Published: September 30, 2010
Central and Eastern Europe (CEE) is an important area of growth for many western companies. Much of CEE weathered the financial crisis better than western Europe, and today we are witnessing a renewed interest in the opportunities that the region presents. Most countries in CEE continue to experience higher rates of economic growth than their western European counterparts. Poland, for example, did not see a recession, unlike the rest of Europe. Not only does the region have considerable potential for sourcing and sales, but as treasurers seek to maximise the value of cash, higher interest rates in CEE are also proving attractive as a haven for short-term investments. Clearly there are some challenges with this approach, such as the need to monitor and manage interest and FX risks carefully, but treasurers should remain up to date with the opportunities that exist in CEE. To identify and benefit from local investment conditions, as well as supporting the cash management needs both of local entities and the wider company, companies need a banking partner with local expertise and solutions to support domestic needs and the wider corporate objectives.
Pre-crisis, corporate investment decisions were predominantly influenced by yield and liquidity. While risk was a factor, it was typically not the priority. The crisis caused the situation to change fundamentally. Risk and liquidity emerged as the predominant investment themes, and yield hardly figured amongst treasurers’ priorities. Today, with continued low western interest rates, treasurers are seeking to find a new balance between risk and reward, in which security and liquidity remain the priority, but in which yield now has a place. In order to achieve this rebalancing of risk and reward, treasurers need to look beyond familiar investment approaches; for example, there will be situations when repatriating cash and investing in the company’s base currency, in its home country will not necessarily be the best approach. As figures 1 – 3 illustrate, CEE brings some interesting possibilities that a bank such as ING can help to realise, by bridging corporate investment and cash management requirements with those of local entities.
Ahead of investing in a new region, of course, treasurers need to have a good level of visibility over the cash flow needs of the business as a whole through an effective cash positioning and forecasting programme. Furthermore, there are some local challenges that need to be addressed.
Firstly, while CEE is a maturing market, there is still little standardisation between countries and different regulatory and tax regimes which can make it complex to determine an appropriate investment strategy.
Secondly, automation of financial transactions and information flows is not universal, with significant use of legacy communication methods such as fax and postal transmission of bank account statements.
Thirdly, FX risks created by holding investments in currencies other than the company’s base currency need to be managed. While these challenges may seem daunting, working with the right banking partner, with on-the-ground presence and in-depth local, regional and pan-European coverage and expertise, goes a long way to addressing them.
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One area in which many multinationals are developing rapidly is adoption of alternative payment and collection methods such as direct debits and commercial card programmes. In CEE, however, commercial card programmes, for example, are rarely deployed, and few local banks have expertise in this area. Furthermore, the lack of standardisation in products, services and integration formats often results in companies maintaining both local and regional banking partners, which makes it difficult to achieve economies of scale and a harmonised approach to transaction and information flows. Consequently, these companies are increasingly seeking partner banks to bridge the gap between domestic requirements per country, regional coverage across CEE, and the wider cash flow needs of the business. ING is becoming the bank of choice for a growing number of these corporations, not only as an overlay bank but also as a provider of in-country services. In this way, companies benefit from transparency over information, harmonised services whilst respecting local conventions, and products to which they have become accustomed in other regions, such as ING’s commercial card programme for CEE.
Even before the Berlin Wall fell in 1989, it was apparent that CEE was a huge opportunity for our clients in western Europe, and that companies in the region would be seeking a highly credible banking partner that could support their local needs and wider European strategy. Our clients continue to seek ING’s support as a trusted partner for conducting trade in CEE, and our management has a strong, ongoing commitment to developing our presence and capabilities in the region. We are now well-established in most of the countries in which our multinational clients require our services, including Turkey which is proving increasingly important. In the Baltic States, we provide a cohesive service through SEB, our partner bank. By the end of 2010, we will have established a presence in St Petersburg. During a period when many banks have reconsidered their investment programme, ING is expanding in CEE rather than reducing our efforts. Our clients greatly appreciated that we remained committed and operational throughout the years of crisis, and this has been an important factor in ING’s favour when these companies come to review their banking relationships, not only in CEE but beyond.
In addition, we recognise that presence and products are not enough to satisfy the needs of our clients. According to a recent Greenwich survey, our clients particularly value our people, our expertise, and the flexible approach we were able to take. In particular, during difficult economic times, it has been reassuring for clients to know that we will go the extra mile and aim to fulfil client needs whatever the circumstances. Another important aspect of the way we do business is our objective to provide cohesive, comprehensive products and services across regions for simplicity and clarity. For example, we are enhancing our back offices to ensure consistent processing across regions. This provides our clients with a harmonised experience across all countries in which they do business with us, with a common approach to processing efficiency, data integrity and client service. Furthermore, Bank Mendes Gans, a wholly-owned subsidiary, provides cash pooling on both a regional and global basis.
Countries in CEE are catching up quickly with their western peers, and trade relationships are continually strengthening. The growth forecasts for the coming years are promising, and by 2015, we anticipate that additional countries will adopt the euro. For two years before, these countries will need to make sure currency fluctuations are limited, providing greater clarity for companies doing business. As companies expand their activities in CEE, and leverage the business and investment opportunities that exist, the need for a partner bank to support and connect in-country domestic needs, regional requirements, and wider corporate objectives will become even more acute. Consequently, we anticipate that our services will be in even greater demand in the future as a local, regional and pan-European banking partner of choice, providing clients with the information and services they need to manage their business effectively, and navigating the regulatory labyrinth.
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