Changing bank relationships

Apr 13th 2015 |

Bank relationships are an important, yet sensitive, topic for treasurers in China. The debate about whether MNCs should bank with local banks (the necessary relationships for tax and custom requirements aside) is heating up.

The traditional view is that MNCs tend to rely more on foreign banks because of existing global relationships.

The fact remains that foreign banks often provide a better online banking platform that reconciles well with the corporate’s treasury management and ERP systems. Common wisdom continues to hold that MNCs need to rely on Chinese banks for payment and collections, because no foreign bank has the extensive branch network of Chinese banks, not to mention the big five state-owned enterprise banks.

Levelling the playing field

This landscape is changing fast. Leading foreign banks, such as HSBC, Standard Chartered and Citi, are opening more branches in more cities in China. The rise of third-party payment and settlement players, such as a business unit under China UnionPay, is levelling the playing field of payment and settlement and may wipe out the so-called branch network advantage altogether.

Foreign banks with a limited branch network, such as Bank of America and Singapore’s DBS, have signed up with China UnionPay to offer clients direct debit and payment services to any bank account anywhere in China, something that was impossible even a few years ago. Also, to digitise labour-intensive collections, banks such as Bank of America are offering clients services to reconcile payments or collection information in real time with their online banking services.

Roger Sun, China treasurer of Johnson Controls, is an advocate of increased reliance on foreign banks. To him, they are now able to provide more basic services to MNCs than ever before. He even feels that within a few years, links with local banks will not be necessary. “The problem with Chinese banks is that they still lag behind in innovation and don’t have strong systems support,” he says.

Moreover, he adds, “the service of Chinese banks remains reliant on the relationship manager. If one key manager leaves, so does the assurance of the service”. Many MNC treasurers agree. To them, Chinese banks may have caught up quickly in terms of IT infrastructure, but their failure to change arcane internal organisation structures, which are rarely client and service oriented, is now costing them as internet-based banking services turn basic cash management products into commodities.

Far from dispensable

However, from a financing perspective, Chinese banks are far from dispensable. If calculated by total assets, foreign banks’ share in China is less than 2%.

The liquidity squeeze in 2013 cast a shadow on MNCs operating in China. “The squeeze has highlighted the importance of having diversified financing channels,” says Jane Hua, Asia treasurer of TRW, based in Changchun. “Our view therefore is to reach out to more Chinese banks.”

Other treasurers agree with Hua on the strategic importance of Chinese banks, but for a different reason. “This is the China story that our group treasurer can tell in front of a board meeting,” says one China treasurer of a US company. Indeed, global treasurers may one day find they need to have a China story to tell in order to be at the top table.