The Asian Markets key treasury levers
As a treasurer, when you start to look at a vast continent like Asia, you have to realise that there is not one Asian market but many Asian markets that are already more or less interconnected between each other.
Faced with such a great diversity and richness of countries, cultures, currencies and regulations, it is necessary to devote a lot of time to understanding how they work. The purpose of this article is to share my experience and views of the Asian markets as a banker specialised in payment and cash management.
Let’s start by looking at the two major hubs that divide the continent: Northern Asia and South East Asia.
Northern Asia, including Greater China (including Mainland, Hong Kong and Taiwan), South Korea and Japan, is simply unavoidable, especially because of China. Its local market accounts for 70% of the transaction banking revenue and close to 80% for current account float income. Those highly lucrative markets are accompanied by a lot of regulation, and a fast-evolving environment that can be difficult to read.
In China, you may follow local regulatory requirements from PBoC and CBIRC (People’s Bank of China and China Insurance Regulatory Commission, two Chinese regulatory bodies) directives while not appreciating the non-written rules which are superseding written ones leading to a wrong interpretation. As such relying on local expertise for regulatory topics will be essential. The comment above is not only applicable to China but most of the Asian countries for the same reason as well currencies controls. Reserve Bank of India (India’s regulatory body) is constantly adapting its regulation, giving short notice to adapt leading corporates and banks to invest in their systems to comply with new rules.
Contrary to the US and Europe, there are few Asian market-imposed currencies controls like Malaysia, Vietnam, Myanmar, India, Philippines. Yet, and you are not necessarily free to repatriate proceed from operational activity to another location, leading to idle cash. Many Multinational companies which are heavily investing in those markets ended up with cash trapped without any possibility to use it for their working capital needs and moving funds abroad. Having said that, there are multiple initiatives with free trade zone allowing some relaxation in few countries mainly in Mainland China but it goes with imposing quota on outflows leading to limitation when you want to tackle your idle cash.
Another specificity of the Asian region market lies into platforms and we can certainly count a few where large corporates are usually headquartered. The 2 largest centres are Hong Kong for Northern Asia and Singapore for South East Asia, aggregating 90% of the regional treasury centre thanks to their attractiveness, knowhow, pool of talents and tax incentive subject to complying with few local requirements to fulfil in term of investment, hiring local headcounts, etc….
Asia shaping the future through digitalization
The West shaped the modern banking industry as we know it for years, imposing to the world its standards, business models and innovations. Over the past decade, the trade between Asian countries has been growing to become the largest regional banking market, mainly driven by the reinforcement of supply chain processes from West to East.
Today Asia is at the centre of a new trend in the banking services, leading new technologies development to enter the digital age and cashless society. Fintechs generating multi-billions of revenues, like Alipay and WechatPay, emerge as the great winners and are leading innovation around digital payments thanks to their millions of clients and the creation of dedicated eco-systems.
Consequently, bulge bracket transaction banking houses have massively invested in the region to offset lower revenue in low growth environment observed in the US and Europe but have also partnered with local fintechs to promote digital payments mainly driven by the retail market. There are countless of initiatives in Malaysia, India, Singapore, Korea where local banks are embarking fintechs by settling partnership to address local markets.
Transaction banking market accounts for one third of all banking revenues in Asia and captures more than half of transaction banking revenues globally with an expected growth of 10 to 20% in the coming years. Fierce competition and thin margin in a low rate environment will leave space to banking players capable of offering a superior client experience through scalable and cutting-edge solutions with a seamless implementation, giving birth to a new era governed by APIs. Banking features and information systems from Corporate clients will be more and more embedded, allowing a better steering and monitoring of clients intraday cash position, supply chain cycle from payables to collection of receivables and working capital facilities. It will be done via a unique dashboard giving birth to a new concept to be called virtual treasury management.
To conclude, it is important to understand the future of Asian markets will pass by further regional integration where China is and keep on playing a pivotal role due to its weigh as a superpower. It goes without mentioning that China’s ambition is to push the internationalization of its currency via crypto currency ensuring the monitoring of datas and getting rid of the US Dollar. If an evidence was needed, last week Asia signed the world’s largest trade deal with 15 countries called RCEP (Regional Comprehensive Economic Partnership), covering one third of world’s population and 29% of Global gross domestic product.
