Citigroup Creates Portal for Customers' Intercompany Loans

Large global businesses' financial needs are often complicated by dangers such as supply risks and exposure to potentially troubled local banks overseas.

To handle such complexity alongside issues tied to intercompany lending — in other words, lending between different units or legal entities of the same firm — Citigroup is expanding TreasuryVision, its treasury management portal, to enable corporates to track performance and compliance for lending between parts of the same business, either domestically or internationally.

For firms with international units, differing tax laws can make managing intercompany lending difficult, creating a sweet spot for Citi's new product.

"Clients with global operations need the ability to manage internal funding, often executed through intercompany loans," says Cindy Gerhard, Citigroup's subject matter expert for TreasuryVision. "Therefore, the next logical enhancement to TreasuryVision is intercompany loan management. That's a big issue for a large company."

The technology is designed to manage the processes tied to lending among business units. The new module includes tracking and reporting of financial flows between corporate units and anticipates interest and tax liabilities. It also automates workflow, processing and documentation and allows the client to monitor these activities in line with the laws of the local countries or jurisdictions in which the intercompany lending is taking place.

By building a single repository for all intercompany lending, Citigroup is hoping to help corporate treasurers manage their cash more efficiently and reduce overall risk.

The intercompany lending module is built on top of TreasuryVision, which provides enterprise-wide visibility into cash and investments, enabling data management and credit optimization through analytics and forecasting tools. "Companies want to use excess cash in one legal entity to support the cash needs of another legal entity," Gerhard says.

Gerhard says the challenge of managing intercompany loans requires good records, such as the interest paid between entities and adherence to tax laws in different jurisdictions. She also says that Citigroup found that for many international corporates, intercompany lending is still handled manually. Since the intercompany loans will be integrated with the larger TreasuryVision flagship, Citigroup hopes to provide a broad service that includes a view of not only intercompany lending, but all other cash positions globally.

Most commonly, intercompany loans are made by a centralized corporation to help finance operations of a foreign affiliate. This is also often done as a way to manage cash positions across a larger corporation, or limit exposure to local banks, a concern for many companies in the wake of the recession and nascent recovery. There are complex compliance issues, particularly regarding tax laws and interest rules in different companies. The use of these loans increased during the recession, as has regulatory scrutiny. The main challenge of the loans is to ensure they are consistent with local pricing and rates of local bank lending, requiring complicated credit risk and accounting work that could benefit from increased automation.

Citigroup's competitors in the international corporate treasury management space include large banks such as Bank of America, JPMorgan Chase, Wells Fargo and HSBC.

A spokesperson for Bank of America says it offers intercompany lending management separately from the bank's corporate banking portal, CashPro Online, but is monitoring client interest regarding integration of intercompany lending management into CashPro Online.

A new product from Wells Fargo does not deal directly with intercompany lending, but attempts to give corporates an improved view into international cash positions and exposures to local banks — particularly in the Eurozone where banks are expected to be under duress in the future.