Evolution of Corporate Treasury Centers and Location ...

1 Transaction Services Asia Pacific Evolution of Corporate Treasury Centers and Location Considerations for Asia Pacific INSIGHTS | Corporate Clients Evolution of Corporate Treasury Corporate Treasury has transformed from a mechanical The Global Financial Crisis of 2007 2009 saw Treasury processing unit of a company, to a data provider that aids evolve from a support function into a trusted advisor to the financial reporting and risk management, and increasingly company. Rising risks due to financial market turbulence and into an internal advisor to the business, contributing to supply chain instability compelled corporates to increase Corporate strategic planning.

2 In its earliest form, Corporate focus from earnings growth to cost saving, from pursuing Treasury functioned in a decentralized manner where acquisitions to strengthening internal controls, and from companies engaged in cross-border business. Typically relying on external funding to mobilizing internal sources they established local Treasury teams in of liquidity. The Crisis heightened the the countries they operate. Many prominence of Treasury as a provider of processes such as settlements were real-time data analytics not just a performed manually, and Treasury Corporate Treasury has collector of historical financials for communication with headquarters transformed from a mechanical forward-looking strategic planning by top was often delayed and inadequate.

3 Processing unit of a company, management. To provide useful analytics, Treasury needed to gather timely and to a data provider that aids With the collapse of the Bretton Woods accurate information on the flow of funds financial reporting and risk and financial data across the company. system in the 1970s where countries no management, and increasingly Centralization was the enabler. longer linked their currencies to gold, exchange rates and the global financial into an internal advisor to markets became more volatile.

4 Meanwhile, the business, contributing Treasury Centralization as a Journey advances in Treasury technology, improved to Corporate strategic The first functions a company typically banking infrastructure, and rise of network planning. centralizes are netting of foreign exchange computing rendered the processing, transactions, interest rate management, recording, and reporting of financial data and long term funding arrangements. As a and transactions more transparent, and Treasury center evolves, it tends to become efficient.

5 Treasury centralization became a possibility as an intermediary between internal and external counterparties corporates expanded their businesses globally. Treasury 's such as subsidiaries and banks. It involves taking charge of scope also broadened to include financial risk management, bank relationship management, bank account rationalization, which requires enhanced dialogue between Treasury and intercompany funding (taking deposits from cash-surplus various internal and external stakeholders. The treasurer's entities and lending to entities that require funding), and influence to a company elevated as Treasury became closer cash pooling.

6 The most sophisticated form of Treasury center to everyday business operations. is the In-House Bank which accepts deposits from and lends funds to group entities via virtual accounts. The In-House Non-tax Treasury center Location considerations include Bank acts as the company's single contact point with external financial costs (bank transaction fees, Treasury staff salary, banks and thus reducing bank fees on currency exchange office rental), central bank and other regulatory reporting and other financial transactions.

7 Requirements, access to financial markets, degree of currency restrictions, availability of skilled employees, time- Along the journey of centralization comes the decision of zone compatibility with respect to business operations under where to locate Treasury . Traditionally, Treasury Centers of coverage, quality of physical and IT infrastructure, political multinational companies resided in the same country as their stability, sophistication of banking system, and reputation of Corporate headquarters for proximity to senior management.

8 The Location being a financial hub. By adding up weighted As companies expanded geographically, it became difficult scores of the above tax and non-tax criteria, companies can for a single Treasury center to manage fund flows and support identify the optimal country for Treasury center establishment. group entities in locations with little to no overlap in time-zone. Operations were further complicated by heterogeneity in local languages, regulations, business customs, and financial Popular Locations for Treasury center market practices.

9 To address these issues, corporates began Establishment Asia to establish regional Treasury Centers . Hong Kong and Singapore are the two most popular locations in Asia for Treasury Centers . Other countries considered by regional Treasury Centers facilitated global expansion of US Citi's Corporate clients are Malaysia and thailand , both of multinationals. They later became popular with European which offer tax incentives with financial and commercial corporates as well, especially following Euro's introduction, flow benefits.

10 To reap economies of scale in consolidating Euro-denominated funds. In Asia, Treasury centralization remains a challenge Hong Kong While tax incentives for Treasury Centers are due to marked differences in country regulations and not offered and double tax treaty network is limited, companies languages in the region. However, the emergence of Asian are attracted to Hong Kong's territorial taxation regime multinational companies and expansion of their western characterized by a low Corporate income tax rate, waiver of counterparts into the region have led to an increase in the tax on interest income, and lack of withholding tax on interest number of Treasury Centers in Asia.