Banks, liquidity and MNCs

The regional treasurer at Henkel KGaA discusses banking regulation trends and how these are impacting on liquidity management for MNCs operating in Asia.
Jason Wong, regional treasurer for German multinational Henkel KGaA, says there are three main trends in banking regulations in the region.

Firstly banking regulators in the region are looking to improve the efficiency of liquidity management. Thailand is an example of this as the banking authorities are in the process of implementing the National Interbank Transaction Management Exchange (ITMX). This is an electronic system which will eventually replace the existing paper-based payment system, and will improve the overall efficiency of the payments and funds transfer mechanism. It is also happening elsewhere in Asia. India has a Real-Time Gross Settlement (RTGS) system, and also electronic funds transfers.

The second trend is that banking regulators are keen to maintain the stability of the overall liquidity management system. This is because most governments still remember the financial crisis of 10 years ago. So while there has been a relaxation of capital controls in some countries recently, such as China, Korea, and Malaysia, they are small steps and any further relaxation is also likely to be in small steps. The highly regulated countries in the region still want to maintain effective control over fund transfers.

Thirdly central banks are looking to promote competition among the banks in the provision of liquidity management services. So in China, for example, foreign banks are now incorporated locally and can compete with the domestic banks over the full range of products and services. At the same time, the government is also encouraging local banks to be more international in their outlook and to adopt international standards. Hence the process of listing Chinese banks and getting foreign strategic investors on board. They can now provide products and services that previously were only produced by foreign banks.

This is increasing competition among the banks in the provision of banking services and is being promoted by banking regulators. Wong believes this will definitely benefit corporates such as Henkel KGaA as it gives it more banking options. It also makes it easier for the company to comply with its global bank policy which requires it wherever possible to use its global portfolio banks. So now with this opening up, Henkel KGaA can have more flexibility in being able to use international banks locally.

So whatÆs been the main impact of these changes?

Jason Wong: It means that we have been able to get funds in and out of countries more easily. It also helps to improve the visibility of our funds so that we can utilise them for higher returns, or to reduce our interest costs. Secondly the increased competition, should result in better service at a lower cost.

So is this happening, are your costs declining?

At the moment we are negotiating with our key relationship banks over liquidity management solutions at a regional level and have noticed intense competition giving us significant room to negotiate prices down. It is also the same at the local level where you have competition between the foreign and the domestic banks. Some domestic banks are quite aggressive right now in terms of the pricing they are offering us.

Where is this happening?

For example local banks in India are offering very low charges for fund transfers. We talked with a few international banks there to see if they could match their local counterparts but they said it would be difficult for them because the local banks had cut their prices to grow market share and were not so concerned with immediate profits.

So what is HenkelÆs banking strategy?

We have a selected group of international banks and use them wherever possible. This gives us leveraging power with them while at the same time giving us coordinated relationship management on a global basis. Secondly with regard to local banks we have a new corporate policy within the Henkel group which allows us to use one local bank per country. We use them as a sort of compliment to our portfolio of global banks. But the key is to stick with our global relationship banks to maintain global financial unity as much as possible.
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