Business

Wednesday May 20, 2009

Banks registering good growth in cash management

By DALJIT DHESI


PETALING JAYA: Banks are registering encouraging growth in cash management as more companies are looking at ways to save costs and enhance operational efficiencies amid the bleak economic outlook.

This is also one of the key areas that banks are focusing on amid the shrinking margins in view of the low overnight policy rate (OPR).

OCBC Bank (M) Bhd head of cash management Lucas Chew said: “It is crucial that companies monitor their cash flow effectively to ensure the survival of their business. Cash management is a business tool that helps promote cost savings and operational efficiencies.

“With the current economic downturn, it is even more important for corporations to use effective cash management solutions to help them streamline processes and save costs.”

Lucas Chew ... It is crucial that companies monitor their cash flow effectively

Without elaborating on the figures, Chew said OCBC hoped to achieve double-digit growth in its cash management business this year, adding that its customers for this segment comprised corporates and small and medium enterprises (SMEs).

Citi Malaysia treasury and trade solutions product head Noel Saminathan said cash management had been a key growth area for the bank with annual growth rates of over 20% for the past several years.

Growth in sales for Citi had continued this year although it had been slightly impacted by the downturn, nonetheless the bank was expecting positive growth, he noted.

“Cash has grown in importance as a source of corporate liquidity given the global credit crunch. It is a stable alternative to working capital derived from bank financing and capital market funds.

“Citi’s industry studies show that an average multinational corporation has the potential to reduce working capital requirements by 30% through best practices in cash management,” Saminathan said.

He added that an increase in corporate re-engineering activity to maximise internal cash generation provided good prospects for the business.

HSBC Bank Malaysia Bhd head for global payments and cash management Jason Tan, declining to furnish any figures, said the bank’s cash management business had been experiencing “steady” growth, adding that it was more significant given the reductions in OPRs which had further reduced the net interest margins of banks.

“We have continued to take on new customers who are taking this slower period to re-evaluate their internal processes and to further gain internal efficiencies,” he said.

On the trends of cash management, a research head of an investment bank said parent companies and their subsidiaries were now centralising their cash management function to obtain economies of scale.

This, he added, was achieved by centralising their shared service centres so that the parents would have more control over their subsidiaries.

Tan emphasised on the importance of companies having an efficient accounts receivable (AR) function.

“Cash flow is often hindered by disputes that may be notified by the customer to the sales function, but not AR. The longer these remain unresolved, the longer cash remains outstanding and working capital requirements are unnecessarily inflated,” Tan said.

According to Chew, OCBC Bank expects the response to cash management services to continue to grow as many SMEs had started to adopt proper cash management practices.

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