In Safe Hands

The Future of Liquidity Technology in APAC and Beyond

Liquidity remains top of the agenda for most treasurers in APAC. With the complexities and challenges of its markets vying for attention with its opportunities, Bank of America’s Nirmal Khaderia, Head of Corporate Banking Subsidiaries, APAC, Venkat ES, Head of Treasury Product, GTS, APAC, and Dino Albuquerque, Managing Director, Corporate Banking Subsidiaries, APAC, showcase the bank’s commitment to developing technology-powered solutions.

There will not be a professional treasurer on the planet who does not understand the impact that technology can have on mounting a more robust response to changing market conditions, regulatory pressures and increasingly aggressive competition. Of course, not all will feel they are in a position to avail themselves of the best the bank, vendor and fintech community has to offer, yet the pressure to tackle one of the most pressing issues of the day, liquidity management, is notably driving the discussion up the agenda.

Across the world, the trading environment in the past few years has become so much less predictable. “Arguably we are in the early phase of a challenging cycle. At the hands of the pandemic, geopolitical instabilities, supply-chain issues, and a massive spike in energy costs and commodity prices, the markets have become hair-trigger sensitive to change,” notes Khaderia. “With inflation rising so interest rates begin to climb as central banks try to contain the pressure. It means the impact of volatility on just about every aspect of treasury activity, but especially liquidity management, is immense as they seek to navigate these troubled waters.”

Khaderia continues: “Against this backdrop, the need for most corporates operating across APAC is to find greater visibility and control over their corporate cash as they navigate through multiple currencies and FX exposures, complex regulatory and tax considerations and time zones”. He confirms that discussions and feedback from a number of Bank of America’s multinational clients in the region repeatedly show that liquidity management in APAC is indeed one of the top challenges and priorities today.

The need for most corporates operating across APAC is to find greater visibility and control over their corporate cash as they navigate through multiple currencies and FX exposures, complex regulatory and tax considerations and time zones.

“That lack of visibility can become a material issue for some,” he says. “It quite often leads to trapped cash in APAC markets which clients cannot readily access for their ongoing global usage. It also creates significant inefficiencies in both operational and strategic funds management.”

Tackling the problem may see some companies trying to consolidate their cash but a number of issues are being faced by those who take this path, notes Albuquerque. “Often these issues relate to navigating currency-specific restrictions and regulations in accessing and centralising liquidity across APAC markets,” he explains.

“Consolidating liquidity across APAC often means treasurers are having to navigate the multitude of tax, legal and accounting considerations that are applicable to each APAC market in which they operate,” says Albuquerque. This often gives rise to a further issue: the manual effort required to execute this process. “At its most basic level of impact, a complex business is likely to see day-to-day operational activities disrupted, but manual actions also raise the risk level, not just from keying errors but also from fraud.”

With all this in mind, the impact on day-to-day treasury decisions, and indeed on longer term corporate resilience and planning, is significant, says Khaderia. “It means treasurers are quite often keeping larger surplus balances in their operating entities than is required just to fund their flows. This naturally leads to costly cash inefficiencies.”

But the complexity in utilising internal funds across APAC markets also means some are compelled to borrow in certain markets even while having surplus funds in other markets, adds Albuquerque. “This ultimately impacts longer term corporate planning and resilience, since large pockets of internal liquidity are trapped in APAC markets and cannot be deployed in support of the overall corporate goals and strategy.”

Foundations for success

Fortunately, there are options open to treasury to try to resolve these issues. Many can be addressed to a large extent by careful evaluation of the company’s priorities and operating model, suggests Khaderia. “On a practical, day-to-day level though, technology can be foundational in addressing these issues. And we don’t even need to be looking at high-end or complex technologies here. Even a basic forecasting tool with the ability to fine-tune through back-testing can go a long way in establishing the fundamentals.”

The most important starting consideration in this context is visibility over data, says Venkat. This is where new and rapidly evolving technologies have an important role to play. These include APIs – which can offer real-time balance and transaction updates – as well as automated reconciliation solutions, and XML-based host-to-host liquidity reporting tools that offer automated updates to client TMS and ledgers.

“Once these foundational elements are established, a number of bespoke liquidity automations are available through highly customised parameters,” comments Venkat. “These can help treasurers navigate through the various cross-border complexities, and deliver consolidated liquidity solutions for the region.”

By bringing to market solutions such as its end-of-day (EOD) sweeping capabilities, and host-to-host liquidity reporting integration, Bank of America is focusing a lot of effort on developing the right structural offerings. These solutions take on even greater day-to-day usability when augmented by tools such as the bank’s new CashPro Assistant forecasting tool, and its mobile app with its 2-click maximum for most functionality.

Bank of America’s EOD sweeping capabilities will be available for use via the Singapore/London USD corridor by Q2 2023, with the bulk of the other markets in its APAC footprint expected online by the end of 2024. “Once live, this will provide clients with a true end-of-day cross-border physical sweep capability to consolidate funds between their USD accounts across different Bank of America branches,” explains Venkat.

“Our EOD sweep capabilities help clients overcome any time-zone related challenges. But they also ensure maximum consolidation of funds into a centralised location. It means true global zero-balancing sweeps while still meeting in-country operating requirements without incurring end-of-day overdrafts.”  As a practical example, Venkat says EOD sweeping of USD from Singapore to UK, or vice-versa, can eliminate operational challenges in keeping sufficient funds to process payments during the day in either location.

Bank of America’s host-to-host liquidity reporting integration programme is also intended to push client usability to the next level, comments Venkat. “While it’s common for banks to integrate the account and transactional reporting through host-to-host XML formats, we have worked with clients to implement host-to-host integration in XML for relevant client liquidity reporting.”

This approach can, for example, include a client’s multi-currency notional pool in Hong Kong, and any related physical intra-day, end-of-day, and multi-bank sweeps. It marks the first host-to-host integration by Bank of America in APAC that fully automates liquidity structure reporting into the client’s TMS. In doing so, it enables full straight-through reconciliation using XML. In fact, host-to-host liquidity reporting in the latest formats, including XML, should help many treasuries further integrate automated TMS and ledger updates, including any inter-company positions and related transfer pricing and tax administration.

Usable, scalable, sustainable

These new capabilities are acting as foundational constructs in establishing an efficient and automated liquidity management process for corporates operating in APAC, comments Khaderia. “By automating management of the regional complexities around legal, tax, accounting and time-zone considerations, solutions of this nature – and the thinking that brings them to market – is helping businesses build longer-term strength in treasury and the wider organisation.”

EOD sweep capabilities and host-to-host liquidity reporting integration in particular is set to enable Bank of America’s corporate clients to access their internal surplus funds in APAC which, as cited above as a potentially material issue, may otherwise be trapped and not available for corporate use. This goes some way to creating a more robust internal liquidity position for companies, and it contributes to long-term sustainable treasury management.

Indeed, the use of technology, especially for process automation, can deliver an efficient, consistent and sustainable administration experience across markets and currencies for liquidity management. Ultimately, it facilitates what Khaderia describes as “a scalable model that is capable of contributing to overall corporate resiliency and strength”.

By purposefully incorporating the notion of ‘everyday usability’ into its liquidity product suite, Bank of America is also making a clear statement of intent to its APAC clients. “The basic tenets of our liquidity product suite – simplicity, consistency and scalability – are the same concepts we apply from the simplest to the most complex setups,” declares Albuquerque. “These are delivered in a sequence of logical, repeatable iterations. They are, by definition, intended to be practical, everyday solutions for our clients, providing seamless integration with their payables and receivables processes.”

Of course, Bank of America’s roadmap for the evolution of its liquidity suite is similarly grounded in simplified principles while leveraging the latest technologies as enablers, says Khaderia. “Whether it’s APIs, real-time liquidity or heuristic reconciliation solutions, our approach ensures that we are maintaining the practicality and everyday usability of our offerings.” Indeed, he adds, “treasurers are moving to consolidate, understand and optimise their cash positions in very testing times, with any significant easing of the rate-tightening cycle unlikely to be seen before 2024. It means that partnering with a bank focused on delivering the right technology but in parallel with locally placed and globally astute advisory and consulting teams, is the best way to ensure the everyday is manageable.”