April 14, 2010
Source: Shanghai Securities News
Owing to the global financial crisis and its lag effect, problems such as poor operation of corporate cash flows and persistent capital chain tension, which were once shrouded by rapid development, have gradually begun to surface. As these problems become increasingly apparent, there is a growing urgency for companies to improve their cash management. The concept of “Cash Reigns, Steadiness Precedes” has come to be accepted by more and more businesses that are taking action to combat the financial crisis and trying every possible means to transform their development model. The concept has also induced unsolicited responses from the commercial banks. In fact, the Industrial Bank (IB) has done a lot of work in this regard over the last two years.
In response to current needs, several domestic backs boasting expertise in capital operation and risk control and supported by robust technical strength have taken steps to integrate and refine their professional experience in cash management and offer tailor made services to enterprises. The transfer of knowledge and sharing of technology benefits both parties and has brought about a new ecology for corporate finance. The Industrial Bank is representative of these domestic commercial banks.
Seeking a Sustainable Business Development Model
According to Mr. Zhu Liyong, General Manager of the Corporate Finance Department of IB, the cash management services offered by IB are digitalized, web-based professional financial services designed to meet the capital management needs of companies. It aims to help businesses rationally manage capital inflow, retaining and outflow from operations, investment and financing and allow for forecasting, monitoring, comprehensive perspective and total control across the boars, thus allowing for the fluidity, security and value-increase of capital to be considered as a whole and the maximization of gains. If we regard the energy-efficiency and low-carbon financing pioneered in China by the IB as a means of supporting harmonious co-existence with the environment via its assets business, then we can also regard its cash management as a way of boosting the sustainable development of businesses and the economy via its intermediary business and liability business. Both of these approaches highlight a joint emphasis on financial gain and social responsibility.
Advocating a social responsibility (“righteous benefit”) implementation model aiming to maintain sustainable development, IB is adept at identifying social needs that have bearing on bank business. It incorporates them into its own development strategy, business objectives and business process in light of market principles, gives play to its advantages in expertise and specialized resources, presents premium financial products and services to stakeholders and builds harmonious, diversified stakeholder relations with a view to supporting the sustainable development of society, opening up its own “clearing” and further consolidating its core competitiveness. It is not an exaggeration to say that IB, the first bank in the domestic banking industry to employ the Equator Principals, has accomplished three major transformations—from business operation trials to consensus in corporate governance, from succumbing to restraint passively to seeking opportunities proactively, from a single financial product to sustainable business model and all-round redesigning of business processes—in a number of areas such as energy-efficiency and low-carbon financing and cash management, which is evidenced by its gradually optimized internal governance environment and multiple social effects.
Building a Cash Management Niche with Integrated Strength
As mentioned above, the cash management service offered by IB fulfills social responsibilities by upgrading cooperation between the bank and businesses, harmonizing corporate financial ecology and optimizing the allocation of social resources. Nevertheless, cash management is a service that needs to be tailor-made flexibly according to clients' widely diversified business needs, management needs and corporate culture. It is also a service with high professional barriers, extensive coordination, long execution cycle, and challenges in both business and technology. As the saying goes, “a blacksmith must flex his muscles before he is admitted to his profession”. To enhance the efficiency and gains of corporate cash operation, lower risks and further growth through cash management services, a bank, as a service provider, needs more than just a sense of social responsibility; it requires strength in capital operation, risk control, technical support and growth potential.
In these respects, IB is indeed more than equal to the task. In profitability and growth potential, IB has ranked first in earnings yield index among domestic banks for two consecutive years, with average rate of return on capital leading domestic banks and actual profit growth rate being among the top three. Since 2007, IB has been awarded successively a number of honors, including “Golden Bull Award for Top 100 Listed Companies in China”, “Top 100 Most Valuable Listed Companies in China”, “No.1 of Top Ten Listed Companies with Sustainable Investment Value”, “No.1 of Top Ten Listed Companies with Best Growth Potential”, “Best ROE Award in Mainland China”, “Sustainable Bank of the Year in Asia”, etc. In terms of risk control, IB is in the forefront of domestic banks in asset quality. In terms of technical support, IB's e-banking has won such honors as “Achievement Award for Bank and Business Payment Service”, “Best User Experience Award for E-Banking in China”, “Function Innovation Award”, “Best Personalized Service Award”, etc., which showcase the management capabilities of IB. In 2009, IB was ranked 292nd on the list of Top Global 500 Businesses by the Financial Times and 389th on the list of Top Global 500 Listed Companies by Forbes. Among the 307 banks that made the rankings worldwide, IB ranked in 62 nd place. This represented a dramatic climb of 46 places compared with the year before, surpassing prestigious banks in the industry such as Citibank and the Royal Bank of Scotland.
By virtue of its robust integrated financial strength, IB was one of the first banks in the industry to discover the “new continent” of cash management services. By refining its own products, optimizing business processed and creating a cash management brand centered around three dimensional solutions to varied demands known “Golden Cube”, IB has met the urgent needs of a group of model market leaders at the regional and industry level, and has therefore achieved mutual benefit between the bank and the businesses and brought about both economic and social gains.
“Golden Cube” Meets Client Needs via Cross-bank Management Platform
The “Golden Cube” cash management solution of IB allows clients to exercise rational and efficient account management, settlement management, bill management, capital transfer, internal credit, financial accounting, risk monitoring, decision analysis and report analysis via the cross-bank cash management platform so as to satisfactorily meet the demands of clients for the management of bank accounts, improve their capital efficiency, gains and security and actualize refined and rational company governance. With this service, the headquarters of group clients will be able to authorize and customize processes based on their own needs for business development and differences in risk control culture, supervise the capital flow direction, flow rate and flow traffic of affiliates across the board and proceed to exercise self-defined centralized management by regulating business flow and information flow. The affiliates of the group can support and complement each other by way of internal capital mobilization to fully capitalize on the group advantage.
The cross-bank cash management service of IB is targeted at corporate clients and group clients with single legal person or multi-level legal person status, clients of e-administration (involving public affairs) and e-commerce. Large businesses and groups with single legal person or multi-level legal person status usually find themselves in the dilemma of “three losses” (loss of control in budget, loss of fidelity in information & loss of effectiveness in decisions), “two lows” (low capital flow efficiency & low gains) and “two highs” (high capital risk & high accounting cost). This is because the member organizations operating across regions vary widely from one to another; the accounting management system is enormous, and member organizations cooperate with different banks for historical reasons, which means the group needs to maintain business relations with several banks whose e-banking systems are independent of each other, which results in a situation in which the group has to manage funds and accounts dispersed over a number of banks, which means complex tasks and large amounts of human resources.
In a bid to help group clients address this kind of problem, IB has launched the cross-bank cash management platform to enable businesses and group clients with single legal person or multiple legal person status to perform, via the platform, such functions as centralized management of multiple bank accounts and capital, unified settlement and data analysis so as to genuinely meet the demands of groups for the management of all bank accounts. In addition to large businesses and groups with single legal person or multiple legal person status, e-administration and e-commerce clients also encounter various kinds of challenges when withholding payments. For example, if they want to support online payment with different commercial bank cards, they are required to perform account clearing and system interconnecting with all the concerned banks, which requires not only a significant technical investment, but also daily account clearing with banks. As a great deal of clearing is involved and the banks differ in the way clearing is handled, there arises the problem of complicated procedures and low efficiency. Some e-commerce businesses are also limited by their scale or influence and are at a disadvantage when negotiating the charges, period and means of cooperation for online payment with the banks. To facilitate the development of e-administration and e-commerce, support payment by different domestic bank cards and prevent the need for repeated system connection with banks, IB has taken the lead in launching the cross-bank online payment settlement platform designed for e-administration and e-commerce clients and offering one-stop services such as online payment settlement transaction enquiry, settlement enquiry, real-time money transfer and refund for all bank cards in China on an agency basis.
Customized Financial Service Solutions
Following across-the-board endeavors in cash management, product innovation, marketing management and technical support, IB aims to engage in in-depth communication with clients and provide customized service solutions after ascertaining needs. It assists clients in moving their capital operations towards far-sightedness, intensiveness, high efficiency, standardization and refinement.
Take for example the 100-plus affiliated member organizations of Harbin Pharmaceutical Group Holding Co, Ltd. (HPGC), which vary significantly from one to another due to cross-regional operation and used to administer capital use in their own way. This led to a situation in which some organizations had idle capital on a long-term basis whilst some faced capital shortages. After the Group adopted the cash management service solution offered by IB, its channels for internal capital mobilization have been opened up. By means of internal capital movement, it has paid off RMB 800 million in short term bonds on time and saved RMB 34 million in accounting expenses annually. Capital bargaining power and earnings rate have increased along with the pooling of capital, thus generating indirect gains worth over RMB 1 million. Another case in point is Zhongyuan Publishing Media Investment Holding Group Co., Ltd. Since the cash management solution of IB was introduced to the company, it has achieved increasing accuracy in capital estimation and decreased markedly the mobilization frequency by integrating all the business data from different banks, thus saving settlement expenses by large big margin and improving work efficiency by over three times while cutting RMB 70 million in financial expenses and increasing capital gains by over RMB 8 million thanks to integrated application of capital. The third case in point is that IB has successfully created an online shopping mall—“Furniture & Furnishing E-shopping Network” for Shenzhen Haobainian Furniture & Furnishing Chain Co., Ltd. The number of visitors to the website when it was first opened for business exceeded 10,000, with online sales of over RMB 5 million.
In addition, IB spares no effort in supporting the development of the Western Taiwan Straits Economic Zone. It has successfully built an industrial e-commerce trading platform—the Industrial Energy Trading Center, the first of its kind in Fujian Province, to provide customers with online e-commerce services for spot and forward transaction in the coal industry, initially shaping an industrial e-commerce market based in the regional market of Fujian Province and extending to the markets nationwide for the sale and transportation of merchandise like coal and construction materials. Based on such systems as membership, guaranty system, agency account closing and complemented by transaction capital management and online debit and credit functions, the trading center guarantees real-time clearing and capital security for traders' investment, hedging and spot trading and maximizes investment returns for traders by making available the capital leverage function, ensures that the trading process is fair, just and open by making transparent trading prices and supply information and standardizes the energy trading to stabilize fluctuations in energy prices and guarantee the sustainable development of energy traders.
Mr. Zhu Liyong remarked that IB wishes to develop its cash management business as a driver and a new profit growth sector of its banking services. It will solidify the foundations of its core clients, core liabilities and intermediary business through cross-selling and in-depth expansion, impel the strategic transformation of the business development model and profitability model, bring about a mutually beneficial situation and niche for the bank and its clients and create a harmonious, co-existing and sustainable new financial ecology.