BNP Paribas and AFP Share Keys to Managing Global Transaction Banking

BNP Paribas has underwritten the Association for Financial Professionals’ (AFP) Executive Guide on Global Transaction Banking, which examines the issues impacting the decision-making process for treasurers in an uncertain business environment worldwide, including appointing new banks and managing existing relationships.

The below article from Craig Martin, director, executive programs and treasury practice lead for AFP, introduces and summarizes the guide.

By Craig Martin

Given the populist movements across the globe, in particular the Brexit vote in the UK, the Trump victory in the United States and the looming elections in France, conducting business around the world is becoming much more complex. Add to that potential trade sanctions and it gets even more difficult. So when a company operates globally, it is incumbent on its treasury group to provide adequate access to liquidity, and that requires maintaining sound banking relationships.

Managing relationships with transaction banks is a central part of a treasury executive’s role. Of all external partnerships, a successful set of bank relationships can have the most positive impact on the effectiveness of a company’s treasury department. Good bank relationships take time to build and nurture, but the investment in time will pay dividends.

The new AFP Executive Guide on Global Transaction Banking, underwritten by BNP Paribas, aims to help treasury practitioners navigate the process of initiating and managing a good set of bank relationships. The guide is structured in three parts. The first part reviews the current global banking environment. It outlines the pressures facing banks and explains why many of them have been reviewing their strategies over recent years. The second part has been designed to support the treasurer’s decision-making process when appointing new banks and managing existing relationships. It assesses the role banks play in supporting a global payments strategy and helps treasurers to identify and manage the counterparty risk associated with a set of global bank relationships. The final part of the guide assesses some of the factors that are already having an impact on the future of global banking. It addresses developments such as blockchain and identifies some of the ways these developments may affect bank relationships in the future.

As with other treasury activities, there is no single correct way to develop bank relationships and no ideal number of core relationships to have. The goal is to have an appropriate number of relationships, in which both the company and the banks achieve their own objectives through strong and collaborative partnerships.

Although there is general agreement that we face an unprec­edented global banking environment, it is less clear whether this represents a “new normal” or whether we are simply experiencing an extended period of market upheaval. The first scenario suggests that the banking environment will be in a state of flux for some time to come. The second promises that the current period of uncertainty will come to an end at some point, although precisely when remains difficult to determine.

In a sense, though, it should not matter too much to trea­sury practitioners which analysis proves to be more accurate. The reality is that the wider global banking industry remains under pressure to reform and restructure their businesses. This will, in turn, continue to have implications for the way individual banks choose to develop their propositions for their corporate clients. For treasury practitio­ners, this produces a fluid banking environment in which it continues to be difficult to manage bank relationships, with the consequent uncertainty about both the range of products and geographic footprint of each bank.

Given this as a backdrop, managing bank relationships is a highly complex, while vitally important, task. There is no single template or formula to determine the appropriate number of bank relationships. However, it is possible to identify the key factors to help make good decisions.

• The first step is to evaluate your current relationships.
• Next would be to establish your overall banking requirements.
• Then try to standardize the processes as best as possible. This may be difficult as, for example, services common in one market are simply not available in other markets. This can be a result of regulation so that, for example, the availability of different cash pooling techniques can vary significantly between countries.
• And finally, try to identify a target number of key relationships.

In summary, the more the bank knows about a corporation, the better the relationship will be for both parties. Also, treasury needs to be strategically involved. The more the treasurer is focused on establishing good communications with the banks, the better their ability to react in the current rapidly-changing environment.

Download a complimentary copy of the AFP Executive Guide on Global Transaction Banking here.