Liquidity Management: Managing a Precious Resource
When you think about it the two precious resources that are commonly referred to as ‘liquid’ – namely, cash and water – share much in common. They are both a prime source of sustainability for their users, be they individuals and communities or consumers and businesses. They have no real borders. They receive constant, strong and increasing demand, and they are unevenly distributed across the globe. Both cash and water, moreover, are subject to evolving environmental, behavioural, regulatory and economic patterns.
Innovation and attention to both cash and water are therefore high on the agenda for the public and the private sectors. For example in the case of water the Singapore National Water Agency, which is recognised as a leader for water management, committed itself in January 2012 to investing US$750m over the next five years in technology and infrastructure to improve the collection, recycling and distribution of water while reducing its dependency on suppliers. Financing and facilitating this investment is a crucial treasury task.
SWIFT shares the sentiments expressed by former Hong Kong Monetary Authority (HKMA) chief, Joseph Yam, speaking at the 2009 Sibos conference, when he said: “I am sure you are aware of the huge amount of public money spent in all jurisdictions in the development of physical infrastructure; building highways, water plants, bridges and airports to take people and goods from one place to another safely and efficiently, thus facilitating the conduct of economic activities for the benefit of all.
“Authorities, however, seem to devote only disproportionately small amounts of resources to the development of the financial infrastructure to move money and financial instruments from one entity to another safely and efficiently, for the purpose of enhancing financial efficiency that promotes economic prosperity.” His concern is shared by corporate treasurers around the globe.
The aim is to build an effective cash, funding, liquidity and supply chain management ecosystem with customers and financial institutions. The treasury goal, as with water, is to ensure smooth flows of liquidity allocation anywhere, at any time, and with limited dependencies to suppliers.
The View from Asia
Asia’s overall share of global gross domestic product (GDP) continues to rise and concerted efforts are being made by Asian nations to find new growth from domestic customers and from regional and emerging markets. As a result, Asian corporates are increasingly pushing beyond their national borders and operating in broader, more diversified markets and geographies to meet domestic and international market needs. This internationalisation has put liquidity and risk management high on the agenda for treasurers, a focus only reinforced by the global financial crisis and the resulting higher cost of accessing liquidity.
Ideally, an effective liquidity management requires a constant feed-to-calculation engine allowing accurate views of intraday cash positions, and supported by business intelligence and an efficient financial supply chain.
However, the reality is that this does not happen enough. Asian financial services remain more expensive than they need to be, both within domestic markets and global markets, due to the sector’s fragmentation and the consequent levels of intermediation needed to make it work. These costs can be dramatically reduced through the implementation of syntactical, technical and procedural standardisation, which allows direct access, automation and scale development.
Indeed, in sub-regions such as south-east Asia (ASEAN) the absence of harmonised payment, clearing and settlement infrastructures, the restriction on currency flows and the lack of common standards make the corporate treasurer’s quest for consolidated, integrated and intra-day reporting a difficult one. SWIFT’s international connections and multibank capabilities should be able to help in this regard.
SWIFT and its member banks serve 25% of the world’s corporates with market capitalisations over US$10bn. These corporates use the SWIFT infrastructure to improve their global visibility on cash and optimise their liquidity and risk management via a single, secure gateway that supports the exchange of standardised structured data with their banking partners. Not everyone is on it but there is a platform available should you wish to explore it.
The platform includes messages and standards for urgent payment, for end of day and intraday reporting, for foreign exchange (FX) and money market confirmation and for trade finance. In 2011, the traffic growth for corporates-to-banks over SWIFT [from a low base] reached a new peak with a 27.9% surge in volume, showing the strong interest from the corporate community with full support from leading corporate banks.
Asian corporates and their financial institutions, regardless of their market cap, are realising these same benefits because of their pan-regional or global reach requirements.
The challenge of liquidity management for corporate treasurers remains high and there has been some success among both global and Asian multinational corporations (MNCs) in addressing their liquidity management through payment hubs or regional shared service centres (SSCs). By working together, the industry certainly has the means to enable further treasury centralisation and can lift the geographical and technical barriers between corporates, customers and their banking partners. Corporates will continue to drive industry innovations in support of harmonised payment infrastructures and effective risk and liquidity management. SWIFT as an infrastructure for both corporates and banks can be a core component in this innovation process.