Trade Services
A work in progress
Bringing the cash and trade businesses together in banks in order to deliver working capital efficiencies to corporate clients makes sense on paper, but the biggest challenge is changing mindsets within banks and corporates.We would like to see a more integrated approach and confidence from the banks. They need to approach the corporate at the right level, the right time and the right people. What happens is that banks are all over the place. They go to the credit manager, procurement or head of treasury. The finance director does not always know what is happening at the group or corporate levels. It's that piece that is sometimes missing."
These comments by David Vermylen, global credit manager for BP Petrochemicals speaking at a Sibos conference session on the increasing convergence between cash and trade within banks aptly sum up where banks are at when it comes to taking a more holistic approach to their cash and trade business. Financial-i has written extensively about banks' efforts to integrate their cash and trade business, which presents numerous challenges for them in terms of creating the right reward culture and educating sales staff.
At today's Sibos debate, Markus Wohlegeschaffen, head of global trade finance and services, Unicredit, said if banks are to help companies optimise their working capital they need to combine not only traditional products such as cash and trade, but also FX, interest and commodity price hedging. "It's not enough to just focus on supply chain financing," he said. Wohlegeschafen stressed that working capital was not just about metrics such as Days Payables Outstanding, Days Sales Outstanding, but also included operational risk aspects and Days Inventory Outstanding.
Although much of the focus within banks has been on extending supply chain finance solutions to large creditworthy buyers, Wohlgeschaffen said supply chain finance is often easier to implement at smaller-to-mid-sized companies as they are typically less complex than large multinationals. Pierre Veyres, global head, Global Transaction Banking, BNP Paribas, said often different people within companies (the CFO, treasurer, procurement) did not share a single vision in terms of what they wanted to achieve with respect to their working capital.
Vermylen conceded that the corporates needed to be ready to implement supply chain finance solutions and that they needed to have a clear working capital strategy led by the CFO or CEO. "Corporates too have a lot of work to do. They need to have an integrated vision of what is needed [with respect to working capital]. Banks also need to do some education."
Wohlegeschaffen said the best-in-class companies had connected working capital players in one focal point - the CFO or CEO. Within the banks, however, t he process of integrating cash and trade was more complicated because of legacy issues, and the mind change required, which he said was "substantial". "We have to educate the cash and trade salesforce to work with the balance sheet of customers and use KPIs that are relevant for working capital optimisation."
Date Posted:21st September 2011