Cash & Liquidity ManagementCash ManagementShow Report: BNP Paribas Cash Management University – Day 1: Standardisation, Simplification and SEPA

Show Report: BNP Paribas Cash Management University – Day 1: Standardisation, Simplification and SEPA

Around 150 delegates attended this year’s BNP Paribas Cash Management University (CMU), which the bank has held annually since 2007. A welcome address by Alain Papiasse, global head of corporate and investment banking, acknowledged that today’s challenging environment made it imperative for cash managers and corporate treasurers to be able to have confidence in dealings with their banks. BNP Paribas had taken steps to maintain its position as one of the world’s best capitalised banks, it said, and had successfully confirmed its profit-generating capacity in difficult conditions, which was an oblique reference to the on-going and related eurozone crisis and its efforts in meeting the in-coming capital adequacy requirements under Basel III.

“While other banks still have their plans for deleveraging ahead of them, we’ve already been able to achieve ours over a fairly short space of time, and can look forward to the future with greater optimism,” said Papiasse. Ahead of schedule, the bank was able to reduce its US dollar (USD) funding requirements by US$65bn before the end of April 2012 and its portfolio of risk-weighted assets by €45bn by the end of September. “We reduced our exposure to sovereign debt bonds and have almost no remaining exposure to Greece,” he added.

Also as of the end of September 2012, BNP Paribas’ fully loaded Basel III Common Equity Tier (CET) 1 ratio had strengthened to 9.5%, while the bank’s annualised return on equity (ROE) over the first three quarters of 2012 stood at 8.5%.

“BNP Paribas is a bank that is dedicated to serving its customers in Europe and around the world,” Papiasse assured delegates. This was reflected in “a renewed commitment towards cash management and deposit business through our multi products offering.”

Papiasse was asked by the session moderator, Jack Large, editor of ‘Cash & Treasury Management File’, whether the fact that US banks were not also complying with Basel III’s requirements created much cause for concern. However, he responded that any bank which decided to turn its back on compliance would quickly run into problems with the ratings agencies. “Whatever the future evolution of regulation, structured long-dated products will have to follow tougher liquidity rules,” he added.

Five pillars

Following the welcome address, Pierre Fersztand, global head of cash management for BNP Paribas Cash Management, outlined the bank’s ‘five pillars’ of investment strategy for cash management in his introduction speech.

First was that it should fit with BNP Paribas’ huge geographical network worldwide. “We plan for our cash management services to be offered in every country where we operate,” he said. As part of this policy, services were under development in South Africa and an electronic banking (e-banking) service in Russia is scheduled for completion in March 2013.

Second was a strong investment in global tools and a harmonisation of the bank’s various offerings, as well as for reportings and the account opening process for clients.

Third was giving priority to the requirements of the single euro payments area (SEPA). “We’ve been investing in SEPA over a number of years and have strong platforms able to handle the huge volumes of payments,” said Fersztand. “BNP Paribas is ready and able to assist clients through integration and format conversion tools.

“We can also offer advisory skills and capabilities for advising clients on SEPA payments and we’re working with both corporates and software providers towards this goal.”

Fourth pillar of strategy was flexibility, supported by investment and recognition that ‘one size fits all’ can never be the case, given the complexities of today’s business world. “Our IT system reflects this, with a connectivity hub that is flexible in adapting to different formats and reporting methods,” said Fersztand.

The fifth, and final, pillar was investment in local capabilities, which meant adopting the mind-set of a local bank. Wherever possible, BNP Paribas undertook dealings with local payments and local people itself, rather than relying on a strategic partner.

“So in every country where we carry out cash management, we have local teams speaking the local language,” added Fersztand.

The five pillars were all vital in meeting the daily challenge of quality of service “and our concern is maintaining this quality in payments, collections and reportings,” he said. This priority was reflected in recent developments such as the doubling of BNP Paribas’ IT capacity in Germany and regular innovation – much of it based on the new technologies, such as mobile payments. In the pipeline currently is new e-banking software, to be introduced in 2013, which will facilitate the task of account openings.

“Our ideas come from you, our clients, so these two days [of the CMU] are an opportunity for you to bring us your requirements,” Fersztand concluded.

Asked by large where the impetus for regional developments came from, Fersztand said that although Europe is obviously the bank’s domestic base, BNP Paribas recognised the fast-growing economies of Asia. The bank was growing quickly not only in India, but in Australia, Japan, Korea and Malaysia.

Treasury Barometer

A mid-morning presentation was moderated by Helen Sanders, editor of ‘TMI’ and director of Asymmetric Solutions. She presented the results of the ‘Treasury barometer’, the first of what is planned as an annual poll of CMU attendees to keep informed of the changing trends and behaviours among treasurers and cash managers.

A short questionnaire was issued a few weeks ago to assess recent trends, which had been completed by around half of this year’s delegates. Asked ‘What have you done about centralisation in 2012, and what do you have planned for 2013?’, 51% of respondents had carried out physical cash pooling over the past 12 months and 34% planned to do so in the year ahead. Second came centralised payments, with corresponding responses of 32% and 19% respectively; followed by figures of 23% and 19% for notional pooling and 21% and 10% for centralised collections.

“Centralised collections are more difficult to achieve, although this figure is likely to increase as we approach the implementation deadline for SEPA,” noted Sanders.

Asked whether they planned any changes to their cash management bank relationships, a quarter of respondents professed themselves to be happy with their existing relationships and weren’t planning changes, while 14% had increased their relationships in recent times. However, 29% said they had already reduced their relationships and a further 29% are planning to have fewer cash management bank relationships in future.

Asked about changes to their cash investment strategy, 21% of respondents had kept them unchanged in 2012 and 30% intend to follow a similar policy next year. Twenty-seven percent had reduced their number of deposit banks, with 15% planning to do so in the year ahead, while the respective percentages for those planning an increase in the number of deposit banks were 8% and 12%. Ten percent had increased their use of money market fund (MMF) investments and 12% expect to do so next year.

Asked about the importance of new technologies, electronic bank account management (eBAM) scored particularly highly, cited by 40% of respondents. “A liking for iPads and other gadgets was very evident,” noted Sanders. “There was also interest in new payment methods, mentioned by 23% of respondents – a figure that is likely to further increase once SEPA is out of the way.”

Also encouraging was that despite the prolonged problems experienced by the Eurozone, an impressive 47% see Europe as a key growth region in 2013, followed by China (40%) and Latin America (36%).

Finally, a question on treasury priorities for 2013 saw cash and liquidity management named as their top priority by 41% of respondents, and a major priority by a further 12%. Not surprisingly, SEPA came next, but was a distant second with only 11% naming it as their top priority and 10% as a major priority. “It’s perhaps worrying that SEPA hasn’t impinged more on treasurers’ consciousness,” remarked Sanders.

The Novartis Experience

Treasurers traditionally love to learn where their peers are doing, so there was keen interest in the presentation given by a duo from Swiss healthcare group Novartis; Peter Zumkeller, manager, finance transformation programme and Brice Zimmermann, head of treasury control and reporting.

Two years ago, Novartis started an ambitious finance and treasury transformation programmes, covering both the group’s enabling workstreams and functional workstreams, which has seen Novartis replace a total of 56 different banking partners in Europe to just three – BNP Paribas, HSBC and UBS.

Zimmermann summarised the group’s treasury and cash management aims as follows:

  • To have full visibility and control over the group’s financial risk.
  • To have full visibility and control over the group’s liquidity risk.
  • To maintain a global cash pool structure in all instances where it is appropriate.
  • To concentrate cash management within a selected number of core banks.
  • To develop and streamline a payments infrastructure.
  • To introduce centres of competence within financial; Service Centres (FSCs).

Underpinning these strategies was the conceptual solution of standardising, simplifying and automating, towards the goal of having a single global picture for the whole group.

Despite the progress achieved to date, Novartis still has further goals in its sights, including the rolling-out of its cash pool policy concept beyond Europe; the introduction of payments factories; conversion to SEPA with compliant master data and file formats; improving auto-allocation processes and the embedding of accounts payable (A/P) and accounts receivable (A/R) processes into an FSC environment.

Global Economic View

A diverse morning session closed with Sylviane Delcuve, senior economist for BNP Paribas Fortis, assessing the global economic outlook for 2013 and the main challenges for the years ahead.

She concluded that Germany would be losing the most – given its size in the Eurozone gross domestic product (GDP) – if any of its member countries was to decide to leave the Eurozone all of a sudden. She therefore believed that Germany is likely to continue to do as much as is needed to keep the system intact. It would, of course, benefit Europe if these efforts went above and beyond the minimum necessary. As an example she cited measures that would lead to some stimulation of domestic demand, from which all countries would benefit via exports.

“The euro also suffers from being an incomplete currency,” said Delcuve. “It has its own central bank that decides about interest rates, but it lacks its own Ministry of Finance. It cannot stay like this forever, nor can the European Central Bank (ECB) continue to cover several different jobs at the same time forever. The ECB is currently taking care of monetary policy, but is also ready to buy government bonds if needed, and is involved in the decision process related to bank recapitalization.” So the euro needed to become a complete currency, through some form of fiscal union.

“Any recovery in the European economy is dependent on the US and also the emerging markets, so there is some cause for hope in that America is achieving 2% growth,” she added.

Delcuve listed some arguments that lead to think that banking union might prove a long and difficult exercise. According to her, the most likely scenario is that: “The larger banks will probably be supervised by the ECB, but the smaller ones by their national regulator – which is in line with what Germany wants.”

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