Treasury Management
Treasury Management
The management of the organization's: Investments
Cash flows
Banking
Money market and capital market
transactions
Effective control of risks associated with
those activities
Pursuit of optimum performance consistent
with those risks
Corporate Treasury
Management
Treasury Management
Treasury in a company is key in determining the firms
financial strategy and financial policy advising on what
businesses to invest in, organizing the appropriate
funding for this, and controlling the risk in the
organization.
Corporate Handling of all financial matters, the
generation of external and internal funds for business,
the management of currencies and cash flows and the
complex strategies, policies and procedures of corporate
finance.
Association of Corporate Treasurers
Treasury in the Organization
CFO
Corporate
Finance
Director
Treasury
Manager
Treasury Manager usually reports into the
Corporate Finance director who in turn reports to
the CFO
Main Treasury Functions
1.
2.
3.
4.
5.
6.
Corporate Financial Objectives
Liquidity Management
Funding Management
Currency Management
Corporate Finance
Treasury Operations & Other
Functions
Main Treasury Functions
1. Corporate Financial Objectives
. Setting Treasury Policies &
Procedures
. Aims and Strategies
. Relevant System set up
Main Treasury Functions
1. Corporate Financial Objectives
Treasury Policies
. All treasury departments should have a
formal statement of Treasury Policy and
detailed guidance on treasury
procedures
. Aims of a treasury policy is to enable
managers to establish direction, specify
parameters and exercise control
Main Treasury Functions
Areas covered include
Counterparty Exposure (Limits, monitoring exposures)
Currency and interest rate risk (hedging methods,
instruments, limits)
Funding Risk (limits and targets for different sources)
Liquidity management (permitted banks, intergroup
procedures)
Investment Management (source of funds, authorized
counterparties and instruments and inter-company funding)
Bank Relationships (criteria for choice of bank)
Guidelines on measurement of Treasury performance
Management of Risk and Financial contribution the
department makes
Internal Controls Policy and Authorisation Levels
Main Treasury Functions
2. Liquidity Management
Making sure the company has the liquid funds
it needs and invests any surplus funds , even
for very short terms
Functions include
Working Capital Management
Money Transmission Management
Money Management and Investment Strategies
Banking Relationships
Cash flow monitoring & Forecasting,
managing bank accounts
Main Treasury Functions
3. Funding Management
Concerned with all forms of borrowing and
alternative sources of funds, such as
leasing
Areas of focus include:
Sources & duration of funds required
Interest Rates
Security
Types of borrowing
Main Treasury Functions
4. Currency Management
Currency dealings can save or cost a
company considerable amounts of money,
for companies involved heavily in foreign
trade
Functions include
Exposure Policies & procedures
Use of Forwards & OTC derivatives
Exchange dealing (Futures & options)
Exchange Regulations
Main Treasury Functions
5. Corporate Finance
Treasury department is involved in strategic decision
making such as dividend policy and raising of capital
Tactical decisions include risk management and
investment of surplus funds
Functions include:
Raising Share Capital
Obtaining a Stock Exchange listing ( or delisting)
Project Finance
M&As and business sales
Dividend Policies
Main Treasury Functions
6. Treasury Operations & other
functions
Facilitating Trade Finance (LCs, Bank
Contracts)
Corporate Insurance
Pension Funds Management
Corporate Credit Cards etc
Investor Relations
Treasury Department as a cost or
profit centre
The treasury department is usually run as a cost
centre if its main focus is to keep costs within budgeted
spending targets.
Cost centre approach implies that the treasury is there
to perform a service of a certain standard to other
departments in the enterprise
It may run as a profit centre if there is a high level of
foreign exchange transactions or the business wishes to
make speculative profits
As a profit centre, the treasury departments have to
operate with a greater degree of commercial awareness,
in for example the management of working capital.
Treasury Department as profit
centre
Following issues should be addressed:
Competence of Staff
Controls
Information about markets
Attitudes to risk
Internal charges
Performance evaluation
Treasury Function in banks
Role of Treasury Function
Managing Asset & liabilities of the bank.
Managing 'gaps' and the 'risks'.
Maximizing profits operating within acceptable risk
parameters,
Maximizing yield on treasury/inter bank
investment.
Providing rates to branches and customers.
Treasury Structure
Treasury Function
Lending to
Branches
Borrower
Spread
Branch
Depositor
Excess
Liquidity
TREASURY
Front
Office
Reserve
Requirement
Branches Lend To Customers
Branches Receive Deposits
Branches Remit Excess liquidity to
try at an average rate (Pool Rate)
Borrowing
Funding
Investmen
t
Treasury
Back Office
Functions
Treasury maintain reserve with SBP.
Invest in MM Instruments
Invest in Govt. Securities
Invest in Debt Securities
Capital Market
Fund FCY Trade Nostro Account
Lend to Other Branch
Money markets
The money market is a wholesale market for low risk, highly liquid, short-term & long
term debt instruments.
It serves as an avenue through which banks and financial institutions can offload their
excess liquidity or meet their funding requirements.
To the government an organized money market represents a means for it to implement
its monetary policies in a more efficient manner. Moreover, it provides it with a liquid
market for securities through which it can finance its own borrowing requirements.
The large role of commercial banks in the money market can be easily envisioned by
looking at their assets and liabilities.
A major portion of their liabilities are demand deposits. Another large portion of bank
liabilities are time deposits.
On the asset side, in addition to loans banks have part of their assets invested in
marketable securities.
Money Market Objective
Managing liquidity and interest risk.
Coordinating
with
corporate/retail
departments for assets/liability pricing.
banking
To deploy excess funds in order to save liquidity
wastage
To manage funding requirements which may arise
from time to time keeping in view the cost and
interest scenario.
Money Market Instruments
Pakistan Investment Bonds: These are long term bonds of three, five,
ten, fifteen, twenty & 30 years, maturity issued at market price and carrying a
different coupon rate according to the interest rates scenario. funds etc. to
invest in long term.
Treasury Bills: T-Bills are short term securities issued by the State Bank on
behalf of the Ministry of Finance through auctions. They are zero-coupon bonds
issued at a discount, have a par value of Rs 100 and a maturity of three, six or
twelve months.
Bank borrowing is one of the various measures the government takes to fill its
budgetary deficit and this bank borrowing currently takes place against T-Bills.
Term Finance Certificate: TFCs are redeemable capital instruments and
may be issued by a company directly to the general public, which includes
institutions. Unlike straight bonds, they are redeemable capital and are of long
tenors. Issued by corporate to raise long-term fund.
Money Market Instruments
Repurchase Transactions: Borrowing secured
by collateral in the form of securities.
Rev. Repo Transactions: Lending secured by
collateral in the form of securities.
Call Money: Call transactions consist of noncollateralized lending and borrowing of Funds.
FX Market
Domestic markets trade in local currency and operate under
regulations governing domestic market.
When funds in any other currency are traded outside the
regulations governing domestic markets, then the transaction is
of Foreign Exchange Markets.
Nostro Accounts : A bank account held in a foreign country by
a domestic bank, denominated in the currency of that country.
Nostro accounts are used to facilitate settlement of foreign
exchange and trade transactions.
The term is derived from the Latin word for "ours.
Exposure Management
Equity Market
The key investment objective behind developing an
equity portfolio for the bank is to create and manage
an investment portfolio that allows earning of superior
yields in comparison to other alternate investment
opportunities.
The risk of the equity portfolio is managed through:
Comprehensive focus on fundamental research and
equity analysis;
Diversification of the investment portfolio;
Rigorous investment review procedures; and
Development of controls and procedures for the
trading portfolio.
