Companies interested in achieving maximum interest earnings on cash balances venture into treasury management.
This was the message by Themba Rikhotso, CFC Stanbic’s country head for Transactional Products and Services to the country’s top CEO’s assembled during this year’s Superbrands CEO Club meeting held on 10th March. Treasury management is a key part of any company or individual’s interested in increasing their yields from their own cash resources through a variety of financial structures and tools.
It entails management of an enterprise's holdings and entails activities such as trading in bonds, currencies, financial derivatives and also encompasses the associated financial risk management.
Mr. Rikhotso highlighted the main objectives of treasury management and broke down the complicated formulae involved in the service. He first split the treasury management into liquidity management and yield management.
For liquidity management, the main aims were for establishment and maintenance of an access to short term financing options.
Another objective was the access to medium and long term support for capital assets and the final objective was coordination of financial solutions. The main objective of yield management is to optimise cash resources.
“The other aspect of treasury management is risk management,” said Mr. Rikhotso. In this sector, liquidity, interests’ rate, exchange rate and market risk are the ones that are carefully evaluated to give optimal performance of the investments. All banks have departments devoted to treasury management, as do larger corporations. For non-banking entities, Treasury Management and
Cash Management are sometimes used interchangeably. The treasury operations come under the control of chief finance officer of the concern or the vice-president / director of finance.
Bank treasuries may have the several departments. These include fixed income or money market desk that is devoted to buying and selling interest bearing securities. Another aspect is foreign exchange or "FX" desk that buys and sells currencies.
A capital markets or equities desk that deals in shares listed on the stock market.
In addition the treasury function may also have a Proprietary Trading desk that conducts trading activities for the bank's own account and capital, an asset liability management or ALM desk that manages the risk of interest rate mismatch and liquidity; and a Transfer Pricing or Pooling function that prices liquidity for business lines (the liability and asset sales teams) within the bank.
“In notional pooling, several balances are put together to determine net position of the participating accounts,” explained MR. Rikhotso. The treasure introduces several treasury participating accounts and uses the accounts to keep the net position close to zero. They then invest in higher yield account. Afterwards they have an option of paying the interest back to participating account based on contribution or paying interest into nominated interest accounts. Mr. Rikhotso also gave a detailed overview of cash management complete with formulae and functional derivatives.
The meeting drew 52 top CEOs who used the occasion to mingle, network and learn new management tools from the various presenters.
