As emerging markets in Asia and the Middle East take a breather from the pace of growth during the past decade, CFOs and treasurers are confronted with elevated pressures to manage their cash positions. While in years past, measuring working capital may be a benchmarking exercise to compare the level of efficiency against peers, 2015 has proven to be no dry run.

 

In the face of decelerating topline growth and as the business agenda moves away from expansion and gaining market share, companies are increasingly re-examining the components of their working capital. Many are turning to supply chain, receivables and payables finance to improve the cash conversion cycle while offering support to suppliers and vendors. This year’s selection of the best solutions in The Asset Triple A Treasury, Trade and Risk Management Awards reflect the successful applications that has helped these businesses to optimize their cash cycles and weather the tougher environment.

 

Indeed, service providers have over the past years advocated an advisory-led approach when speaking with their clients. Pioneers such as Citi and J.P. Morgan, for example, now compete with the likes of Standard Chartered and DBS in being able to serve clients from a more holistic approach – first to understand the business and then to be able to compare performance and recommend best-in-class solutions.

 

But service providers are being put to the test. Many of the global banks face cost pressures not least from the need to meet elevated regulatory capital. A number of domestic banks, however, have stepped into the breach and given their deeper insight into their home markets, have deployed solutions that would have been a challenge for their larger peers.

 

Yet, the more structured solutions do provide better returns. A number of banks able to parlay their structuring skills to close deals have been able to offset what has been a year of continued spread compression and show commendable growth in the trade finance business. This is especially important given that the largesse that was the discounting of renminbi letters of credit that proved to be a gravy train came to a screeching halt in the middle of 2015.

 

Banks that have middle market clients also are in a good position. Unlike those that need to rely on local banks that have the appetite for smaller companies down the credit curve, these  banks are able to connect their commercial banking side with the corporate banking clients. Being able to service both sides ensure for a much stickier business.

 

 

For companies faced with headwinds as economies especially China slow, the focus was to be able to identify sources of liquidity and keeping an eye on optimizing balance-sheet. Liquidity generated internally can come in two forms: either accelerating the cash cycles or selling off receivables on a non-recourse basis.

 

On the one hand, the large anchor buyers would also not want to disrupt their supply chain. They see value in setting up and supporting suppliers critical to their chain. On the other hand, suppliers regard this as a commitment from the buyer and value the partnership. This is also true in the case of sellers who are able to support distributors/vendors through the slower sales cycles.

 

Examples abound this year. In India, Columbian Chemicals Co, a unit of the Aditya Birla group, turned to Standard Chartered to discount bills against its credit to give its suppliers additional liquidity. In China, CR Pharmaceutical turned to an online financing platform of Bank of China to support its distributors. In Hong Kong, Li & Fung, the pre-eminent supply chain/logistics group, was able to turn to supply chain finance to provide its vendors working capital.

 

In Indonesia, Akino Wahanamulia worked with DBS to release trapped cash via a supply chain finance solution that improved its working capital cycle. In Malaysia, Honda Motors partnered with Maybank to automate its financing process that transformed the company’s supply chain. Cement manufacturer, Lafarge improved its relationship with suppliers in Malaysia through a tailor-made financing programme with BNP Paribas.

 

In Singapore, CIMC tapped Deutsche Bank to provide a pre-export finance that allowed it to extend its days payable outstanding. While Huawei, a Chinese telecoms company, worked with United Overseas Bank to put in place an account receivable purchase facility to allow for off-balance sheet treatment.

 

Where the issue of credit may be a challenge, banks also have streamlined their syndication side to be able to originate and distribute when necessary. In other instances, the use of credit enhancements also has helped to complete deals.

 

Credit insurance agencies have been especially active in being able to provide additional support. In 2015, these agencies have stepped up their activity. Bank of China and DBS, for example, rolled out a dealer financing programme for Lenovo covered by credit insurance.

 

In China, Voith Paper, a German industrial company, turned to Deutsche Bank to secure an agreement to purchase its export account receivables without recourse against a Sinosure cover. In Malaysia, UIL, a recently formed commodity trader under Malaysia’s Global Incentives for Trading programme worked with UOB to bring in Euler Hermes to provide insurance cover.

 

The market downturn spread to the foreign exchange market as currency volatility became a key concern. Service providers were busy implementing FX solutions to hedge against the risks. In China, Flex (US GMNC) implemented an FX management centralization under the country’s SAFE regulation. In India, Dupont automated its activity ranging from FX to liquidity. In Thailand, PTT adopted a cross-border payment solution that included FX settlement instructions in preparation for its future shared service centre.

 

 

And as Asian businesses grow beyond their domestic market, FX solutions become even more critical. One of the most aggressive expanding globally is China’s Alibaba. Intent on growing and on-boarding foreign merchants into its Alipay platform, it turned to Deutsche Bank to help it tackle the initial merchant deposits, which may be in their local currency rather than renminbi. In addition, it also needed to simplify payer reconciliation, which was becoming a challenge as it grows internationally. The bank delivered an end-to-end straight-through processing solution for collection, currency conversion and reconciliation.

 

Technology played a key part in several of the winning solutions. Among them is a domestic cash pool in China that also included SAP XI connectivity for Linde Group implemented by Standard Chartered. In India, DBS worked with Wings Travel Management to deploy Tally, an Indian ERP, which helped to shorten payments and reconciliation process. In South Korea, Lotte Nestle implemented a host-to-host connection and supplier financing service via BNP Paribas.

 

In 2015, advances in technology including in electronic wallets have made it possible for companies to provide payments including to the unbanked segments of the market. In Bangladesh, the United Nations Development Programme tapped Standard Chartered to offer a mobile wallet solution to send payments to beneficiaries in remote locations. In China, Chongqing Grain Group introduced a point-of-sale technology provided by DBS to enable remote payments and collections from its farmers.

 

One of the most novel use of electronic wallet was undertaken by Gojek, the largest e-commerce company in Indonesia with its main business providing transportation. Working with CIMB Niaga, it was able to provide payments to over 95,000 Gojek drivers many of whom do not even have a bank account. In Thailand, Jaew, a finance company, partnered with Krungthai Bank to enable customers similarly with no bank account to conduct electronic funds transfer. In Singapore, DBS worked with GrabTaxi to enable participating taxi drivers to top-up through a variety of electronic channels.

 

Technology has also proven to be a true enabler in many of the large domestic markets such as China and Indonesia. It is no longer just the international banks able to offer innovative collections and payment efficiencies. Domestic banks also have started to deploy their electronic channels and in being able to address the pain points of their clients.

 

The Triple A Best Solutions highlighted in this year’s Treasury, Trade and Risk Management Awards manifested how companies in the Asia-Pacific and the Middle East, working with their service providers, are continually improving their cash management approach in the face of the economic headwinds in 2015. It also underscored the relevance and the value the service providers bring. For many banks, both global and domestic, it is an area of business where the commitment remains underlining the importance of transaction banking eight years since the global financial crisis.