Tale of two cities: The growth of regional treasury centres

Increasingly, multinational companies are looking to establish dual or multiple treasury centres across regions.

December 11, 2024

6 mins

Cash managementCorporate & investment bankingTreasury

These support international growth by providing local insight into regulatory trends and time zone flexibility to support quick decision-making. They also help companies headquartered in restricted markets with opportunities to grow internationally.

Historically, most companies have had a treasury department at their corporate headquarters. However, interest in establishing dual or multiple treasury centres across regions has accelerated in recent years as multinational corporations (MNCs) expand and look for ways to power growth and manage new international markets.

Regional treasury centres (RTCs) offer several advantages. Most obviously, they allow companies to support operations across different time zones with real-time services. By making local operations more efficient and responsive, they offer a cost advantage.

“As companies expand globally, time zones and having ‘boots on the ground’ really matter,” says Ruta Jukneviciute, Executive Director for Structured Solutions at Standard Chartered, who has expertise in the Middle East and Africa region. “By setting up an RTC, you are moving away from a singular global focus to accommodate the growth and complexity in emerging markets. Having your staff on the ground enhances your agility, especially in critical situations such as a sudden change in regulatory restrictions or repatriation of trapped cash.”

For instance, when the Central Bank of Egypt unexpectedly announced a new set of regulatory restrictions that affected the repatriation of funds, one company with extensive operations in Egypt benefited from having established an RTC in-country. Time was crucial since the changes took immediate effect and were expected to cause currency devaluation. The RTC was able to flag the regulatory changes as soon as they were announced, allowing the firm to act quickly.

The RTC team leveraged its understanding of national regulations and its established relationships with banks and regulatory bodies to quickly interpret the new rules and assess their impact. In collaboration with headquarters, the RTC formulated and implemented a strategy to comply with the new regulations, finding ways to renegotiate terms with local banks, invest extra liquidity and repatriate cash. By having “boots on the ground”, the company was thus able to adapt quickly and minimise financial risk.

RTCs can also help companies access new markets, with local staff bringing important language skills and relationships. A local footprint brings a deeper understanding of market practices and helps businesses navigate complex regulatory landscapes – including the management of foreign currency exchange and liquidity in important growth markets.

This is especially useful for MNCs operating in restricted markets in Africa and East Asia. Establishing treasury centres focusing on these regions can help companies develop important relationships with local banks, and build a better understanding of complex regulations, risks and investment opportunities for cash that cannot easily be pooled back to headquarters.

Conversely, companies headquartered in restricted markets may use RTCs in freer markets to grow their international business. “Often, MNCs would like to have a treasury centre outside of their restricted market, for example in locations like Hong Kong and Singapore, to manage the rest of the world,” says Herman Koo, an Executive Director for Structured Solutions at Standard Chartered, with expertise in North Asia.

By helping MNCs operate in complex markets, treasury centres can add strategic value to a business. “Treasury services can go beyond simple liquidity management, working to find opportunities to manage equity investments and develop the business,” notes Ms Jukneviciute. “This is where treasury becomes strategic because it can bring that value to the CFO.”

Growth markets for regional treasuries

Treasury centres have followed wealth creation, moving from the US and Europe in the 1980s, towards Asia. Today, high-growth regions are becoming new hubs for RTCs, from Shanghai to Mauritius and Malaysia.

MNCs continue to structure for tax efficiency, making the Middle East, where corporate income tax is low, especially attractive. The UAE’s open regulatory system supports its growth as a hub, as does its position as a gateway to African growth markets. European, American, and Chinese companies in sectors such as mining, logistics, manufacturing, and energy have set up treasury centres there to manage their operations across the Middle East and Africa.

In Asia, Hong Kong and Singapore are hubs, offering the most mature financial markets, regulations, and legal systems. Many Chinese CEOs look to Hong Kong to establish a treasury centre outside China, due to language and cultural affinities as well as its unique position under “One Country, Two Systems”. Hong Kong’s government also halves the profit tax for corporates who establish treasury centres there, under a Corporate Treasury Centre tax regime, which involves no pre-approval processes or sunset clauses.

Singapore, meanwhile, provides a base for companies in sectors such as pharmaceuticals looking to expand through ASEAN, Asia and beyond. Like Hong Kong, Singapore’s government provides incentives to support its growth as a centre for treasury management activities. For example, under a new Finance and Treasury Centre Incentive, it offers tax inducements, including a reduced corporate tax rate on income from treasury centres.

Best practices for building dual or regional treasuries

There are many factors to consider in building successful dual or multiple treasury centres, but three stand out.

First, integrating finance and treasury technology systems is crucial. In the past, RTCs became a point of fragmentation between companies’ regional operations and headquarters, creating problems with multiple cash balances and a complex web of internal treasury management systems. It is important for companies to avoid this trap by ensuring that regional systems are seamlessly connected and harmonised with headquarters.

“The technology is the backbone of effective treasury set up. It is very important that a treasury management system is implemented not only at the headquarters but also at all RTCs, ensuring that all treasury data is captured in the system and communication between headquarters and RTCs is effective,” says Ms Jukneviciute. “This will not only streamline processes but also minimises the risk of human error, leading to more accurate and reliable financial reporting and cash flow forecasting.”

Second, companies looking to establish treasury centres should prioritise strong governance, which is vital to align processes and procedures internationally, and to bridge gaps between regions. When establishing treasury centres, it is important to define their relative roles and responsibilities, and to align rules and standards. Headquarters need strong visibility and oversight of treasury centres to ensure proper governance.

“Alignment of processes and procedures is key when you have different treasury centres, because otherwise you have a variety of processing procedures, and this may cause problems with internal audits,” says Mr Koo.

Third, leaders should invest in local talent. Many of the benefits of RTCs rely on human insights and relationships. Talented staff are needed to form relationships with local banking partners, and to gain a deep understanding of market risks and investment opportunities. This is especially important in restricted markets, where debt may need to be raised locally, and where cash cannot be returned to headquarters.

Companies should also leverage the expertise of their banking partners. For example, Standard Chartered offers a unique proposition to international corporations looking to establish treasury centres in different regions and facilitate growth. It offers both cash and risk management capabilities, while its global presence gives it a strong presence in growth markets, matching the footprint of globalising corporations. Its team is also unique in the market, comprising experts of varied backgrounds, with deep experience in setting up treasury centres.

Its advantage in structuring treasury services gives clients much-needed flexibility as they establish dual or regional treasury centres. Rather than offering boxed solutions, Standard Chartered’s approach is to first understand clients’ challenges before designing customised solutions that suit their needs.

“If we have clients looking for a solution that doesn’t exist in the market today, we can work with the client on co-creation,” says Ms Jukneviciute. “We listen to our clients’ problems, and work together to find the solutions they need.”