Corporate transaction banking picking up in Sri Lanka

ASEAN and Singapore Treasury and Trade Solutions Head Melvyn Low was on a country visit to Sri Lanka recently as the country gears to become a trading hub. His visit is timely for the local branch as Treasury and Trade Solutions is one of the most important products for Citi globally and foresees potential growth in country post the investor confidence displayed during the recent bond issue.

Citi has pioneered the art of transaction banking for years, to a level where it constitute as much as 30% of overall revenue globally. What the word ‘transaction’ simply means is the process of money transferring from one place to another. Nobody today, especially the corporate world can ever deny that transaction is one of the most critical parts of any business, and therefore the banks all over the world need to be involved 

in this area. 

Melvyn in an exclusive interview with the Daily FT broke down the importance of transactional banking to Sri Lanka as the country transitions to a business-oriented island nation.

Below are excerpts:

By Shehana Dain

Q: What is transaction banking for Citi?

A: It’s a very core piece of business for banks. For us it’s about corporate transaction banking. Basically it starts with a bank account of a corporate from which it needs to pay and collect money from their clients; manage the money that they have using tools such as electronic banking and mobile banking. Every client needs transaction banking, we see this in all our segments of clients. It is a cross border business as well as a domestic business and for us it is a global business. Our main stay companies are MNCs and top tier local companies. 

Q: What’s happening in this part of the world?

A: Technology is one of the biggest drivers in transaction banking growth in this part of the world. In the past it was all done with paper where the client will submit paper instructions we would then act on them as an agent for their payments. Today because of the internet we allow them to interact with us using the internet banking channels. Now we have the mobile channel which has become popular with clients to retrieve their bank account information, approve and authorise payments as well as manage their cash. So technology is a very big game changer in the transaction banking scenario.

Q: How has commercial trade taken off in the region?

A: In this part of the world trade is very important. Traditionally in the SAARC region India, Sri Lanka and Bangladesh have been very active in this regard. We see a lot of growth here which is very good for a transaction economy. The countries that I manage, which include Indonesia, Malaysia, Singapore, Thailand, Vietnam, The Philippines, Bangladesh and Sri Lanka, form a community of 700 million people and a combined economy that contributes a 5% growth and $2.4 trillion in GDP. The ASEAN Economic Community will be launched in December this year. All this has brought more focus for our MNC clients and they are coming into this part of the world. These are consumer related companies in the areas of FMCG, healthcare and insurance. We also see companies who want to diversify themselves from China as a manufacturing source and build factories in ASEAN. Even Sri Lanka has seen growth in companies who want to come in. This gives a boost to local economies, particularly in terms of logistics, airlines and power and energy companies to provide infrastructure support for foreign investments. 

Q: How do banks fit into this equation?

A: We bring these clients into this part of the world. Client within Asia and outside of Asia come to us and say that they need to open a company and we assist them. We help them to smoothen their supply chain processes. Most importantly, we link these MNCs with their head offices in their home country. We do that through our global electronic banking platform, CitiDirect.  Additionally we are also very involved with top tier local companies who are venturing globally. We give them access through our network of 100 countries where we operate.  In Sri Lanka, companies in the garment industry and rubber industry are growing internationally and require transaction banking and foreign exchange services which we provide. 

Q: can you give an overview about intra ASEAN inflows that are happening now?

A: Activity within Southeast Asia, or ASEAN, countries selling to one another amounts to 25% of the GDP. These inflows will increase with the launch of the ASEAN Economic Community which promises to reduce trade tariffs and simplify customs practices across countries. Another growth driver is the presence of the Free-Trade Agreements (FTAs) between ASEAN and its main trading partners. These FTAs include China, India, Korea, Australia and New Zealand to name a few. The ASEAN-China trade corridor alone is expected to be $1 trillion in 2020. 

Q: How has Citi infused its resources for the betterment of Sri Lanka’s private sector?

A: We play a very important role in supporting our clients in entering new markets and assist them in the transition from a pure domestic company to an international organisation. The private sector in the country is already outward looking. We provide banking facilities when they want to enter new markets and enable them to compete effectively overseas. We also bring ideas to them, solutions that we see from other companies and markets. Such solutions include payment outsourcing, internet banking, mobile banking and so forth. 

Q: How will the bank work with the Government in the near future?

A: I understand that CBSL is looking to upgrade its payment infrastructure to support commercial and trading activity. We hope to share new ideas, thoughts and best practices of other Governments to support its ambitions. 

Q: What sort of advice would you give companies who are reinvesting their excess liquidity?

A: The markets today are very liquid and yields are low in many instruments globally. What we’ve seen companies do is manage their working capital management effectively. Most companies that we deal with have a certain level of risk tolerance so they can’t simply invest in high risk instruments. Instead, they look into optimising their working capital in order to extract long term benefits. 

Q: Given your expertise how do you think Sri Lankan companies are dealing with working capital management?

A: I’ve spoken to some of this country’s most advanced companies from a working capital management perspective. I’m very impressed with their international outlook in capital management and supply chain. They understand their entire supply chain and are electronifying their processes to increase efficiency and optimise working capital to the best extent. Some of the best practices I have seen come from here.

Q: With your knowledge are there any suggestions you can give to the Sri Lankan business community?

A:  Companies that have gone or are thinking of going global need to start looking at cash management solutions that will help them handle cash they have in subsidiaries across the world. They also should manage the global supply chain more effectively by getting more visibility and control through electronic platforms. This is where we will come in to share best practices and give advisory services to help Sri Lankan companies.

Q: Even though technology is very important. Still Sri Lanka hasn’t totally embraced the fact. How would Citi spread awareness in such a scenario?

A: I believe there is more that we can do to digitise our client’s transactions. Security is always a concern, but today’s technology allows one to control his transactions effectively. Having said that, cyber security is a big concern. This is why as a bank we invest heavily in technological solutions to make sure that the data we keep for clients are safe. 

Q: What can local banks do to up their game in the transaction banking scope?

A: Local banks are also our clients, so Citi doesn’t only bank corporates it banks financial institutions as well. We have been involved with the top local banks to bring them out. So what will a local bank do? They will leverage our network in order to service their own corporate clients. We find this symbiotic relationship very powerful. 

Q: What’s your advice for the corporates in Sri Lanka to up their game to be competitive within this part of the world?

A: One is to be very aware of competitive advantage of different countries. Our part of the world in the ’90s was known as Asian Tigers. It was a term used for some of the emerging nations in this region like Thailand, Indonesia and Malaysia. With the growth of China and continued interest from USA and Europe, these nations are our going to grow, fuelled by people who are smart, ambitious and hungry for growth. It’s an exciting part of the world we live in and a fast growing one.  Companies in Sri Lanka are well positioned to take advantage by being a part of this growth and will do very well I am sure.

Pic by Upul Abayasekara