Preparing Treasury for the Future: Picking the Right Bank Relationships
By Edwin Veenman, Head of Treasury, Yanfeng Automotive Interiors (YFAI)
While my office door is always open to banks wanting to have a conversation about how they can support YFAI’s treasury operations, I believe bank relationships are changing. Yes, treasurers are searching for great products at reasonable prices, but they are also looking for strategic partners who will bring true innovation to the table. So, how can treasury go about finding the right banking partners to accompany them on their growth journey.
Before I wax lyrical about bank relationships, a little bit of background about YFAI and our treasury structure. YFAI is the global leader in designing, developing and producing automotive interiors. Most people are, often unknowingly, familiar with our technology and products. The company was formed through a joint venture in 2015 between Yanfeng, one of the largest automotive interior suppliers in China, and Adient, the global leader in automotive seating, formerly a part of Johnson Controls.
Once the joint venture was under way, we were tasked with building a treasury function for this newly combined business. On the international side, this was essentially a replication of Johnson Controls’ treasury in terms of infrastructure and functionality. But from that initial set-up, we have made strategic changes and tweaks to create a more efficient treasury function that is complementing the new global business model and footprint.
Today, we have treasury teams in China, the US and in Germany. We also have a treasury expert on the ground in South Africa to guide certain processes and approvals since it is a currency-controlled country, which can throw up challenges at times. In addition, we have a treasury professional stationed in our automotive business centre in Bratislava – where we process the majority of our payments and receipts and carry out part of the accounting function – who is tasked with monitoring our currency exposures. Finally, we also have a treasury team in Shanghai, which predominantly looks after the Chinese domestic market and a number of countries in the Asia Pacific area.
Banking on a bright future
In terms of our bank relationships, it is important to make a clear distinction between China and the rest of the world. The culture and practice is somewhat different in China and treasurers tend to have more bank relationships than might be strictly necessary to operate the business. This is part and parcel of the local way of business, and I do not see that changing dramatically in the near future.
In the international space, we work with around 10 banks and use a notional pool for the majority of our flows, supported by local banks that have access to local clearing systems. This structure serves its purpose very well because we have been able to keep it fairly streamlined from the start – unlike some other corporates which have recently undergone bank rationalisation exercises for a variety of reasons (see box 1).
Box 1 - Drivers of change in corporate banking models
YFAI’s treasury team chose our 10 banks for their capabilities beyond pricing, products and geographical coverage. After all, banking is highly commoditised, and those factors are really a given. Instead, what we look for is a bank that offers all the fundamentals and also fits our business model well, understands our strategy and how we intend to execute it.
In other words, there has to be a strategic side to the relationship too – not just a transactional angle. Of course, we expect excellent products for reasonable prices, but we want our banking partners to offer more – to distinguish themselves from the pack through strategic advisory services tailored to YFAI’s specific needs. In my view, a banking relationship is more than a ‘supplier’ relationship. A successful bank relationship is a ‘partnership’.
Moving with the times
In addition, we are keen to work with banks that are truly innovating – and I don’t mean those institutions which simply put new wrappers on old products! We live in vibrant and exciting times. As such, we expect our banking partners to offer a variety of new products and services that capitalise on emerging technologies – whether that be through their own innovation labs, collaborations with fintechs, or industry initiatives and consortia.
Blockchain is a good example of where we expect our banks to be innovating. It holds huge potential for treasury – from improving Know Your Customer (KYC) processes, to speeding up the trade cycle. As an example, HSBC and ING recently announced that they had undertaken the first commercial trade finance transaction using blockchain with Cargill, for a shipment of soy beans from Argentina to Malaysia. This project saw the transaction time shortened by more than 40%, while costs were reduced by more than 30%.
This is precisely the kind of innovation YFAI is looking for. Why? Because in order for us as a company to stay relevant to the market, and to be at the cutting edge of our industry, our banking partners have to be nimble. And they have to bring us relevant new technology products and solutions that will help us to prepare for the future.
Know your bank
As such, I believe it is important for treasurers to start having deeper conversations with their banking partners, and to conduct a Know Your Bank (KYB) exercise. How far you take the KYB process will naturally depend on how much business you have with each bank. But regardless of size of wallet share, one of the key questions to ask is: are they able to help you advance towards your goals for treasury – and the company’s ambitions in general?
From a risk perspective, it’s also vital to understand whether your bank is already over exposed to your industry. Could this put you at risk? When working with smaller local banks, understanding the bank’s funding position is also key. If you are overly dependent on a bank and it suddenly gets into trouble, there will not only be serious consequences for your liquidity, but treasury will also need to explain this choice of banking partner to the board as this could be a material risk to your business.