Presentation on theme: "1 An introduction into the world of international treasury management, global liquidity, regulations and industry key trends Expanding into Global Markets."— Presentation transcript:
1 An introduction into the world of international treasury management, global liquidity, regulations and industry key trends Expanding into Global Markets
Economic Trends International Market Growth
3 CFO Survey CFO Outlook Resources - CFO Survey 73% of U.S. companies surveyed do business internationally 10 minute Learning module – linklink Proprietary and Confidential
4 Macro Trends Growth Varies Significantly by Region, Uncertainty, Corporate Cash All Time High The global economic outlook is mixed Emerging markets 2013 GDP growth forecasted to outpace developed markets (5.5% vs. 0.9%) US will see mid 1% GDP growth. Continued high unemployment, despite low interest rates Europe will see slow growth, with EU flat Pacific Rim slowing to 5.9%, but still driven by India and China expansion Latin America remains solid in the 3% range Source: Bank of America Merrill Lynch Global Research, iQdatabase as of Nov 27, % 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% US Interest Rates Fed Funds1 ML3 ML5 Yr Rolling Swap Driven by aforementioned concerns, corporate cash is now greater than $1.7 trillion, a 20%+ increase since 2009 US Corporate Cash Proprietary and Confidential
5 Globalization of business into new markets creates… Expansion Opportunities New Customers Access to New Suppliers Companies are discovering new locations to set up manufacturing, distribution and sales offices. These opportunities require upfront capital in an attempt to generate positive cash flows and returns. Global sourcing has been one of the biggest drivers of international growth with more goods and services being imported every day. Emerging market economies are experiencing tremendous growth, despite the current slowdown in the global economy. Companies are discovering new customer bases to market to.
6 And leads to… Trapped Cash Due to restrictions on certain currencies, companies that operate in these jurisdictions may have difficulty in moving funds across borders. For USD-functional companies, doing business in foreign countries creates exposure to currency fluctuations. Currency Exposure Entering new markets brings entrance into new business climates and cultures. These cultures often bring new and “foreign” complexities, particularly from the liquidity management and funds movement perspective. New Business Environments
7 The Basics
8 Regulations Business Practices Tax Issues Currency Risk – Country, Commercial, FX, etc. Cash Management Products and Practices Banking Systems Clearing Systems Time Zone Why is International CM Different? Every Country is Different
9 Foreign Exchange and Cross Border Payments Centralized Currency Accounts Local Currency Accounts Liquidity Management International CM Needs Occasional International Sale Paying and receiving in same currency Overseas operations Regular International Sale Global Expansion Life Cycle Multiple overseas locations Company Life Cycle
10 Cross Border Payment Considerations Type of Payment (Commercial, treasury, payroll, tax, intercompany) Currency Value and urgency Frequency and volume Logistics and control Information
11 International Payment Challenges Settlement across different time zones Holiday Schedules Cut off times Value dates Lifting charges / intermediary bank charges Exchange control regulations Foreign language & characters Information
12 The Role of SWIFT Society for Worldwide Financial Telecommunication (SWIFT) A highly secure telecommunications network that facilitates the exchange of financial messages A co-operative organization founded in 1973 created and owned by its members A standards body NOT a payment system Most common SWIFT message types for International Cash Management MT100 Series - Customer Payments MT103 (Single Customer Credit Transfer) MT101 (Request for Transfer) MT900 Series - Balance and Transaction Reporting MT940 (Customer Statement Message – Previous Day) MT941 (Balance Report - Intraday) MT942 (Interim Transaction Report- Intraday)
13 Single Euro Payment Area SEPA
14 The Single European Payments Area (SEPA) project was designed to: Create a single platform for electronic cross-border EUR payments within Europe Allow Corporates & Individuals to make EUR payments from a single account to anywhere within the SEPA environment under consistent rules and costs. Eventually replace local, domestic EUR clearing with a single clearing structure SEPA consists of: 32 countries – All EU members (27), and: Switzerland, Monaco, Liechtenstein, Iceland, Norway. SEPA Credit Transfers SEPA Direct Debits Single European Payments Area (SEPA) The Project
15 SEPA complements key treasury trends Centralisation Standardisation and interoperability Rationalisation of relationships Systems integration Pathway to a single account, in a single location. Natural balance consolidation. Common instruments and technical standards, standardised clearing, settlement and value dating; harmonised legal basis. Potentially no need to maintain local banking relationships. All 32 countries reachable to/from a single location. ERP vendors have invested in response to SEPA. Single file format. Facilitates automated reconciliation. Improved efficiency and scale
16 Key Trends
17 Globalization Treasury operating models are changing from local to regional to global, with a spotlight on increasing control. Rationalization and consolidation of providers is a key focus. Global banking technology Increased automation, outsourcing and centralization of cash and liquidity management. Increased efficiency and doing more with less. Risk management Cash is King – the lifeblood of our clients’ organizations. Who has access to what? Foreign Exchange Risk Management Market forces – ‘credit crunch’ & ‘European contagion’ Increased need to gain control over internal liquidity, decrease dependency on external funding and manage risk. Going Global…Being Global
18 Trends in Banking Examinations Rationalization What is purpose of each bank account? Can we close or consolidate any accounts? Do we have any pockets of idle cash? How many systems must we log into around the world? Global Control & Consistently Ensure all account ownership and fully visibility exists from head office. Establish proper controls and permissions on all bank accounts around the world. Create a standardized structure allowing for quick movement on any changes. Increase Efficiency Leverage technology to produce STP environment which will eliminate manual functions and allow treasury to focus strategically. Reduce Costs Leverage global volumes for reduced fees while eliminating unnecessary or redundant bank accounts. Utilize a global bank to reduce “hidden” transaction and correspondent fees.
19 Best Practices
20 International Cash Management Best Practices ● Involve key partners early; be proactive Coordination and communication among tax, legal, accounting, and treasury is key Build a highly capable treasury staff with strategic thinking skills, project management acumen, international knowledge and the ability to work in a dynamic environment ● It is essential to build a capital and repatriation strategy from the outset of your expansion into these markets. It i critical to think through exactly how you wish to incorporate in a specific market, including how you fund the initial capital injection. The decisions made at the start impact your options throughout the future. ● Continue migration from paper to electronic payments and receipts and leveraging banking relationships and tools that can enhance straight-through processing ● Automate information reporting and analytics and improve visibility into your cash positions globally with a fully integrated web-based global banking portal. ● Create an efficient global bank structure that enables you to view, manage and optimize your funds everywhere and effectively position your business for success in foreign markets. ● Leverage your local banking, accounting, legal, and tax advisors to build as much knowledge of each market prior to expansion
21 Global Liquidity Management
22 Global Liquidity Management Cash manager’s basic responsibility is to ensure that the company has sufficient liquidity to meet all known obligations and allow it to continue to function. Liquidity Management Objectives: Visibility and clear reporting over the organization's cash position Technology: systems provide the required information (including multi-bank reporting) Strong global liquidity management strategy Recent developments such as automated rules-based sweeping take the uncertainty out of the process while allowing treasurers to focus on strategic initiatives Investing cash can be an effective means of maintaining sufficient funds for the company’s short-term requirements, while benefiting from yield pick-up by investing strategic cash in longer-term investments A strong investment policy, accurate cash flow forecasting capability and centralized control over the company’s cash are all important ingredients of best practice liquidity management.
23 Global Liquidity Management Long-term operating and reserve cash management: Regional concentration of funds Transparency and visibility of cash positions Flexibility to manage liquidity across units/regions Effective risk management, improved working capital and investment returns Portal(s) and Information Reporting Enhance Liquidity Optimization Risk Mitigation Investment Alternatives Working Capital Efficiencies Cross-border sweeping Debt Multi Currency Notional Pooling Cross Region Sweeping In-country sweeping Multi Bank Sweeping Interest Optimisation Managed Treasury and Liquidity Solutions Receipts Accounts Payments Cash Inflow Cash Outflow Transactions Single Currency Notional Pooling
24 Essential cash management techniques are used by companies for cross-border liquidity management: notional pooling & cash concentration Balances in participating accounts concentration are swept to a concentration account (or cash pool) in order to better manage liquidity. Surplus funds are physically concentrated into the account and debit balances are covered by transfers from the concentration account in order to minimize overdraft interest. Cash concentration is also referred to as zero-balancing, target balancing or sweeping. Balances are consolidated to optimize interest, but there is no physical movement of funds. Bank allows positive balances in the accounts of a company or its subsidiaries to offset debit balances in other company accounts for the purpose of determining interest earned or owed. Notional pooling is also referred to as interest offset pooling or interest compensation. Global Liquidity Management
25 Globalization of the Chinese Renminbi
26 Local Currency: To Pay or Not to Pay... TrendImpact Globalization of the RenminbiAdvent of the CNH Market Local Currency Invoicing Foreign suppliers are no longer content with receiving USD Risk Management More companies are accessing the local markets for hedging Central Bank Agendas Active management in currency markets and regulations
27 Pilot Program for Cross-border Trade settlement in RMB launched in July 2009 In August 2011, RMB cross border settlement expanded to all the provinces and cities in Mainland China All the enterprise in Mainland China are eligible for RMB settlement for import of goods, service trade and other current account settlement Approved MDEs in Mainland China are eligible for RMB settlement for export of goods 67,359 MDEs (Mainland Designated Enterprises) Background Participating Banks All banks, including their branches, registered in the pilot provinces are permitted to apply to become settlement banks and clearing banks Bank of China serves as the sole clearing bank in Hong Kong and Macau Offshore banks, including branches, can open an account with clearing bank and become participating banks in the respective regions Onshore 5 cities Offshore Hong Kong, Macau and 10 ASEAN countries Onshore 20 provinces Offshore All countries Onshore Whole country Offshore All countries RMB Cross-border Settlement
28 CNY versus CNH markets “CNY” and “CNH” both refer to “RMB” as a currency and the nomenclature is used just for the convenience. “CNY” continues to designate Chinese Yuan trading, both in Mainland and offshore markets. “CNH” is newly designated for Chinese Yuan offshore trading. “CNH” is not regulated by the PBOC, hence will reflect market conditions in Hong Kong and other offshore markets. 1 CNY = 1 CNH To settle payments of eligible Chinese enterprises in RMB for trade transactions Supporting documents required for Mainland China bank and regulatory review to ensure genuine trade transactions Onshore Trade RelatedOffshore Activities Free movement of funds outside of Mainland China RMB is subject to liquidity conditions in the offshore market No requirement for supporting documents RMB Transactions – Onshore vs. Offshore
30 John Mullett Vice President, International Treasury Solutions Officer Bank of America Merrill Lynch Office: John Mullett is the east coast Regional Vice President of Global Commercial Banking International Treasury Services for Bank of America Merrill Lynch and is based in Miami, FL. In this role, he works with multinational corporations to deliver treasury, liquidity and custody solutions to clients across the globe, including Middle Market Banking and Business Banking. Mr. Mullett joined Bank of America in Prior to this position, he worked as a Portfolio Management Analyst for an international mutual fund of Columbia Management, based in Chicago, IL. John has spoken on international banking topics at numerous events around the country including the Windy City Treasury Management Conference, EuroFinance Miami, the Wisconsin Treasury Management Association Annual Conference, the Washington DC AFP Conference, and numerous other industry events. John is a graduate of the College of Charleston School of Business.
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