W ith the US avoiding the fiscal cliff for now, andgrowth in Asia stabilising, it is easy to think thatthe worst is over for corporate treasurers, finance

directors and supply chain management heads. Yet it may stillbe too soon to become optimistic. As such, Citi’s recentTreasury Outlook for 2013 conference brought together anumber of corporates, financial services professionals andindustry experts to discuss key trends they can expect for thecoming year, and how best to not only safeguard againstthreats, but also take advantage of the opportunities.

The conference kicked-off with Michael Saunders, Head ofWestern Europe Economics, Citi, providing a macro-economicoutlook for the year ahead. “In Europe, the economy will disappoint,” stated Saunders.

“Europe is finding it very difficult to become insolvent, and as aresult, is sitting on debt it cannot shift. And the sovereign crisisin the region is far from over, with a Greek exit likely within thenext few years.” The message was clear. Those expecting a quick return to a

healthy global economy will be disappointed, particularly as a

Is 2013 the year everything changes? While the economic challenges are far fromover, proactive corporates are also sensing the opportunities afforded by the newlandscape. Citi’s recent Treasury Outlook for 2013 conference highlighted key trendsfrom each of the four major regions, and the different ways in which the bank isengaging with clients to design solutions to address the macroeconomic, regulatoryand geographic trends.

Treasury Outlook for 2013:

A Year ofOpportunity

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deep European recession means a slowrecovery.The key question, however, was how

this outlook may affect corporates in theyear ahead – with concerns aboutliquidity constraints and the possible USdebt ceiling at the top of many agendas.In addition to this is the loomingimplementation of Basel III, which couldreduce the capital available to certaincorporates, encouraging them to insteadlook towards the public markets, orshadow banks.“The total capital requirements in 2011

were around 8%,” explained RajeshMehta, EMEA Head, Treasury and TradeSolutions, Citi Transaction Services. “By2019, global banks that operate inmarkets where regulators believe therecould be a systemic risk could have tokeep around 15.5% of their capital.”Given this, “banks are likely to prioritiseinvestment grade companies when itcomes to lending,” Mehta noted. However, these challenges also offer

opportunities for those willing to take thenecessary steps to increase operationalefficiency and hence competitiveness.Citi’s Transaction Services business in eachregion is reacting to trends byimplementing initiatives that mitigate risk,increase simplification andstandardisation, and encourageinvestment.

EMEA: Danger andopportunity

Swati Mitra, EMEA Region Head, CorporateClient Sales Management, Citi TransactionServices, opened by reminding delegatesof a quote cited by John F Kennedy,stating that “The Chinese use twobrushstrokes to write the word ‘crisis’. Onebrushstroke stands for ‘danger’ and theother stands for ‘opportunity’”. “EMEA is a region that reflects this

philosophy,” explained Mitra. “Whileclearly there are many challenges inWestern Europe driven by Eurozoneconsiderations, we are at the same timeseeing many opportunities for growth andinvestment in Central & Eastern Europe,Middle East and Africa.”In order to take advantage of these

opportunities for growth, corporates arerecognising the need for more efficienttreasury operations. Given this, thebiggest priority in the region is a move

towards simplification andstandardisation of transactions, with theSEPA deadline providing an opportunityto re-evaluate and re-engineer bankaccount and liquidity managementstructures.“SEPA isn’t just an infrastructure

change for the banking community,”Mitra continued. “For many of our clients,it is a great opportunity for them to lookat their connectivity, formats and accountstructures, as well as their risk and controlprocesses. Over the past 12 months, closeto 50 % of the bids and proposals thatwe’ve worked on have also had an XMLcomponent. So it is very clear thatcorporates are using SEPA as a trigger-point to look at standardisation withintheir banking relationships.” What’s more, there has been an increase

in corporates rationalising the number ofbanks they use, the number of connectionpoints they have, and even the number ofinstruments they use – all aimed atstreamlining treasury practices. Certainly, European corporates are also

using SEPA as a catalyst for the movetowards improved cost management andincreased standardisation. The industry asa whole is witnessing an increased focuson end-to-end processes, with corporateslooking at purchase-to-pay and solutionsaround card programmes and supplychain management programmes, as wellas cash management solutions. There are, of course, obstacles to

overcome. For instance, while accountlocation flexibility is a major advantage ofthe SEPA initiative, legal and taximplications are hindering corporatesfrom benefiting from this yet. Citi hasbeen helping corporates in their migrationto SEPA, and has started to look towardsfuture EMEA corporate trends such as arequirement for improved data andreconciliation.

North America: Digitalworld

As the focus of the conference shifted toNorth America, a sense of uncertainty andcaution remained prevalent. A hot topicof debate was once again Basel III, withMichael Fossaceca, North America Head,Corporate Client Sales Management, CitiTransaction Services, stressing that theaccord will prompt a huge differentiationbetween investment and non-investment

grade companies – in terms of the capitalthat banks are required to keep on theirbalance sheets. As such, North Americancorporates are becoming increasinglyconcerned about the financial health oftheir supply chains and their suppliers ordistributors who may be unable to accessbank funding. Another trend evident among

corporates in North America is the moveto streamline banking relationships. Keento diversify counterparty risk, corporateswould previously partner with multiplebanks. However, rather than eliminatingrisk, this move merely created a differentset of risks often less understood thanthose they had replaced. “Corporates are finding that they are

unable to efficiently monitor all of theseaccounts,” explained Fossaceca. “Thegrowing consensus is that corporates canmonitor a few core banks moreefficiently with better counterpartymanagement.” In addition, Fossaceca commented that

with corporates sitting on large amountsof cash there has been a trend with DoddFrank and The Account GuaranteeProgram (TAG) in 2012 for clients toleave balances on deposit and use theECR to offset fees. He also noted thatwith TAG expiring many companies arestill using ECR as a way of getting goodvalue for their deposits and have decidedto diversify their account holdingsamongst many banks only to find thatthey have created a different set of risksas they now have to monitor multiplecounterparties. Looking forward, another major trend

for 2013 across North America is themove from paper to electronic. Currently,the use of paper-based payments isdeclining at a rate of about 7% annually,and Citi has observed double-digitgrowth in card volume. “One of the things we are working

with clients on is expediting the movefrom paper to electronic,” says Fossaceca.“Cheques are becoming increasinglyoutdated, as the efficiency of electronicpayments becomes ever-more apparent.However, many corporates lack theresources to move on to more advanceddatabases. To help clients and speed upthe move to electronic, Citi launched aservice in October 2012 called CitiPayment Exchange whereby we collatevendor payable information for our

Mike Fossaceca

Manash Dasgupta

Swati Mitra

Carolina Juan

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clients and enable increased visibility andefficiency.” Elsewhere in the region, Citi is helping

corporates to improve their connectivity –perhaps through optimising enterpriseresource planning (ERP) systems. Ofcourse, SWIFT and XML are front-runners,and Citi has been advising North Americancorporates on how they can optimiseprocesses, extract working capital andincrease their connectivity to make theirbusiness bank-agnostic.

Asia: Opening up

Half of the world’s population lives in Asia.And whether it is through manufacturing,distribution, or simply belonging to awider supply chain that eventually tapsthe markets in Asia, most corporates dealwith the region in some way. Traditionally, however, doing business in

Asia has been complex, with manyrestrictions, hazards and inefficient andrisky manual processes, as well as afragmented legal and economicenvironment. Yet given the increased competition for

foreign investment, these barriers to entryare being pulled down as Asian countriesstrive to implement measures that makeoperating in the region simpler and moreefficient. Ahead of the pack – as always –is China. “The internationalisation of the

renminbi (rmb) is high on China’s agenda,”asserted Manash Dasgupta, Asia Head,Client Sales Management, Citi TransactionServices. “While they have been allowingcross-product trade in rmb for quite sometime, they are now concerned withestablishing the rmb as a clearing currencyoutside of China.”In addition to successfully carrying out

currency swaps with central banks incountries such as Singapore, Hong Kong,Brazil, Indonesia and South Korea, China isnow allowing corporates to pool their rmboverseas.“There are, of course, regulations and

thresholds, but they have opened thedoors,” continued Dasgupta. “What’s more,they are putting in place the buildingblocks to enable the rmb to support alltrade transactions.”Corporates with rmb surpluses – and no

desire to participate in a pool – can alsohave entrustment loans, and give loans tooverseas subsidiaries.

“As long as you can prove that you havean agreement in place, you can do thesetransactions; this was never possiblebefore,” stated Dasgupta. “Even if that isnot feasible, corporates can still use thebalances they have in China to get a bankloan outside of the country.” Furthermore, foreign currencies are now

allowed to be pooled overseas –eliminating the problem of havingtrapped-cash in China. All in all, China is becoming more

treasurer-friendly. Processes thatpreviously required three separate piecesof documentation now only require one.Indeed, in some cases, banks now have thefreedom to decide how much paper-workis required – enabling some transactions totake place with deferred documentationproviding the company has a transactionhistory with the bank. Asia is no longer the complex

environment it once was, and treasurersare seizing on opportunities to increasetheir own corporate efficiency in areassuch as mobile payments, which many arefavouring in place of often risky andinefficient manual processes. “Operational technology in Asia is really

high. In Tokyo, Singapore and Shanghai,for example, almost everyone has a mobilephone,” explains Dasgupta. “Butpenetration goes further than that now. InIndia, farmers are paying for products andaccessing information through theirmobile phones.”Consumer banking has been accessible

through mobile phones – particularlysmart phones – for some time. Howeverthe trend is now towards looking at howto make everything a treasurer doespossible through the use of a mobilephone – improving treasury processes, andpotentially changing business models.

Latin America: A regionalshift

Another region capitalising on the use ofmobile phones for treasury purposes isLatin America. Citi launched mobilepayments in Mexico in October 2012,which was extended to corporates by theend of February 2013. And a similaragreement has been reached to pursue thesame objective throughout the rest of theregion. Certainly, this move is part of the bid to

increase efficiency in Latin America –

essential given the region’s economicgrowth of around 4-5% over the past fiveyears. One notable trend in Latin America

concerns shared service centres (SSCs).Previously, the region was a hub for SSCs.Increasingly, however, companies arepreferring to put SSCs in Asia, and eventhe US rather than Latin America – withthose that stay experiencing higher costs.“We have two types of clients in Latin

America,” said Carolina Juan, LatinAmerica Head, Corporate Client SalesManagement, Citi Transaction Services.“The international clients, and what wecall the ‘local champions’. This first groupof clients took the decision to open SSCsaround twelve years ago, and they werecautious. They took out asset-contingencyplans to enable them to replicate theirsystems in another SSC. The second group– the ‘local champions’ – didn’t take thesame measures, and are now strugglingwith processes such as invoicing, collectingmoney etc.”Certainly, implementing a contingency

plan for an SSC within Latin America –although expensive – is a worthyinvestment. Costa Rica’s so-called ‘SSCindustry’ has become more expensive.Companies which are intending to openup SSCs in countries such as Panama andBrazil are faced with high labour costs andtax regulations.Instead, the region’s growth is

predominantly in the consumer industry,due to its rising middle-class. Given this,Citi has been designing new products andsolutions to help companies manage therise in cash flow, as well as to aidreconciliation and improve efficiency.

Looking to the future

The global economic crisis impacted eachregion differently. For some, it meantputting in place contingency plans andbeing more cautious. For others, it meantcoping with the strain of rapid growth.Globally, however, the need was forincreased efficiency, and this need is beingmet. Whether through standardisation inEurope, electronic transactions in NorthAmerica, mobile payments in LatinAmerica, or reduced documentation inAsia, each region is improving processesand becoming a more dynamicenvironment for corporates to operate andexplore new opportunities in 2013. �

In India,

farmers are

paying for

products

and

accessing

information

through

their mobile

phones.

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