A mindset shift to unlock the value of cash and bridge liquidity gap in the new normal
Peter Wong
Executive Director, Structured Solutions Development, Cash, Transaction Banking, Standard Chartered
Cash is king but only if it is put to use. Yet as we look ahead to this year, the picture looks challenging with predictions of a recession in many major economies while borrowing costs are set to continue rising in the face of ongoing tightening monetary policy. It’s no wonder then that treasurers feel the need to maintain high cash reserves. According to our estimates, ASEAN MNCs in the Nikkei Asia300 list of companies on average keep 10-30% of their revenue in cash. Of which, sectors more vulnerable to a health crisis, such as hospitality and airlines, and companies in the energy industry anticipating significant demand for future investments related to green transition, maintain a higher cash buffer.
However, ASEAN is a region full of opportunities that treasurers can leverage and put their cash to good use to ensure that corporates are primed for growth and success. To do so will first and foremost require a mindset shift in the way treasurers approach cash management, a new perspective that will do justice to the vast opportunities in ASEAN. For the region offers plenty of reasons to be optimistic.
For one, ASEAN’s strength as a manufacturing hub is only set to grow. The multi-year trend of companies making their supply chain more resilient by setting up operations in the region is gathering pace as evidenced by the inflow of foreign direct investment (FDI) which rebounded to pre-pandemic levels in 2021.1 In addition to being a major hub for the production of textiles, electronics and petrochemicals to name a few, ASEAN is also a leading producer of the commodities needed to power green technology, such as nickel and cobalt, which are used in the batteries for electric vehicles.
Investing in the green economy
In fact, when it comes to sustainability, ASEAN presents a huge opportunity for corporates. Estimates from the Monetary Authority of Singapore put the amount of green investment that the region needs at USD200 billion per year until 20302 as governments and companies strive to meet net zero targets.
Of course, while investment, whether it is sustainability-related or an M&A opportunity, is positive for a company’s long-term prospects, in the short term it does not generate a lot of liquidity. For this reason, treasurers play a critical role in making cash work effectively and growing a business sustainably.
Having a global mindset when it comes to effectively managing cash in ASEAN, a gateway to the world, is vital. This means treating different cash pools across markets as a single pot.
Adopting this kind of central approach to managing cash brings a wealth of benefits including reducing overall borrowing costs, unlocking trapped cash and having a bigger pool of liquidity to fund new business opportunities.
Harnessing the in-house bank model to drive growth
Working with treasurers and other stakeholders, including the central banks and monetary regulators, consultancies, technology providers and industry bodies, Standard Chartered helps identify opportunities to improve liquidity and design a bespoke in-house bank (IHB) solution that delivers high-performance netting of liquidity as well as FX and payments to and from operating companies through their regional treasury centre.
Let’s take the Electric Vehicles (EV) sector as an example. ASEAN is a key player in the EV supply chain ecosystem. Nickel and cobalt mining and smelting are carried out in Indonesia and the Philippines; batteries sourced in Malaysia; innovation labs in Singapore; and final EV production in Thailand. This means, leading EV manufacturers from Europe, Japan, Korea, Taiwan as well as ASEAN markets would have operations in multiple countries in the region. With IHB, these companies can seamlessly coordinate internal purchase-and-sale settlements, square FX and liquidity mismatch positions, and implement an ASEAN-based payments factory centrally that has full control and oversight of suppliers, processes, timelines as well as costs.
To do this effectively requires having real-time data to make informed decisions. With the digitalisation of the global economy driving an exponential growth in digital payments, it is more important than ever for treasurers to embrace technology that will give them oversight of all payments and transactions within their organisations.
Adopting and deploying the right technology will not only allow treasurers to oversee cash on a real-time basis but also manage risk instantaneously. Armed with these insights, treasurers can better serve as a strategic partner to their business and enable the transformations that will help companies to thrive in the decades to come.
Extending ASEAN’s borderless payments ecosystem
The region’s governments have also recognised the importance of improving cross-border financial flows, launching projects that remove obstacles to moving cash between markets. As recently as November 2022, the central banks of Indonesia, Malaysia, the Philippines, Singapore and Thailand signed an agreement to support faster, cheaper, more transparent and more inclusive cross-border payments.3 Meanwhile, the blockchain-based mBridge platform by the BIS Innovation Hub Hong Kong Centre, the Hong Kong Monetary Authority, the Bank of Thailand, the Digital Currency Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates aims to support real-time cross-border payments and foreign exchange transactions between these territories.4
These initiatives are sure to complement existing treasury activities by enhancing efficiencies and removing restrictions. As the only bank with a presence in all 10 ASEAN markets and a global footprint which include Asia, Africa, the Middle East, Europe and the Americas, Standard Chartered provides the local, regional and global corridors support companies need to create a truly frictionless, cross-border treasury operation.
While it is important to be risk conscious, treasurers need to have tools and processes in place that enable smarter decisions and future growth. By adopting a global mindset to managing cash, treasurers can enable businesses to create new growth opportunities and emerge winners.
The author is Executive Director, Structured Solutions Development, Cash, Transaction Banking, Standard Chartered
1 https://asean.org/asean-launches-investment-report-2022/
3 https://www.zdnet.com/finance/banking/five-asean-nations-ink-pact-to-ease-cross-border-payments/
4 https://www.bis.org/about/bisih/topics/cbdc/mcbdc_bridge.htm