A rise in treasury management sophistication in the Middle East has led to desire for “top-end” solutions, including integrated cash and trade interfaces. LIZ SALECKA delves into the latest thinking
This has lead to an increased awareness of the benefits of integrated cash and trade solutions, which enable corporates to view and manage their cash and trade positions seamlessly via one bank interface.
“In some companies there is growing recognition that their business model is in need of unification,” explains Murali Subramanian, transaction banking head, Abu Dhabi Commercial Bank, who explains that changing business needs are driving the integration of separate departments set up to manage bank relationships in trade, treasury and liquidity.
“Banks can help them move towards the use of common channels and products, and enable them to share expertise across the spectrum. In many companies, change is inevitable as they come under pressure to rationalise.”
Subramanian explains that, since 2008, shortterm and long-term trade finance have become important substitutes for bank facilities and, with banks still following conservative lending policies, this trend looks set to continue.
“We have seen demand for converged cash and trade solutions in several companies,” he says, pointing out that the growing importance
of supply chains – and the need to manage working capital effectively throughout the supply chain – is driving much of the need for such solutions.
“There is also an increased focus on the risk management of working capital, and this has led to more attention being placed on the integration of cash and trade as this discipline can enhance the risk management process.”
ADCB itself has responded to these challenges by offering a fully integrated cash and trade solution, which is marketed by a unified sales team to its client base, which includes government and public sector bodies, large and medium-sized corporates and SMEs.
“We offer a single solution for cash, trade finance and treasury, which is made available via one platform, and this is consistent with the converged solutions offered by leading banks,” says Subramanian, pointing out that services such as FX and working capital loans can be made seamlessly available as part of the overall solution.
“We have also looked at the possibility of adding supply chain solutions such as factoring and supply chain finance to the proposition as well as facilitating invoicing procedures with the introduction of electronic presentation capabilities.”
A number of global banks, such as Deutsche Bank and Royal Bank of Scotland, which have a major presence in commercial centres such as Dubai, have also recognised a movement towards treasury and trade collaboration within major corporates, and a growing interest in their global integrated cash and trade solutions.
Kamran Zaidi, director, head of trade finance and cash management corporates – MENA , Deutsche Bank, points out that trade fi nance managers and treasurers in the Middle east are working more closely together in areas such as cashflows and FX. “Th is is very much the case in large corporates, where there is growing recognition that it is very diffi cult to work in trade and treasury silos. Both treasurers and trade fi nance managers need to be aware of cashfl ows and trade positions,” he says.
Meanwhile, anna Koritz, head of region (Middle East, nordics, switzerland, UK), global transaction services, RBS, identifies a rise in treasury management sophistication in the Middle East. “Corporates are going straight to the top end in solutions and making full use of electronic banking solutions, including integrated cash and trade interfaces,” she says, pointing out that RBs’ global solution fully integrates its range of cash products with MaxTrad, its global trade portal.
“These systems allow the corporate treasurer to manage his or her country exposure and cash flow effectively.”
There are, however, clear regional diff erences across the Middle East when it comes to both the availability, and awareness, of converged cash and trade working capital management solutions – largely because, in certain countries, trade fi nance is not yet fully exploited.
“Some economies are more developed in banking terms such as dubai and the UAE – generally because of the greater presence of international banks, which are off ering ‘end-to-end’ solutions,” says Alex Harris, group treasurer, Al Muhaidib.
He explains that, although saudi arabia is the largest economy in the Middle East, most saudi banks are not as yet off ering complete end-to-end supply chain fi nancing – and receivables fi nancing is only just being acknowledged. he, himself, recently put a receivables fi nancing solution in place for one of the Muhaidib Group’s subsidiary companies, which took time to achieve because it is not yet widely available.
“There is not a huge emphasis on the provision of the full complement of working capital management solutions. Banks are happy to off er documentary credit facilities to companies, and subsequently provide some type of refi nancing against these, but supply chain finance is very limited,” he says.
He, nevertheless, notes that treasurers in Saudi Arabia are becoming more aware of the opportunities presented by receivables and supply chain financing. “They are probably not taking suffi cient advantage of this yet. Instead, treasurers are focusing more on managing their companies’ visible working capital needs more effi ciently,” he says.
“Treasury and trade still tend to be managed as separate departments by most large companies, although this is an area of increased attention.”
However, Harris is quick to point out that he himself recognises the merits of converged solutions. “One of the biggest benefi ts of converged solutions is the greater transparency they can off er right along the supply chain, as well as driving improved efficiency.
“But an educational process is still needed here, and the technology needs to be made available to achieve the desired transparency and efficiency improvements.”
Local bank issues
According to Zaidi, many local banks’ development of sophisticated converged solutions has been restricted because of the more limited requirements of their prime customer base. “One of the biggest challenges that local banks face is that their customer base tends to be primarily focused on the SME segment that requires less complex and far-reaching solutions. Consequently, there is a learning curve in terms of broadening expertise,” he says.
Subramanian also recognises that some local banks still follow the older model of off ering cash and trade solutions separately, and that they now need to place a greater emphasis on the creation of truly integrated solutions.
“Having a single bank channel for cash and trade does not make the converged proposition come true, although this is oft en a fi rst step, and for some local banks greater product development work is required so that they can offer a total proposition,” he says, noting that there is progress in this direction by certain banks.
However, he believes that local banks are well placed to off er converged solutions to SMEs and mid-market corporates.
“They (SMEs and mid-market corporates) are increasingly looking for a wide range of bank services in a single proposition – a comprehensive solution that enables them to view all their bank services and make transactions via one single screen,” he says, pointing out that some of the strongest demand for converged solutions is coming from mid-market companies, which typically have smaller treasury departments, and fewer people responsible for managing relationships with fi nancial institutions.
“These companies are looking to manage the human resources they allocate to managing cash and trade more effectively, and also want to drive efficiencies in the way they work.”
Another way that local banks can gain ground without having to make the huge investments required to offer sophisticated converged solutions, is by outsourcing to global banks.
“Technology evolves faster than ever, which makes it an expensive strategy choice to stay in the forefront of integrated solutions – and many customers require sophisticated solutions and global reach,” says Koritz, pointing out that RBS is eager to share its expertise with local banks.
“One solution that is steadily gaining in popularity is for smaller banks to outsource to global banks and technology providers. This enables the banking community – both buyers and providers of services – to reap the benefits of economies of scale and provide state-of-the-art solutions at improved pricing.”