Optimising cash in Asia: Immediate priorities, new opportunities and alternative strategies
As 2022 arrives, treasury teams across Asia remain challenged by the impact of lockdowns and safety measures on their businesses. Near-zero interest rates across many markets are also hampering the ability of companies to grow their cash reserves.
While economists are generally upbeat about the region’s prospects over the next year or so, a full recovery is still some ways away. For example, a December 2021 Asian Development Bank report1 predicts that economic growth across developing Asia should amount to 7.0 per cent for 2021, and 5.3 per cent in 20222.
Acting chief economist Joseph Zveglich noted that the region’s steady progress in dealing with covid-19 had helped boost growth prospects for most of 2021. “However new outbreaks in the third quarter muted GDP growth, and the advent of the Omicron virus is causing renewed uncertainty.” Treasurers must plan for a slower paced recovery, and focus on optimising their cash through alternative strategies.
Regional treasury centres will play an important role in realising this. Combining the cash and liquidity management functions of multinational businesses under one roof regionally can benefit such companies enormously, by providing greater oversight of financial matters across multiple markets, and delivering significant efficiencies across payables and receivables, among other advantages.
At Standard Chartered’s recent Treasury Leadership Forum, leading treasury professionals shared their plans for the near-and long-term future.
Immediate priorities
To keep up with the surging demand that ST Telemedia Global Data Centres (STT GDC) is seeing for its colocation services, the company’s treasury department must work to be “faster, better and greener”, says Nelson Lim, Group Chief Financial Officer. Various opportunities to realise these goals have arisen during the pandemic. For instance, in July 2020, STT GDC raised its largest bond issuance with a strong bookbuild, allowing the company to raise capital from a low interest environment. Treasury is also helping the company work towards carbon neutrality by 20303 by raising a green loan with club banks including Standard Chartered.
For Joseph Chua, Deputy Group Treasurer at Lenovo, automation is key. As a user of internet banking portals and/or electronic banking processes in over 100 markets, the company is benefitting from cash sweeps from about half of these markets to its Hong Kong-based global treasury hub. Combining cash from over 50 different markets enables the company to access an enhanced yield.
Many such companies are also capitalising on FX volatility. “Since the pandemic, there have been significant dislocations in various Asian markets between local currency financing and USD availability,” explains Madhu Menon, Head, Financial Markets Sales, Global Subsidiaries, ASEAN at Standard Chartered. “Businesses can therefore benefit from the higher yields generated by alternative synthetic deposits.”
For businesses that either trade with or have a presence in China, the renminbi is increasingly becoming the currency of choice. “Trade volumes between China and ASEAN grew by 7 per cent during 20204, with use of the renminbi globally growing in value by 33 per cent5 during the same year,” enthuses Kelly Kang, Director, China Opening and RMB Internationalisation, ASEAN at Standard Chartered. “Borrowing costs for both CNY and CNH have remained stable, even during the global equity market sell-off at the peak of the pandemic in March and April 2020, with ample liquidity as well.”
Near-term opportunities
The past two years have seen central banks within the region ease offshore FX access for corporates. The Bank of Thailand’s Non-resident Qualified Company Scheme6, for example, now allows non-resident companies to conduct THB-denominated transactions with local financial institutions. Some, like the Reserve Bank of India, are going a step further by also expanding the scope of non-resident accounts, including the Special Non-Resident Rupee account programme7. Such measures are prompting treasurers to explore more effective ways of managing FX and liquidity risks in markets that traditionally have been restrictive.
Ongoing volatility between both CNH and CNY and USD continues to create opportunities in the swaps market. “Companies have alternative options in terms of better financing structures, better trade structures, and better hedging measures,” stresses Menon.
In the near-term, Lim foresees greater use of blockchain to facilitate clearing, and speed up payments between buyers and suppliers. He also sees an important role for data analytics in helping treasurers to make more informed cash and liquidity management decisions. Equally, treasury teams will also support company participation in carbon markets like Climate Impact X8.
Longer-term strategies
At a company level, Chua expects technology to further influence treasury operations. The introduction of digital currencies and tokenisation will enable companies to exert greater control over their accounts receivables and payables, as well as supplier financing and receivables financing programmes. It will also give rise to the ‘cash dashboard’, a real-time system that can inform treasurers of their global cash position with the click of a button. Furthermore, artificial intelligence will allow treasurers to vastly improve cash forecasting, Chua predicts.
Kang is bullish on the renminbi’s role in cross-border trade in the years ahead, believing it will further grow in popularity among treasury teams. “The renminbi’s share of global payments stands at just 2.2 per cent as of October 20219, yet in terms of global GDP, China accounts for 18 per cent10,” she explains. “There’s definitely room to grow.”
While the economic recovery across Asia is expected to be slower in the coming year, treasurers can nonetheless adopt alternative strategies to grow their cash. Specifically, they will need to continue to drive efficiencies and capitalise on market opportunities – to optimise their cash over the near- and long-term, and help fund business expansion.
4 https://www.globaltimes.cn/page/202101/1212785.shtml
5 http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4344602/2021091818083774334.pdf
6 https://www.bot.or.th/English/PressandSpeeches/Press/2021/Pages/n0164.aspx
8 https://www.climateimpactx.com/
10 https://www.statista.com/statistics/270439/chinas-share-of-global-gross-domestic-product-gdp/