Features : Focus On Liquidity


Facing a unique set of challenges, treasurers in Asia-Pacific are focusing on improving liquidity management.


Newton: Organizations placing investment want to know exactly where it is being invested.

It is a tough time for corporates around the globe, and Asia-Pacific is no exception. Companies based in the region and multinationals with a footprint in Asia-Pacific are preparing for what is yet to come. And with the global crisis just beginning to be felt, treasurers in the region are preparing for the worst. Liquidity management is a critical issue, and although Asian treasurers share many of the same concerns that their compatriots around the world are grappling with, the unique aspects of the region also provide their own challenges—and opportunities.

Nigel Dobson, managing director and Asia-Pacific region head of treasury and trade solutions at Citi Global Transaction Services, says companies are turning inward, rationalizing account structures, centralizing regional cash positions and optimizing inter-company liquidity in the most effective manner. “Current market conditions have placed immediate pressure on corporate treasurers in Asia-Pacific,” he says. “Corporations in this region are now expected to employ more stringent yet creative cash access plans to better manage liquidity to maintain competitiveness and profitability. In this new and more uncertain environment, even corporates with strong balance sheets face higher costs and risks in raising capital.”

One big problem, according to Richard Jaggard, head of sales, global payments and cash management, Asia-Pacific, at HSBC, is how liquidity is held in the region. “Corporates have liquidity more dispersed in Asia and are focused on reducing unnecessary external funding need,” he explains. They are thus trying to capture the full value of their liquidity by mobilizing it where possible and getting the right terms for liquidity in regulated markets.

For external liquidity, credit availability in Asia-Pacific has contracted while cost for credit has increased. In managing external credit lines, corporate treasurers are reevaluating the credit agreements they do have in place to ensure they are secure.

Graham Lloyd, leader of PA Consulting’s payments and cash management business, says that historically people became quite comfortable with their sources of funds. “They wound up in simple agreements negotiated quite loosely,” he says. “Step one to improving liquidity management is reviewing and tightening up those agreements. Perhaps more importantly, many would-be providers have changed significantly enough of late to require a different level of management.”

Lloyd says that in the past the placing of deposits and sourcing of funds has been a bank-driven process. “But without much thought to how I break up my needs, it tended to be done quite homogeneously,” he notes. In order to more effectively manage internal liquidity, it is critical to break down the specific funding needs of each component of an organization and model those needs more accurately.

Corporations Rein In Risk
For those with surplus cash, not only are they more wary of chasing returns at the expense of risk; they are also closely evaluating their banks—doing more internal due diligence in evaluating both the reputations of the establishments that they are using and the volatility of the instruments they employ. Because of the volatility in pricing right now, the focus for surplus funds tends to be shorter- rather than longer-dated investment instruments.


Furness: We expect cross-border regulations to tighten as countries try to control the outflow of funds.

Corporates in Asia are also clearly concerned with the strength and viability of their banks. Mahesh Kini, regional head of sales, cash management corporates, Asia-Pacific, Deutsche Bank, says: “With the recent change in economic landscape, ‘flight to quality’ has gained importance in a corporate’s decision-making process in appointing a transaction bank. Corporates are carefully studying the quality aspect of products and services offered by banks.”

There is a greater emphasis and more time spent managing risk—interest rate risk, commodity prices and counterparty risk—in this volatile market. Credit terms of counterparties are also being revisited to determine that there are no undue exposures to payment or delivery defaults. “There has been some resurgence of traditional trade instruments to mitigate risks, as well as companies seeking counterparty credit insurance,” notes Chris Furness, global head of cash management at Standard Chartered.

The relative good news is that Asia has seen much less impact than other markets as yet, and it continues to be a growth engine for many multinational corporates. “We are still looking at 8% growth in China and 5% to 6% in India, for example,” says Kini. “So the region continues to contribute to the growth of global corporates.”

With a more affluent middle class developing in the region, trade flows are no longer just from East to West but also within the East itself, which also is helping corporates to continue with growth strategies in this part of the world. “The two broad challenges faced here are managing the various currencies and regulatory regimes—with the wide spectrum of regulations that corporate treasurers must deal with for intra-Asia trade—and managing suppliers and distributors,” explains Kini. Since many economies in Asia are growing, working capital elasticity for suppliers and distributors is very limited. To ensure they deliver and sell goods on time, multinationals have had to step in to help their suppliers and distributors manage their supply chains as well.

There is a clear shift to extend the supply chain down to suppliers and distributors in Asia because if the working capital of suppliers breaks, then the supply chain of the companies will also face challenges. “It is in their interest to keep the whole ecosystem running,” Kini adds.

Another big problem for treasurers looking to improve internal liquidity management is that the IT budget is often the first thing cut when times turn bad. But many companies could see improvements to working capital efficiency with the help of automation. Technology is an enabler, but the dilemma is where to get the budget to invest in technology. For example, although most big cash management banks and vendors are citing the benefits that receivables-management solutions can offer in improving internal liquidity management, many corporates have cut IT spend as part of their internal rationalization plans.


Kini: When external credit is difficult to find at a reasonable price, it makes sense to look at internal liquidity.

It is a hard sell for many treasurers, but some companies are still taking the chance and investing in new technology—provided, according to one vendor, there is a clear return on investment (ROI). Those treasurers who are taking the plunge are often looking to their vendors to help demonstrate ROI and build the business case to take to senior management.

One company that did decide the cost was worth the return was HR services firm Vedior Asia Pacific. The group implemented SunGard’s AvantGard Receivables solution earlier this year in order to automate document management processes and thus reduce days sales outstanding (DSO) and increase the amount of time staff could spend on more value-added tasks.

Erin O’Brien, group manager for payables and receivables at Vedior Asia Pacific, explains: “We chose AvantGard Receivables, as our sister company in France, VediorBis, had been using the system for a number of years with great success. We were also looking at other ways to contact more clients each month, and this seemed the most automated system to use.”

The solution combines formerly disparate credit and collections databases and acts as a single repository for all client information. In addition, it provides improved dispute management and resolution and greater cash-flow visibility. “As soon as we implemented AvantGard Receivables, we were measuring positive results,” adds O’Brien. “It has automated numerous manual tasks and thereby allowed our employees to devote more time to making actual customer contact.”

Areas for Improvement
Cash-flow forecasting is also a critical element for improved internal liquidity management. “Firstly, know what you have in terms of liquidity and where it is sitting,” says Standard Chartered’s Furness. “Then assess what you will need—in which currency and where you need it—and then work backwards from that.”


Ratnam: There is a huge focuson cash-flow forecasting, but the bulk of that is still done on spreadsheets.

Nikhil Ratnam, Asia-Pacific regional head of treasury solutions at Deutsche Bank, notes: “There is a huge focus on cash-flow forecasting, but the bulk of that is still being done on spreadsheets, and corporate treasurers are not enamored with the systems out there currently in terms of delivering results. So there is quite a bit of flux in corporate treasury today.”

In addition, there is a greater focus on internal policies and policy compliance. “For example, in addition to typical hedging policy, there is now a greater enforcement around investment policy,” notes Imelda Newton, a managing director at SunGard Asia Pacific. “Organizations looking to place investment want to know exactly where it is being invested and the full extent of their exposure. Also, operational policies are being put in place to manage operational risk—looking at who is doing what task, minimizing the risk of fraud and so on.”

As companies put these policies into place, they want to monitor the level of compliance very closely and in a timely manner and to be alerted when potential issues arise. “We are seeing a lot of interest in tools where user-defined policies can be set up and automatically monitored,” Newton says. “The monitoring then needs to trigger an escalation and alerting process. We are also seeing the inclusion of policy compliance as part of individuals’ KPIs [key performance indicators] and remuneration schemes.”

The next question for corporate treasurers in the region will be the extent to which regulation will change as a result of the crisis and how that affects their operations. However, regulators are only just beginning to mull their plans. “I don’t think regulatory changes have even begun to be shaped yet,” Lloyd at PA Consulting says. “The challenge for regulators is that this has moved so fast that if they move too quickly or definitely, the risk is very high if they get it wrong.”

“On the back of this,” adds Furness, “we expect cross-border regulations to tighten up as countries try to control the outflows of funds to regional centers. We saw this after the Asian economic crisis when Korea and Malaysia, among others, tightened regulations to control offshore movements of their currency. Back then, this was to stop currency speculation. However, in this current climate, this time it will be to prevent outflows of local liquidity.”

Deutsche Bank’s Kini notes that the top priority right now is centralizing internal liquidity. “When external credit is difficult to find at a reasonable price, it makes sense to look at internal liquidity to reduce funding costs,” he says. “Although Asia is the focal point of growth for many corporates right now, with other markets undecided, it also presents its own challenges and complexities.”

Denise Bedell