Treasury is considered to be the modern strategic value add partner in any business initiative.
The role of the treasurer continues to expand into different areas of the organisation, such as risk management and working capital. At the same time, while the treasury department was once an isolated function within a corporate organisation, it is now becoming more integrated with other departments. As a result, the ability to manage a treasury team more effectively, as well as the relationships with other departments, has become increasingly important. In addition, the present trend towards centralisation and globalisation further highlights the need for an integrated treasury
Anyone sitting behind the desk of the treasurer may at times feel like undergoing a punishment. It is akin to a game of dodge ball, except rather than just one ball coming at the treasurer, there are several approaching from most every direction, many of which cannot be seen. And the larger the organisation, the increased likelihood for more balls hurled in the treasurer’s direction, each representing one of the many challenges treasury faces on a daily basis. The rapidly changing market conditions around the world affect the speed at which they are approaching and the magnitude of the potential impact.
Treasury main functions are
– Manage assets and liabilities in terms of interest rate risk and liquidity risk. This includes the restructuring of the balance sheet in terms of products, balances, cost, and income.
– Control and manage liquidity through ensuring availability of funds for regular and unplanned obligations and to maintain mandatory reserves and liquidity ratios.
– Manage Treasury Portfolio (excess liquidity) in all currencies.
– Manage the pricing of sources and utilization of funds considering the competition edge and interest rate outlook to maximize the Bank’s Net Interest Income.
– Manage accounts with correspondent banks to obtain the best terms and conditions, and effectively manage the float.
– Present and recommend to the Assets & Liabilities Committee reports and strategies in relation to liquidity and market risk
Integrated Treasury refers to integration of money market, securities market and foreign exchange operations and takes care of
– Meeting reserve requirements
– Efficient merchant services
– Global cash management
– Optimizing profit by exploiting market opportunities in forex market, money market and securities market
– Risk management
– Assisting bank management in ALM
Main treasury activities are asset & Liabilities management, balance sheet management and optimizing risk adjusted return on equity. Thus main operational components of treasury are: Daily cash management, Liquidity, Counterparty exposure and Bank relationship /administration. In a similar fashion the target areas for treasury are: Ensure Liquidity, Optimize financing cost, Optimize yield on financial assets, Hedge costs (e.g. Against possible exchange rate fluctuations), Hedge sales (e.g. Against possible exchange rate fluctuations) and Contribute to profit through active management of open positions
The operations of a Treasury expose it to the following risks: Credit and counterparty risk, Interest rate risk, Refinancing risk, Fraud, error, corruption and contingency risk, Market risk (Price risk), Liquidity risk, Exchange rate risk, operational risk, sovereign risk and Legal & Regulatory risk
Why importance to treasury now? For much too long, the value and expertise of the treasury profession has been overlooked. However, the events and circumstances during the recent financial market crises exemplify / demonstrate just how critical the discipline of treasury is to most every organization regardless of industry, revenues or geography
What we need to do? Now more than ever, it’s time to identify and embrace today’s challenges and those that lie ahead, seek out the tools (i.e. technology) most appropriate for specific operations and align closely with the needs and/or functional/process gaps. Many potential partners are available (consultants, vendors, suppliers) to dedicate resources and craft solutions to meet current requirements and achieve longer-term goals
Our treasurer and his/her technology needs – In an environment where every treasurer is tasked to do more with less, the role of technology is crucial in facilitating both operational and strategic enhancements to the business. Treasurers are seeking to leverage enterprise resource planning (ERP) and treasury management systems (TMS) technology to automate processes, reduce costs and enhance visibility over cash flow, working capital and risk information
What’s Driving Change in Treasury Technology? Concerns over data security, always vital for treasury, had held back acceptance of hosted solutions. Perceptions have now altered and treasury professionals have dropped their objections. Solutions that are easy to roll out worldwide are now demanded as essential, rather than being viewed as nice to have. Typically, this means that all or most of the solution is web-enabled. SWIFT has now fully opened the door to corporates for communication with their banks via SWIFTNet, meeting their need for easier access. Regulatory change has also had an impact, with the single euro payments area (SEPA) kick-starting the adoption of XML-based bank communication.
Some of the focus and dream areas for treasury technology are – Digital account management, Portal and multichannel technology, Data analytics and Mobile banking
The next generation Treasury Management Systems will not be a single product, but rather a multi-product, multi-vendor solution. These solutions will feature a combination of end-to-end treasury workflow with best-of-breed features, selectively choosing the best content and workflow from a variety of system providers. The mixing and matching would be restricted only by the inventiveness of treasury vendors and their partners
Over a period of years may be, we can wish for a Robo Treasurer which will have complete command and reach over banking and cash management techniques, investment and debt decisions, options, foreign exchange techniques, regulatory, tax and legal compliances.
Is it too much to ask for now?