Based on analysis of customers’ activities, HSBC found that the majority was in the liquidity space and the complexity around these requirements was growing.
“We took a fact-based decision and looked at the last three years of internal CRM data and pipeline management to be sure that this was what we thought it was,” she elaborated.
Corporates are facing significant economic challenges, not just in terms of slowing trade and investment growth but a sustained low interest rate environment, and in some countries, negative rates. Moreover, they have a record level of cash holdings. This is another reason why Reyes believes that liquidity is the key area of interest for corporate treasurers who are seeking more efficient and productive solutions to manage their excess cash in order to improve the return of equity.
A third challenge for the bank is the Basel III capital requirement under the Liquidity Coverage Ratio rules that classify deposits as either core (operational deposits for daily activities such as payments and working capital) or non-core (non-operational deposits or surplus cash for investments) that attract different levels of capital and mean different costs to the bank. Corporates’ excess cash cost the large banks such as HSBC more to manage under Basel III requirements and therefore, lower customers’ returns on them. HSBC has devised alternative solutions for corporates to get better returns on their excess cash. Its Liquidity Investments Solution was introduced in July to address this issue.
“We continue to meet our customers’ needs. We value our long-term relationships with customers so we are trying to find a solution to give them some earnings and to continue to maintain our mutual relationship. This product allows them to choose the amount of money which will be put into the investment,” Reyes explained.
The critical aspect is that they are able to put the money into triple “A” rated money market funds as opposed to the bank balance sheet. It also helps our bank because it is treated as off-balance sheet. “It’s a win-win,” quipped Reyes.
HSBC runs the investment platform that gives corporates four options, comprising triple “A” rated money market funds from its associated firm, HSBC Asset Management, as well as from leading third party providers such as BlackRock, Goldman Sachs and JP Morgan.
Over 50,000 of its customers are using these liquidity services. She explained that the scale that HSBC is able to put through the platforms benefits its customers. The volume has expanded beyond the traditional multinationals and included an increasing number of emerging multinationals from Asia.
Reyes remarked that for its Asian strategy to succeed, it is critical to continue investing in payments and e-commerce solutions. Despite the difficult economic environment and constraints that some banks are facing, HSBC rolled out its new corporate online financial management platform, HSBCnet, that among other integrated solutions for payments, cash management and trade and supply chain finance, streamlined the onboarding processes for customers that operate in different locations.
“We are committed to the market and our customers in Asia.” She added: “We are now looking at what’s the next phase of investment as part of our pivot to Asia with a focus on China – and particularly the Pearl River Delta, where we recently launched a new e-commerce platform. This e-commerce platform not only allows HSBC to open accounts more quickly, but it also accelerates the settlement of customers’ payments.”
The importance of collaboration
Given the amount of investments required to develop new platforms and solution as well as the complexity involved in integrating different channels, banks are increasingly looking at collaborating with one another to offer customers choice.