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Changing Dynamics Between Banks and Corporates
by Michael Burkie, Market Development Manager, BNY Mellon Treasury Services EMEA
The financial crisis has acted as a wake-up call for many corporates. While the days of free-flowing credit meant inefficiencies in long-standing working capital and risk management systems and practices could be ignored, this is no longer the case. Certainly, credit constraints mean that these processes, which were previously upstaged by more strategic activities (such as M&A), are now in the spotlight.
Another area under scrutiny is the strategic role treasury departments can play – including their expansion to include responsibility for bottom-line improvement (as well as identifying solutions to daily cash-management challenges, improving internal data control and meeting compliance requirements).
Given both these developments, now is the time for finance and treasury professionals to have their views heard at board-level. In doing so, they will play a major part in driving their organisation towards its goals. And as a first step towards doing this, many corporates are reassessing their banking relationships, and culling those that fail to deliver.
“The days of simply hoping for the best are over,” says Eurotak’s Radomski. “We need clarity and transparency from our banks to fully understand exactly what we are getting from our banking relationships.”
The importance of insight
As the abundance of liquidity kept the cogs of commerce turning, it also oiled the unspoken agreement that bank-corporate transactions would continue. However, as banks are no longer the primary liquidity providers they once were, and cash pools have dried up, relationships can no longer be built purely on funding. Instead, corporates are judging their bank relationships on the banks’ abilities to meet their present and future needs. And for the foreseeable future this means timely information that can be utilised at all levels of the company.
Certainly, discerning CFOs realise that in order to make accurate assessments of funding, liquidity and counterparty risk, they need a deeper understanding of external market drivers, as well as the internal business processes that can be gleaned from a simple credit report. This means that their banks must now help them bridge the divide between the treasury/finance department and their business processes.
“Treasury has been in its ivory tower for too long,” says Radomski. “Banks need to help treasurers erase the lines between the treasury department and business processes. In doing this, we can upgrade the strategic impact of treasury.”
In addition, banks need to present the collected information to CFOs holistically, rather than in an edited version that plays to the merits of the various products that banks may have to sell. To give an example, counterparty risk is viewed and assessed differently from business and credit perspectives, and banks need to understand this – and indeed demonstrate their understanding – by having and using the necessary technology to manage data to evaluate risk in line with these different perspectives.
Yet technology, though undeniably important, is not a solution in itself:
“Banks need to understand both the necessity of insight and importance of comprehensive strategy,” says Radomski. “Solutions come from understanding, and technology should be used to aid and enhance that.”
Certainly, the prevalence of technology means that it is no longer a differentiator between banks and therefore cannot independently add value. As a result, banks can no longer consider IT-based product offerings a job well done. Value now comes from the provision of strategic and comprehensive solutions, which means interacting with outside third-party providers to combine business practice and process advisory services with bespoke treasury and transaction banking solutions that both meet the specific needs of corporates’ local markets and are conducive to reaching the end-goals of individual organisations.
