Leveraging Banking Relationships for Cash Management Optimisation
by Joep Pessers, Treasury Manager, Fabory Group
Until 2004-5, treasury at Fabory was decentralised, with each local finance function managing its own bank relationships and credit facilities; however, we recognised that this arrangement was causing a variety of issues:
i) It was difficult to establish a global view of counterparty risk;
ii) The cost of borrowing was high without the ability to leverage the higher credit rating of the holding company;
iii) Bank relationships were fragmented, with a lack of economy of scale and disparate contractual arrangements, cost structures and technology;
iv) Processes and systems were diverse, leading to the risk of a control gap.
At that time, therefore, treasury was centralised into our corporate headquarters, reporting directly to the CFO. The team now comprises two people in head office, who work closely with controllers in each country.
An important first step was to rationalise the bank relationships to one or two global banks. We issued a request for proposal (RFP) to three banks, including KBC with whom we had an existing relationship in Belgium. Ideally, we were looking for a single bank that could support a zero-balancing cross-border cash pool structure across Europe, as well as supporting a global approach to cash management, and providing in-country capabilities to our European business entities. Having reviewed the capabilities of all three banks in detail, we made the decision to appoint KBC as our primary bank. Firstly, the bank provided products and services in many of our countries of operation, and could pool cash from third-party banks; secondly, the bank had the best cross-border cash pooling solution; thirdly, we had a great deal of confidence in the bank based on our experiences to date in Belgium.
KBC provided products and services in many of our countries of operation, and could pool cash from third-party banks.
Since then, we have implemented a variety of cash management structures appropriate to each region with a view to establishing visibility and control over cash flow. In North America, for example, we have set up a cash pool with weekly target balancing. In all other countries where cross-border cash pooling is supported, we have daily zero balancing. The cash pool is a multi-currency structure in order to minimise foreign currency exposures. In Portugal, where we conduct our local banking with a third-party bank, we are linking our accounts into the European cash pool now that cross-border zero balancing is permitted, which was not the case until recently. In China, where we work with a third-party bank, we are not yet able to repatriate cash through a cross-border zero balancing structure, as this is not allowed under local regulations.
Another important aspect in selecting KBC was the major presence of the group in Central and Eastern Europe. We needed a bank with an extensive branch network to support our locations across the region. We found that KBC’s subsidiaries offer a comprehensive range of services, including domestic payments and collections, and are among the top banks in the relevant countries.
The accounts in Slovak Republic (at ˜CSOB), Czech Republic (at ˜CSOB) and Hungary (at K&H) are part of the overall cross-border zero balancing structure. In Poland, where cross-border cash pooling is currently not easily permitted, we bank with KBC’s subsidiary Kredytbank. We are ready to link our Polish bank accounts into the cash pool as soon as cross-border balancing is permitted to us under Polish legislation, which we expect to happen in due course.