More hedging solutions for Asian banks revealed

As various services and products emerge across Asia and trade is settled in different currencies, we sought the insights of bankers and analysts for possible hedging solutions.

ABF: Various services and products emerge across Asia and trade is settled in different currencies. What can be its profound impact for the competitive landscape in Asian banking? What are possible hedging solutions?

CITIC Bank International: Woody Chan, Treasurer
Banks with wider or more efficient network and better payment capability will have edge over others. In this particular payment system, we have different payment markets in different currencies. So when you have a network, it is easier to maintain a good banking relationship. Making payments will be prompt and much more efficient. Otherwise, you will need to rely on some other bank’s service so that you can serve your own clients. Cash / account pooling services or sweeping account would be the major solutions to have settlement in different currencies.

DBS: Teo Kang Heng, Managing Director, Corporate Advisory, Treasury & Markets
The availability to settle in different currencies across Asia encourages more trade activities among Asian countries. Although USD continues to remain the base currency for most trade activities, RMB and CNH are increasingly used to settle trade activities with China. This has led to more innovative financing activities to manage the risks associated with the RMB and CNH.

Deliverable and non-deliverable forwards continue to be commonly used to hedge foreign exchange (FX) risk in such activities. However, there has been an overwhelming increase in the demand for structured solutions to negate credit, interest rate and FX rate risks.

Oliver Wymann: Jason Ekberg, Consultant
Challenge will be understanding these exposures at a regional level in order to more effective manage the risk. Players are developing pooling solutions to address part of the challenge. Internally clients have a number of strategies to minimize FX risk though this requires clear guide lines to manage the process, e.g., using inter-company trades to centralize FX exposure. For smaller banks the challenge will be how to manage their own risks in lieu of having sophisticated internal capabilities – thus there could be interesting partnership options.