Byron Gardiner - Executive Director

SCB Treasury Solutions and Advisory

Building an “Asia Capable” Treasury

FTA Annual Congress 2016

2

Market Trends

3

What are the top three priorities for your Company over the next 12 months (pick 3) ?

(N: 841) N of TB

Corporate N of TB

Corporate N of TB

Corporate % of

Corporate % of

Corporate % of

Corporate

Whole Market

South East Asia

North Asia Whole Market

South East Asia

North Asia

(N: 841) (N: 493) (N: 348)

Rationalising the overall number of accounts or banks 713 423 290 85% 86% 83%

Setting up a regional treasury centre 686 402 284 82% 82% 82%

Improving payment or procure-to-pay processes 271 154 117 32% 31% 34%

Implementing new banking or treasury systems 204 124 80 24% 25% 23%

Setting up a Shared Service Centre 202 121 81 24% 25% 23%

Improving collections, invoice reconciliation, or order-to-cash processes

198 120 78 24% 24% 22%

Changing banks to improve cash management processes

93 51 42 11% 10% 12%

Moving sales or supplier management to electronic channels

89 50 39 11% 10% 11%

Setting up a procurement or sales hub 67 34 33 8% 7% 9%

Note: no significant variance by country

Source: Recent survey conducted by East & Partners for corporate across Asia

82% of Asian corporate treasurers responded “Setting up a regional treasury” as a high priority in a recent survey

4

2.38

2.65

3.01

3.21

3.23

3.34

3.35

3.41

3.43

2 3 4

Company credit rating

Capital structure

Tax

Banking relationship

Funding

Working capital management

Supporting management and business units

Financial risk management

Cash and liquidity management

Score

Source: PwC’s Asia Corporate Treasury Survey 2014

0% 5% 10% 15% 20% 25%

Retaining and recruiting treasury talent

Monitoring regulatory changes (Basel III, etc. ) and impact on business

Implementing technology for treasury management or bank connectivity

Compliance with tax requirements

Rationalizing the number of accounts/banks

Domestic or international cash pooling

Minimizing interest expenses

Yield enhancement

Enhancing cash and treasury management processes and automation

Optimizing working capital

Minimizing and mitigating risk

Improving visibility of balances and cash forecasting

Source: Asia Pacific Treasury Management Barometer 2015

When asked to define specific areas of focus, here is what Treasurers said in Asia

5

Benefits and Challenges

Treasuries are evolving in different ways to generate efficiency benefits while also providing support to a global business

6

International Focus

Global CCY

Drive Global Compliance

Head Office

Global Standard

Highly Centralised

Centrally

Local Focus

Local CCY

Stay Across Local Needs

Operating Business

Local Driven

Moderate With Local Flexibilities

Locally

Customer Orientation

Dominant Currency

Location Proximity

Regulation Approach

Banking Services

Level of Standardisation

Policy / Strategy Execution

7

And as companies expand their operations into Asia, they often reach a point where they would like to centralise treasury activities

Leverage Centralised Model 1 Establish Treasury as Centre of Excellence Develop consistent framework across business

Drive Efficiency 2 Consolidate / rationalise bank accounts Leverage common processes / resources

Improve Liquidity Management 3 Release trapped cash Facilitate interco lending where possible

Proactively Manage Risks 4 Perform analytics to understand exposures Manage FX, liquidity, interest rates, etc.

Reduce Costs 5 Reduce overall cost of doing business Leverage group buying, automate processes

8

However, companies typically encounter a number of unique risks in the emerging markets of Asia, including……

Trapped cash

Higher incidence of

frauds

Counterfeit currency Cyber security

Supply chain risks

Sovereign risks

Regulatory Reputational/ sanctions

“...new realities are demanding new approaches. Most notably, the need to be proactive in the management of these risks”

Source: Putting risk into perspective...Treasury Today September 2016

9

How are companies responding and what is the major challenge?

To improve efficiency, visibility and operating control more treasurers are moving to centralised decision making models within their global headquarters. More than 80% of treasury teams have already chosen to centralise strategic decision making around global treasury policies, cash management, key investment operations, funding and hedging.

Source: BCG, Corporate Treasury Insights , 2015

However, the big challenge is:

How does your company extend the centralised framework and model to cover emerging markets in Asia, which often have unique regulatory challenges and market practices?

Treasury Structure and Model

11

A harmonised treasury governance framework is the starting point to reduce variability and therefore mitigate business risks

One policy One process One platform One organisation

• Centralise decisions: - Account opening/closing - Core banks and limits

• Standardise and streamline via: - An unified liquidity

structure - Intercompany netting - On-behalf-of hedging

and investment - Funding planning/

evaluation - Cash flow forecasts.

• Guidelines cover: - Bank and bank account

management - Cash/liquidity

management - Funding/working capital

management - Risk management - Investment management

• Control via: - Compliance reporting - Bank service reviews - Treasury activity review - Treasury audit.

• Clear roles and responsibilities within treasury and across departments

• Operate as one team globally

• Credible partner internally and externally

• Deepen expertise that suits business needs and career preferences.

• ERP: Industrial grade, same version

• Netting: use ERP or third-party providers

• TMS: ERP-based vendors or third party

• Trading: Automate execution and confirmation

• Market data: Auto-feed to TMS

• Host-to-host connectivity.

47% of treasurers interviewed were working on a single ERP project in emerging markets. Source: Deloitte 2015 Corporate Treasury Survey

TMS: Treasury Management System ERP: Enterprise Resource Planning

CENTRALISED

The treasury model will then be shaped by the degree of centralisation achievable, after assessing the following key factors

12

DECENTRALISED

13

The key to a harmonised treasury governance framework is a unified technology architecture

40% of treasurers interviewed listed inadequate treasury systems infrastructure as a strategic challenge.

Source: Deloitte 2015 Corporate Treasury Survey

AP/AR data

(e.g. Treasury settlements, hedge position, MTM, etc.)

Cash forecast Banking partners

(Treasury payments, funding, LC issuance, etc.)

ERP

c

Market data

c

ERP

c TMS

Trading

Matching

Instructions

Data Account entries

Execute

Confirm Visibility

Controls

Data sanctity

Cyber security

TMS: Treasury Management System ERP: Enterprise Resource Planning AP: Accounts Payable AR: Accounts Receivable

14

However, specific regulatory and tax issues need to be factored in before centralised structures are extended to Asia

Dividend deeming

Conduit financing (US Firms)

Thin capitalisation

Withholding tax on bank/related party

interest

Transfer pricing re intercompany loans/fees

Intercompany tax position

(profit/cost centre, location, incentive)

Stamp duty /other taxes

Foreign exchange controls

ROBO/POBO allowed ?

Intercompany lending/ netting allowed?

Non-resident account restrictions

Treatment on local/cross-border

payments

Tax

Regulatory

IHB as a financing operation allowed?

Approval / paperwork

POBO: Payment on behalf of ROBO: Receipts on behalf of IHB: In house bank

15

Companies need to draw up a hierarchy of regulatory ease when implementing centralised treasury structures across geographies

Standard Chartered core footprint

Europe Croatia | Lithuania Serbia | Ukraine Americas Argentina | Bolivia Brazil | Colombia Ecuador | Guatemala Uruguay | Venezuela

Europe Bulgaria | Czech Republic Hungary | Poland | Romania Russia | Slovakia | Turkey Americas Mexico | Paraguay | Peru Asia Kazakhstan | Philippines Taiwan

Europe Austria | Belgium | Denmark Denmark | Finland | France Germany | Ireland | Italy Luxembourg | Netherlands Norway | Portugal | Spain Sweden | Switzerland United Kingdom Americas Canada | Chile United States

Europe Greece Asia China | Indonesia | Korea Malaysia | Sri Lanka Middle East & Africa Cameroon | Ghana | Kenya Nigeria | Saudi Arabia South Africa | Uganda | Zambia

Least Restricted Moderately Restricted* More Restricted Highly Restricted Asia Australia | Hong Kong Japan | New Zealand Singapore Middle East & Africa Bahrain | Botswana Jordan | Kuwait | Mauritius | Oman | Qatar | UAE

Asia Bangladesh | India Pakistan | Thailand Uzbekistan | Vietnam Middle East & Africa Angola | Côte d’Ivoire Egypt | Ethiopia Mozambique | Tanzania Zimbabwe

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Liquidity

Cash

Risk Funding

Working capital

Netting

The most common approach is to establish a Regional Treasury Centre, acting as a “Service Provider” to the business

Potential range of services: • Provide strategic advice • Negotiate credit facilities e.g. loans • Facilitate intercompany lending • Analyse financial needs/exposures • Execute deals/trades e.g. foreign exchange • Process financial services to business units.

• Leverage group buying power and scale to lower costs

• As a centre of excellence to ensure professional advice and execution.

Banks Group companies

Process transactions on-behalf-of business

Procure services on-behalf-of business

Treasury

While this works very well for the developed world – the challenge is to make it work in emerging markets.

17

Deliver banking services internally,

maximise / optimise control over liquidity, risk

positions, transaction flows

Centralise payments / collections;

Leverage SSCs and drive higher

efficiency

Actively manage debt, FX, liquidity

structures Coordinate/

Facilitate cash mgt, funding, FX

needs basic / limited visibility over

positions

ROB

Local Function

In-House Bank

Coordination Centre

Full Service Centre

Payment / Collection

Factory

Objective

Target operating model for most companies

Increasing popular with large US/Asian corporates

Degree of Treasury Sophistication Visi

bilit

y

C

ontr

ol

Opt

imis

e

However there is no single “Best Fit” Treasury model and many companies are evolving towards more sophisticated models

Location Choice Centralisation Fundamentals

So, where should Corporates locate their Asia Treasury Centre? The general selection criteria is outlined below

19

1

5

3

2

4

Regulatory Environment Transparency of government policy making, efficiency of legal framework, burden of regulation, etc

Market Efficiency Taxation regime, availability of double tax treaties, etc

Financial Market Development Availability and affordability of financial services, easy access to financing, soundness of banks, etc

Infrastructure / Telecommunications Quality of air / road transport and telecommunication services

Availability of High Skilled Professionals Pay and productivity, Availability of research and training services, reliance on professional management, etc

Data Source: The Global Competitiveness Report 2013-2014 by World Economic Forum

It is clear why Singapore and HK are the most popular locations to manage Asia needs, but Malaysia and Shanghai are moving up

20 Data Source: The Global Competitiveness Report 2013-2014 by World Economic Forum, country ranking is used to convert into ranking percentile. Tax rates are sourced from Deloitte International Tax Highlight 2014. The highest rate is used as 100% benchmark

Key takeaways Centralisation Fundamentals

22

There is a cost of doing business in Asia, especially in the emerging markets...residual challenges

1

5

3

2

4

There will always be some trapped cash...this requires a pay-off analysis because dividend pay out is expensive and other options are limited

Expensive to manage risks but organisations need higher risk tolerance in some emerging market locations

There will always be some measure of manual processes, paper processes...do the best you can to reduce – you can’t eliminate these

Regulations are still evolving in some of these countries...staying close to banks will help you to keep pace

Some proprietary bank systems and local banking partners will be required...see how you can manage them more effectively.

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