For The Boston Consulting Group (BCG), one of its main objectives was to gain access to all key instruments of cash management such as full payables, receivables solutions, salaries and cross-currency transactions, in an efficient and fully automated manner. It also wished to achieve control over and optimise the usage of cash balances across the group’s three entities in the region. It wanted to minimise working capital needs by proactively managing occasional cash shortages, and leverage the value of liquidity across the group’s three entities and multiple currencies without increasing complexity.
These were directed to achieving BCG’s broader aims of improving efficiency and visibility within the treasury function, while cutting down on costs by reducing banking fees and enhancing the use of working capital.
BNP Paribas proposed a solution to provide BCG with cost efficiency and optimisation. This solution comprises three building blocks, of which the investment component is uniquely innovative in the Middle East:
Set up on Connexis, BNP Paribas’s internal banking solution for managing and monitoring all the accounts and transactions.
Establish a same-currency cash concentration solution consolidating all the excess cash in Dubai via an automated sweeping mechanism.
Maximise the yield of the liquid portion of the idle cash using a cross-border balance optimisation and earning credit rate (ECR) liquidity solution, an overnight-based solution that leverages the value of the liquidity to provide a rebate against the cash management fees.
The solution offered to BCG in the Middle East has addressed the challenge to integrate daily management of all transactions and accounts, bringing innovation to all three levels of liquidity management.
“On physical liquidity management, for the first time, our Saudi Arabian entity could be integrated to the rest of the region within a fully automated regional cash pooling structure,” explains Mark Salehar, Head of Finance.
In terms of notional liquidity management, cross-border balance optimisation offers the best rewards when a corporate’s accounts have frictional cash spread across several geographies and currencies, while providing the added benefit of avoiding the commingling of cash balances.
Meanwhile, on the investment solutions side, the liquidity management structure has been seamlessly integrated with the ECR solution. This is a ‘soft-dollar’ credit interest rate granted to clients on balances and used to offset cash management fees. Hence the ECR allows a more simplified billing process and reduces BCG’s cost base.
The originality of this innovation lies in the application of the ECR in the Middle East, a solution which has only traditionally been used in the US. However, it also differentiates itself in that it can be combined with the cross-border balance optimisation and the cash pool exercise.
“BCG is embracing the unique opportunity offered by its bank to leverage a modern and innovative methodology in liquidity management. Liquidity management has been a rather underdeveloped aspect of flow banking in the Middle East until now, while the liberal regulatory, legal and tax environment, combined with the positive effects of the currency peg to the USD, could actually be conducive to great efficiencies and savings. BCG supported its bank by being one of the first clients to embrace this family of solutions, and indirectly contributed to elevating the treasury function to a higher level,” concludes Salehar.