoney How damaging are these low-tech incidents to the
take-up of professional cash management services?
AC, Ducab News travels very fast here, plus it’s a cultural thing:
it sits on the minds of people around the region. But at the
same time I am seeing a change in the cultural part and in the
attitude to this. Banks and corporates are adapting – if they want
the whole world to come here, they have to embrace this new
future.
MS, ADCB When we refer to automation, it isn’t all merely about
internet banking and proxy payments. There is substantial
emphasis on authentication, encryption and security manage-
ment; whatever features you offer,
it’s only as good as the next hacker
coming through and taking their
chances. That is the language of
industry now and that is what will
instil confidence in the corporate
and industrial world here.
Euromoney Howard, with so many
companies now handing control to
a younger generation, is that accel-
erating the adoption of technology
and the willingness to accept new
forms of banking?
HG, ADCB We are going through a
succession with a large family group here right now – the third
generation is taking over. The problem is that the first genera-
tion patriarch remains an adviser to the board. The grandson is
a very bright guy, but he has to challenge his father, who is the
power centre of his family and the architect of an amazing com-
pany that survived the downturn. The grandson is struggling
to get support within the family to push through important
changes such as bringing in a family-office system, or allowing
daughters to take key positions within the company. We are
trying to bring in automated services such as straight-through
processing, cash management, central lending and treasury
functions. The company has more than a dozen sub-entities,
each borrowing separately, each with inefficient cash manage-
ment systems. They don’t pool, some are undercapitalized, oth-
ers overcapitalized, and I think it will take him the better part of
a generation to solve these issues.
JH, Sorouh The context here is provided at a higher level by the
recent transition of power in Qatar. What sort of an example
does that set for the rest of the GCC?
HG, ADCB But then look at King Abdullah in Saudi Arabia. When
he became king, no one believed it would be anything other
than status quo in the future. Yet despite being 88 years old, he
has revolutionized the country, and in my opinion has done an
amazing job. The problem now is that he’s getting on in years,
but all the innovation is coming from him, so I’m not sure it’s
just a function of the young replacing the old.
OP, Abu Dhabi Terminals You often see, in many countries, that
it’s when the new generation takes over from a successful gen-
eration that the company goes downhill.
Euromoney Across the world, cor-
porates are winnowing down their
number of banking providers. Is
that happening here?
MS, ADCB This is indeed being seen
in the Middle East, but at the same
time, corporates value banks for
their ability to borrow when they
really need capital. This results
in corporates retaining special
relationship banks that really offer
no rationale from a purely treasury
perspective.
CF, ADCB I think the credit crunch
has caused people to rethink this process, particularly if you’ve
gone from 50 banking partners to 15, and five of those are bailed
out or nationalized. We recently won a regional cash manage-
ment contract for a Fortune 1000 firm from a global bank, and
my impression is that the corporate actively wanted to diversify
the range of banks with which it works. That was very instruc-
tive.
JH, Sorouh Traditionally we’ve had banking relationships with
regional banks and in particular Abu Dhabi banks. Given the
size of our new entity and the amount of funding and refunding
we’ll require, there will be more business to go around, but we
will continue to have our core local funding provided by ADCB
and a few other institutions. We wouldn’t mind seeing a few
smaller players in the market for syndication purposes. There’s
also a looming mandate to have Islamic financing in place, pos-
sibly in the form of a sukuk, and we’ll need the likes of ADCB to
facilitate that structure.
“This is a part of the world where
relationships are extraordinarily important
and where they often transcend into a
personal relationship. These guys notice
if a foreign bank has changed CEO four
times in three years, or that the team
leader they liked has moved on”
Howard Gaunt, Abu Dhabi Commercial Bank.
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OP, Abu Dhabi Terminals Our situation is slightly different but
not necessarily with a different outcome. In many ways we
mismanaged our banking relationships in the past: we have had
a relationship with most banks in the UAE at some point, and
we are consolidating that and trying to move to being partners
with just a few banks and to build up a proper track record with
the chosen few.
Euromoney Financially mismanaged because you tried to have
relationships with everyone?
OP, Abu Dhabi Terminals Before the current management team
that includes myself, I don’t think anyone at ADT focused on
the benefits of cash management.
HG, ADCB It’s important to understand why local and regional
companies tend to have relationships with everyone. It’s not be-
cause they love every bank; rather, it’s because of the efficiency
of moving cash around here. Companies here are now consoli-
dating their banking relationships. There is a telecoms company
here with a highly professional management team that is focus-
ing all its attention on two or three banks and dictating what
they bring to the table. As a bank you like those situations but
they are difficult as the client commands the outcome.
AC, Ducab We started with very few local banking partners, but
we’ve branched out into a wider portfolio for practical reasons,
because some banks have specific areas of expertise. But no
single bank excels in all fields, so we are increasingly doing some
cherry picking. Our shareholders also want us to go for more
Islamic banking services. Recently we were split between ADCB’s
conventional offer and an Islamic banking offer from a different
bank; we asked if ADCB could go Islamic and they could – so
there was no reason to diversify. That shows how flexible banks
can be if they’re good enough.
Euromoney Are international banks returning to the region or
ramping up headcount again? What is the reaction from re-
gional corporates when they return?
HG, ADCB More often than not we are winning against inter-
national banks. One of them, a big name in cash management,
is losing deals to us every day. Where they’re losing out isn’t
only on product capability but also on inconsistent relationship
management. This is a part of the world where relationships are
extraordinarily important and where they often transcend into
a personal relationship. You often go to events and picnics with
your clients and their families, and these guys notice if a foreign
bank has changed CEO four times in three years, or that the
team leader they liked has moved on. These companies know
me, and they increasingly say that if I can match international
banks in terms of cash management service, they’ll move their
business to me.
Euromoney What has been the main change affecting company
thinking?
AC, Ducab We are seeing a certain amount of aggression from
international banks. Some of the newcomers are very competi-
tive, in particular some of the Asian banks.
CF, ADCB Over recent years many of the big Chinese banks have
set up in the DIFC [Dubai International Financial Centre] and
have been highly aggressive in financing Chinese trade. When
we talk about big international banks, many people think of the
likes of Citi, Barclays and Deutsche Bank. But the big Japanese
banks have seriously re-emerged in recent years, and some of the
big Korean and Chinese banks are pushing hard into the region.
HG, ADCB We have a philosophy where we say: “If we can’t per-
form at home, we can’t perform anywhere.” We actually use that
relationship card. There’s a very large retailer here that just did
a big transaction with a big US bank and when I met with the
CEO, I reminded him that this is our home market; that we have
an obligation to support each other. Trust me, that relationship
card works here.
CF, ADCB But we shouldn’t expect this business to just land on our
plate. If we aren’t coming up with ideas, we shouldn’t expect that
local connectivity to usurp the fact that we didn’t do our job.
HG, ADCB One thing we tell our clients is that the competency
levels at ADCB are at least as good as at any international bank.
In many cases we are doing better than international banks
here, and that is being underscored by the amount of deals
we’re winning.
AC, Ducab A lot of local companies are aiming to expand their
export business, so choosing a banking partner comes down to
what they can offer you in an overseas market. GCC companies
now want to know whether their local banks are going to step
up, to secure stronger overseas alliances and networks.
MS, ADCB That’s the classic supply-chain point of view as the
UAE has probably the world’s most diverse supply-chain net-
work. Our global strategic alliances are a blessing and a chal-
lenge. Many ostensibly global banks have branches in over 50
countries but full-service operations in only a few of them. Does
that allow them to assess local suppliers, or provide local retail
banking services? No. So the challenge for any bank is to prove,
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through a network of global alliances, that it can offer the same
level of service overseas that companies have come to expect at
home.
Euromoney What are the other risks we are seeing around the
region?
HG, ADCB One of our biggest challenges today is Iran, because of
the changing levels of sanctions, and because of our proximity
here. We are a 144a bank, so our CEO and key personnel here
are personally liable if we make a mistake. We have a full-time
team in the bank that studies sanction laws, as every day there’s
some tweak or change.
JH, Sorouh There are a couple of banks in Dubai that have
crossed swords with the long arm of the US law when it comes
to Iranian sanctions. That gave us great concern as we had a lot
of money on deposit with them that took a while to get out, as
the interbank market dried up on them pretty quick.
Euromoney Does that make it harder for you to value assets in
countries that are undergoing extreme institutional change?
HG, ADCB It’s more about the funds flow. There’s an airline that
flies to Tehran several times a week and it’s an important route
for them. It’s a challenge for us, though, as we can’t touch that
part of the business. Or there’s a big supermarket with exposure
in Iran: when we manage their accounts, all their Iran opera-
tions have to be ring-fenced from the rest of the business, and
all these accounts have to be double- and tripled-signed off
before things are OK.
CF, ADCB We aren’t insulated here. ADCB has raised money in
dollars, and maybe in the future we will choose, over time, to
decouple from the US markets. But dollars are very important for
us, and if our access to the currency changes, it will affect our
entire business. Institutions failing to comply with sanctions can
themselves become sanctioned, at which point it’s harder to find
counterparties willing to deal with you.
MS, ADCB Many large firms, including in telecommunications
or pharmaceuticals, are doing perfectly legitimate business into
Iran. Yet there’s no currency they can settle in, so they are forced
to try to offset their receivables. And who has those receivables?
The Iranian government and the national oil company, which
are the chief subject of sanctions.
Euromoney Any final thoughts on how the market is developing
across the region?
CF, ADCB There have been signs of normalization in recent years.
We’re in a growth phase here and we expect clients to demand
new borrowing requirements, and we want to support that. I’m
cautiously optimistic that the banking community has learned
some good lessons in recent years, and with Basle III coming
in, I expect the financial system here to strengthen further. Our
main objective, though, is about more than simply offering
credit; it’s also about providing everything surrounding treasury
services, automation and a growing debt market.
OP, Abu Dhabi Terminals From a relationship point of view, you
have a bank that should stick with you in good times and bad,
so to the extent that companies have had to accommodate
banks’ requests for increased margins in period of financial
crisis, banks equally should now be going back to clients and
saying: “Look, things have picked up, so we should really look at
lowering your margins again.”
HG, ADCB One topic of discussion that is coming up more in
conversations is a simple one. It asks if the region has learned
from the recent crisis. Banks aren’t venture capital firms. We
don’t give free samples away – ultimately, we want our money
back. And I think we are in a situation here where I’m not 100%
sure that people learned all that much from the past few years.
AC, Ducab It’s nowhere near as bad as it was – it was madness be-
fore 2009, totally out of control. The pre-crisis years were crazy.
A lot of people were terribly hurt by the crisis, and that pain is
still fresh in the minds of many, so I’m confident we will not see
the craziness rise again to the same level.
JH, Sorouh I feel the UAE economy is in good shape. I’m very
bullish about what the future holds and about the relations we
have with banks willing to stand by us in difficult times. Banks
including ADCB are working down their bad loans and we are
working down some of our inventory on the residential side.
MS, ADCB We’ve seen an uptick in the range and quality of cor-
porate treasury services provided in the likes of the UAE, Saudi
Arabia and Qatar. Regional banks are improving all the time,
and foreign lenders continue to plough into the region in search
of profit. Ultimately, the benefits will flow to lenders who have
the best and most committed relations with corporates and the
wherewithal to provide funding as well as world-class cash man-
agement and treasury services, and it’s notable that while global
banks are being more selective in how they use their balance
sheets, local banks such as ADCB are creating ever-more global
and regional alliances. It’s a very interesting time for ADCB and
other regional banks seeking to establish a valued transaction
banking brand across the Middle East.
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