International Banking Best Practices. Lynn Mingone Vice President Senior Product Management

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1 International Banking Best Practices Lynn Mingone Vice President Senior Product Management

2 Why International Cash Management is Important Multinational Corporations It has been important for decades! Major growth and expansion opportunities are overseas International business is important share of business; exposure is growing Efficient ICM can have significant impact on the bottom line Long-term commitment to profitability through globalization Middle Market Companies Has become important over the last 5-10 years Expansion of markets; anyone, anywhere can buy through the internet Competition is going overseas for alternative sources of supplies and labor Often outsourcing overseas Small portion of business but expensive if costs/risks not managed and controlled Source: AFP & Allman-Ward Associates, Inc. 2

3 International Treasury Challenges Risks Market Currency Counterparty Regulatory Security Visibility Cash position Multiple web-portals, tokens Transparency and control of international operations Corporate governance Banks In Country/ Region Payment methods and formats Currency restrictions Repatriation Taxation Language/cultural barriers/time zones Compliance Multiple bank relationships Liquidity management System interfaces with banks Bank account structure Fees 3

4 International Treasury Challenges Risks Market Currency Counterparty Regulatory Security Visibility Cash position Multiple web-portals, tokens Transparency and control of international operations Corporate governance Banks In Country/ Region Payment methods and formats Currency restrictions Repatriation Taxation Language/cultural barriers/time zones Compliance Multiple bank relationships Liquidity management System interfaces with banks Bank account structure Fees 4

5 5 Winning Strategies Know your buyer Understand the market Understand local banking Manage cash with information tools Mitigate Risk 5

6 Know Your Buyer Pre-qualify your business partner Know the decision makers Review the potential risks Build IP Protection into business plan Overcome miscommunication Review offering terms Evaluate the costs Minimize contract misunderstandings US Commercial Service ( offers an International Country Profile Report and private service providers can offer due diligence 6

7 Understand the Market Discuss challenges of doing business in a particular market Regulation? Banking relationship? Currency? Visit the market Understand the culture Geography of the market Do Your research AFP Country Profile Reports 7

8 Where do companies do business? Outside of the U.S., companies are most likely to be doing business in Europe, Canada and China Canada: 38% Europe: 51% UK: 15% Germany: 11% France: 7% Italy: 5% Mexico: 25% China: 29% South America: 9% Australia: 8% 8 8

9 Understand the Market AFP Country Profile Reports 9

10 Understand the Market China CNAPS Primary Clearing System Super-e-Banking online interbank clearing system Consumer Debit Cards, checks and electronic payments International: L/C, Doc Collection and Open Account USD still primary settlement for international transactions China Global Political Power (WTO and UN Security Council) Currency Controls Banking Reforms and IPOs Human Rights Trade Deficient US PBOC (Peoples Bank of China) SAFE (State Administration of Foreign Exchange) 10

11 Understand the Market Europe European Payments Council SEPA Single Euro Payment Area Integration of Payment Market Pan-European TARGET2 RTGS payment system Card Payments Increasing across Europe Europe European Crisis weakened Euro Solvency of European Banks Power shifts in Euro zone Countries Spain, Greece, Ireland, Portugal, Slovenia, Slovakia, and the Netherlands European Commission European Central bank Governing Council 11

12 Understand the Market Canada Canadian Payment Association (CPA) Automated Clearing Settlement System (ACSS) Large Value Transfer System (LVTS) Electronic credit transfers and card payments Canada 24 Domestic Banks, 26 Foreign Bank Subsidiaries 28 Full-Service Foreign Bank Branches Restriction on Full-Services Branches taking Retail Deposits Regulation of Retail Banking hinders Canadian Banks Office of the Superintendent of Financial Institutions (OSFI) The Bank of Canada Minister of Finance 12

13 Understand Local Banking Requirements China Heavily Regulated Closely controlled by the government Majority of banks are owned by the government The Big Four Banks include: Industrial & Commerce Bank, Bank of China, Agricultural Bank of China, and China Construction Bank Each has more than US$1.5 trillion in assets Europe Single Market Push for SEPA European Banking Authority (EBA) stress tests to increase transparency European Banking Crisis Top European Banks by Total Trillion Assets include: Deutsche Bank - $2.8,HSBC Holdings - $2.56, BNP Paribas - $2.55, Credit Agricole Group - $2.44, and Royal Bank of Scotland - $2.51 Canada Foreign Banks allowed to set up either full-service branches or lending branches ( Previously Foreign banks had to set up separate subsidiaries) Beginning to loosen regulation in order to become more competitive internationally Key Retail Banks include: Royal Bank of Canada (RBC),Toronto-Dominion (TD), Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank of Commerce 13

14 Understand Local Banking Requirements Choosing a Bank Factors to consider when selecting a bank: Creditworthiness Published credit ratings of bank, government support Proximity matters Branch needs to be within a short distance of office for transactions May need to present documents with the company seal, develop local relationships, access cash etc. Limited branch network of foreign banks may restrict local access and may result in need to have at least one account at a local Bank Client Service Advisors Consultants Credit Quotas Credit limitations due to regulatory quotas 14

15 Manage Cash with Information To have the right amount of money Account Funding: Payables/Receivables In the right currency $ In the right place In a CNY (onshore), CNH (offshore) or multicurrency account? At the right time Low Value or High Value With the right information Multibank Reporting SWIFT 940 s 15

16 Manage Cash with Information How can your bank help? Solution: Multibank Reporting One platform for account and balance information Eliminate multiple security tokens Visibility into daily cash position and activity to see multiple bank balance and transaction information BAI Transmission Coordinate implementation with client and foreign bank 16

17 Visibility into Cash Tools Sweeping Pooling Location of Accounts Reduce the number of accounts in risky areas having liquidity problems such as particular Eurozone countries Increase accounts in places with favorable tax and regulatory implications Banks Relationships with the strongest banks in the area are crucial Banks with global connections & correspondents can help minimize risk Choose a bank that fits your strategy now and will grow with you 17

18 SWIFT for Corporates Single, standardized gateway for a corporate to interface with all their financial institutions for payments, treasury, securities orders, reporting, etc Benefits: Global visibility on cash and trade Lower cost structure Increased control and security Reduced risk Accounts payable Corporate Accounts receivable Treasury Trade Finance Standardised gateway 18

19 Mitigate Risks (Trade) Medium Risk Buyer/Market: Open Account Terms with Standby L/C or Export Credit Insurance Documentary Collections High Risk Buyer/Market: Cash in Advance Confirmed Letter of Credit Letter of Credit Low Risk Buyer/Market: Open Account Terms Documentary Collections (Acceptance) 19

20 Mitigate Your Trade Risk How can your bank help? Solution: International Sales Officers Provide solutions to: Mitigate foreign bank and country risk Improve cash flow Trade Products (LC, Doc Collections, Open Accounts) Confirmed LC or LC document purchase agreement Facilitate global trade services and payments through front end system Multicurrency accounts to offer payment efficiencies and minimize FX risk Overseas Banking Referrals (to support corporate clients with in-country banking services) 20

21 Mitigate Risk (FX) How can your bank help? Solution: Foreign Exchange Managers Provide Expert advice on risk mitigation for foreign currency transactions Assist in evaluation of the company s policies regarding Foreign currency transactions Advice on Best practices in the industry Consultative approach in developing Foreign exchange strategies for all foreign currency transactions Monitoring of Exchange rates can aid in anticipating ups and downs in the numerous currencies a company operates in Billing in local currency can help to create a natural hedge because you do not have to convert it back to USD. 21

22 Everything is possible, nothing is easy. ~ McDonald s theorem Where to go for help? 22