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How to improve bank relationships thanks to centralised FX

Discover essential FX hedging strategies and currency management best practices from our foreign exchange experts.

How to improve bank relationships thanks to centralised FX

3 min.

As businesses grow globally, the complexity of managing treasury operations intensifies. Routine treasury tasks become more challenging to handle, including:

  • Keeping track of cash, investments, debt, and overall liquidity.
  • Overseeing and managing risk.
  • Managing and leveraging the relationship with banks.

CFOs and financial directors implement diverse strategies and use technological advancements to effectively navigate this complexity. Centralising treasury operations is one such approach. 

In this blog, we explore the different benefits of treasury centralisation and how it can, among other benefits, improve your company's relationship with banks and liquidity providers.

Defining Centralised Treasury

A centralised treasury operates as a unified, strategic centre, consolidating various treasury-related functions across the group’s entities. This approach integrates the management of cash flows, risk, and liquidity into a cohesive operation. It allows for the streamlining of treasury activities that were previously scattered across various subsidiaries of the organisation.

Centralisation is more a flexible and scalable process than a one-fits-all solution. It can and should be gradually adopted to align with a corporation's structure and objectives. This process might start with the basic consolidation of cash, interest rates, and foreign exchange operations.

The aim is to establish a central hub bank (in-bank) to facilitate standardised transactions for all subsidiaries, either through a payments factory or a shared service centre. Over time, a large multinational corporation could evolve towards a completely centralised treasury system, incorporating integrated Enterprise Resource Planning (ERP) and Treasury Management System (TMS) solutions, alongside in-house banking or netting arrangements.

Improving bank relationships through centralisation

Treasurers collaborate with various banking partners and maintain relationships with multiple liquidity providers on behalf of their organisations. A centralised treasury offers a number of tangible and intangible benefits to the corporation when engaging with banks:

  1. Pool of Resources and Lower Transaction Costs:  Banks welcome the opportunity to hold—and subsequently invest—a larger pool of resources that results from centralization. Thus, they can reduce transaction fees for various services such as wire transfers, account maintenance fees, and others.
  1. Better terms and rates: Similar to the reduction of bank accounts, centralising FX operations can lead to economies of scale in foreign exchange transactions. A centralised approach allows for aggregating FX trades at Headquarters level, which can result in reduced spreads.
  1. Relationship Building: By funnelling more business through fewer banks, companies can strengthen their relationships with these institutions. Stronger relationships can lead to more favourable terms for various services, and personalised service.
  1. Enhanced Risk Management: Centralised FX operations offer better visibility into the company’s currency exposures and positions. This visibility allows for more effective hedging strategies, which can be communicated clearly to the banks if needed, aligning the risk management strategies of both parties.
  1. Technology Integration: Many businesses with centralised FX operations use specialised platforms for managing their currency transactions. Integrating these platforms with the banks’ systems can improve efficiency, reduce errors, and streamline reconciliation processes.

As companies grow in international markets, treasury function management becomes increasingly complex. Challenges arise when tracking cash and investments, managing currency, and executing financial market transactions. However, a healthy relationship with banks and liquidity providers can improve this.

To sum up, centralising FX operations is a valuable strategy for companies to enhance their interactions with banks. It can lead to cost savings, lower fees, improved terms, stronger relationships, and more effective risk management.

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