The True Cost of Overseas Banking
The final article in our True Cost of Exporting series deals with the cost of overseas banking, to help you manage your transactions to minimise those fees and charges, and make sure you’re not paying too much on your foreign finance facilities.
Banking seems like such an everyday facility that exporters forget that doing it the wrong way can be costly. Whether it’s opening a bank account in the destination country or finding finance from foreign sources, there are a number of costs exporters should consider—and many they can avoid or minimise.
Overseas accounts
If you are already with a provider, obtaining an overseas account is usually a matter of completing paperwork and letting the institution do the rest. Most Australian banks don’t have branches overseas, so they will generally go through in-country partners to set up an account for you. Global banks, such as HSBC, can process country accounts through their own network.
At this stage, the main cost to you is time and effort. “Some of the indirect costs are exporters needing to have two banking processes, and there could ultimately be multiple providers in that,” says Jason McClintock, senior manager in FX trading at American Express Foreign Exchange International Payments. “There’s a cost internally to keep those accounts functioning within general ledger systems and accounting systems in the back end of any exporter.”
Foreign accounts tend to attract transactional fees similar in structure to Australian accounts. Fees and charges will vary according to a few factors. “From a client perspective, it depends on their volume as to what they get charged, and the size of their balances. If you were to use a third party bank it’s typically more expensive because of that third party aspect,” explains Wendy Booth, head of global payments and cash management at HSBC Australia.
“From the bank perspective it depends on the country, For instance, the UK is notoriously expensive for telegraphic transfers. The US don’t pay interest on accounts because of local regulations, so they’ll charge fees, and their fees are a little bit more competitive.”
The good news is exporters may be able to negotiate fees with their provider. “Depending on the size of the corporate, everything’s negotiable with the transaction fees,” she says. Factors that would influence negotiation include volumes, size of deposits, and the extent and length of the relationship, Booth notes.
Foreign finance
Attaining finance from a foreign market involves a similar process as attaining finance in Australia. However, whether or not you’re eligible for finance will depend on the country you’re in. “In the more developed countries it’s a more refined process and more available to the lower end of the market, but in lesser developed countries it’s not as easy,” explains Andrew Skinner, head of trade and supply chain at HSBC Australia.
An indirect cost is maintaining a presence in the market. Typically you need to have assets in the country before you can apply for finance in that market; you may also need a financial track record to be considered for finance. “That track record may be offshore so if in your new market you have no track record, it’s not going to be easy to get access to large facilities unless you have strong security, for example,” he says.
“There are also some markets in which you can’t give security, or it’s of negligible value. The better the security, the cheaper the finance will be. People whinge about security but if it gives you a better cost of funds, then that’s a more sensible way to get it.”
He adds that if your facility goes beyond the standard loan you may need independent legal advice, which has a cost attached to it.
As for the cost of the finance itself, Skinner says Australia is quite competitive, so you may be better off getting finance here, especially as you’ll already be familiar with the regulatory environment. The volatility of the other country’s currency may also be discouraging.
But there are still advantages to attaining finance in another country: if you have costs in that country, then “you may be able to provide a natural hedge for your product to remove some of the currency issues,” says Skinner. Also, “some countries have a lower cost of interest.”
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