Top notes from this year's Asia Treasury Leaders' Forum conference hit on corporate treasury in the region, uncertain times and investing cash in China.
Last week was my third appearance at the ACT’s Asia conference and I have to say it gets bigger and better each year. There was definitely a real “buzz” in the exhibitors’ hall and the sessions were well attended. Delegates stayed all day instead of “cherry-picking” sessions as they tend to do in Europe, but these were the key messages and “take-a-ways” I picked up from the three plenary sessions:
1. Opening keynote: Making Hong Kong the top destination for corporate treasury in Asia
Vincent Lee, Executive Director, External Department, HKMA
Overview of Renminbi:
- Renminbi (RMB) is increasingly being used as a foreign reserve currency.
- As of next month (October 2016) RMB will become part of the Special Drawing Right (SDR) currency basket. The SDR basket reflects the relative importance of major currencies in the world’s trading and financial systems. More information on the use and composition of the SDR basket can be found here.
Impact of regulation on corporate treasurers in Asia:
- Basel III regulation (bank capital management, liquidity management, market risk and counterparty credit risk, and Know Your Client (KYC)) is having a knock on impact on corporates across Asia.
- Corporates may need to consolidate their bank relationships which in turn may lead to changes such as centralising treasury functions.
- Hong Kong is the largest offshore RMB centre and hence a good place to have a cross-border cash management structure between China and Hong Kong.
2. HSBC keynote: Agility in times of uncertainty – a treasurer’s perspective
Hans Van Den Bosch, Global Sector Head Consumer Brands retail, Healthcare – Global Liquidity & Cash Management, HSBC
Key cash management issues for corporate treasurers:
- negative interest rates and
- cash pooling
Uncertain times for Treasurers with changes to demographics impacting businesses and technology:
- Technology changes include the advancement of Artificial Intelligence, (removing manual processes) and FinTech, a help for Corporate Treasurers
In his role at HSBC Hans still sees manual processes such as bank information downloads and reconciliations. Key cash management challenges for corporate treasurers:
- Account opening and liquidity management should be centralised
- Algorithms – treasurers need to become more Tech Savvy.
3. Opportunity knocks – investing cash in China
Aidan Shevlin, Managing Director, Head of Asia Pacific Liquidity Fund Management, J.P. Morgan Asset Management
China’s economy continues to be robust:
- 10% of retail sales in China are online. This has grown by 27%.
- Consumers remain robust in China with 6% growth year on year.
Interest rate liberalisation has happened:
- The interest rate ceiling and implicit credit guarantee by the Chinese government has been removed.
- Now any interest rate differential between banks is based on the credit risk of the banks.
- This provides opportunities for investment.
However, credit risk is the key risk.
- Previously there were no bank defaults in China and with the government guarantees in place, there was no need for credit analysts.
- As the levels of debt has risen, the number of defaults has increased as the government’s willingness and capacity to support the system has decreased.
- Chinese credit ratings are opaque with inconsistent ratings from domestic rating agencies compared to international credit rating agencies.
And credit risk must now be actively managed – Know Your Bank (KYB):
- To minimise credit risk investors need to focus on the standalone profile of the banks whilst also looking at the strength of any government support (e.g. PBoC, Policy Banks, systemically importance commercial banks vs. smaller non-systemically important banks and SOEs).
- Not all government support (where it is offered) is equal; central government support is the strongest followed by provincial government, then provincial capitals and finally lower ranked governments.
- Determinants of government support include social benefits, exclusivity and government involvement.
