Transaction Banking for Corporates - econ.hit-u.ac. · PDF fileTransaction Banking for Corporates . 1 ... Purchasing Manufacturing Marketing Sales Accounting ... Legal structure

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May 2016

T. Manabe

General Manager

Global Transaction Banking Department

Transaction Business Division

Sumitomo Mitsui Banking Corporation

Transaction Banking for Corporates

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May 2016

Transaction Banking

Custody

FI Cash Corporate Cash

Corporate Trade FI Trade

Retail

Today’s Scope

FI

Financial Institution

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May 2016

Table of Contents

• Facing Corporate Treasurers

- Core Functions of Treasury

- Concrete Objectives

- Corporate Structure

- Cash Flow & Funding

- Constraints

• Transaction Bank’s Approach

- Solutions

- Transaction Management

- Liquidity Management

- Service Menu & Tools

- e-Channel (Internet Banking)

- SWIFT Bank Readiness

- Host to Host Solutions

Today’s Scope

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May 2016

Core Functions of Treasury

Facing Corporate Treasurers

Corporate

Treasurer

Distribution / Sales

Accounting Marketing Manufacturing Purchasing

Bank Relationship

Management

Currency Management

Funding Management

Investment Management

Risk

Management

Cash

Management

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Transaction bankers will confirm and analyze …

Concrete objectives

Corporate structure

Cash flow & funding

Constraints


Core Functions of Treasury

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- Constraints


- Solutions







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“I need to see all my balances across regions.”

“I need to consolidate my balances each day

to make overnight investment.”

“I need access to all my funds during working hours in my country.”

“I want to automate.”

“I want to centralize risk management.”

“I want to maximize yield on my excess funds.”

Concrete Objectives

Visibility

Control

Availability

Return

Risk

management

Efficiency


Corporate Treasurers’ Voice

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May 2016


Treasurers’ Needs

Cash balance management

Funds management

Reduce number of payments

Cut transaction cost

Manage outgoing payments

Accelerate incoming payments

Accounts receivable management

Accounts payable management

Stock Management

Aiming to …

Optimize account structure

Keep cash flow cost as low as possible

Minimize interest cost

Maximize interest income

Concrete Objectives

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Corporate Structure

Business life cycle

Level of centralization

Legal structure

Scope of treasury

HQ location

Business structure

Level of centralization and autonomy

Reporting lines and management structure

Liquidity management and stakeholders

Key geographies

Line of business

Liquidity management for line of business v. whole business

Nature of activities for each line of business

Inter-company transaction

Legal structure

Domicile of incorporation

Special purpose vehicle (in-house bank, borrowing vehicles, SSC etc.)


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- Constraints


- Solutions







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Cash Flow & Funding

Cash conversion cycle

Funding sources

Debt type / location

Currency exposure

Long / short positions

Need to understand company’s working

capital


Definition of Working Capital Management

Management of current accounts (assets and liabilities) activities and processes to

ensure there is sufficient liquidity to sustain company’s operations.

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May 2016

Buy Collect Sell

Operating Cycle

Inventory Receivables

Payables Working Capital Requirement

Cash Conversion Cycle

Credit by Suppliers

Raw Material

Stock Period

Manufacturing

Period

Finished Goods

Stock Period


Days Inventory + Days Receivable – Days Payable

Extend Shorten


Cash Flow & Funding

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How much liquidity does a company need ?

Days Inventory

Outstanding (DIO)

Average no of days a company takes to turn inventory into sales

DIO = (Inventory / Cost of goods sold) X 365

Days Receivable (Sales)

Outstanding (DSO)

Average no of days a company takes to collect revenue after sales

DSO = (Account receivable / Sales) X 365

Days Payable

Outstanding (DPO)

Average no of days a company takes to pay its suppliers

DPO = (Account payable / Cost of goods sold) X 365


(CCC)

Length of time to convert resource inputs into cash flows

CCC = DIO + DSO - DPO


Cash Flow & Funding

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Sales = 10,000

Cost of goods sold (COS) = 8,000

Account receivable = 650

Inventory = 3,200

Account payable = 1,000

Days Inventory (DIO) = Inventory / COS X 365 = (3,200 / 8,000) X 365 = 146 Days

Days Receivable (DSO) =

Account receivable / Sales X 365 = (650 / 10,000) X 365 = 24 Days

Days Payable (DPO) = Account payable / COS X 365 = (1,000 / 8,000) X 365 = 46 Days

CCC = DIO + DSO – DPO = 146 + 24 - 46 = 124 days < 10,000 X 124 / 365 ≒ 3,400 >

Is it possible to have negative CCC ?


Cash Flow & Funding

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- Constraints


- Solutions







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Constraints

Regulatory and tax

Resources

Systems and process

Internal policies

For example, many markets in Asia Pacific are highly constrained and regulated.

• No common currency (unlike Europe: Euro)

• No integrated banking or clearing system (unlike Europe: SEPA)

• Wide range of operating environment combined with diverse regulatory constructs

• Central bank regulations, exchange controls and tax regimes

• Ever-changing regulatory environment


SEPA

Single Euro Payment Area

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Constraints

Easy Somewhat challenging Challenging

• Tax free environment

• Free convertible currencies

• Minimal regulations on

inter-company loans

• Stable regulations

Examples : Hong Kong,

Singapore, Australia, Japan,

New Zealand

• Limitation on LCY cross

border movement but no

restriction on USD/ EUR/

FCY

• Some regulation on pricing,

intercompany loans

• Restrictions on non resident

accounts

Examples : Malaysia, Indonesia,

Philippines

• Restricted FX

• Limits on cross border

transactions

• Restriction on interest

payout

• Heavy regulation, lots of

documentation, reporting

etc.

• Frequent regulation changes

• Non-resident restrictions

• Limited investment options

Examples : China, India,

Vietnam, Thailand, Korea,

Taiwan


Constraints in liquidity management

LCY / FCY

Local Currency / Foreign Currency

FX

Foreign Exchange

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May 2016

Constraints

Tax

Stamp duty Tax on loan capital or credit agreement for long term borrowers

Capital tax Funding a subsidiary may result in overstating their asset value, inviting higher

capital taxes

Controlled foreign

company legislation

Tax on “ passive income” earned by foreign subsidiaries in lower tax

countries.

Thin capitalization Specific debt to equity ratio. Once exceeded, interest considered as dividend

and subjected to tax.

Transfer price rules Transactions not at arm’s length may result in income tax adjustment

Withholding tax rules When a company makes a cross border payment, typically of interest,

dividends or royalties. It may be required to withhold an amount and pay to the

domestic tax authority.


Constraints in liquidity management

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- Constraints


- Solutions







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- Constraints


- Solutions







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Transaction Bank’s Approach

Extend terms

Payable finance

Process review / SSC

Consolidated payments

H2H

Shorten terms

Offer discounts

Receivable finance

Review credit controls

Trade products

Add resources

Free up resource

Virtual accounts

Various collection

solutions

Efficient

Working

Capital

Strategic goal Customer issue Solution

Solutions (Chart 1)

Cash

Conversion

Cycle Inventory

Sales

(Receivables)

Payables

Poor invoice terms

(Delayed payments)

Poor credit control

Insufficient resources

for collection

Poor payment terms

Poor payable practice

SSC

Shared Services Center

H2H

Host to Host

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May 2016


Multi bank reporting

Consolidated reporting

Improve forecasting

TMS

Transaction & liquidity

management portal

Account rationalization

/ restructuring

Automated transaction

Automated sweeps

Pooling structure

Efficient

Working

Capital

Strategic goal Customer issue Solution

Solutions (Chart 2)

Control

Efficiency

Visibility

Too many accounts

Manual process

Poor use of cash

No timely data

No tools to control

Poor forecasting

Cash

Conversion

Cycle

TMS

Treasury Management System

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- Constraints


- Solutions







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May 2016

Transaction Management


Debit

Company

A

Company A

(Buyer)

Company B

(Supplier)

Invoice

Credit

Advice

Bank B Bank A

RTGS

Settlement

Debit

Bank A

Account

Credit

Bank B

Account

Payment

Message Advice Credit

Company

B

Payment

Instruction

Acknowledgement

Clearing House

Settlement System

Shared Service Center

Payment Factory

Collection Factory

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May 2016

Transaction Management


Country RTGS ACH Cheques

Australia RITS-HVCS BECS, BPAY APCS

China CNAPS-HVPS CNAPS-BEPS NCIS

Hong Kong CHATS ECG CLG

India RTGS NEFT MICR

Indonesia BI-RTGS SKNBI SKNBI

Japan BOJ-Net Zengin Bills & Cheque clearing system

S.Korea BOK Wire KFTC KFTC

Malaysia Rentas IBG eSPICK

Singapore MEPS+ Giro (IBG) SGDCTS

Taiwan CIFS ACH, FISC TCH

Thailand BAHTNET SMART ECCS & Provincial CCS

Vietnam IBPS- HVTS IBPS - LVTS SBV

Payment Systems in Asia Pacific

RTGS

Real Time Gross Settlement

ACH

Automated Clearing House

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May 2016

Liquidity Management


Master Account (Regional Treasury Center)

Source Account Participating Account Source Account

Participating Account

（resident account）

Participating Account

（resident account）

Singapore

Country A Country B

1 Way Sweeping / 2 Way Sweeping

ZBA / TBA

Auto sweep based on the cut - off time balances

Auto sweep based on the cut-off time balances

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Liquidity Management in Asia Pacific

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- Constraints


- Solutions







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Service Menu & Tools

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e-Channel (Internet Banking)

SWIFT Bank Readiness

Host to Host Solutions (H2H)

Service Menu & Tools

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- Constraints


- Solutions







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- Constraints


- Solutions







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SWIFT Bank Readiness


SWIFT

Society for Worldwide Interbank Financial

Telecommunication

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May 2016

Host to Host Solutions


Customer’s

System Every

5 minutes

Relay Server

SMAR&TS

Server

Back Office

Systems

Back Office

Systems

1. XML

2. CSV

3. TXT

4. TAB

Option to choose the status :

a. To modify in SMAR&TS

= Creating

b. To approve in SMAR&TS

= Created

c. To check the status only

= Sent

** If there is any missing mandatory

field for “Creating”

= Temp

Approve

SMBC Customer

SFTP

Secure Shell

File Transfer Protocol

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May 2016

• This document was created purely ｆｏｒ the academic lecture.

• Nothing in this document constitutes an offer, recommendation, advice, or solicitation or an agreement to provide the scheme described in this document to any person to enter into any transaction or adopt any trading or investment strategy.

• The information in this document is believed by Sumitomo Mitsui Banking Corporation (“SMBC”) to be reliable, but SMBC make no representation or warranty as to, and accept no liability in relation to the accuracy or completeness of the information or for any opinion expressed herein.

• This is proprietary document of SMBC, and citation or duplication of this document without permission is strictly prohibited regardless of the purpose. Please do not quote, copy, forward or disclose any or all information of this document to third parties.

Important Notice

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Transaction Banking for Corporates - econ.hit-u.ac. · PDF fileTransaction Banking for Corporates . 1 ... Purchasing Manufacturing Marketing Sales Accounting ... Legal structure