2. Structuring a bank treasury function involves balancing tactical and strategic objectives. The treasury
function is impacted by external market and economic environment, the regulatory environment,
competitors and peer players, customer base, bank’s position in its external operating environment and
consequent growth strategy. In light of environmental factors, a Bank needs to draft its treasury operating
strategy detailing what capability it requires to sustain itself and how it will operate given its specific
objectives. Let us examine a case of how a bank successfully managed its evolutionary path.
The Bank has a $2b balance sheet with a local customer base comprising of small industries, agricultural
producers and low to medium income personal customers. The most favourable factor was the solvent
nature of its customer base in a stable growing economy in line with national economy. The Bank
emphasized its ‘close to customer’ principle to understand the customer. The treasury function resided
under the CFO and centred on liquidity and cash management with funding programmes requiring a
recourse to institutional sources. The ALM function comprised primarily of balance sheet planning and
resided with the finance function.
Two years later, the Bank grew to $10b balance sheet courtesy of increase in customer base and regional
expansion. The Bank hereafter undertook a technology oriented programme to penetrate markets through
online banking for both corporate and personal customers, and increased deployment of ATMs directly
and tie up with others. The Bank faced typical small bank challenges of specific sector expertise, access
to wholesale funding, attracting and retaining operational level skilled resources and capital expenditure.
The Bank emphasized its ‘service culture and agility’ to respond to customer needs. At this stage, the
treasury function was formally recognised and a Treasurer was appointed under the CFO. The bank
consulted a large established financial institution to build Funding Programmes and Market Access
expertise capability.

3. Three years later, the Bank grew to $75b balance sheet largely due to a sector focused customer strategy
and expanding corporate clientele. The Bank targeted corporate customers with faster economic cycles
and in rapidly growing markets, thereby requiring more cash management and trade finance solutions.
Bank also added foreign exchange risk solutions to its product offerings. The Bank responded by
enhancing its knowledge based relationship managers to support clients and a wider treasury capability.
It undertook market operations via a broker/dealer arrangement while building in house capability with a
particular focus on exposure management. To cater to the specialised needs of its customers, the Bank
added wealth management services to its high net worth clients and utilised the services of an established
external asset manager to administer it. The Bank faced typical issues in managing a medium sized bank
which centred on customer focus and strategy, redefinition of operational methods and staff training and
retention.
The Bank also started building solution specific expertise and tailored products, like expertise in managing
commodity and foreign exchange risk. It grew with its customers, who expanded in international trade
requiring international banking and international trade finance for which the Bank established efficient
alliances and correspondent banking relationships. The Treasury established enhanced analytic capability
to address NII analysis and interest rate sensitivity issues. A key feature of success in interest rate risk
management was efficient re-pricing risk and option risk management.

4. Two years later, the Bank has a $200b balance sheet courtesy of a stable economy, rapidly expanding
foreign trade, and two acquisitions. The Bank acquired a medium sized building society and an asset
finance company. It established its own treasury market operations on electronic exchanges and direct
channels. It added interest rate risk solutions to its suite of product offerings. The Bank undertook a merger
integration of its technology platform based on an enterprise wide unified data model, this proved to be
critical in managing exposure and risks while substantially reducing adjustments, errors and
reconciliations. Treasury processes were streamlined and capacity enhanced to manage structural gaps
particularly static gap to manage maturity, duration to manage interest rate sensitivity and dynamic gap
for hedging and to forecast positions based on business volume and exercise of options. This is now a
sizable bank with an independent treasury function and extends support to smaller local banks for funding
and market access, product development and technology deployment dependency. Key to treasury success
was cash visibility courtesy of integrated enterprise wide processes and unified data and technology
platform, and its ability to form key partnerships.
Some of you, familiar with the North American financial landscape, will appreciate this enterprising bank.