A raft of new regulations around the world is changing how treasurers manage cash.

Author: Anita Hawser

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SAFEGUARDING CAPITAL

Pooling and netting in some countries remains problematic, and I don’t see any change in the short term.”

~ J.P. Cuevas, Bankof America Merrill Lynch

Recent falls in commodities prices have also taken their toll on some economies in Latin America. “As commodity prices have fallen, it has impacted flows,” notes Volkwein. So in pre-export financing, if the value of the commodity drops by half, your financing can be impacted.”

As a result, more companies in the Americas are focusing on supply chain finance. Cuevas of BofA Merrill says Peru and Colombia have maintained levels of foreign direct investment. In Mexico, investment levels are rising as a result of the government permitting foreign companies to compete in the domestic energy sector.

In North America, multinationals’ biggest challenge is a low-interest-rate environment. Excess liquidity from the region is finding its way to Hong Kong and China, where dollar returns are much higher, says Penna of Standard Chartered. “The only downside is that it may be more difficult for treasurers to get funds out of those markets if there is a financial crisis.”

Regulatory changes, such as money market fund reforms in the US and negative interest rates in Europe, mean that capital preservation is no longer a given, says Amit Agarwal, head of liquidity management services for EMEA within Citi’s treasury and trade solutions (TTS) group. He said banks have responded by expanding the scope of investment solutions beyond bank deposits to include products like repos and synthetic swaps.

ONE-STOP SHOPPING

The Middle East and Africa, on the other hand, are only now looking at liquidity structures like pooling and cash concentration, says Standard Chartered’s Penna. But he notes that regulatory ambiguity persists when it comes to rules governing notional pooling.

“Africa is developing liquidity structures,” he explains, “but it is where Asia was 15 years ago. These countries’ markets are not as liquid or deep, so inevitably they need some capital controls around that.” Although markets like Kenya, Uganda and Mauritius, Penna says, are relatively open, most of the larger markets, including Nigeria, are still heavily regulated.

What Africa may lack in terms of sophisticated liquidity management structures it is making up for with digitization of payment channels. Citi partnered with Kenyan telecom provider, Safaricom, to provide a fund transfer solution for corporate and public-sector clients looking to reach remote locations. The system facilitates payments into mobile wallets, and beneficiaries can access funds using mobile phones. Rajesh Mehta, EMEA head of Citi TTS, says Nigeria is also making significant progress in digitizing its payment infrastructure. As part of the country’s Payments System Vision 2020, national authorities are looking to integrate the ACH (Automated Clearing House) network with that of local mobile network operators.

“Regulation is a driver for innovation,” says Ireti Samuel-Ogbu, EMEA head of payments and receivables at Citi TTS, pointing to the example of the Single Euro Payments Area (SEPA) in the eurozone. The initiative requires payment systems to migrate to new credit-transfer and direct-debit instruments in order to make sending a payment within Europe as easy as sending domestic payments.

“SEPA means companies only need to maintain a single bank account for Europe,” Samuel-Ogbu explains. 

One regulation that all markets must contend with is Basel III. The Liquidity Coverage Ratio under Basel III promotes the short-term resilience of a bank’s liquidity risk profile by ensuring that it holds enough unencumbered high-quality liquid assets that can be readily converted into cash. As the LCR incentivizes banks to hold more operating cash, Penna of Standard Chartered says, banks are devising interesting products to retain client deposits for longer.

“Five years ago banks played down the value of overnight money,” he explains. “But Basel III has changed the playing field. Banks are demanding a greater share of clients’ cash management business to capture more operating balances, so the wallet share issue has become a critical discussion corporates need to have with their banks.”

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