Deutsche Bank's Asia Pacific head of global cash management, Jimmy Yap, talks to FinanceAsia about current challenges for companies operating in the region, and discusses the trials of offering cash management services in China.
Yap: Despite the tough economic conditions, our business has actually grown in volume terms. Transaction volumes for last year were 24% higher than the previous year which shows that customers are still buying cash management products. Most of this growth is in increased market share rather than organic growth. Our profitability is also up and this is despite reporting our earnings in euro. Even though the euro has been strong, our results have been better than expected.
What's the biggest issue facing cash management banks in Asia at the moment?
The market outlook is extremely uncertain and there are a lot of international companies re-engineering their Asian businesses and focusing more on their home markets in the US and Europe. These two markets are their top priorities and then Asia comes third. Essentially they're concentrating first on getting it right on home ground. The result of this has been a slowdown in the number of RFPs (request for proposals) in the past 18 months.
So companies are not switching providers in these difficult markets?
They might be switching but they're not going through the elaborate beauty parade process. The cost of running an RFP is very high and requires resources to formulate and execute. Companies are now analysing the cost benefits of this process and finding they don't exist. So instead, they're working with a small panel of banks and asking them directly about their products and solutions.
Is the same amount of caution being shown towards the Chinese market?
No, this is one place where companies see a lot of potential and are investing heavily. My concern is that this singular focus could be detrimental if companies neglect other markets in the region. China is a good bet, but it's a long-term investment, not one where you can pour in $10 million today and expect to repatriate profits tomorrow.
So are volumes for cash management banks increasing in China?
They are for us. In January we received our approval for a local currency branch license in Shanghai and are now in the process of satisfying a few more requirements from the People's Bank of China before we start offering renminbi accounts to our foreign clients. These final hoops include putting our operations managers through an examination and qualification process, writing up procedures for the branch and having these audited by the central bank, and placing a full-page advertisement in a local newspaper to declare that we are open for local currency business in addition to the foreign currency services that we now offer.
Is it necessary for a foreign bank to have relationships with local banks in order to succeed in China?
No foreign bank has a large enough branch network to service the whole country, so it's absolutely imperative to have relationships with local banks. We have been working with China Construction Bank and the Agricultural Bank of China, amongst others, to tie together our technology and products with their distribution to provide solutions to our customers. Ideally customers would only need to open one account in China and leverage off the network relationships, but companies are finding that with the requirement that they set up different legal entities across the country, they are also obliged to open numerous banks accounts.
Has it been easy to work with your Chinese counterparts?
Initially there was a lot of concern that foreign banks like Deutsche were going to take away their business, but once we introduced our customers to them and showed them that we have global reach and customers, they soon realised that dealing with us was a way to get access to an international client base that they would otherwise not have and also to have a mutually profitable collaboration.
Does this mean you now have equitable relationships in terms of fee distribution?
Not yet. Most of the distribution fees that we charge clients get passed straight back to the Chinese banks. This will change over time. Once our partners are confident that we will bring in consistent business from overseas customers we can start to talk to them about discounted pricing. It is clear that we are providing value to the equation through our technology and our product suite.
Have you seen an increase in the number of shared services centres (SSC) or regional treasury centres (RTC) being set up in China?
We get numerous enquiries from customers about setting up SSCs in China and where to locate them. Most are just interested in centralizing their back office and account processing operations there. There are a few talking about going further up the value chain and handling funding and risk management from China, but these companies are few and the end game is to service their Chinese subsidiaries, not regional subs.
Do RTCs really work in China at this stage in the game?
An RTC really needs to be located in a liquid market where there is a skilled workforce to help you manage your risk. That's why Singapore, Hong Kong and Tokyo tend to be the places where companies set up RTCs. It is true that there are not that many RTCs currently in China. SSCs are different, however, and we are now in the process of talking to many of the centres that have been operating in the country for the last two years and asking them how it is working. The critical issue of SSCs anywhere in Asia is finding and retaining good quality staff.
You recently received your internet banking licence in China, what does this mean?
It will allow our customers to convert from the Windows version of db-direct over to the web version which is a lot more dynamic and easy to use. We have had the Windows version available in China for several years. You need a special licence to offer customers a web-based platform and the regulators scrutinised our platform closely before awarding us the licence. We hope that most of our customers will have converted over by the middle of the year. At the moment we are offering just the English version of the site, but the platform does support other languages so it won't be long before we have a Mandarin version.