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WorldMarch 1 2012

Singapore's standing as GTS hub goes from strength to strength

Singapore’s strategic location in Asia is proving a boon to the city state’s transaction bankers, particularly as they seek to capture banking business from the world’s changing trade flows.
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Singapore's standing as GTS hub goes from strength to strength

While commodities have been shipped through Singapore for centuries, the city state's banking industry is carving itself out a reputation as a hub for transaction services that support global trade.

The strategic importance of the port was recognised as far back as the 19th century when Singapore became a trading outpost of the UK's East India Company. These days, however, banking services to support this trade are increasingly being done out of Singapore and the financial transactions match the trading that has long been done in the physical world. Singapore’s transaction banking industry is also witnessing a shift in trade patterns: Chinese companies are now coming to Singapore to use it as an outpost to export to the West, and intra-Asian trade flows are on the rise.

Andy Dyer, Australian bank ANZ’s head of transaction banking for Asia-Pacific, Europe and America, says: “Singapore has always been an important hub for transaction banking, whether it is cash management, trade or securities.” 

“The shift from West to East has accelerated in the past two years and Asia has become more important to corporates and banks. That elevates the position of Singapore – along with Hong Kong – which is a natural regional hub for Asia as the region becomes more important in the global context.” 

Changing roles

Trade patterns are also become more diverse than the traditional West-East divide, and ‘South-South’ trading routes are also emerging that connect Asia, the Middle East, Africa and Latin America. HSBC research notes that “in the same way that trade between the developed nations exploded in the 1950s and 1960s, we expect the 21st century to see turbo-charged trade growth between the emerging nations”.

The role of China and India in the global economy is increasing, and Singapore is well-positioned between the two countries to capture these emerging trade flows.

“Singapore is at the crossroads of international trade,” says Krista Baetens, the country manager for Singapore of the Netherlands-based ING Bank. “You can see it,” she adds, gesturing to the view of the port from her office window. As one of the busiest shipping ports in the world, these container ships creeping across the horizon are global trade in action, underpinned by a network of transaction banking products and services.

With a regional office in Singapore, ING Bank is able to capture the trade flows between Europe and Asia and vice versa. Ms Baetens says that Singapore’s role in international trade is increasing, particularly because intra-Asia trade is on the rise.

We selected Singapore as our regional treasury services headquarters because the country’s geographic location provides a good linkage to manage our business across the entire Asia-Pacific region. This mirrors Singapore’s appeal as regional hubs for corporations

Alan Goodyear

This trade has meant that Singapore has become a leading hub for cash management. Suman Chaki, Deutsche Bank’s head of global transaction banking for Singapore, describes the city state as a “true blue” trading economy, and despite the global slowdown it still experienced a significant growth in trade volume. According to Singapore government statistics, on a year-on-year basis, total trade rose by 5.9% in December 2011. This was also a 12% increase on the previous month.

Thinking big

The proportion of trade going through Singapore is also significant, considering it only has a population of 5 million. Figures from the World Trade Organisation (WTO) show that Singapore’s trade-to-gross domestic product ratio between 2008 and 2010 was very high, at 404.9%. And in terms of world trade rankings, Singapore was 14th for exports and 15th for imports in 2010, according to the WTO.

There is not just optimism about the physical trade passing through Singapore, but also in the transaction banking business that supports it.

Alan Goodyear, RBS’s head of transaction services for Asia-Pacific, says: “Our transaction services business in Singapore achieved strong year-on-year growth despite tough market conditions. Our cash management services, including liquidity management, advanced significantly in spite of the low interest rate environment. We also expanded our trade finance business last year, especially in the areas of traditional trade and commodities financing.”

Ashutosh Kumar, Standard Chartered’s global product head of corporate cash and trade, adds that commodity trade finance is an area that has seen growth in Singapore in recent months, and what has been traditionally done out of Europe is now increasingly being done from Asia. “More commodity companies are talking about moving to this part of the world,” says Mr Kumar. He adds that the shift had already begun before the financial crisis of 2008, but now that many European banks are no longer as active “there is much more demand from a trade finance perspective”. 

Mr Kumar says that Singapore’s trade has grown both in terms of exports as well as imports. In December 2011, for example, total exports increased by 7.5% in December 2011, year on year, after an 8.2% increase the month before. Total imports increased year on year by 4% in December 2011, after a 17% increase in November, according to government statistics.

Treasury centre

Singapore is the largest trans-shipment port in the world whereby goods are imported, value is added, and then they are re-exported from the hub. George Nast, Standard Chartered’s global head of product management for transaction banking, says that it is not just trade finance that has been an area of growth for Singapore’s transaction banking business, but the city state has world-class treasury management too. “Singapore has the ideal platform to build a treasury centre,” says Mr Nast, who highlights the benefits of its talent pool and regulatory framework.

Mr Nast says that there are two drivers to Singapore’s growth as a transaction banking hub: Singapore’s location as a natural point to capture commodities trade flows, and its strategic position to capture the trade of the emerging markets.

Melvyn Low, Citi’s head of global transaction services for Singapore, says that about 15 years ago the primary role of Singapore was as a regional hub for liquidity. He adds that government actively pursued European and American multinationals to set up in Singapore. “It started out small: 15 to 20 years ago maybe for those international companies only 5% of their business was in Asia,” says Mr Low. “That proportion started to grow,” he adds. As their Asian business grew, so did the multinationals’ need to set up regional treasury centres. This has been encouraged by the Singapore government’s Financial & Treasury Centre Incentive Scheme, which gives tax breaks to companies setting up in Singapore.

Complementary services

As well as Singapore being a liquidity hub, banks in the city state have also supported other services such as payments and collections. Mr Low notes that as Asia started to grow as a business destination – at about the same time as China, India and other emerging markets in Asia started to rise to global economic prominence – there was a second wave of activity in Singapore as a re-invoicing centre. Companies typically have procurement offices so that goods are bought in to and sold out again from Singapore. As the physical goods are shipped in and redistributed from Singapore, so are the financial transactions and paperwork. “This complements Singapore’s position as a logistics hub,” comments Mr Low.

Mr Goodyear at RBS says: “We selected Singapore as our regional treasury services headquarters because the country’s geographic location provides a good linkage to manage our business across the entire Asia-Pacific region. This mirrors Singapore’s appeal as regional hubs for corporations.”

Abdul Raof Latiff, JPMorgan’s head of treasury services for the Association of South-east Asian Nations, says that Singapore has always been an important location for large international corporations. Ten years ago, he explains, many US and European multinationals came to Singapore to set up their regional centres. While their business in Asia was expanding, the regulatory environment in Singapore was favourable and provided a platform that allowed companies to explore and innovate in terms of various operating models, meaning many multinationals chose to set up their treasury centres in the city state.

In terms of Singapore being a hub for transaction banking, Mr Latiff says of one recent trend: “We have always found that the top-tier multinationals would have their regional centres in Singapore, but now we are seeing a second generation of companies here that are setting up similar centralisation units, benefiting from all the expertise and experience available.”

Mr Dyer at ANZ says that integrated cash management solutions were previously only used by multinational corporations. Now, however, the technology is simpler and more accessible and more companies are able to invest in regional cash management solutions where they can have visibility and control across Asia. “This has gone from the preserve of multinational corporations to become much more mainstream,” he says, adding: “There is also an increasing use of supply chain financing, which is complementing the strong trade finance business that Asia has had.” 

Another trend that Mr Chaki at Deutsche Bank has noticed is that the size of the deals is growing in Singapore. For example, a large multinational corporation that has a hub in Singapore may want to have one transaction bank that will support its business across the whole Asia-Pacific region.

Switch in direction

However, after years of acting as a centre for Western companies wanting to establish a foothold in Asia, Singapore is experiencing a reverse of this trend, as Asian companies increasingly use the city state to set up regional treasury centres for their expansion into Europe and the US.

Mr Low at Citi says that Asian multinationals wanting to move West has been a notable trend over the past couple of years. “There has been a tripling of activity around Chinese companies wanting to go global,” he says.

Singapore will continue to be a stalwart in trade and cash management and will continue to be a key centre for corporates looking to set up regional treasury centres and re-invoicing centres

Lisa Robins

The requirements of these Asian companies venturing into new markets, points out Mr Chaki, are different from their Western counterparts. “Their needs are more consultative,” he says. He adds that corporates in the West have tended to use global liquidity management solutions for a much longer time. As a result, they would be more familiar with cross-border transaction banking solutions as well as the experience of going into new markets.

For the Asian companies venturing into the US or Europe or other new markets, Mr Chaki says: “They would be looking to engage closely with their banking partners as they navigate the complexities of unfamiliar new markets and put in place the best liquidity management and other working capital solutions most appropriate to their needs.” 

This kind of knowledge is one reason that many companies and banks gravitate towards Singapore. Its talent pool is cited by many executives as a reason for setting up in the city state. According to Mr Chaki, many Chinese, Indian and South Korean companies do not have any intention to expand west of Singapore, but have set up a regional treasury office in the city state to tap the talent that is there. 

Multiple benefits

Lisa Robins, Deutsche Bank’s head of global transaction banking for Asia, says that the reasons Singapore stands out as a financial centre are its legal framework, talent pool, use of the English language and strong logistics capability. “Singapore will continue to be a stalwart in trade and cash management and will continue to be a key centre for corporates looking to set up regional treasury centres and re-invoicing centres,” she says.

Although many commodities originate in Asia, from markets such as Indonesia, the financial transactions underlying the trade have traditionally been done elsewhere. That, however, has now changed. As well as the development of transaction banking in Singapore, there is now the Singapore Mercantile Exchange, which went live in August 2010. The Singaporean government has also made efforts to boost commodities trading in recent months, by making adjustments to its Global Trade Programme, for example.

Sumit Aggarwal, Standard Chartered’s regional head of transaction banking for south-east Asia, says that Singapore has a more vibrant exchange of commodities than it has had in the past. For example, Singapore now has a pricing mechanism for rubber. In July 2011, the Singapore Exchange (SGX) migrated Singapore Commodities Exchange rubber contracts onto the SGX trading platform. “Historically the price discovery mechanism for commodities has been in Chicago or London,” says Mr Aggarwal. “It is only logical that some of it starts happening within the south-east Asia time zone since the region is one of the biggest producer and consumer of commodities in the world. This is definitely advantageous for Singapore as it is already a regional commodity trade financing hub.”

Being in the same time zone as south-east Asia is just one of the advantages that Singapore holds. Combined with the strategic location of its port, Singapore’s transaction banking industry is looking to capitalise on these factors and continue to exploit the opportunities that are emerging from the shift in global trade patterns and strengthen its position as a hub for transaction banking services. 

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