Banking Relationship

Management
 Bankers and Treasurers

▪ Treasury requires Banks to perform cash flow management tasks

▪ But banks provide a much wider set of critical services to corporations and
consequently, Banking Relationship Management is a key component of
Treasury
▪ Despite a significant disintermediation in the past decade and probably more to
come, Banks remain key partners
▪ In addition, as many regulated industries, Banking Industry is shaken by many
technical innovations and new entrants
▪ Treasurers needs to understand a minimum of the banking world to be able to
maintain the most mutually profitable relationship with their Bankers.
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Banks and the Banking Sector
 What is exactly a Bank ?

▪ A Bank is a regulated entity authorized in a jurisdiction to execute certain transactions and

especially receive funds from the public, provide payment services or give credit
▪ In France the “Loi Bancaire” restricts certain types of financial transactions to registered
companies regulated under the “Code Monétaire et Financier”
▪ Article L511-5 Modifié par Ordonnance n°2013-544 du 27 juin 2013 - art. 4
«
– Il est interdit à toute personne autre qu'un établissement de crédit ou une société de
financement d'effectuer des opérations de crédit à titre habituel.
– Il est, en outre, interdit à toute personne autre qu'un établissement de crédit de recevoir
à titre habituel des fonds remboursables du public ou de fournir des services bancaires
de paiement. »
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 The Regulators
▪ Banking is probably the most heavily regulated industry in the world
▪ Central Banks:
– Monetary stability
– Financial Markets stability through
▪ Authorization of financial institutions
▪ Ensure the respect of legislation by financial institutions
▪ Ensure stability of systemic items like the payments and transactions systems

▪ Financial regulators in France similar exist in other cuntries

– CCLRF (Comité Consultatif de la Législation et de la Règlementation Financière) advice to government
– ACPR (Autorité de controle Prudentiel et de Resolution)
– AMF (Autorité des Marchés Financiers)
▪ BRI/BIS
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– forum of discussion and establishment for the BASEL III prudential rules

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 Beyond regulation

▪ The Banking sector is very diverse

– By size of banks
– By market segments
– By geographical scope
– By product ranges
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 A important, diverse and changing sector

country/zone nb of institutions Assets Loans Deposits Staff

Eurozone 4198 36 687 392,00 € 23 316 421,00 € 22 334 577,00 € 1 740 579
EU Non Eurozone 1065 4 138 265,00 € 2 679 177,00 € 2 016 841,00 € 408 599
EFTA 396 3 967 290,00 € 2 174 445,00 € 2 181 735,00 € 118 478
UK 356 10 647 169,00 € 5 101 810,00 € 4 755 026,00 € 322 000
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Typology of Banks
 The 11 Most Popular Types of Banks ?

▪ 1. Retail Banks ▪ 7. Savings and Loan Banks

▪ 2. Commercial Banks ▪ 8. Islamic Banks

▪ 3. Investment Banks ▪ 9. Green Banks

▪ 4. Universal Banks ▪ 10. Challenger Banks

▪ 5. Credit Unions ▪ 11. Neobanks

▪ 6. Private Banks
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 Universal vs. Specialized banks
Banks spans a large variety of customer positioning
▪ Universal Banks:
– tend to offer a wide variety of services,
– from account management and transaction processing
– to financial engineering services
– ex: BNPP, SocGen, Deutsche Bank
– Serving all types of customers from individuals to large corporates

▪ Specialized:
– Tend to specialize in a small portion of the product scope or customer set
– May use partner banks to provide additional services
▪ Lazard et Cie higher end financial engineering
▪ Bank Mendes Gans: sub of ING group specializing in a specific cross border cash management
practice.
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▪ Caisse d’Epargne dealing mostly with individual customers and very small entreprises

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 BNPP
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 Lazard
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 Bank Mendes Gans

Bank Mendes Gans is the only bank in the world to engage

exclusively in liquidity and information management
solutions for multinationals. We operate a bank-
independent model and we handle most of the world’s
convertible currencies.
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 Caisse d’Epargne
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 Global Regional and Local banks

– Global > Citibank

▪ business model tending to propose a consistent set of products and practices
▪ across a large number of countries,
▪ usually with a relatively small presence in each country.
– Regional > BNPP, RBI, Ecobank
▪ have a significant presence in a number of “home markets” (FR, IT, BE, NL, TR, US)
▪ Where they offer a full range of banking services
▪ In other markets, they rely on partner banks
▪ Or offer limited capabilities to support their offshore customers
– Local > Akbank (TR)
▪ Present only in a country or even a region of a country
▪ Offering proximity services
▪ May address all types of customers
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▪ Will partner with more global players to support their customers needs
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 RBI
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Banks and Corporates
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 Banking interactions with corporates

Banks interaction with their customers cover a variety of topics

▪ Transaction Banking
– Account management
– Account structure
– Payments and Collection instruments

▪ Funding
– Banking Loans on various terms from overdraft to long term
– Supply chain finance

▪ Market activities
– Forex, Interest rate, investment, …..

▪ Trade finance
– International trade instruments (documentary credits, trade insurances)
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▪ Investment banking
– Support and advisory for LT debt (Bonds) and Equity transactions
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 The Bank Account

▪ The bank account is the main interlock instrument between bank and customers
▪ Note:
– A bank account is a customer account in the bank’s books
– A bank account is a vendor account in the company’s books
➢ What our accountants view as a debit is a credit for a Treasurer
▪ Companies will usually use several bank accounts with a given Bank

▪ Split of activities between account will depend of circumstances

– By banking activity (salary, collections, etc…)
– By brand or business of the company
– By admin group in charge of the transactions
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 Bank Account Organization (1)

Banks offer a variety of tools to improve and automate the operation

▪ Cash Sweeping
– Automated periodical transfers from/to “slave” accounts to/from “master” accounts
– For the full amount on the account or amount above a threshold
– Allow to automatically concentrate the net position on a single account

Head
30

+200 +50
150

Acct 1 Acct 2 Acct 3

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+200 -150 +50

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 Bank Account Organization (2)

▪ Notional Cash Pooling

– Similar concept, but without actually
moving the cash
– No interest on each of the accounts
Head – In the case below, interest computed
30
based on the aggregated net position of
+130
– No transaction on the accounts
– Pro forma interest statements allow to
Acct 1 Acct 2 Acct 3 reflect the debts between entities
+200 -150 +50
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 Bank Account Organization (3)
Multi Company Set-up

▪ Similar system may be implemented across several companies

– Bank will simulate the fund transfers and compute 2 sets of interest schedules
▪ The interest due between the company and the bank based on the net position
▪ The interest due between each company and the head office
– Legal possibilities change from country to country, It is critical to maintain
“arm’s length” relationship
▪ Legally binding agreements
▪ with controllable market interest rates and spreads.
▪ cross company invoicing and settlement
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 Opening a Bank Relationship
▪ In the past few years opening a Bank Account has become significantly more complicated

▪ KYC >> Know Your Customers, process by which the Bank is required to ensure they have
a thorough knowledge of who their customers and the customers attorneys are:
– Details of the legal entity
– Beneficial ownership >> who s the real owner
– Company directors, officers, and attorneys
▪ Who are they
▪ PEPS or related to PEPS ?
▪ Proof of identity and residence

▪ Issues
– Delay in the process
– Issues of data privacy
– Resistance of employees
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 KYC issues
▪ “Each institution must implement a risk-based approach which defines the required due
diligence depending on the money-laundering risks. Regulation provides examples of low
and high risk customers, products, transactions and means of distribution but these lists are
not exhaustive. Each institution must define its own risk mapping of customers, products,
transactions and means of distribution and the associated due diligence required. This risk-
based approach is not approved by the local regulator(s) but periodically examined during
on site reviews.”
▪ >> Under such approach, each bank tends to develop its own approach and try to outguess
the regulators
– Inflation of demands
– Duplication of work, each bank asking for similar elements
– Quickly evolving domain
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 The contractual aspects

▪ The contractual relationship is made of several documents

▪ The general banking contract
– Difficult to negotiate
– Country and Bank specific
– Often regulated
– Tend to cover all type of general banking operations (as a consequence can be long
and include a lot of unnecessary wording)

▪ Specific product contracts

– Backed to the General Banking Contract
– Regulates a specific banking services
– Some are standardized at industry level (financial markets, AFTE)
– May be negotiated to some extent, especially if the service is specific
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 The Bank Mandate

The Bank Mandate is the aspect of the documentation most critical and relevant to
the Treasurer:
▪ The Mandate defines who can do what and under which conditions from the bank account
– Authority to perform activities from the account
– How many signers for each activity
– Limitations

▪ While the other contractual elements are relatively stable, the Mandate will change every
time the personnel will change in name or in role.
– This may be a significant workload

▪ Mandate is a critical part of the security of the Treasury Process

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 The Cost Structure of a Bank
▪ As any institution a bank is facing a standard cost structure
– Production cost
▪ Banks are massive complex IT organizations as this represent their factory
▪ Customer Service
▪ Cost of capital and debt
– Product development cost
– Marketing costs

▪ In addition, they are subject to specific costs related to prudential rules

– Basel III process managed by the BIS (Bank of International Settlements) each
transaction requires a minimum amount of capital
▪ Credit Risk
▪ Operational Risk
▪ Market risk
– Thus increasing cost of the banks
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Bank Fees
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 Bank Fees

Bank use a variety of fees structure

▪ Account maintenance fee: flat periodical fee covering some basic services
▪ Unitary fees: small fee on each transaction
▪ Ad valorem fees: a percentage applied on the amount of the transaction
▪ “flooring” and “ceiling” or threshold rates can be applied

▪ Forfait fees: Flat sum covering a type of service for a period, may be revised based on
actual volumes
▪ Float pricing: uses value dating, credits are accounted later, debits sooner, bank makes
money on the float
– Decreased importance in the very low interest rate environment
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▪ Interest + margin for loans or activities freezing up bank capital

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 Bank Fees Control

▪ Keep in mind that fees need to be controlled

– Are you able to track the underlying transactions and challenge the Bank invoice
– No need to negotiate a fee that you are not able to control

▪ Technology is helping
– TMS tools usually provide some tracking and valuation capabilities
– New tools are being developed allowing automated reconciliation (TWIST BSB project)
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Bank Account Management
 In detail
Bank Account Management has always been a difficult and key issue to
manage for the Treasury of a large Corporation

▪ Who are we Banking with ? ▪ Who has authority to open/close bank

– Large number of involved parties accounts ?
potentially opening Bank relationships – Legal authority => statutory authority as
– Breadth of the banking network per the by-laws
– Local banks / global banks / Banking – Delegated authority => central Treasury
group relationship may have delegated its powers
– Number of parties involved
▪ Who is authorized to do what on Bank
▪ For what reason ? Accounts
– Transactional banking – Signing Authority
– Investment / Financing / Market
– Transaction authority
– Trade Finance
– Other usage (procurement cards, travel
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cards, factoring, etc…)

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 Why is BAM critical ?

▪ Critical tool for managing Banking Relationship

– Manage the bank relationship network
– Assess Market share of various Banking Groups
– Disseminate Standard Settlement Instructions within the company

▪ Critical Business Control and reporting requirement

– Starting point for Internal Audit and BC activities
– Better understand counterparty risks and optimize management

▪ Increasing regulatory requirements

– Traditional audit requirements
– New Sox/FBAR regulations

“If you have a financial interest in or signature authority over a foreign financial account, including a
bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the
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Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by
filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).”
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 Step 1 Define Policies

▪ Bank Account Management is a critical element of the overall Banking

Relationship Policy
▪ So it should be a power reserved of the Corporate Treasurer, delegated (to some
extent) at Regional level.
– Opening of new Banking relationships should be formally validated at group level, as
they change the Banking relationship scene.
– Opening of new Bank accounts within existing relationship may be delegated at a
lower level.

▪ Strict adherence to Policy is a prerequisite to the next step: “Know your Bank
accounts”
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 Step 2 List your Bank Accounts

▪ Having a permanent and up to date list of bank accounts,

– Ideally should reside in the Treasury Management System but most of us are faced with
heterogeneous environments
– Alternative is using an intranet accessible ad-hoc database which may be easier to
share with other functions.
▪ New Accounts, once opened should be registered immediately into the Global
Bank Database, showing:
– Account details
▪ Numbers (BBAN, IBAN, Routing codes, BIC,…)
▪ Bank details
▪ Banking group
▪ Ledger Code
▪ Usage (Concentration, payments, collections, deposits…)
▪ Account reporting process (e banking, MT940)
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 Step 2 List your Bank Accounts
– Owners
▪ Treasury
▪ Accounting
– Powers
▪ More difficult due to the variety of powers

▪ Some issues may appear: How should you deal with:

– Technical accounts opened by some banks for various purposes
– Escrow accounts
– Joint Accounts

▪ Additional benefits
– Communication tool with the various users
▪ Various Treasury players,
▪ Customer Fulfillment,
▪ Accounting
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▪ Control point for intercompany transactions

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 Step 3 Optimize Administrative Management
▪ Objective is to homogenize the bank documentation, with a specific focus on
signatories management documentation.
▪ Not obvious due to sizable difference in documentation requirements between
banks/jurisdictions
– KYC rules implementation
– Account opening package requirements
– Supporting documentation (bylaws etc…)

▪ Standardization of:
– Bank mandates,
– Signatories nomination forms,
– etc..

▪ Even more difficult for service agreements

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▪ Task made easier by building a dedicated competency in our 2 Cash

Management service centers
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 Future trends

eBAM (electronic Bank Account Management)

• Automating data exchange between corporate and Banks
• Limiting duplication of work

Ex: SWIFT KYC Initiative

• Several years ago SWIFT implemented a process for exchanging KYC related
between Banks.
• This is now open to Corporate to exchange data with their Bankers
• Companies upload their data in the system
• Then open access to their data to the Banks they are banking with
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 Future trends

▪ Banking industry has seen a number of new trends popping up in the past few
years
– Appearance of new players
▪ Neobanks
▪ PSP
▪ Fintechs covering a wide range of banking functions
– New constraints
▪ Increase regulatory weight (AML, KYC, MIFID/MIFIR,…)
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