A decade of dramatic treasury development

Never before has an Asia treasurer had such an important role in driving shareholder value, writes BoA Merrill's Ivo Distelbrink.
Ivo Distelbrink
Ivo Distelbrink

What a decade it has been -- 10 remarkable years of boom and bust for both corporations and banks across Asia. Rapid global growth marked the beginning of the decade, punctured by the bursting of the global tech bubble. The next five years delivered unprecedented growth for Asia's economy, property, trade and stockmarkets. The downturn triggered by the recent global financial crisis was countered by massive government stimulus packages that are still working through the global economy with different degrees of success. It is clear that the global economy needs new growth drivers beyond US consumption and Asia is stepping up in a significant way. The end result is nothing short of a steady shift in the geo-political and geo-economical epicentre of the world towards Asia, and in particular, China.

The dramatic changes in the economic environment and financial markets of the past few years are forcing many companies to reassess business priorities, not least in the area of treasury management. As a direct result of reduced liquidity, tighter credit and escalating financing costs, risk mitigation and working capital optimisation has become more relevant than ever. This is particularly acute in the Asia-Pacific region where growth needs to be funded to capitalise on the many new business opportunities presented. Never before has an Asia treasurer had such an important role in driving shareholder value. He/she is in essence becoming a true strategic business partner to the chief executive and the board in maximising business growth.

As we settle into the year of the tiger, many asset classes and markets have been re-priced forever with Asia representing an increasingly attractive slice of the global market. With de-risking set to continue and the availability of credit generally more restricted and certainly more expensive, there is a universal focus on optimising working capital to self-fund Asia growth where possible. This has the Asian treasurer focused on optimising treasury cash management structures to accelerate cash conversion cycles, to centralise and optimise liquidity, and to maximise efficiencies of scale in centres of excellence.

The process of advancing treasury management in Asia to capture the opportunity this region represents is built around four key pillars for most of our clients:

  1. Clients are reassessing cash management structures and processes, accelerating their cash conversion cycle by streamlining internal processes -- automating and centralising wherever possible -- and by rationalising banking structures to reduce bank fees and standardise billing, in the process improving controls and transparency. This trend manifests itself in the continued growth in the number of regional treasury centres, reinvoicing centres, global procurement centres and shared service centres across Asia-Pacific.
  2. Clients are building contingency plans around operational risk in their financial processes, reviewing how they connect with their banks and with how many banks. Clients are reviewing the positives and negatives of hard wiring a connection from an in-house enterprise resource planning (ERP) system to a bank's proprietary banking system, compared with exploring bank agnostic industry standards and file formats, including corporate Swift membership and ISO XML. No longer are single bank strategies an overly attractive option, instead the ability to add or change counterparties easily is of vital importance.
  3. Clients are ever more focused on proactive risk management and on understanding bank concentration, leverage and cash flows across their supply chains. Special focus is given to debtors and suppliers and their working capital metrics, understanding and sourcing risk mitigation strategies available to reduce, if not manage, risk positions. Trade finance is back in vogue as an attractive source of enterprise funding, both short term and long term.
  4. Clients are demanding full visibility into all bank accounts, cash balances and liabilities across entities, countries and currencies. Clients are requiring this visibility into currency and working capital profiles online, real-time and across banks without distinction, and are demanding cash flow forecasting tools to better manage positions. Once a client has full visibility into its cash positions, cash concentration and liquidity management structures are developed on a local, regional and global basis to safeguard assets, reduce volatility and external borrowings, and to optimise returns.

With treasury management processes standardised, automated and centralised, with cash conversion cycles accelerated and with Asia liquidity mobilised, pooled and invested in an optimal manner, a significant part of the Asia treasurer's journey to optimise operations appears done.

However, even at this point the journey to maximise shareholder value from treasury operations is far from complete. Asia's most successful companies and their banking partners are starting to shift their focus from investing the resulting cash portfolio in the markets to investing in their own companies to maximise business opportunities. Asia's most successful companies have the treasurer take an active role in exploring opportunities to invest in their own supply chain, in extending balance sheet and in adjusting payment terms up and down the supply chain. The treasurer can also install supplier finance programmes; distribution, distributor and customer finance programmes among others, all with a singular focus on allowing the business to sell more without creating undue risk across the supply chain.

As we expect Asian economies, led by China, to continue to outperform their global peers, we can expect the role of the Asian treasurer to continue to gain in relevance, complexity and importance. Implementing the right treasury management structure and policies not only improves cash flows and working capital, but improves business in general. The very same systems that enable strong working capital performance have an influence over a client's entire supply chain as they drive stronger process rigor across functions. Optimising working capital and cash conversion cycles help to better anticipate customer demand, improve the ability to deliver goods and services on a timely basis and drive stronger vendor relationships resulting in greater efficiencies and productivity. Put simply, treasurers in Asia are increasingly becoming the key enablers of an organisation's success.

Asian treasurers, in the year of the tiger, roar loud and lead from the front. Empower your company to dominate the opportunity Asia represents. Your time is now.

Ivo Distelbrink is Asia-Pacific head of global treasury services at Bank of America Merrill Lynch.

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