The challenge

In 2016, Astro Malaysia’s Group Treasurer and her team started to assess the set-up of an in-house bank (IHB) to further enhance working capital and the transparency of financial flows and cash positions.

Through establishing an IHB, Astro could achieve greater operational efficiency, reduce foreign currency execution spreads and settlement volumes, and ultimately reduce the costs associated with managing multiple bank relationships and bank accounts across all subsidiaries.

The solution

A rigorous bank selection process was conducted via a request-for-proposal (RFP), wherein a total of seven relationship banks were invited to tender, and Astro mandated Standard Chartered as the banking partner for its IHB. Together with Astro’s enterprise resource planning (ERP) system provider, SAP Malaysia, Standard Chartered worked very closely with Astro throughout the entire IHB project.

With approval from Malaysia’s central bank (Bank Negara Malaysia), Astro went live with its IHB in early February 2019. By implementing the IHB structure, Astro has brought treasury centralisation to the highest level. It centralises all the financial and treasury activities from its 27 wholly-owned subsidiaries and executes on behalf of these 27 participating entities.

The rationalised bank account structure and the associated bank account administrative activities within the group, enable the IHB participating entities to reduce the number of physical bank accounts maintained with other banks over time. Self-funding was also maximised through intercompany funding.

Liquidity management was optimised through intercompany lending arrangements and internal netting for the 27 IHB participating entities. Astro’s IHB also manages the investment of surplus funds for the IHB participating entities and returns the interest earned back to the participating entities.

Payable and receivable processes were also streamlined through payment and receipt on behalf of the 27 IHB participating entities. Astro implemented Standard Chartered’s virtual accounts solution to enable the flow of receipt on behalf of and automate the cash application process.

Best practice and innovation

The solutions implemented by Astro are aligned with IHB best practices, where technology is a key enabler for IHB set-up. After carefully assessing several treasury management systems, Astro had selected SAP’s in-house cash (IHC) module for its IHB implementation and Astro took just seven months to implement SAP IHC.

With the launch of SAP IHC, all IHB transactions, including accounting postings, interest calculation and bank reconciliation, are executed automatically in SAP. Astro also leverages SAP IHC for seamless integration with Standard Chartered.

Centralising the financial and treasury activities into the IHB has positioned Astro amongst the most sophisticated and best in class treasury structures in Malaysia. This remarkable treasury transformation journey should inspire and set a new benchmark for treasury operations in Asia.

Key benefits

• Simplified account structure that gives enhanced control and visibility over the funds and liquidity within the group.
• Ability to drive consolidated and accurate cash flow forecast.
• Mitigated risk as foreign exchange and interest rate exposures of the IHB participating entities are centralised in the IHB, where possible.
• Reduced reliance on bank credit lines and investment facilities as the IHB participating entities can source these services directly from the IHB rather than from external banks.
• Reduced external borrowings by maximising the opportunity to self-fund internally via intercompany borrowing and lending.
• Ability to net off positions from IHB participating entities as much as possible before squaring off with Standard Chartered to gain bulk preferential pricing and reduced gross transactional spreads.
• Straight through processing efficiencies and productivity gains in financial and treasury practices through the adoption of virtual accounts, automated reconciliation, automated interface and seamless system integration, for example host-to-host connectivity.