The effect of BASEL III on liquidity

Cross-border flows are getting more emphasis in recent times with traditionally domestic focused institutions looking for cross-border trade. Countries from Asia-Pacific, Africa, and South America are experiencing massive inter-region trade and fund flows. Companies from China and India are purchasing assets and resources particularly in Africa, the Middle East, and South America. The scale and value from this momentum will grow in the coming years.

A worrying development is the implication Basel III will have on liquidity, and its impact on a bank’s lending capabilities in trade finance, working capital, and short-term loans. The necessity to maintain higher liquidity will restrict a regional bank’s capabilities to finance a corporate’s cross-border expansion projects. Pricing for finance is expected to go North.

Clearly, the current need is better insight into liquidity positions for corporates operating or looking to operate in the region. Under a tightening liquidity and pricing scenario, corporate treasuries want their regional banking partners to tell them where their cash is and how to make the best use of it. They want their banking partners to pool this information across the region and apprise them in real-time.

Regional banks can strongly position themselves  from this development as it fills the gap from the implications of Basel III while the banks grow in these regions. Subsidiaries or representative offices across countries give banks extensive on-ground presence, knowledge of local economies, and competitive advantage.

A cash management solution that delivers cash pooling across regions, cash forecasting to track the cash flows, in-depth reporting and regional re-balancing on  liquidity positions will provide insight on the cash availability and efficiency of its use among the corporate’s regional subsidiaries.

Regional banks can assess the credit worthiness of corporates, based on future regional cash flows, with   a sophisticated liquidity management tool. Corporates will also benefit from greater intelligence on their cash to propel their expansion plans.