Treasury in Transition
Changes and Opportunities for Asia Pacific Treasurers
by Ivo Distelbrink, Head of Global Transaction Services, Asia Pacific, Bank of America Merrill Lynch
Corporations in Asia Pacific (APAC) currently face a number of challenges and opportunities. Digital and mobile commerce, accelerating regulatory reforms, shifting demographics and declining economic growth all require a response. In addition, Asia’s resilience is likely to be tested as China’s economy continues to slow, whilst US interest rates are set to rise for the first time in almost a decade. These factors fundamentally affect the focus of treasurers in the region. Against this backdrop, strategic treasury advisory will be vital in helping companies deliver against changing objectives and priorities.
Changing economic conditions
Three important concerns for treasurers at present are financial market volatility across asset classes, monetary policy divergence and changes in liquidity cost/availability.
Equity markets, fixed income, commodity and foreign exchange markets are experiencing significant volatility. This volatility is arising in different locations for varying reasons and is no longer unidirectional. These are challenging conditions for any treasurer, but especially for younger treasury professionals who will not have encountered such volatility before.
Major global economies are also starting to diverge in their monetary policy. The US is looking to tighten, while China is loosening and likely to see more policy action until its real economy stabilises and growth turns. A recent World Bank report  spells out the possible consequences of higher US interest rates and an appreciating USD, including increased borrowing costs, greater financial volatility, reduced capital flows to East Asia and potential damage to highly-dollarised economies.
At the same time, regulatory changes such as Basel III are imposing tougher capital and liquidity requirements on banks, which may change the way in which they extend liquidity to or take deposits from corporates. The exact extent and nature of the impact is unclear and inconsistent across countries, but it clearly adds complexity from a treasury perspective.
Leading treasuries are working through the implications of these various scenarios and are devoting more time and effort to cash visibility/forecasting and risk management, an emphasis that is both timely and understandable. Improving cash visibility and forecasting opens the door to releasing hidden internal liquidity to reduce dependence on external sources, while increased emphasis on risk management helps mitigate the consequences of current FX/asset volatility.
Changing business models
The economic environment is changing, but so too are the business models that operate within it. New digital and social economies demand a complete transformation in corporate business models and this has meaningful knock-on consequences for treasurers. Digital commerce, social media and mobile innovation are now everyday realities, driving the need for real-time continuous transaction processing to replace the batch based activities of the past.
The 24x7 clearing infrastructure needed to support these new business models with real-time transactions is evolving rapidly across APAC. Korea’s HOFINET, China’s IBPS, India’s IMPS, Singapore’s FAST and the planned Australian NPP all demonstrate that APAC is at the forefront of establishing around the clock real-time clearing services to enable digital commerce.
This transformation in clearing infrastructure and business models is forcing treasurers to rethink traditional, long-established treasury processes, platforms and banking relationships. It also leaves finance professionals with some tough questions to answer:
- How can treasury facilitate new business models that require 24x7 real-time settlement across currencies and time zones?
- How can treasury streamline processes to maximise the commercial opportunity implicit in technology such as mobile wallets?
- How can treasury use big data to make better funding decisions?
- How can treasury safeguard a company’s financial assets and transactions from increasing cyber attacks and fraudulent transactions?
The quality of the answers and treasury’s ability to manage cash flows, supply chains and treasury positions 24x7 in real time will have a major bearing on a company’s ability to capitalise on new, emerging, digital business models.