Local optimization

February 2020
10 min read

Treasury optimization in Asia, Part II

In our first article on treasury optimization in Asia, we introduced three different levels of optimization. These levels form the foundation for this series and will be highlighted and examined in greater detail. This will help you understand and identify your organization’s corporate treasury maturity level and the potential steps it should take for further optimization. In this second article, we explore the local optimization opportunities and the challenges that may be encountered when managing treasury in Asia.

In the previous article on treasury optimization, we also identified the foundation, developing, established, enhancing and optimized stages and – in some cases – a transcending stage based on corporate treasuries’ level of expertise and business integration. Using the Treasury and Risk Maturity model can help to plot your organization’s treasury along the model’s treasury maturity line. Understanding at what stage your treasury currently is at and what stage to strive for is an important first step.

Foundational maturity

Managing treasury in Asia poses many challenges and problems to European multinationals (MNCs) expanding outside their home countries. The main challenges of managing treasury in Asia include regulatory differences, the nature of financial markets, (cultural) diversities, distance and time zone, and levels of expertise and alignment.

If group treasury has limited visibility of its Asian treasury operations, and believes it’s ‘locally managed’, our experience shows there usually is much left to optimize as local CFOs and teams typically have KPIs focusing on revenue and EBIT. As with any problem, the first step to solving it is to acknowledge its presence. Once the problem has been recognized, the next step is to determine the cost of either not solving it or of allocating resources to solve it.

The same cost drivers apply in Asia as in mature markets, with the main difference being that for the same amount, balances or number of transactions, the costs are typically significantly higher. This is due to interest rates, FX spreads, fees and more being much higher. Even though it can be difficult to know in greater detail how much the value loss is, just making a rough estimate of the cost of unmanaged cash balance usually gives a good enough indication that action needs to be taken.

Example: Cost of Cash in China

China is typically one of the bigger Asian markets for many European MNCs. Regulations can provide obstacles in repatriating cash. Currently, Chinese regulations are quite supportive of outgoing cross-border loans and cash pooling. There are several different structures that can be put in place. The choice of which structure to use must be analyzed and decided on a case by case basis, as each comes with its own set of pros and cons.

In China, interest paid on a bank account is by regulation maximized at 0.35%. By getting cash out of China, swapping to EUR and reducing group borrowings, significant earnings can be achieved.

As idle cash is typically a longer-term problem, it is fair to use a medium-term average EUR funding cost. Even for a well rated company, this can be 1%. Furthermore, it is assumed that value of reduction of credit risk on banks in China is worth 1%.

Swapping CNY to EUR   3%
Repaying Group debt   1.0%
Reduction of China bank risk   1.0%
Less interest in China   0.35%
Total cost of Cash in China   4.65%

Even with a moderate amount of business in China, it is easy to have cash balances of CNY 100 M. Implementing such a cash pool could quickly add value within a month or two.

Is your cash really trapped?

Many European treasurers realize they have problems with idle cash balances in Asia and initially try to solve it remotely. Some visit Asia, agree on plans with local teams how to solve problems, and believe to have reached consensus. However, often nothing happens, despite trying to follow up. “Trapped cash” is often a term that is used to explain the situation. It is true that some cash balances really are trapped, but in many cases, there is much that can be done. Ultimately you need the team to roll up the sleeves, get into the details, understand how things really work out, be creative, determined and persistent. Using China as an example again, most cases can be solved with a cross border cash pool. Getting this cash pool in place may require effort and energy, but the outcome resulting in freed cash is well worth the effort.

A suggestion for treasurers is to run a calculation similar to the China example for all countries where their companies are active in Asia. This will provide a better understanding of their cost of cash in the region.

Maturing from Foundation to Developing

Once an organization can conclude that there is significant value in optimizing its treasury in Asia, resources and tools must be allocated to support the process of growing the corporate treasury’s maturity level from foundation to developing. When maturing from the Treasury Maturity Model’s stage of foundation to the developing stage, an organization must take into account the following four important factors: resources, dedication, integration and complexity.

Once resources and the required tools have been allocated, optimization can proceed. When initiating the change, it is best to focus on both resources and tools. The optimization of Asian treasuries tends to be a more iterative process than European optimization projects, so this helps prevent the organization becoming mired in detail. A number of steps must be taken to ensure a structured approach to attaining the local optimization level. These steps do not necessarily need to be taken sequentially, and can be taken simultaneously. Their order will depend on the respective countries’ requirements and the iterative approach adopted.

Local Treasury Center

A comparison of Asian and European treasury optimization reveals the process to be ‘same, but different’. It is important to be aware of the differences. Optimizing treasury in Asia generally plays a prominent role in an organization’s global footprint, and we have seen how timely optimization can prevent an organization incurring huge costs through inefficient operations.

There are three possible treasury center models an organization can consider when attaining specified levels of optimization:

  1. Global Treasury Center (GTC):
    Treasury undertakes all functions and has the highest level of centralized management. It serves as the only treasury for all global markets by combining all local and regional treasuries into a single location.
  2. Regional Treasury Center (RTC):
    Serves mainly regional operations and has central management with dedicated staff
  3. Local Treasury Center (LTC):
    Serves mainly local operations and is decentralized with dedicated staff.

Treasuries still in the foundation stage seeking to reach the developing stage can be described as operating in a less complex business environment. They operate autonomously from each other and therefore tend to have limited or no dedicated staff, and limited integration. To optimize this level of treasury to the stage of a developed local corporate treasury – a Local Treasury Center – it is necessary to allocate local dedicated treasury staff to focus solely on their tasks. As operations become more streamlined and efficient, more time becomes available to increase their levels of expertise, integrate with the business and tackle the level of business complexity encountered in the local economies.

Next steps

Identifying and acknowledging the problem, and the drivers that may be behind problems and inefficiencies in the foundation phase is vital. Allocating the right resources and tools is also a crucial second step towards attaining the next level of maturity. As the process tends to be more iterative in Asia, try not to get mired in details.

Treasury optimization is a multi-faceted discipline, and many of these facets depend on the individual situation. The key considerations described above are intended to serve as a guideline on where to start and how to approach Treasury optimization in Asia. If doubts persist, enlisting an experienced party to assist with the complexity of such projects is always an option. Zanders can help corporates both in structuring the right approach and as an implementation partner.


This article was written in cooperation with Aron Åkesson. Aron has been living in Asia for eight years working with and helping MNCs to improve their treasury in the region. He has detailed understanding of local banking, financial markets and culture, speaks mandarin and is well connected among banks and financial institutions in the region. For more information, go to As of 1 October 2019, Zanders is also present in Asia. We have opened an office in Tokyo, Japan, to cater to our clients located in the East-Asia region. If you have any questions regarding our operations in Asia, please feel free to reach out to Michiel Putman Cramer via +81 3 6892 3232.

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