The evolving landscape of regional treasury centres in Asia Pacific

• Centralisation and consolidation
• Looking at location differently
• Expediting digitalisation
• Emergence of sustainable finance

Asia Pacific (APAC) has been a challenge for western global treasurers given the restrictions on cross-border flows, and diverse regulations across the different markets. With increased regulations in local language requiring interpretation, the task becomes even more difficult for global treasuries. As APAC becomes even more significant in global operations, treasurers have attempted to solve this by having a regional outpost to handle treasury matters.

The regional treasury set-up varies in scope and size, with the simplest being a small team that acts as a liaison for global treasury, ensuring local processes and banking relationships align with global guidelines, while simultaneously ensuring adherence to local regulations.

On the other end of the spectrum are full-fledged regional treasury teams, often between five and 15 people, managing cash balances, funding arrangements, investments, trade finance (letters of credit, bank guarantees, supply chain finance), and risk exposure management (foreign exchange, interest rate, commodity) for the APAC region.

A vast majority of regional treasury centres (RTC) in APAC fall between the two extremes and have been evolving along the spectrum as businesses grow in the region.

The choice of APAC RTC locations has been driven by factors such as availability of experienced treasury staff, tax considerations, infrastructure, ease of doing business, currency controls, local operating costs, proximity to regional business teams and government incentives.

Singapore is a leader in APAC RTC set-ups, followed by Hong Kong, where RTC have increased due to the growing importance of China for corporates. Over the last decade, many RTC have been established in Mainland China, while Malaysia and Thailand are trying their best to attract RTC.

The COVID-19 pandemic has impacted RTC in multiple ways, with key evolutionary trends witnessed during this period.

Centralisation and consolidation

During lockdowns, global treasurers faced challenges in bank balance visibility and accessing foreign exchange (FX) liquidity in certain restricted markets in the region.

They had to leverage global contacts with banking partners to access pre-COVID services. The importance of global cash pooling, bank account visibility and centralised FX, funding and bank guarantee execution was highlighted even more during this challenging time.

COVID significantly impacted companies, leading to cost pressures and operational challenges. Some RTC processes were moved from the region to headquarter (HQ) treasury, reducing the importance   and in certain cases, resulting in closures of RTC. In some cases, RTC processes and teams were merged with the shared services centre (SSC) set-up in the region.

Looking at location differently

During the pandemic, RTC centres like Singapore and Hong Kong faced challenges in their roles as regional centres. Some RTC had expat regional treasurers relocate back to HQ, while others chose to work from a location that suited them better.

Corporates realised that employee location did not matter as much. A few RTC adopted a hybrid approach, with the main team based in one location, but other team members in diverse locations, often not traditional RTC centres.

Expediting digitalisation

Duringlockdowns, as people worked from home, RTC realised the importance of automated workflows in cash management, funding, investments, trade finance and FX due to challenges faced in the execution and confirmation of basic FX trades and document signing. A lot of RTC expedited the digitalisation process with a clear move to automated FX platforms execution (multi-bank or single bank), automated FX confirmations, automated loan and deposit placements and digital signing tools.

Emergence of sustainable finance

Environmental, social and governance (ESG) topics have emerged as a critical factor for corporates since COVID pandemic, with RTC increasing its involvement in sustainable finance topics. RTC are implementing regional supplier finance mandates, with ESG key performance indicators, while some RTC are implementing bilateral credit facilities with ESG linkage. Some RTC prefer to place surpluses in green deposits.

The future holds challenges in managing treasury in the diverse region due to growing geopolitical risk, diversification of supply chains, generative artificial intelligence and the occasional black swan event. However, APAC's relevance for the global economy and corporates will only increase and accordingly, global treasury would still need someone based in the region with the best understanding of the complex regulatory landscape and in the same time zone. RTC will continue to reinvent themselves and embrace an adaptive learning attitude to stay relevant.

Sandeep Sethi is a consultant for Financial Services and Corporate Treasury Advisory, APAC