Seeking Efficiency In Treasury Centers

Yin Fong Lum, global head of product management for cash management and trade finance, Global Transaction Services, DBS Bank, lays out the benefits and challenges of regional treasury centers.

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Global Finance: How are changing business dynamics pushing companies in the region to centralize cash and liquidity management?

Yin Fong Lum: Some countries within the region, such as Singapore, are becoming comparatively more expensive to do business in. The political stability of others and changing regulatory environment add to the complexity of cash management for corporates.

The key drivers that compel companies to centralize their cash and liquidity management are multifold, such as increasing operational efficiency, standardizing processes, simplifying internal systems integration and connectivity to banks, rationalizing their banking relationships, lowering their banking cost and reducing FX risk for cross-border payments.

GF: How and why are tax and regulatory authorities adding incentives to encourage the development of regional treasury centers?

Lum: Countries such as Hong Kong are adding various tax and regulatory incentives to encourage the development of regional treasury centers in Asia. Hong Kong recently reduced the tax rate for treasury centers [that] act as a profit center. China launched the Shanghai Free-Trade Zone, enabling companies to effect cross-border cash pooling and improve cross-border remittances.

GF: In what currencies are companies denominating their excess cash?

Lum: There has been an increase in trade settlement in renminbi, where the renminbi is reported as the second-most-used currency for international trade and finance. Companies are therefore keeping their excess cash in renminbi, given that more trades are financed and settled through this currency.

GF: How has cash pooling been changing due to these developments?

Lum: The cross-border pool between the regional and global treasury centers is part and parcel of the overall liquidity management structure setup that enables treasurers to achieve their financial objectives. The liberalization of regulations on the renminbi further facilitates cross-border pooling using this currency.