Insight & Analysis

First Abu Dhabi Bank talks regional treasury trends

Published: Jan 2024

Articulating the key treasury trends in the region, First Abu Dhabi Bank’s treasury team link corporate expansion and the macro environment to an increase in demand for more efficient, centralised cash and liquidity management strategies and oversight, automation and in-house banking.

Skyscrapers in the Dubai Marina

Key trends are driving corporate treasury behaviour in the UAE, amongst which efforts to bolster cash and liquidity management are fundamental. The treasury team at First Abu Dhabi Bank (FAB), who provide a suite of treasury advisory, technology and risk-management services to the region’s leading corporates, have identified an increase in automation and digitisation over manual processes and in-house banking solutions, as corporate treasurers look for better access and control of their funds. This evolution is driving demand for centralised treasury centres.

“Our clients are increasingly seeking greater control and efficiency over their daily cash positions across the whole organisation as well as solutions that offer real-time fund verification linked to cash-concentration solutions. We are seeing a greater trend in organisations searching for in-house banking and centralised treasury solutions that progress towards the management of their funds centrally to support their day-to-day operations more efficiently,” describes Mariya Bulsara, Executive Director (ED) and Head of Global Transaction Banking (GTB) Liquidity Management at FAB.

Technology at the forefront of centralised treasury solutions

“Corporates are also looking for real-time monitoring of incoming and outgoing cash flows, cash forecasting tools, and data optimisation strategies,” Bulsara continues. It has spiked demand for FAB’s application programming interface (API) solutions in a trend for real-time working capital visibility and strategies, which Bulsara also links to higher interest rates. “In this kind of environment, companies are looking inward to see how they can support their own group and optimise what they receive. Concentrating cash attracts better returns and helps companies become self-funded, reducing external borrowing costs,” she said.

The same centralisation theme is also shaping innovation in payments, adds Anand Sampath, Managing Director (MD) and Head of Payments, Collections and Implementation. FAB increasingly supports clients across the board, including client assessment for better ‘Know Your Client’ (KYC) integration and guidance for new account-structure setup to boost reconciliation solutions. Sampath says companies want economies of scale across the payments sector to save on costs and create efficiencies (amongst other benefits), resulting in higher demand for APIs. “Companies want instantaneous exchange/flow of data/information. We are helping them manage the end-to-end process through innovation while improving their working capital,” he says.

For many corporates in the region, centralising treasury is a new journey that requires real support and direction. Tariq Hoodbhoy, FAB’s MD, Head of Treasury Advisory Services says the bank plays a key role in supporting companies to put the building blocks in place. “Some corporates are already quite advanced here, but the majority are keen to be a part of the journey and are only just starting out. It is our role to help them set out their end goal and ensure they achieve it,” he explains.

Success requires change management and the ability to communicate the centralisation message across an organisation. It’s not just information technology (IT) that must change, Hoodbhoy added, rather it must involve scrutinising accounting and end-to-end processing, as well as engaging with multiple stakeholder relationships. “Centralisation involves bringing an organisation together, putting a framework in place, and taking the journey forward from a base level,” he explains. In a novel approach, FAB introduces corporate clients at the beginning of their centralisation journey to others further down the road. “They have a chance to see how the roadmap could work for them and share lessons learnt,” says Hoodbhoy.

The emergence of in-house banking

Centralisation and digitisation themes are also feeding into demand for in-house banking (IHB) solutions that can play a vital role in automating treasury processes. Reflecting on how IHB can support the region’s corporates looking for capital optimisation, Jose Payno, MD and Head of GTB Corporate Product Sales, Abu Dhabi and Al Ain, says, “IHB simplifies intercompany financing and better supports investment decisions in a higher rates environment – it allows the head office to better scrutinise subsidiaries and boosts control and visibility of funds.”

Still, the team counsels that IHB has different levels, or facets. For example, treasury teams will have to gauge the extent to which they shutter physical accounts for virtual account structures, or whether to stay invested in other enterprise resource planning (ERP) systems. “There are different facets of IHB, and treasury advisory is a big piece here,” adds Hoodbhoy. He suggests the process should only be embarked on at a specific level of corporate commitment – and off the back of genuine demand for efficiencies. “In-house banking is a trend, but in truth, only some corporates in the region are there at the moment,” he notes.

Moreover, Hoodbhoy observes the economy in the UAE is still driven by a few large groups. It is these companies spearheading IHB innovation, although as they evolve and increasingly work with banks on new treasury propositions, others will follow.

The high-interest-rate environment is also helping drive new supply chain solutions. The team notes a spike in demand for solutions allowing corporate procurement teams to tap longer periods of credit from suppliers. These kinds of supply-chain finance and liquidity management structures are also popular amongst smaller companies in the mid-market space.

Adoption of sustainability

FAB is also supporting clients in integrating sustainability. Payno notes more requests for environmental, social and governance (ESG) support; burgeoning demand for new products such as sustainable accounts and sustainable trade finance. “Clients want to integrate ESG, but in many ways don’t know how to get there,” adds Bulsara. “Part of our role is supporting them to become more target-driven.”

In other trends, the team are advising on how to assign captured cash balances to green assets, as well as how to partner with fintech to integrate ESG. “The visibility of ESG alignment in supply chains and the use of supplier ratings to encourage alignment is really helping our clients deliver on their sustainable targets across their supply chain,” says Payno.

Strategic treasury

Demand for IHB, better working capital management, and ESG integration also reflect the increasingly strategic role of treasury in the region. For example, corporate treasurers typically provide information to the board and report directly to the Chief Financial Officer (CFO) in an expanding role that mirrors corporate expansion across the region. “Expansion requires better balance sheet management,” Hoodbhoy remarks. “Companies venturing abroad don’t want trapped cash in overseas entities and treasurers are increasingly taking control of this aspect.” He adds that expansion abroad also expands the role of treasury because many companies face international tax payments and capital compliance for the first time.

In another sign of strategic treasury, teams in the region are introducing key performance indicators (KPIs) to help drive upskilling and provide a way of measuring treasury development. “Treasury is measuring the things it can achieve and we notice KPIs driving a lot of change within organisations,” concludes Bulsara.

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