Corporate Treasury ManagementPrepared by Submitted to Word countIntroductionThe CRM techniques are necessary for financial services to achieve the required outcomes. The have to create a consumer centric culture and organisation to secure good relationships with customers. This in turn can maximise the profitability. This depends on rating of a company in the minds of the customers and in the market. This is possible when the customer gains profit with the company’s services and bonds. The effort of the company and the resource behind the valuable customer groups must be aligned to gave a good synergy between them to increase the returns.
This is possible by integrating communications and customer interactions. One of the possible way is maintaining electronic rating book available to rating agencies. This will ensure the good relationships with the clients. The identification of sales prospects for the bonds will be enhanced by maintaining a rating book available for the rating agencies and the customers. The management of customer value is to develop the profitability and the rating with the available resources. This should be reflected in the information passed on to the customers.
The cross and up selling initiatives can be supported by good rating of the financial services and its securities or products. The development of propositions aimed at different customer segments will be enabled by rating book availability. In making that the company must reduce the risks and liabilities of its bond or asset, company respectively. The support channel management, pricing and migration should be within the building infrastructure and systems that can deliver customer knowledge and that can understand customer profitability. Country Risk2.1 Country risk in the form of Political Risk: In case of multinational financial services companies, there will be country risk.
The company cannot get more than the rating of the country it is working or based on. This can be possible when it have external guarantees. The adverse effects and positive effects of the decisions of the country will reflect on the financial performance of the company. The creation of laws that effect the movement of capital will also effect the rating of the company. When these risks are not detrimental the rating of the company will be more due to minimised country risk or vice versa.
If the risk factor is more for a country it will effect in honouring the financial commitments. The defaults of the company are capable to harm the performance of all other financial instruments. The country risk or the political risk can be categorised into two types; Macro risk, Micro risk. The adverse actions that are capable of affecting the foreign firms can be termed as macro risks. The expropriation or insurrection will come under macro risks.
The micro risks will refer to the adverse actions and consequences that can affect particular sector or business. The corruption and prejudicial actions come under this risk. In case of macro risk all the foreign firms and their assets are affected. All these come under the risks regarding country that any multinational financial services face. The ways and means of the multinational financial services to minimise the country risk should be contemplated before making the investment. This involves the research of the riskyness of the country This can be done by a consultant in that country.
These consultants should be specialised in making these assessments. Some of the research can be done by the partners of the company in that country and a little research need to be done by the company also. Macro Risk and Micro risks: The type of political risk of the host country of the financial services company that affects adversely the foreign operations is termed as macro risk. This events that give rise to macro risk, mar or may not be in the control of the governments.
When the government in the country the country wants to invest or offer financial services will switch to an anti foreigner slanted government, this gives a tremendous macro risk. This is because after investing, if the government takes away its assets, the company is not in a position to recover them. In case of micro risks they are the events that are due to the political actions of the country. These risks are of two types. One type will under control of governments and the other type is not.
This may be caused due to the opposition to the activities of the people towards the companies of any particular foreign country. The situation of American assets in Cuba and Middle East can be an example of this type of micro risks. Market Characteristics of a financial Services firm: The customer satisfaction analysis, community reinvestment act analysis, company image/ positioning analysis consumer analysis, competitive analysis, new products or services development market analysis, existing products or services market potential, market segmentation analysis, customer loyalty /commitment, product or service evaluation, pricing and advertising analysis come under market characteristics. The customer satisfaction analysis depend on the feature and attributes of the products that satisfy the customers.
The aspects of the services and assets of the company decide this. Another point in the market characteristics is the community reinvestment act analysis. This will determine the serving of specific CRA groups and their attributes. The price sensitiveness of the groups is also taken into consideration. The operationally related major hurdles should be taken into consideration for this analysis. The important of the market characteristics is the image and positioning.
If the company is not positioned correctly in any country, the image developed till then will be spoiled. The varying of the image with the market segment and the comparison with the competitors is needed. The brand image will be related to consumer nature. This can be done before entering the country. The current and potential customers are calculated first and this can attract the types of customers the company wants. The motivations the assets and bonds of the companies play an important role in this.
Analysis. The buying decisions made by the customers and the specific process selected by potential customers can be taken into consideration. After this the competitive analysis plays an important role in market characteristics of the company in a country. The primary and secondary competitors should be identified first. The strengths and weaknesses of the competition offered by the financial services in the country should be analysed. This helps in positioning of the company and to decide the nature of the assets. This results in analysis of the new products or services development.
The features and attributes of the prospective customers are known and the securities, assets, bonds and services can be named accordingly. This communicates the effective message about the bonds, assets and services of the company. This will be based on existing products or services market potential. The next generation products also should be planned according to the needs of the customers. The company should target the missing market segment. The proper distribution channels are important in marketing the products in an effective way. This will be possible by undertaking market segmentation analysis that involves the secondary market segments of the products offered by the financial services company.
The usage of the products by each market segment is analysed. The reasons for the ignorance of the market segments regarding our product must be analysed. This develops customer loyalty who satisfy with return of a risk free investment. The guarantee of risk free investment depends on the product and service evaluation. This decides the perception of the customers regarding the financial products of the company. Asset/ Liability Management3.1 The spectrum of Asset/liability management: The willingness of the individual associations will decide the future strength of savings and loan industry or financial services firms.
The broader spectrum of actions should be designed to improve the institution’s interest margin that involves interest income with less interest expense or in other terms less debt cost. This will be major factor that decides the profit or deficit of the company. The authority granted by monetary control acts and authorities, will decide in increasing the firm’s volume and interest cost or margin.
This needs the convergence of the financial services groups in the industry. This ensures the satisfaction of the traditional customers. The segmentation of the products also can be done. It will be helpful for financial services company if the interests rates are deregulated. This needs the reevaluation of the firm’s approach to management of funds. The asset/liability management identifies investments, credits, deposits, purchased money alternatives. These should be capable of increasing or stabilising the interest margin of the financial services company. The mix of funds between open financial markets and the markets dominated by customer is needed to reflect the strategic issues.
These are central to the planning process. The current position of the market and financial condition of the financial services firms will reflect the regulatory impediments and the economic volatility. If the profit turnout is continuous, this reflects the willingness of each institution’s reasonable goals and their achievements. The institutions should compare the organisation’s existing strengths and weknesses in the industry. This involves the opportunities and threats. The planning of the business and the products will decide about the business the company will be in and the markets it can serve.
The principal customers of the company also will be decided by the planning the products. The relative priorities for the profit, growth and service goals are the mix of funds and growth rate of total assets. This depends on the deregulation of the industry, recognition of the institution, low cost production and speciality of a financial institution. This is because the financial services industry is less homogeneous when compared to other industries. The management will find difficult to compare merely with another in case of same geographical conditions also.
The demographical and other conditions also should be taken into account to compare and asset size is also important. As the corporate missions differ in liquidity, asset quality, capital and earnings among industry the asset/ liability management must reflect the individual operations of each institution. The empirical record will show the financial institution’s liquidity and lending capability. This decides whether the organisation is aggressive in lending or not. The lending to lower quality debtors can be considered as aggressive and this increases the risk of the company.
The company should rely on more capital and should have control over the operations. This can yield sensitivity with assets and liabilities. The asset/liability management should identify and determine the risk/ return trade off avoiding the risk or managing it to be within the limits. 3.2 Trends and comparisons: The services of a financial services organisation will assign a letter grade or numerical ranking that means the standard and safety of the organisation. These can be determined on the basis of capital, asset quality, management, earnings, liquidity and sensitivity to market risk.
The deposit rating is an assessment that reveals about the ability to honour the obligations of the depositors. The issuer credit rating will be an assessment of the firm’s ability to honour the important obligations. The debt rating is the assessment of the issuers ability to meet the financial obligations. The key rating considerations are long term core earnings capability, business profile, balance sheet strength, risk management, regulatory structure, management and corporate governance and parent company affiliated operations. In case of long term core earnings capability, the historical earnings of the core operations are taken into consideration.
The development of the business for the enhancement of future earnings can be estimated and the rating is decided. The business profile of the financial services firm will be decided on the franchise strength, brand recognition strong hold and long term client base. The profitability, stability and growth of primary business of the firm depends on the business profile. The interest vs fee income also will give the rating and the performance of the company.
The balance sheet strength of the company will demonstrate the liquidity profile, the future growth and the diversification of the long term funding. The capitalisation, protection, and capital requirements for existing business will play an important role. The measurement and management of risk factors, interest rate, market, liquidity, currency, operational and other risks will control the organisation. The presence of control systems and integrity of the date and modelling techniques will minimise the risk. In general the financial services firms are rated on capitalisation, asset quality, earnings and liquidity.
The organisations should make available the data to the rating organisations to make its products rating available to the customers. When the details of WACC, cost of capital, cost of debt, earnings and profit are made available in the rating book electronically, the firm can be rated by the rating organisations like Bauer Financial Incorporation. The insured organisation will have higher rating than a non insured one. The cost of insurance also should be reported for rating the organisation, its assets and its products. The rating will be on financial highlights of any institution.
It involves the liquidity, asset quality, capital adequacy that can be decided by cost of equity and debt and earnings. The rating will be calculated by the weighting of the capital and the individual ratings of the earnings. This involves in safety and performance methods. The credit union ratings of a financial organisation can be weighted by 10 percent from liquidity and 30 percent from asset quality, adequacy of capital and volume and percentage of earnings. In case of a holding company, the asset quality and capital adequacy will occupy the 30 percent of the rating and the volume and percentage of earnings will decide the 40 percent of earnings.
The calculation and summary rating depend on number of ratios. The financial statistics and ratios for each institution can be used in peer group comparison. The organisation will be ranked higher if the holding companies if they have low loan delinquency and vice versa. The non interest income for any financial organisation can be termed as an important point to increase its rating. The financial services firms can offer non price competition in order to gain a market share in the new atmosphere or market area.
This is made possible by offering new services at below the cost of market price and needs extensive advertisement. This increase the transaction of the business. There is a possibility of adverse consequences also. This is due to the higher expenses involved in the advertising and through non earning assets. The company should minimise the non earning assets. The decisions regarding the asset/liability management must be able to anticipate and differentiate the interaction of the events in marketing of the products and assets.
When an financial services firm is having low yields or returns, it may focus on loan portfolio to increase the returns on the assets as a whole. The company should be careful about loan pricing decisions as the irregular increase in the loan pricing can decrease volume of the business. The attentive personal services can even market the premium priced loans.