Companies can now add Malaysia to the list when it comes to setting up their regional treasury centres in Asia, but Hong Kong and Singapore are likely to be corporates’ given their strong reputation as financial hubs.
The government of Malaysia has been fairly proactive in propelling the nation’s status as a regional treasury hub for both domestic and international companies interested in expanding their operations in the Asian region.
Malaysia’s Axiata Group, one of Asia’s largest telecommunications companies, has plans to centralise its treasury operations and build one of the country’s first regional treasury management centres designed to service its operating entities in Malaysia, Cambodia, Sri Lanka and Bangladesh, according to Reval, a global software-as-a-service (SaaS) provider of integrated treasury and risk management solutions, in a press release on July 29.
“The pace at which Malaysian corporates are globalising is faster relative to other Asian countries,” said Tony Singleton, Asia Pacific managing director at Reval to Asiamoney PLUS on July 26. “These corporates have good domestic treasury operations, but that doesn’t mean they have one established internationally.”
“With 5.1% predicted GDP growth rates for both 2013 and 2014, we expect Malaysia to develop into the region’s third major treasury hub, alongside Singapore and Hong Kong,” he added.
The Malaysian government has been proactively promoting the nation as a good option for corporates to set up their regional treasury centres.
For example, the Malaysian Investment and Development Authority (MIDA) is offering tax incentives over a period of five years to encourage companies to locate Treasury Management Centres (TMC) in the country.
“If it is a commodities-centric organisation, regional treasury hubs tend to be set up in Singapore,” said Singleton. “If it’s a Chinese SOE [state-owned enterprise], regionalisation tends to be in Hong Kong. But for others types of entities, Malaysia has got the opportunity to compete particularly with Singapore.”
As a result, Malaysia – which originally started as a hub for foreign corporates to set up their shared service centres (SSCs) – has begun to see the shift to where some businesses are considering setting up their regional treasury centres in the country, highlight some experts.
An SSC houses the outsourced back office services of a company, separating operational tasks from the corporate headquarters.
The government’s incentives coupled with the nation’s sound fiscal policies, political stability and relatively low cost of living, also contribute to its appeal as a regional hub for finance activities.
“Malaysia has become one of the more popular areas for US, European and Asian companies to house their SSCs,” said Hooi Ching Wong, head of treasury services, Malaysia at J.P. Morgan. “We are starting to see this shift to knowledge process outsourcing centres and regional treasury centres. Costs in terms of human resources and rental are manageable and Malaysia has great infrastructure.”
However, when it comes to the setting up of TMCs, some market participants believe that Malaysia will only attract local corporates for the time being.
For international companies, the appeal is still not there yet. Thriving financial hubs such as Hong Kong and Singapore will still continue to have that competitive edge over Malaysia, note transaction bankers.
This is because the country’s banking infrastructure is still at a developing phase, and there may be fewer tax and legal professionals with regional expertise.
“If you compare Malaysia to Hong Kong and Singapore, we have to face the reality that these two markets are definitely more developed and they were the first to set up a free market,” said a Kuala Lumpur-based head of transaction banking at a local bank. “The intention by the Malaysian regulators is going the right way, but MNCs still prefer Hong Kong and Singapore, where these countries are known to be more liberal.”
“Corporates may feel more secure from a regulation and legal framework point of view [in Hong Kong and Singapore],” he added.
In addition to Hong Kong, Malaysia and Singapore, Shanghai aims to become the leading financial centre in Asia by 2020, suggesting that competition could increase in the next decade or so.
Bankers note that Shanghai is already putting together an incentive package, but note that it will still remain unattractive until it fully liberalises its capital account and internationalise the renminbi.