Strategic Treasury

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Taking Advantage of Innovation Innovation is bringing new opportunities for companies to harness internal liquidity, allowing them to increase interest income, reduce external funding needs and make better use of their cash.

Taking Advantage of Innovation

by Faisal Ameen, Head of Product Management, Global Transaction Services, Asia Pacific, Bank of America Merrill Lynch

In the past decade, liquidity management has developed from a peripheral to a mainstream treasury priority in Asia Pacific. This transition has been fuelled by a number of factors including geographic expansion and currency diversification, coupled with a shift to more strategic treasury.

The good news is that in 2015 this transition remains in full swing. But when analysing market forces, the factors pushing ongoing transition are different. While companies continue to face a number of liquidity management challenges, recent technical innovations are bringing new opportunities to overcome regulatory and currency hurdles and help treasurers better optimise company cash.

To understand the transition, we need to take a step back. By their very nature, many of these liquidity challenges are regionally-specific and complex. From a treasury perspective, Asia Pacific is arguably the world’s most difficult region, a fact recognised globally. Comprising numerous markets and cultures, multiple currencies and diverse regulatory climates, Asia Pacific presents a variety of challenges whereby liquidity management is concerned that do not exist in the treasury space of other regions such as the European Union and North America.

Figure 1

For one thing, in light of the region’s disparate markets, companies operating in multiple countries across Asia Pacific tend to work with a range of different banks, both local and international. As a result, treasurers need to aggregate information from a number of different electronic platforms in order to determine their overall regional cash position. Collating this information is a time-consuming exercise though, often as consuming as the subsequent analysis and decision-making processes.

Numerous developments are driving a transition towards smarter liquidity management practices in Asia Pacific. Bank-agnostic solutions, such as SWIFT for Corporates, can help companies achieve real-time visibility over the relevant information. Alternatively, companies can also access platforms provided by global banks in order to achieve the required level of visibility. These platforms enable companies to spend less time on analytics and more time on making strategic decisions.

Visibility is not the only challenge faced by treasurers in the region. Benchmarked with other geographies, managing trapped cash remains a significant consideration for the Asia-based treasurer. For one thing, cash flow constraints can prevent companies from deploying cash as needed. Furthermore, trapped cash has potential financial ramifications for a company if local investment vehicles offer lower returns than the company could achieve in other markets.

As treasurers understand, trapped cash is often beyond the control of the treasury function. For example, regulatory constraints can prevent companies from readily moving cash out of certain markets, such as India and Malaysia. Encouragingly though, trapped cash is becoming less of an issue in China following regulatory relaxations which have made it easier for companies to mobilise their cash.

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