To be or not to be trapped…

To be or not to be trapped…

  • Optimising Liquidity

Designing the most adapted liquidity management strategy highly depends on where -in the wild, wild world of restricted and regulated markets- our cash is actually trapped. Then again, there is nothing like a deep local regulatory expertise to get us on track.

Regulated markets: a scope of solutions

In regulated markets like most of Asia, smart and innovative liquidity management solutions can be implemented. One of the difficulties encountered is the fast pace of change that demands a solid local knowledge and network –with a strong focus on China where currency regulation evolves quickly.

Cash pooling solutions can also be implemented. An in-depth knowledge of local regulations is a prerequisite to provide high added-value advisory, support and to ensure full regulatory compliance. Which solutions are best adapted to the corporate's needs depend on its financial strategy –so the challenge goes beyond treasury activities.

Restricted markets: a long-term commitment

Restricted markets like India, Bangladesh, Malaysia, Pakistan, Indonesia and Sri Lanka demand a long-term strategic vision. As 'trapped cash' will remain in the country, it is best used to support further local investments and future domestic growth.

From a corporate perspective, it is a strong and long-term commitment. Helping the organisation project into the future based on a thorough knowledge of the country's history, culture and regulations is indispensable. Relying on a solid network of local partners that can provide some invaluable insights is an additional must. Whatever the corporate's strategy (for example locating production units in a restricted market and selling locally), this requires careful thinking and planning. Only a strong, 'glocal' banking partner can provide the strength of a world player and enough local expertise to provide true advisory.

Putting cash to work: a fundamental trend

Today, even though the economic outlook has improved, uncertainty remains. One thing is for sure: a shift in corporates' financial doctrine has taken place and it is here to stay. Putting trapped cash to work is part of being leaner and more agile, and however bright the economic outlook may be, companies' expectations in regard to putting their cash to use are serious and sustainable: trapped cash is strategic and it can work here and now.

Basel III: why it (wrongly) brings concern
By imposing stricter capital and liquidity requirements on banks, Basel III makes our economies stronger to face any potential crisis. The liquidity coverage ratio that the accord imposes forces banks to maintain enough quality liquid assets to withstand a crisis for thirty days. Such a timespan will be used by governments to take measures to restore peace in the financial markets. Collaterally, Basel III brings extra concern among companies that have less accessibility to financing, which causes lending rates to rise and as a result, a significant amount of liquidity is removed from the market.
However, this is largely unfounded, and such concerns should not obliterate the positive outcome of the new accord, due to be introduced as of January 2015 with a full compliance by January 2019.

 

A short checklist to trapped cash
How do we know that our cash is trapped and that it can be put to use? Experts agree that there is no sacrosanct rule, only a case-by-case appreciation. However, a few things can generally be considered. Do corporates have the knowledge, the network and the means to repatriate the cash? This is essential, as local treasuries might not be familiar nor comfortable dealing with trapped cash issues. Or else: does the company's business model generate cash that will be trapped, and if so, can it be changed so that it doesn't? Whatever the reasons why, the ultimate purpose is to put cash to use, and the challenges vary depending on where the company's operations take place, i.e. in a regulated or a restricted market.