Selecting the right banking partner
The Asian cash management operations of many corporations are facing unexpected challenges, as a major cash management provider has decided to withdraw from the region. Given a continually changing landscape, selecting a banking partner is a critical and strategic decision. Redbridge DTA offers its competitive dynamics analysis as a tool and service to ensure all critical success factors are taken into account when deciding on banking partners.
In Asia, cash management services, in their simplest form, are not a financial issue for treasury departments. A local company pays an average of between 0.003% and 0.004% of its revenues on collection and payment fees. That is a tenth of the amount in Europe!
Other cash management services – e.g. forex hedging, guarantees, trade finance, overdrafts – are expensive however, as is debt. Remuneration of account deposits is not attractive either and deserves objective discussion.
Competitive sourcing of cash management services in Asia depends on a few key points.
The group of banks to be consulted
- This question needs to be decided based on a competitive examination of each service provider and their quality of service, bearing in mind that many banking institutions tend to oversell the reality of their services.
Identifying subsidiaries’ bank flows
- The most common payment methods differ significantly from European products. This is particularly true of promissory notes, also known as bank acceptance drafts, which are passed on from hand to hand. This form of discount is relatively expensive to cash and payment using these notes involves a series of offsetting transactions which is difficult to trace. Corporate treasurers also regularly face a lack of transparency from banks regarding the setting of overdraft interest rates and remuneration of deposits, which are generally not linked to a benchmark market rate but rather complex in-house calculations cooked up within each bank.
A strategic analysis of commercial developments in each candidate’s region
- Many companies have been forced to hastily find a new cash management service provider following the announcement of their bank’s withdrawal from the region
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