Regional Focus

Question Answered: ME cash management

Published: May 2015

This issue’s question

“With so much focus on electronic payments in the region, what do readers consider to be the key developments in the Middle East cash management space today?”

Murali Subramanian, Executive Vice President, Abu Dhabi Commercial Bank

Murali Subramanian

Executive Vice President
Abu Dhabi Commercial Bank

In the Middle Eastern cash management space, handling of physical cash is still critical though non-cash payment products have been in use for many decades. Credit and debit cards for instance have increased in use in the region over the past 25 years, in keeping with the consumption orientation of the larger economies in the region. The infrastructure to support non-cash payments outside the wealthiest economies (UAE, and other GCC countries) is still developing. Retail sales continue to attract large volumes of cash though tax avoidance has never been an issue – this relates more to the cost of non-cash transactions that is slowly coming down as governments seek to improve the ratio of non-cash usage.

The value of cash transactions is reducing because large corporate-to-corporate payments are now electronic or cheque-based, but SMEs still need to be further integrated into the alternative payments space.

Central Bank initiatives within the region, including GCC RTGS (Real Time Gross Settlement), direct debits, and FCY clearing, together with other payment initiatives such as M-Wallet and intelligent Cash Deposit Machines are advancing the region’s infrastructure capabilities. Today, what the West perceives as ‘conventional financial infrastructure’ – credit and debit transfers, high and low value transfers, ACH, RTGS – is largely in place in all ME countries. There has also been focus on adding further clearing capabilities in the region; in addition to local currencies, there is talk of potentially introducing dollar and euro clearing capabilities domestically as approximately a third of all dollar and euro payments originating from the ME actually goes back to the region.

For corporate treasurers in the ME, payment and clearing is just one dimension of their role. There has been a progressive upscaling of their remit over the past few years with more responsibilities coming their way. Managing liquidity, risk and forecasting market operations – amongst other accountabilities – means automation is a priority in the bank selection process. In the ME region, however, the level of shared infrastructure capabilities found in a more developed economy are not consistently available. Yes, there are banks that do everything in an automated way, but equally there are many that insist on receiving paper instructions or may receive an electronic instruction but convert it back to paper.

Adding to the complexity of bank relationships in the region is the fact that treasurers need to hedge their liquidity, but there isn’t a well-developed domestic debt capital market in the region. So, the only way a treasurer can fund their enterprise needs is through bilateral funding from banks (unless the company chooses to list on an exchange overseas – but that would be a decision for only the biggest of entities and would involve other considerations such as having to obtain a credit rating).

As such, maintaining good banking relationships continues to be a priority for the treasurer. By definition, this means having to deal with several banks, but equally there is a clear focus on wallet share. Of key consideration is placing and integrating their operating business with as few banks as possible (because banking in the region is still, by and large, quasi-manual – the true level of automation and shared infrastructure is not quite here yet) but also having borrowing capabilities with as many as possible. For larger companies, a desire to be agnostic is somewhat commonplace; behaviour that tends to be in defence of reducing the number of banks a corporate wishes to use for payments and collections. In this instance, the qualifier for bank selection will be whether it is SWIFT enabled.

Looking forward, the preoccupation of tactical management of bank relationships and cost management will be joined by increasing focus on management of liquidity, management of market risks from FX, ensuring continuity of business and selecting architecture of enterprise platforms to automate workflows.

Alawi H. Al-Shurafa, Treasurer, Saudi Chevron Phillips & Affiliates

Alawi H. Al-Shurafa

Saudi Chevron Phillips & Affiliates1

Of particular current and relevant concern to the cash management landscape in the Middle East (ME) are several key factors including: liquidity, compliance, automation and de-risking. Naturally, liquidity will always be important in this part of the world as many companies are centered on the spectrum of oil but, with the current pricing environment of crude, corporates are justified in being nervous. There is a requirement, at the very least, to ensure the company has enough cash to fulfil its commitments. To this end, I have seen a number of corporates renewing their revolving credit facilities and looking at the possibilities of expanding existing revolvers.

With regard to compliance, the lack of standardised Know Your Customer (KYC) processes and the difficulties in keeping up with changes can be a headache for corporates in the region. The different circumstances in the ME are not always reflected. For example, for global banks, something as simple as certifying the physical address of a board member of a company in certain places in the ME where people use PO boxes can have implications for fulfilling compliance requirements. Local banks have an enhanced understanding of the ME environment but, for global companies, cross-border presence is crucial.

The tighter controls and compliance is, the harder it is for corporates in terms of ease of doing business. There is a move from KYC to Know Your Customer’s Customer (KYCC) – banks do not always engage in trade finance transactions because of international sanctions and associated risk; requirements for such transactions, therefore, can put pressure on corporates’ working capital.

Moreover, the global banks are increasingly careful in their business dealings and aren’t as keen to explore areas with potential risk. The banks’ approach to calculated risk and the occurrence of de-risking is an area of concern for treasurers. Consequently, what the region is seeing is a bank-corporate relationship that needs to be in line with an expanded scope of compliance, coupled with cautious risk-weighing. Despite the aforementioned, treasurers must look at banking relationships holistically, optimising the presence of key banking partners who are well suited to support the corporates’ operational needs.

Finally, the amount of attention automation is receiving in ME is interesting these days after lagging behind areas, such as Europe, for a long period of time. I like to call it ‘SWIFTism’: after relying for so long on banks’ propriety platforms and host-to-host connectivity, there is a trend of corporates looking at SWIFT – in particular, SWIFT Alliance Lite2 – to do their cash management activities. Corporate treasury departments in the region are already technology-focused but as many corporates implement or consider implementing SWIFT, the region is becoming increasingly globally connected.

Pradeep Prakash, Senior Treasury Manager, Majid Al Futtaim Holding LLC

Pradeep Prakash

Senior Treasury Manager
Majid Al Futtaim Holding LLC

Cash management in the Middle East (ME) continues to be an evolving landscape. In just five to six years, it has developed into what is now a very interesting time for innovative ways to manage cash. Having said that, most corporate treasuries prefer to follow a tried and tested model. The main developments in the ME cash management space revolve around four key areas – visibility, pooling, payments and collections. Whilst visibility of cash is not the concern it once used to be, the emerging ways to manage this issue today are focused on innovative MT940 reporting and bank statement aggregation by lead banks. In addition, having a dynamic group treasury sign-off on any new banking relationship helps capture new bank accounts, which in the past would be ‘invisible’. Majid Al Futtaim has a quarterly process in place that reconciles the internal bank position to bank confirmations. A number of banks offer this statement aggregation service (albeit at a balance reporting level and not transaction level), and various e-platforms and vendors offer both balance and transaction reporting.

With an increasing sense of urgency, innovative solutions to achieve pooling are being sought out by corporates since this acts as a source of internal funding to optimise debt positions. However, good forecasting still remains a challenge to managing optimal cash positions. Other key hurdles to pooling in ME are withholding taxes in geographies such as Egypt, so hybrid pooling is crucial. Selecting a banking partner who can offer the best solution is important and requirements need to be clearly defined at the start of the partnership. Innovative pooling solutions (offered mainly by international banks) are freeing up a lot of captive cash in various markets.

Traditionally, from a pure finance background, payables processing staff have been either unaware of, or unable to see the importance of improving payment methods. Majid Al Futtaim works on current industry-standard payment methods, via middleware and SWIFT. This has helped to demonstrate a very good value proposition across our businesses – through cost/benefit analysis and negotiating a reduction in bank transaction costs, along with the obvious benefits of reduced operational risk and achieving greater STP rates.

Increasingly, a large number of corporates are starting to look at the payments and cash management landscape as an area of innovation which could truly result in a bank agnostic model. This would give treasurers much more operational freedom in consolidating balances, by providing better visibility, and greater yield optimisation potential on corporate cash. With a bank agnostic model, we see existing house-banks trying to retain relationships and ‘lock-in’ new clients through traditional host-to-host propositions. However, it is interesting to see that some leading international banks are also still trying to inject a level of bank-required customisation in file design. This would, to a very minor extent, dilute a true 100% bank agnostic proposition.

In the collections space, the direct debit mandate by United Arab Emirates Central Bank is the newest initiative, which currently applies to the financial institution (FI) space. Corporates have shown a cautious interest, and not many banks offer such a service. We see a lot of banks trying to position direct debits as a value proposition, if only to ensure new business. The feedback we get from our underlying businesses is on the security of cheques that have been tendered against receivables, and whether direct debits would offer the same level of legal protection that the cheques do today.

In conclusion, we continue to be excited by the change in the traditional view of payments, and see this to be an increasingly dynamic space for innovation and greater value propositions among both banks and corporates.

  1. These are the personal views of the spokesperson, not the views of Saudi Chevron Phillips & Affiliates

Next question:

“How is treasury benchmarking evolving? With increasing use of technology, are there any new measures which should be used to benchmark the performance of treasury departments?”

Please send your comments and responses to

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience.