by Holger Frank, Head of Financial Institutions Group and Global Transaction Banking Asia, UniCredit
Asia is becoming increasingly attractive as a destination for international corporates due to the growing population, demand and wealth in the region – and these incentives are being compounded by the possibility of realising significant efficiencies through regional treasury centres. Meanwhile, corporates based in Asia are looking to expand into Europe to broaden their presence. As they do so, the adoption of the new Single Euro Payments Area (SEPA) payments format is paving the way for these corporates to achieve considerable operational efficiency – making European expansion increasingly achievable. UniCredit’s long history in Asia and profound knowledge of European markets makes it well positioned to support corporates moving in both directions – offering a range of tools and support to help make the transition smoother and more efficient than ever before.
Throughout its 30-year history in Asia, UniCredit has been working to support European corporates wanting to do business in the region, as well as those in Asia seeking access to European markets. Trade between these two continents has a long and rich past – encompassing the historic Silk Road trade routes established over two millennia ago. In the meantime, of course, advances in technology have facilitated ever greater interaction between Asia and Europe, and today many European corporates are looking to establish regional treasury centres in key Asian locations such as Shanghai, Hong Kong, and Singapore – an initiative that promises to generate considerable efficiencies.
Of course, the benefits of technology and interaction go both ways, and as corporates in Asia deal with European counterparties, they are adopting the new extensible markup language (XML) format mandated by SEPA. This is acting as a catalyst for innovation, with the new standardised format facilitating faster and more efficient treasury operations.
Asian adoption of SEPA’s XML format
Asian corporates face a number of challenges, including mounting regulatory demands, stiff competition from industry peers, and economic uncertainty – with Asian trade volumes dropping by almost 21% in the first half of 2016, according to the World Federation of Exchanges. As a result, internal efficiencies are becoming increasingly prominent as a means of driving profitability.
Consequently, while SEPA may have initially appeared simply to create a further regulatory hurdle for Asian corporates in Europe, the reality is that the implementation of SEPA-compliant processes is highly advantageous.
For a start, SEPA’s XML format is inherently efficient – facilitating rapid and low-cost payments with counterparties all over Europe. But beyond this, it has also paved the way for technological innovations that can further streamline trade finance and payments processes.
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Holistic account management
Indeed, greater digital integration opens the door to many valuable tools, such as Bank Payment Obligations (BPOs), camt account statements, and sophisticated supply chain finance programmes. Another such example is virtual account services, which enable corporates to centralise their cash management operations – consolidating their bank accounts into a single account, which is then split into sub-accounts, known as virtual accounts.
While these have their own budgets, account numbers and permissions, all the funds contained within are, in fact, simply allocations from the parent account, which collects and receives all incoming and outgoing funds.
This centralised structure carries a number of benefits for corporates. For one, it gives an overview of all cash flows – promoting transparency and enabling treasurers to map exposures to different regions and industries more easily. Moreover, virtual accounts also accelerate basic account management processes, thanks to their digital compatibility and centralised structure – handing control over to the corporates. For instance, with UniCredit’s online portal for virtual accounts, corporates can open and close new accounts at the click of a button – without having to liaise with the bank first.
These advantages are paramount for Asian corporates as they look to drive profitability through efficiency, and will prove particularly valuable for those looking to branch out into new areas – with flexible account structures and standardised formats able to accommodate new departments and new subsidiaries with ease.
Centralising treasury operations in Asia
Of course, the benefits of intercontinental exchange flow both ways – and European corporates are equally seeing great opportunities in Asia. In particular, establishing a regional treasury centre is becoming increasingly popular among European companies – which see the potential to tap into lucrative markets in a highly cost-efficient way.
The idea here is to set up a single office through which all treasury operations are funnelled. This eliminates the duplication of work across multiple locations and provides a single, comprehensive overview of cash flows in the region.
Locations such as Hong Kong, Singapore and Shanghai have long been the obvious choice for the location of a regional treasury centre, yet a growing number of jurisdictions now offer compelling alternatives. For instance, countries such as India, Malaysia, Sri Lanka and the Philippines are all softening their regulations and offering new incentives in a bid to secure new business to bolster their economies and create competition for the financial powerhouses Singapore and Hong Kong – both of which offer particularly enticing benefits.
Singapore’s existing appeal, anchored by a mature banking sector and an impressive talent base, is further enhanced by favourable tax rates and specific incentives laid on to attract business, such as the Economic Development Board’s Finance and Treasury Certificate, which grants supplementary tax concessions for companies using Singapore as a regional treasury centre.
Hong Kong is a similar story. Its status as the world’s second largest financial hub by market capitalisation, and its proximity – both culturally and linguistically – to mainland China, mark it out as a strong location from the start, but a freshly implemented package of incentives has added to its lure. Among these incentives are moves to halve the tax rate on profits arising from specific treasury activities to 8.25% (bringing it below Singapore’s equivalent rate of 10%), and to make inter-company interest payments tax-deductible for corporate treasury centres.
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A guiding hand
Of course, choosing a location for a regional treasury centre – especially in an unfamiliar region – is a highly complex affair. UniCredit’s long history in Asia, with established offices in Hong Kong, Singapore, Tokyo, Shanghai, Beijing, Guangzhou, Mumbai, Seoul, and Hanoi, has given us a deep knowledge of local-market customs, practices and regulations. And this – combined with an intimate knowledge of our European home markets, and access to an international network of branches and correspondent banks all over the world – puts UniCredit in a strong position to guide corporates through such complex decisions. As part of our client offering in the region, we have dedicated Italian- and German-speaking teams in most locations to facilitate easy communication and smooth the process of international expansion.
The same principles, of course, apply for Asian firms building their presence in Europe. UniCredit’s expert guidance – and comprehensive product range – can help corporates enjoy a streamlined experience when dealing with European counterparties and negotiating the peculiarities of local markets.
Through this expertise, and our ever-expanding range of innovative and traditional products, we support our clients through every stage of international expansion – promoting efficiency in trade and treasury processes, and further closing the gap between two great continents.
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Holger Frank Holger Frank has been Head of Financial Institutions Group and Head of Global Transaction Banking for the Asia Pacific region since 2016. Having joined UniCredit in 1991, his previous positions include covering large corporate customers, working in the Corporate Development department, and executing a number of M&A transactions for UniCredit’s own shareholdings as Managing Director and Head of its M&A department. He also has experience serving institutional clients, having previously been responsible for Global Client Relationship Management. |
