China focus: Deutsche Bank’s expectations for the renminbi

Recent estimations for total offshore renminbi in Hong Kong place it at over Rmb300 billion. What expectations do you have for the currency this year?

We have seen a lot of interest from both financial institution and corporate clients in offshore renminbi, both from a trade finance perspective and a cash management angle. Offshore companies are generally looking to gain access to renminbi liquidity and pricing; onshore companies want more transparency in their FX management.

We’ve had some nice successes with corporates which portends well as we move into 2011. We have opened numerous accounts for various kinds of transactions, including dividend payment, trade flow-related transactions, or for cash management-related pooling activities and in areas where regulations permit. Initially, we were hoping for a measured level of interest at the early stage as it would generally take a while longer for clients to assess the viability of the program, so from that perspective, we have been pleasantly surprised by the ongoing uptake to date. Having said all this, there is still much more to be expected to take place. This is the tip of the iceberg in my view.

While the precise amount of offshore renminbi depends on how you calculate it, there is no debate on the direction it is going in or in the level of interest. The regulatory environment is opening up. While there may be some quota restrictions which surface from time to time, but directionally I believe that we will see more exciting developments on the renminbi front where the currency could fully realise its potential and the role as an internationally accepted global currency.

What are your expectations for your cash and trade businesses in 2011 in the region? Some fund managers are betting against China as a bubble economy. What’s your view?

We are fairly optimistic, because as far as our region is concerned we are poised for growth with the larger economies in the region showing good growth trends and overall trade volumes growing. Trade between Japan and China is also coming back to pre-crisis levels, and there is an overall surge in trade volumes and business. What is happening in euroland may create some disruptions as we are not completely decoupled. Having said that, intra-Asian trade is growing much faster than trade with markets outside our region.

We are also optimistic about China, which is an important market of focus for us in Asia. We opened a branch last year in Tianjin, and we will continue to open branches where our clients need us. Overall, we have been building up our presence across our whole corporate and investment bank (CIB) in the country.

How is Deutsche Bank set to win business this year, and what are the key products and services that companies require?

While our larger clients have been continued to be stable even during the worst of the crisis, some of their suppliers have been impacted by working capital challenges. Deutsche Bank was able to address the urgent concerns of the financial supply chain (FSC) and this is a theme which resonates very soundly with corporate treasurers and CFOs. We also noted that corporates would like to see solutions which cut across various areas of the whole supply chain. Deutsche Bank is able to bundle cash and trade with FX products for clients, providing them with holistic solutions which they never previously enjoyed. This helps them to improve their own processing, whilst giving them access to exotic currencies which they never had before.

As clients increasingly look to us to provide all-encompassing solution, our integrated transaction banking portal offers clients a single point of access for all transaction services that can further leverage the synergies across the CIB platform. The market definitely sees us as innovator and as a bank which provides solutions, as well as a consulting advisor.

Like most banks in the current environment, we are focusing on enhancing our revenues from fees of services provided, rather than be dependent on the interest part of it. This applies to both the credit side of it, where margins are compressing with new local and global entrants coming in, and on the cash side, as it is not viable to simply focus on only balances and wait for interest rates to go up, though to some extent, these are going up in some Asian economies.

In an era of increasing regulation, how has the role of the CFO/treasurer changed and how is Deutsche Bank adapting to this?

We are in an era where there is tighter control over the way things are accounted for, both from a corporate as well as a financial industry perspective. Accounting standards are going to get tighter. While some of these regulations have yet to be formalized, those firms who are getting ready now in anticipation of this climate of tighter controls will be better positioned for the future. From a positive angle, such accounting regulations requires firms to have advance planning for additional capital should the need arise ; others may require a change in the accounting treatment or processes . These will have an impact on the way business is conducted and pricing of transactions which are affected.

CFOs and treasurers clearly have a much greater role in the success of their organisations, but they may not always be adequate resources or support to look at every aspect of the working capital or investment of the idle cash; in such a scenario, corporates’ reliance on banks providing total solutions is going to be a major theme, and relationships with banks are getting closer.