Recent years have seen treasuries taking on a new more diverse role within the business, while also adopting a more centralised model. The combination of these two trends has seen a growing number of treasuries looking for suitable locations in which to establish a regional treasury centre (RTC) that would be capable of handling a broad range of tasks.Noor Adhami, Regional Head of Global Liquidity and Cash Management, HSBC Bank Middle East and Hemang Desai, Regional Head of Sales, Commercial Banking, Global Liquidity and Cash Management, HSBC Bank Middle East examine the recent emergence of UAE as a leading location for this type of centre.
The growing range and complexity of treasury activities, especially in the context of globalisation, has been driving many corporations to consider centralising their treasuries. The level of regulation has risen almost inexorably since the financial crisis, requiring cross-border management of the varying regulatory regimes in addition to numerous other tasks, including cross border liquidity management, hedging, supply chain management and business advisory support. "This diversity means - alongside many other considerations - that any possible location for an RTC must be able to offer a pool of experienced skilled personnel," says Noor Adhami, Regional Head of Global Liquidity and Cash Management, HSBC Bank Middle East. "This is one of several reasons why UAE has emerged as a strong contender for new RTCs."
Shifts in the global economy and supply chains, the rising importance of emerging markets and volatile oil prices are just some of the factors reshaping the business landscape. This shift has prompted many treasuries to become far more proactive in partnering with the business in order to help create greater corporate value. However, in order to free up capacity to undertake this valuable role, treasuries need to optimise and automate their traditional tasks as much as possible, and centralisation plays an important part in helping them accomplish this.
Broadly speaking there are three degrees of treasury centralisation:
Although a fully centralised environment may appear to be the most suitable structure for multinational corporations, in reality this is not necessarily always the case, so some may instead have a hybrid or even decentralised structure.
The treasury structure of a particular organisation is generally dictated by the company’s strategy, organisation and underlying business model. Nevertheless, the growing trend in recent years has been for treasuries to centralise their operations. "This gradual shift towards centralisation has been encouraged by technological advances that have made it easier and cheaper to centralise, and also by governance regulations which require a high level of transparency across the organisation," says Hemang Desai, Regional Head of Commercial Banking Sales, Global Liquidity and Cash Management, HSBC Bank Middle East.
The current economic environment has also pushed companies to revisit their existing cash management structures as they seek to maximise efficiencies and increase visibility across the business. The arrangement of treasury operations - and especially the degree of centralisation - will have a major impact on these cash management structures.
Centralisation of treasury can provide immediate benefits in terms of:
In view of the extent and value of these benefits, many leading treasuries regard it as essential to determine and periodically re-evaluate the degree of centralisation that is desirable and practical from their corporation's point of view.
When picking a treasury centre location, most corporates tend to focus on the following external requirements:
Based on these criteria, UAE has emerged over the last couple of years as a popular choice of location for RTCs, comparing favourably with other possible locations in the Middle East. Its geographical location means that it is well-positioned to cover the MENAT region with ease. UAE also has robust banking and communication networks that bear comparison with more established RTC locations, such as Hong Kong, Singapore and London. The benefits of having an RTC in the UAE include:
UAE clearly makes a strong case for itself as an RTC location. However, actually opening an RTC there is immeasurably easier if a corporate treasury can rely upon the support of a banking partner that not only has a strong UAE presence but that can combine this with a deep understanding of the corporation's business and proven expertise in centralisation projects. Then, based upon its experience of global RTC best practice, it will be able to support treasury in achieving a successful implementation.