Strategic Treasury

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An Optimal Banking Structure in Russia Kraft Foods Russia rationalised their bank relationships in order to manage counterparty risk more effectively, streamline connectivity and centralise liquidity. We find out how it was done.

An Optimal Banking Structure in Russia

Kraft Foods Imageby Nadezhda Leitsinger, Working Capital and Treasury Manager, Kraft Foods Russia

Many companies have rationalised their bank relationships in recent years with a view to managing counterparty risk more effectively, streamlining connectivity and centralising liquidity. This is easier to achieve in countries with a well-developed banking system and a culture of electronic payments than in countries at an earlier stage in the development of their financial infrastructure. In this article, Nadezhda Leitsinger of Kraft Foods in Russia outlines how the company has approached bank relationships in Russia.

Treasury organisation

Kraft Foods has a centralised regional treasury located in Moscow supporting all legal entities in Russia, including cash management operations, risk management, including FX risk and insurance, together with short- and long-term cash flow forecasting and working capital management. We manage transaction execution from treasury and act as a centre for banking relationships across the country.

Key Points

Reviewing bank relationships

Until 2011, we had a large number of bank relationships, including both international and local banks. This made it difficult to centralise liquidity, manage our counterparty risk and achieve economies of scale. In 2011, we therefore embarked on a project to rationalise our bank relationships. We received a list of recommended banks from our global treasury team, but we were not obliged to select from these banks.

Most large multinational corporations have a preference for working with international banks. In Russia, however, this is not always possible, as we need to ensure local coverage across each region in which we operate, including proximity to our factories for accessing petty cash and other local cash management services. The banking sector in Russia is not yet fully developed so there is still a cash-based culture in many parts of the country. In addition, there remain some regulatory processes that still need to be performed manually for which we need local access. As international banks do not necessarily provide this local coverage, we need to work with a variety of banks with different regional expertise.

As a result of this process, we halved the number of banks that we work with. Our banking panel still includes several banks however, both to diversify our risk and support our operations across Russia. Balancing the need for local access and risk diversification, and a cohesive, centralised approach to cash and treasury management, we believe we have achieved an optimal banking structure. It would not be feasible to manage more bank relationships successfully, and there would be a negative impact on the consistency of reporting and cohesion of our technology strategy. At the same time, we would not achieve the local coverage we require with any fewer banks.

Local banking relationships tend to be less formal than those with international banks with more personal interaction; in contrast, we tend to have better electronic communication with our international banking partners.

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