On December 20th, the Vrije Universiteit Amsterdam is organizing an online information session

16-12-2022 | treasuryXL |  VU Amsterdam | LinkedIn |

Want to broaden your perspective on Treasury? On December 20th, the Vrije Universiteit Amsterdam is organizing an online information session. The postgraduate programme Treasury Management & Corporate Finance starts in February 2023.

The professors, lecturers and international colleagues of the Vrije Universiteit Amsterdam are happy to discuss your possibilities and answer your questions during the information sessions. Visit our next Open Evenings on:

Treasury Management & Corporate Finance:

 

  • PROGRAMME 20 DECEMBER 2022 (Online)

Round I (18:00 – 18:45)

Round II (19:00 – 19:45)

Round III (20:00 – 20:45)

Are you Dutch? There are many more educational programmes available in Dutch.

 

More Information & Registration

Three Reasons to Add Real-time Payments to Your B2B Payments Mix

15-12-2022 | treasuryXL | Kyriba | LinkedIn |

If you are reading this, you are likely already exposed to the hype surrounding real-time payments. Whether you believe in the hype or not, it is inevitable that real-time payments will become ubiquitous globally in the near term.

By Rishi Munjal
VP, Product Strategy, Payments

Source

The last two decades have shown that countries with a strong mandate for real-time payments tend to have robust adoption. For example, emerging economies like India and Brazil that have implemented central bank mandates are outpacing developed nations like the U.S in terms of customer adoption.

In 2017, The Clearing House launched the RTP® network, the U.S.’s first real-time payment infrastructure. However, the adoption of real-time payments in general remains low, currently representing 0.9% transaction volume and 0.5% spend, according to the ACI Prime Time for Real-Time report. Specifically, for B2B payments the adoption is even lower. In this blog, I will explore three simple reasons a corporation should consider real-time payments as part of its payment mix. I will stay away from industry-specific use cases, as these were covered in my previous blog.

1. Rebalance your payment mix towards lower-cost and comparable payment types.

While finance organizations strive to keep the costs of operations low, they often only consider direct costs of payments. This practice creates a distorted comparison that can become a reason for inaction. Thus, it is important to measure both direct costs (e.g., provider fees, card interchange, etc.) and indirect costs (e.g., labor, technology, and support costs).

Using industry benchmarks provides a good starting point. The 2022 AFP Payments Cost Benchmarking Survey indicates that the median cost range for sending and receiving RTP® is comparable to ACH and cheaper than wires. Replacing qualifying volume of wires with RTP® can save tens of thousands of dollars, if not more, on an annual basis. You can realize these cost savings without giving up on irrevocability—a key benefit of wires. Kyriba clients’ success stories show tangible cost and productivity gains from such a strategy. If you are receiving card payments, you can save on interchange, which can be as high as 2.5%. With real-time payments, you get instant access to good funds and avoid chargebacks.

Median cost range to pay and get paid

Source: AFP® Payments Cost Benchmarking Survey, 2022

2. Improve cash visibility and liquidity.

Complementing real-time payments with real-time balance and transaction reporting improves cash visibility. This can be especially important if you make a lot of contingent payments. This includes business activities that are dependent on treasury receiving funds. For example, treasury may want to wait until certain funds have been received before releasing a particular payment. Cash visibility can be beneficial if you are being charged intraday credit or your bank does not permit intraday overdrafts.

Wider businesses may also benefit by triggering business activities based on contingent payments. For example, a supply chain team may want to hold on to a shipment until payment is received, accelerating their logistics process. In scenarios that need cash advance or cash-on-delivery, the buyer can make a real-time payment after inspecting the goods. Both parties win. The buyer reduces operational risk, and the seller reduces inventory and improves their working capital position.

With real-time payments, you are no longer beholden to the cut-off times, weekends and holidays. This means that payments can be made as late as possible. So, companies can meet emergency payments to meet any shortfall, and keep lower precautionary balances.

3. Speed up payment digitization and get the most value from your investments in modernization.

Payment processes are complex, and digitizing payments takes time. There are multiple reasons for this. Payment processes for large organizations often involve many roles; initiating, authorizing, and reconciling payments are typically handled by different parties, thereby drawing things out. Approval workflows can also be very complex, involving globally distributed teams. Technology teams may still have direct ownership of managing payment formats and bank connectivity.

When it comes to payment digitization, the U.S. has been behind other countries. Paper checks still account for 42% of payments disbursed by organizations, according to AFP research. The ubiquity of checks, inertia, and in some cases, tradition, continue to hold U.S. B2B payments back.

During the COVID-19 pandemic, payment digitization became even more essential. And since B2B payments are moving away from paper checks, then it only makes sense to complete those transactions as quickly and cheaply as possible.

Real-time payments leverage modern technology, especially APIs, as they transmit data instantly without the need for file downloads. By complementing real-time payments with automated bank account validation and payment policy screening corporates can set aside suspicious transactions for review while all other payments travel seamlessly. The value of payments modernization, including embracing real-time payments, lies in the endless possibilities it will bring to your future business growth.

Conclusion

Don’t dismiss real-time payments simply because they are new. Kyriba offers the most comprehensive coverage of real-time payments globally and we have taken an API-first approach, allowing CFOs and treasurers to inject real-time data-driven decision making into all financial operations. Whether you are an existing customer seeking to introduce real-time payments into your payment mix or a prospective customer seeking to digitize payments and treasury operations, we are ready to assist you in your journey. Contact us today.

Status of Real-time Payments Globally

Status of Raal-time Payments Globally

Source: Prime Time for Real-Time ACT Worldwide,2022

Click here to view all blogs by Kyriba

Footnotes:

  1. Calculated total cost for issuing a paper check on a per Item Basis (in-house or outsourced)
  2. Calculated total cost for receiving a paper check on a per item basis
  3. Initiating and receiving ACH transaction (internal and external costs)
  4. The median transaction cost for initiating and receiving RTP payments on a per item basis
  5. Calculated cost for sending and receiving wire payments on a per-item basis
  6. Total calculated cost for outgoing payments made (including personnel, IT technology, compliance, audit, etc.) via a card (procurement, T&E, and virtual) per transaction
  7. The internal median cost range for receiving credit card transactions (including personnel, IT technology, file connectivity, encryption, audit, PCI DSS compliance, etc.)
  8. The external median cost range for receiving credit card transactions (including issuer/acquirer/processor interchange, assessment, monthly fees, etc.)

The 3 Fundamental Treasury Concepts: Transfer Pricing

14-12-2022 | Vasu Reddy | treasuryXL | LinkedIn |

The 3 fundamental treasury concepts being discussed currently include Working Capital Management, Bank Relationships and Treasury Transfer Pricing which are pivotal pillars for effectively and efficiently optimizing cash, liquidity,  funding and managing risk for any Treasury function to support the achievement of the organizations business objectives and strategy. In the second blog of a series of 3, Vasu Reddy explains the best practices and benefits of Treasury Transfer Pricing.

Intercollegiate loans and intercollegiate services MUST be billed and charged at a market rate – i.e. as you would bill/pay a third party to avoid tax risk and margin loss.

How to price loans and how is service charge billing done?

  • The price of a loan can be obtained from partner banks, financial institutions and the market, using the central bank rate of the borrowing LE as a benchmark and taking into account the borrowing LE’s creditworthiness, balance sheet strength and currency of the loan based on standardised inter-loan agreements.
  • The billing of service charges by head office to OPCOs is based on time commitment, transaction volume or actual costs incurred plus a margin – this is usually the difference between the market rate and the risk-free rate and may be agreed with the tax authorities.

What are the benefits of good managing of Transfer Pricing?

  • Reduced Tax Risk
  • Reduced margin Risk
  • Improved Cash repatriation and concentration
  • Accurate cost allocation and recovery
  • Reduced Trapped Cash

 

Thank you for reading. If you want more explanation, I’d be happy to help!

 

Vasu Reddy

Corporate Treasury, Finance Executive

marcus evans | 6th Annual Banking Book Risk Management | 31 January – 1 February | Amsterdam

13-12-2022 | treasuryXL | marcus evans | LinkedIn |

We are proud to announce our media partnership with marcus evans group for the 6th Annual Banking Book Risk Management.

Taking place in Amsterdam from 31 January to 1 February, this leading event will bring together banking risk management experts from across Europe to address upcoming regulatory and macroeconomic challenges.

Amsterdam, The Netherlands

31 January – 1 February

This premier marcus evans event will bring together leading industry experts in Banking Book Risk Management transformation from across Europe to address the coming regulatory and macroeconomic challenges. Key industry professionals will explain how to adapt banking book risk frameworks for IRRBB and CSRBB compliance, meet macroeconomic challenges, enhance behavioral and deposit modeling, and integrate these risks into an effective FTP and steering strategy.   

 

Key Themes in the agenda:

  1. Develop and maintain the appropriate frameworks to enable effective IRRBB compliance
  2. Adapt banking book risk management to meet emerging macroeconomic challenges
  3. Address additional regulatory demands within the banking book
  4. Establish best practices for behavioural and NMD modelling
  5. Integrate interest rate risk into pricing and steering

 

Interested in joining this exclusive event? Then contact Mr. Ayis Panayi at [email protected]  for discounts available or visit the website https://bit.ly/3CpfzJQ. Looking forward to welcoming you at the event!

The Impact of Russian Aggression on Regional Treasury & FX

13-12-2022 | treasuryXL | ComplexCountries | LinkedIn |

This call was held at a point in the conflict where Ukraine had made serious inroads into Russian held territory, and there was a lot of talk about the potential use by Russia of nuclear weapons. So, one of the questions was whether treasurers are expecting a nuclear escalation, a spread of the conflict, and what to do to prepare for it.

Source

None of these concerns were mentioned. For most companies, the business in the countries surrounding Russia and Ukraine is minimal. The bigger concern is, and remains, the impact on the business outlook in the rest of the world, the impact of increasing interest rates, inflation, and logistics issues – though logistics seem to be improving.

Instead, most participants continue to do business in Russia – mostly because they are in industries that benefit from the health and humanitarian exceptions to sanctions. In other cases, the business is essentially local, but uses the corporate brand – this means care must be taken when withdrawing. Having an exception from sanctions still leaves issues:

  • Even if your currency transactions are legal, a lot of banks refuse to handle them, because they do not want to take the risk of dealing with the country.
  • Many banks withdraw, reducing the choice of service providers. There was a lot of discussion about Citi – most participants use them, but there has been some confusion as to whether they are staying. The message to all participants is that they are.
  • Even when cross-border transactions are processed, there can be a lot of delay: the banks’ compliance departments examine everything very closely – but they are overworked.
  • The definitions of sanctions exempted products are inconsistent between various sanctioning groups (notably, the US and the EU), and they leave logical inconsistencies
  • The sanctions and regulations on both sides are something of a moving target, so compliance can be challenging.
  • There was an informal trouble zone in the countries surrounding Russia: Georgia, Kazakhstan, etc. This business is now moving to USD and EUR, which has reduced liquidity.

Despite this, our participants found it is generally possible to make payments into and out of Russia, even if the process can take a long time. Banks are moving to close offshore rouble accounts, especially in London, but they are being flexible over deadlines. Dividends are definitely not allowed, but most other types of payment seem to be possible. While some participants continue to move towards the exit – protecting local employees remains a priority – other are finding that their business in Russia is doing surprisingly well.

In terms of banking, everyone seemed to be using Citi [this discussion took place before Citi announced their withdrawal from Russia – from March 2023], though most were opening accounts with Raiffeisen as a backup. This is a return to the Communist era, when Raiffeisen was the main conduit for payments to and from Russia.

Bottom line: for our treasurers, the main concern is slowing economic growth in the west, increasing energy prices, higher interest rate and inflation. This is impacting their main business, which is typically not in Eastern Europe. As for Russia itself, people continue to move towards the exit – but those who have to stay, for mostly humanitarian reasons, are finding that business is complicated – but it continues.

Contributors:

This report was produced by Monie Lindsey based on a Treasury Peer Call chaired by Damian Glendinning

To access this report

Access to the full report is available to Premium Subscribers of ComplexCountries. Please log in on the website of ComplexCountries to access the download.
Please contact ComplexCountries to find out about their subscription packages.

How to use pricing to create an effective hedging program

12-12-2022 | treasuryXL | Kantox | LinkedIn |

In this article, we explore the links between pricing and creating an effective currency hedging strategy. We reveal how a simple PEG framework —Pricing, Exposure, Goals— can allow CFOs and treasurers to correctly define their FX goals, the type of exposure they need to collect and process, and the best hedging program for their business.

Pricing as a hedging mechanism

Transactional currency risk, it is often said, occurs between the moment an FX-denominated transaction is agreed upon and the moment it is settled in cash.

That’s OK, but what if the transaction was priced well before it was agreed, which is a realistic description of how things really work?

That’s why at Kantox, we developed the concept of pricing risk. pricing risk is the risk that between the moment an FX-driven price is set and the moment a transaction is agreed upon, a shift in the FX rate might impact budgeted profit margins.

Closely related to this is the idea that pricing is itself a hedging mechanism. Why? Because you can remove pricing risk by frequently updating your prices.

And that brings us to the topic of pricing parameters and hedging. 

Dynamic pricing

Let us start with dynamic pricing. There is a growing list of industries where dynamic pricing is becoming the norm: travel, chemical traders, hospitality, railways, entertainment, insurance, online advertisement, retail and even shipping.

This trend reflects the fall in transaction costs made possible by the availability of real-time data and the rise of geolocation services and payment apps.

Meanwhile, algorithms take into account supply and demand conditions, competitor pricing and other variables.

Two things need to be considered when it comes to dynamic pricing:

(a) prices are ‘FX-driven’; that is, an FX rate is systematically part of the pricing formula;

(b) prices are frequently updated, therefore leveraging the full capacity of pricing to act as a hedging mechanism. 

Other pricing models

Despite its growing popularity, dynamic pricing is not the only pricing mechanism out there. We can single out at least two other very significant models: 

1. Steady prices for individual campaigns/periods. Some businesses, like catalogue-based tour operators, keep prices stable for an entire campaign/budget period and set new prices at the start of the following period. Things to consider here:

(a) Prices are also FX-driven, just like in dynamic pricing.

(b) The pricing impact of the ‘cliff’, or a sharp FX rate fluctuation between two campaign/budget periods, is fully passed on to customers at the onset of a new period. Here too, pricing acts as a hedging mechanism, but not to the extent it does in dynamic pricing.

2. Steady prices for a set of campaigns/periods. Some firms need or simply desire to keep prices steady not only for one individual campaign/budget period but for a set of campaign/budget periods linked together. Things to consider:

(a) Prices are not FX-driven: the FX rate plays no role in pricing;

(b) The pricing impact of the ‘cliff’ cannot be passed on to customers at the onset of a new period. Pricing, quite obviously, is not a hedging mechanism in this case.

Putting it all together: the PEG framework: Pricing-Exposure-Goals

The PEG or Pricing – Exposure – Goals framework provides actionable clarity when discussing pricing and currency hedging in the context of cash flow hedging programs:

For firms with frequently updated FX-driven prices, the goal is to protect the dynamic pricing rate in all their transactions. The exposure to hedge is the company’s firm sales/purchase orders. The right program is a micro-hedging program for firm commitments.

For companies that keep steady prices during individual campaign/budget periods, the goal is to protect the campaign/budget rate. The exposure to hedge is the forecasted revenues and expenditures for that particular campaign. The right program is a combination of a static hedging program, conditional orders and a micro-hedging program for firm commitments. 

Finally, for firms that keep steady prices across a set of campaign/budget periods linked together, the goal is to smooth out the hedge rate over time. The exposure to hedge is a rolling forecast for a set of periods linked together. The right program is a layered hedging program. 

Currency Management Automation solutions allow you to reach all your goals, whatever the pricing parameters of your business.

Embedded Finance Explained, by François de Witte

08-12-2022 | François de Witte | treasuryXL | LinkedIn | As embedded finance continues to evolve, there is an opportunity for treasurers to explore how these developments could help their businesses. The present article explores what embedded finance really means, what’s driving progress in this space, and where should treasurers begin.

Read more

ESG in Treasury: What Can Treasurers Do to Impact Business Sustainability?

01-12-2022 | Anastasia Kuznetsova | treasuryXL | LinkedIn |

The expression “Money makes the world go round” probably underscores the importance of the finance community for the transition to a greener economy. Financial market participants can significantly accelerate the transition to a more sustainable world by directing capital flows to the most sustainable projects, assets and companies. 

ESG and sustainability in Treasury

What can treasurers do to impact business sustainability?

Corporate Treasurers can have a substantial impact on business sustainability by allocating capital to green projects as well as incorporating ESG factors in their risk management processes. Below I will summarize some of the instruments Corporate Treasurers could use to support companies on their way to sustainability.

ESG debt: Sustainability-Linked Financing

ESG debt is perhaps one of the most common instruments that may help companies to meet their ESG goals. For instance, to achieve environmental objectives, some companies issue green bonds. The proceeds from green bonds can only be spent on funding climate-related projects, including renewable energy, construction of green buildings, installation of air pollution control systems and etc. Most green bonds issued are “use of proceeds” bonds, which determine a range of eligible green project categories for which capital raised can be used.  These bonds are also backed by the entire balance sheet of the issuer. Project bonds are another popular type of green bonds for which the proceeds are earmarked for specifically identified projects and are exclusively backed by the project’s assets. While green bonds might be more relevant for large public companies, private companies may still add ESG debt in their capital structures by arranging green loans which serve the same purpose as their public market bond equivalents. 

 

Another type of ESG debt is sustainability-linked loans (SLLs), which are even more popular than green bonds and loans. The rise in popularity of SLLs may probably be explained by higher flexibility when it comes to the use of debt proceeds. Hence, the proceeds from SLLs can be spent on general corporate purposes but not exclusively earmarked for environmental projects. Moreover, SLLs are normally structured in the form of revolving credit facilities, which enables companies to fund their daily liquidity needs if they encounter a working capital deficiency. The purpose of SLLs from an ESG perspective is to encourage companies to achieve sustainability as quickly as possible. This is done by linking loan margin to a borrower’s sustainability performance. At first, sustainability performance targets (SPTs) for the borrower are established. After that, the borrower’s progress toward SPTs is monitored on annual basis via Key Performance Indicators (KPIs). If the targets are achieved, the loan’s margin will be reduced, enabling the borrower to benefit from lower interest payments. If the targets are missed, a step-up provision applies, increasing the loan’s margin and, thus, interest payments. Such an ESG Margin Ratchet provision incentivizes the borrower of SLLs to not only achieve but also maintain a certain level of ESG performance. The public markets equivalent of sustainability-linked loans is sustainability-linked bonds (SLBs) whose coupon payments are reduced (increased) if SPTs are met (missed). 

 

On top of ESG-related loans and bonds, hybrid instruments such as green convertible bonds are becoming more and more popular. Thus, in 2020, Neoen, a French producer of renewable energy, issued €170M of the first ever green convertible bonds in Europe. This year, the company launched another €300M offering of green bonds convertible into new shares and/or exchangeable for existing shares.

 

Finalizing the topic of ESG debt, it is worth mentioning that when it comes to the EU’s finance providers, and particularly credit institutions who will soon have to disclose the percentage of green assets on their balance sheet under the EU Taxonomy, it is reasonable to expect that sustainability-linked debt will be favored by creditors. Specifically, being an underwriter of ESG debt could add prestige, and improve reputation and market positioning. In contrast, non-ESG debt may experience a pricing premium since such loans are likely to worsen the “greenness” of capital providers’ balance sheets.

 

A few words on FX Trading, Derivatives and ESG

Although currently ESG is not widely incorporated in foreign currency trades, some banks have already started to develop FX products that have a similar structure to SLLs. Such FX products will be linked to sustainability KPIs that will measure a company’s sustainability performance against pre-defined SPTs. If SPTs are successfully achieved, then a company may receive a rebate on its FX trades or a reduction in the required FX margin.

 

Sustainability-linked derivatives (SLDs) are another instrument that can be adopted by Treasurers to facilitate a transition of businesses to greener operations. SLDs are particularly relevant for companies, operating in “high-impact climate sectors” such as energy and agriculture. Cash flows of SLDs are connected to the sustainability performance of counterparties that is monitored via KPIs. Having met KPIs, a counterparty in a derivative transaction may receive a higher incoming payment, or be able to make a lower payment if the transaction results in a cash outflow. SLDs are OTC derivatives, meaning that counterparties can customise the derivatives’ terms and, thus, embed other ESG incentives, i.e. reduction in margin/spread, or payment of rebate upon achievement of pre-agreed sustainability targets.

 

Sustainable Supply Chain as an ESG trend

Sustainable supply chain is one of the current ESG trends, particularly among retailers whose total carbon footprint mainly consists of Scope 3 emissions, which are essentially emissions of suppliers. That is why, more and more companies are trying to encourage procurers to reduce their emissions and, hence, decarbonize the supply chain. Corporate Treasurers can make a substantial contribution to this objective by arranging sustainable supply chain finance programmes. Programmes are based on early-payment principles. As a first step, a company sets up sustainability KPIs to monitor the ESG performance of its suppliers. The performance of suppliers may be measured once or twice per year. After meeting at least one of the established KPIs, a supplier is paid earlier than originally agreed. Hence, highly sustainable procurers will effectively receive better payment terms, which should encourage more suppliers to improve their sustainability performance.

 

Sustainability Objectives and KPIs

Almost all the above-mentioned ESG products require the establishment of sustainability targets and KPIs. This unfortunately cannot be done by Treasurers on their own but instead should be done at the strategic level by company management. Sustainability targets must be ambitious, meaning that their achievement would require a substantial transformation of business models, e.g. switching to more sustainable suppliers; divestment or restructuring of high-carbon footprint units. Practice shows that not all management teams are capable of setting ambitious targets relevant to the business. Thus, the least Treasurers could do, besides the arrangement of ESG debt or other sustainability-linked products, is to question the adequacy of the chosen sustainability objectives within their organisations. In other words, Treasurers could make sure that the answer to the question “Why did your company set up its net-zero objective?” is not “Because everyone does it” but “Because it is relevant for our core business operations”.

 

Thank you for reading!

 

 

Anastasia Kuznetsova

 

 

 

What will be the Treasury Trend of 2023?

30-11-2022 | treasuryXL | LinkedIn |

As 2023 is approaching, we explored what Treasurers are particularly looking forward to in treasury for next year. What will be the Treasury Trend of 2023? Are treasurers curious to know what is going to happen in the area of Market and FX Risk Management, or just what the developments are going to be in e-commerce related to Treasury? Or will the understanding of APIs in Treasury be the story of 2023, or the role of Treasury within companies? We sought it out!

We thank Huub Wevers and Kim Vercoulen for sharing their views with us.

What will be the Treasury Trend of 2023?

As 2023 is approaching, we explored what treasurers are particularly looking forward to in treasury for next year. What will become the trends in treasury management next year?Are treasurers curious to know what is going to happen in the area of Market and FX Risk Management, or just what the developments are going to be in Ecommerce related to Treasury? Or will the understanding of APIs in Treasury be the story of 2023, or the role of Treasury within companies? We sought it out! This topic was also the subject of discussion during the last webinar together with Nomentia, you can find the recording here.

Question: What are you particularly interested in that will develop in 2023 in treasury?

treasury trends 2023

First observation

We see that Market and FX Risk Management stands out a little, and that there is less focus on trends in e-commerce and Treasury. What do those within treasuryXL say about this, and what are they looking forward to for next year?

View of treasuryXL experts

Huub Wevers (Nomentia)

Huub is especially interested in the developments in APIs for Treasury for in 2023.

“My personal interest is in the focus on APIs, which is good, as APIs offer new functionalities and convenience for treasurers”

With the current political and economic turmoil, it makes sense that market risk is back on the agenda. Interest rates are rising and emerging markets are becoming riskier. My personal interest is in the focus on APIs, which is good, as APIs offer new functionalities and convenience for treasurers. However, it is a jungle because everyone promises APIs, but few deliver on them, and the few that do make them have no standards.

We also see APIs that are ‘disguised’ file connections. This makes sense, because an API means linking two applications and this can be done through authentication, security and then exchange of a file. We see this a lot with Payment Service Providers. Getting reporting files for matching purposes, for example.

The webinar the other day was interesting because Niki and I represent two different areas of treasury that are important to Patrick, a very experienced treasurer, namely market risk and technology. Together with Pieter as moderator, it was fun to hear the different perspectives and experiences!

Kim Vercoulen (Treasurer Search)

Kim is especially interested in the developments of Market and FX Risk Management for in 2023.

” Important question for the treasurer will remain what to do about this.”

I chose for Market and FX Risk Management. I think especially with inflation and higher interest rates, this is going to have an impact on the treasurer’s work within the treasury department.

This is obviously all going to play through on companies’ costs, and pressure on selling prices will also increase. Important question for the treasurer will remain what to do about this.

How this will affect the treasury market compared to the current year remains to be seen. That is what we are going to witness at Treasurer Search.

The 3 Fundamental Treasury Concepts: Bank Relationships

29-11-2022 | Vasu Reddy | treasuryXL | LinkedIn |

The 3 fundamental treasury concepts being discussed currently include Working Capital Management, Bank Relationships and Treasury Transfer Pricing which are pivotal pillars for effectively and efficiently optimizing cash, liquidity,  funding and managing risk for any Treasury function to support the achievement of the organizations business objectives and strategy. In the second blog of a series of 3, Vasu Reddy explains the best practices and benefits of Bank Relationships.

Strong Bank relationships (including Central Banks) are key to operating successfully in any country- locally, regionally or Globally.

When selecting and maintaining bank relationships, it is key to include partners with strong track record including:

  • Strong Bank Credit rating  – BBB+ to  AA+
  • Strong Bank Balance sheet, assets size and Cash Reserves,
  • Strong Ethics, Governance, Compliance
  • Bank Geographical Footprint
  • Huge Product knowledge, expertise and offering
  • Strong Service capability and rapid response times
  • Competitive Pricing and transparency
  • Being a trusted advisor – including investment banking, FX, etc.
  • Advanced  technology and systems and Project support
  • Managing confidentiality of information and conflicts of interest
  • Strong Relationship with Central Bank for Advocation
  • Going above and beyond for client during drastic times– providing credit sufficient lines
  • Accepting Clients standardized documentation in different countries due to regional      relationship
  • Ease of doing business – bank account opening, KYC onboarding, Projects, system implementation,  integration with  ERP, TMS, RFP’s, RFQ’s , legal issues, etc.

More key considerations are:

– Size of Corporate/business

– Credit rating/balance sheet size

– Growth Plans – M&A, etc.

– # of bank relationships

-# of bank accounts

-# of Legal Entities

-Bank interaction, performance and evaluation

 

“Maintain a good central bank relationship is key”  Vasu Reddy

What are the benefits of good bank relationships?

  • Smooth Business operation with no disruption resulting in improved cash flow, profits and reduced costs
  • Management able to focus on business growth and sustainability
  • Minimal bank law compliance risks
  • Able to pivot easily during macro-economic cycles – surviving recessions, political risks, etc.

 

Thank you for reading!

 

Vasu Reddy

Corporate Treasury, Finance Executive