Treasury Management in a Mega Banking Environment

The role of treasury as the heart beat of any organization including banking cannot be overemphasized. However, before considering the impact of treasury management in a mega-banking environment, a look at treasury management functions.

Treasury management for a bank involves the process of managing the bank’s funds (assets and liabilities) in line with achieving the desired objective of the bank. In doing this, treasury is frequently vested with maintaining a balance between ensuring that the bank is liquid (has enough funds and ensuring that funds are applied to profitable areas-profitability).   In doing this there are inherent risks that should be mitigated and managed and treasury coordinates the asset and liability management (ALM) of the bank.

Treasury management can be broken into risk exposure management and asset – liability management. In risk exposure management, the bank is exposed to credit risks, that is, risks associated with counter party’s inability to meet their obligation, interest rate risk, that is, risk associated with volatility of interest rates as interest might move against you, liquidity risk, that is , risk associated with inability to meet obligations, leverage/capital risk, that is , risk associated with the amount of capital cushion a bank has for the protection of its depositors and borrowers from decline in asset values, etc.

ALM involves the management of a bank’s entire balance sheet to achieve the desired risk return objective and to maximize the market values of stockholders equity. Liability management principally involves managing depositor liabilities of the bank. The major function under ALM includes cash management, that is, optimal application of cash position ensuring coverage of short-falls, liquidity management, that is , ensuring that the bank is always in a position to meet its obligation in an efficient and cost effective manner, spread management, that is, ensuring that interest income is greater than expense. Treasury management pricing computations, maturity and rollover management as well as investment policies and formulation policies and government funds.

Treasury management function in a mega banking environment entails the management of cash flows in all currencies, managing the balance sheet (ALM), managing the FX position, trading for profits as well as marketing for/mobilizing deposits for the bank. The importance of good systems (processes approvals, trading limits, IT) for effective and efficient treasury management delivery cannot be overemphasized

Mega banks may face the problem of co-ordination and direction that may slow down the pace of service delivery in treasury management, because of inevitable bureaucracy associated with large organizations.

Therefore, there is the need to rationalize the structures and processes of decision making to ensure that quality and timely service delivery are not compromised. Reports and information must be made available in a timely and accurate manner for the purpose of decision making.

As the banks continue to expand their branch networks on daily basis, the IT system must be one that would ease the generation of accurate and timely reports and information from the branches for effective co-ordination and good decision making.