Case study: Creating more liquidity for global corporates
In need of more efficient treasury management
Group A is a Fortune 500 company well-known for electrical appliances that operates across over 60 countries and regions. Recently, the Group optimised its business structure and continues to promote high-quality development throughout over 200 subsidiaries. To realise a better liquidity position, Group A established a corporate treasury centre (CTC), partnering with Bank of China (Hong Kong) Limited (BOCHK) to enhance the effectiveness of its cash management and liquidity performance.
As it expanded its businesses, Group A faced challenges in terms of low cashflow visibility, decentralised treasury management and high operational costs. Further, as the Group accessed more offshore markets, it acquired a growing number of banking partners and accounts. Despite efforts to gain visibility over cash positions, there was a lack of coordination in achieving efficiency in treasury management.
As a result, Group A was seeking concentrated management of overseas investment projects, aiming to enhance visibility and control cross-border treasury governance to ensure fund security and a higher level of fund utilisation.
A centralised solution
By centralising its offshore treasury activities with a new CTC in Hong Kong, the Group is able to embed greater control, strengthen its treasury governance and achieve significant operating efficiencies. The CTC is authorised to manage both local and foreign accounts, and is able to achieve effective cash concentration and disbursement.
Group A has also rationalised its liquidity structure by consolidating multiple banking relationships across regions through its CTC. The Group’s yields have subsequently improved, with surplus funds aggregated to maximise returns.
The Group now benefits from lower operating costs and better management of foreign exchange risks. In addition, instead of maintaining an independent treasury team in each subsidiary and authorising local staff to manage treasury tasks separately, Group A can now remotely control foreign payments and receipts via the CTC’s treasury team in Hong Kong amid a robust finance infrastructure.
BOCHK: driving connectivity
The CTC has built a secure digital data exchange channel with BOCHK through host-to-host connectivity. With a real-time global treasury management platform, vast amounts of account information can be transferred seamlessly and within a single interface.
The direct and interactive connection between the CTC and BOCHK creates an instantaneous, painless and far-reaching process of generating account information. Treasurers can now monitor treasury information at a glance. Payment instructions can also be sent to the bank immediately, to complete the payment process in real time.
In line with this, visibility and control of global liquidity are enhanced, effective and efficient treasury management is achieved, and administrative burdens in managing intra-group entrust loans are reduced.
The financial burden has also been minimised due to the improved efficiency in cross-border usage of funds. For example, previously, with typical secured overdraft facilities, assets of the company were required as collateral. The internal policy of Group A required all funds held overseas to be centralised within the master account in Mainland China, to achieve a zero-balance centralised structure. In other words, subsidiaries maintain no cash for outbound payments. Treasurers had to remit the exact amount to subsidiaries manually before payment, which was time-consuming and laborious.
To align with the treasury goal, Bank of China (BOC) Group introduced a unique cash pooling solution by leveraging the policies adopted by the People’s Bank of China (PBOC), and the State Administration of Foreign Exchange (SAFE) of China. Group A is permitted to handle centralised receipts and payments of domestic and foreign currencies in China for its overseas subsidiaries, and further streamline RMB-denominated cross-border receipts and payments in global markets.
The outcome for Group A has been a new way of treasury management with a higher level of resilience, no longer limited to account reporting and fund transfer. By establishing a centralised management system and setting up two real-time digital account management channels, the Group now has more financial tools to maintain a high-level of treasury performance under special circumstances such as Covid-19, which affected liquidity management through the impact on normal business operations.
With the customised cash management solution for Group A, BOCHK integrated with (i) an advanced electronic particular (a real-time global treasury management platform and secured digital data exchange channel); (ii) brand-new cross border overdraft collateral through the CTC; and (iii) automatic interest payouts via centralised cash pooling structure. As a result, all products and services, and a flexible matrix treasury management system without geographic limitations are possible. The Group has effectively revitalised the funds of its subsidiaries without geographic limits and significantly scaled back its treasury management costs.
In short, the solution allows global corporates to strength their international business strategy.
BOCHK is committed to promoting sustainable and high-quality development. Capitalising on its advantages as a major commercial banking group in Hong Kong, it continues to increase local market penetration. Through close cooperation with its parent bank BOC, a range of high-quality cross-border services are available to multinationals, cross-border customers, mainland enterprises going global, central banks and super-sovereign organisations.
