Meaning and Functions of Integrated Treasury

 A comprehensive strategy for funding the balance sheet and allocating capital across domestic, international, and foreign exchange markets is known as integrated treasury. With this strategy, the bank is able to maximize asset-liability management and take advantage of arbitrage opportunities. In the past, a bank's forex dealing room handled foreign exchange dealings that mostly resulted from merchant transactions (forex purchases from and sales to customers) and cover activities that followed in the interbank market. The domestic treasury and investment operations were separate from a bank's foreign exchange transactions.

 

Treasury operations were classified as a cost center that was solely responsible for managing reserves (CRR and SLR) and the funds that result from such management. Additionally, the Treasury invested in both government and non-government securities. Due to interest rate deregulation, exchange control liberalization, the growth of the forex market, the introduction of derivative products, and technological advancements in settlement systems and dealing environments, there is a need for integration of foreign exchange dealings and domestic treasury operations. The integrated treasury performs a variety of tasks in addition to its usual activities as a forex dealing room and treasury unit.

Functions of Treasury Management

 Treasury Management aims to ensure that adequate cash is available with the organization, during the outflow of funds. Further, it also contributes to optimum utilization of funds and makes sure that there are no unutilized funds kept in the firm for a very long term. The functions of treasury management are discussed below:

 

Cash Management: Treasury Management includes cash management, and so it ensures that there are an effective collection and payment system in the organization.

Liquidity Management: An optimum level of liquidity should be maintained in the business, for the better and smooth functioning of the business, i.e. the company must be able to fulfil its financial  obligation  when  they  become  due  for  payment,  such  as  payment  to  suppliers, employees, creditors, etc.And to do so, cash flow analysis and working capital management act as the most important tool for treasury management, to achieve its strategic goals.

  Availability of funds in adequate quantity and at the right time: The treasury manager has to ensure that the funds are available with the organization in sufficient quantity, i.e. neither be more nor  less,  to  fulfil  the  day  to  day  cash  requirement  for  the  smooth  functioning  of  the

enterprise.Further, timely availability of funds also smoothens the firm‘s operations, resulting in the certainty as to the amount of inflows available with the company at a particular point in time.

     Deployment of funds in adequate quantity and at the right time: The deployment of funds has to be done in right quantity such as the acquisition of fixed assets, purchase of raw material, payment of expenses like rent, salary, bills, interest and so forth. For this purpose, the treasury manager has to keep an eye on all receipts of funds and the application thereof.Further, the funds must be available at the time of need, which may be different for different firms and also for the purpose for which they are used. The period may differ from a week to month when it comes to acquisition of the fixed assets and two to three days in case of working capital requirement.

     Optimum utilization of resources: Treasury Management also aims at ensuring the effective utilization  of  the  firm‘s  resources,  to  reduce  the  operating  costs  and  also  prevent  liquidity shortage in the coming time.

     Risk Management: One of the primary objectives of the treasury management is to manage financial risk to allow the enterprise to meet its financial obligations, as they fall due and also ensure predictable performance of the business. It tends to identify, measure, analyze and manage risk in order to mitigate losses that has the potential to affect the company‘s profitability and growth in any way.Hence, treasury management is accountable for all types of risk that can influence the business entity.

 

Further,  the  treasury  management  intends  to  maximize  return  on  the  funds  available  with  the company, by making such investments which have higher return and low risk.

 

Treasury Management

 Treasury Management can be understood as the planning, organizing and controlling holding, funds and working capital of the enterprise in order to make the best possible use of the funds, maintain firm‘s liquidity, reduce the overall cost of funds, and mitigate operational and financial risk.Treasury Management includes a firm's collections, disbursements, concentration, investment and funding activities. In larger firms, it may also include financial risk management. Most banks have whole departments devoted to treasury management and supporting their clients' needs in this area.It covers working capital management, currency management, corporate finance and financial risk management. Simply put, treasury management is the management of all financial affairs of the business such as raising funds for the business from various sources, currency management, cash flows and various strategies and procedures of corporate finance. The key goal of treasury management is planning, organizing and controlling cash assets to satisfy the financial objectives of the organization. The goal may be to maximize the return on the available cash, or minimize interest cost or mobilize as much cash as possible for corporate ventures.

Incentive package to attract inves

Bangladesh Economic Zones Authority (BEZA) has, of late, come up with various incentives to attract local and foreign investors to economic zones, which are being developed in the country under four types of arrangements.

The BEZA, that had started its journey in 2010 with a view to facilitating industrialisation for job creation, increased exports and advancement of the economy, has taken the belated move in order to boost the country's exports.

The types of arrangements under which the government seeks to boost the country's industrialisation process are - by the government itself, under public-private partnership arrangement, by private sector players, and under government-to-government contracts.

Under the package, economic zone developers will enjoy ten-year tax holiday, duty-free import benefit and exemption from land registration fees, stamp duty and local government taxes. And investors in the industrial enclaves will enjoy full tax holiday for the first three years of the operation of their projects.

Investors are set to enjoy reduced tax breaks for the remaining seven years and the benefit will be reduced by 10 percentage points every year until the tenth year. Companies setting up factories inside the economic zones will avail duty-free import of raw materials and bonded warehouse benefits to make products for both domestic and international markets, say the reports.

Added to this, firms will get 50 per cent discount on land registration fee, stamp duty and local government taxes. Investors will enjoy tax exemption on royalty and dividend payment, while their foreign employees will avail 50 per cent off on income taxes.

In addition, there will be no bar on repatriation of capital and profit as well as foreign exchange. Above all, electricity, gas and other connections will be easier to get in the economic zones. Factories that were in operation prior to issuance of licence for economic zones will not be able to avail the incentives.

The economic zones will be under the BEZA. So companies will have to be compliant. This will be instrumental for them to get the market for their products. This is another reason for many firms to show interest.

Bangladesh's economy is now experiencing remarkable growth which has been facilitated by political and macroeconomic stability. The government envisages higher rate of growth and improved employment by creating a more liberalised trade and investment environment, thereby attracting large-scale foreign investment.

Issues related to availability of land, high taxation rates, combined with administrative and logistical hurdles have always stood in the way of attracting investment. The BEZA will single-handedly deal with all these matters to remove the hurdles

What is encouraging is that a rising number of entrepreneurs are joining the queue to establish private economic zones, encouraged by tax breaks and a host of other benefits offered by the government. About 43 entrepreneurs have so far applied to the BEZA for licences to set up economic enclaves on their own land.

The Authority awarded the final licences to six and pre-qualification licences to 17 applicants so far. The remaining 20 applicants are awaiting approval from the BEZA governing board headed by the Prime Minister.

The BEZA list of investors, who want to set up private economic zones, include big business groups such as Meghna, City, Aman, Bashundhara, Akij, Abdul Monem, Unique, Nitol-Niloy and Kazi Farms.

Finance Minister AMA Muhith, meantime, expects that export earnings of the country will increase by additional US$40 billion and 10 million more jobs will be created when all economic zones (EZs) will be operational. He said the  government plan is to establish 100 economic zones in 30,000 hectares of land by 2030. Establishment of 76 economic zones has been approved so far.

One of the preconditions for rapid economic development is increased investment. Bangladesh is gradually increasing public investment. The government is  now working to create investment-supporting environment for the private sector.

The availability of electricity, gas and water connections, timely processing of investment proposals, availability of undisputed land play a crucial role in attracting private investment. The government enacted Bangladesh Economic Zones Act for making these services easily available to the investors. In pursuant to this Act, BEZA was established under Prime Minister's Office in 2011. Besides, the Private Economic Zone Policy 2015 was formulated.

The country is going fast in developing economic zones across the country that is scheduled to bolster the country's economic growth through boosting exports and creating employment opportunities. The National Board of Revenue (NBR) is providing all sorts of support to BEZA in formulating an investment-friendly tax pattern for the investors to develop economic zones. According to the NBR, the unit investors will import raw materials without paying import duty and value added tax (VAT) under the new arrangement.

BEZA has also already reformed some of the concerned legal framework to boost investment in economic zones, and received investment commitments amounting to $17 billion over last few months.

The government, meantime, needs to give some time-bound conditions to ensure tangible results. For example, a certain portion of land should also be allocated for development of planned township to ensure all amenities for workers in the zone. This will help make the country's industrialisation process meaningful.

All indications suggest that the private economic zones would be surrounded by planned cities with modern housing that will certainly lead to vibrant economic activities. The challenge that lies ahead of the country is to consolidate the gains of the new initiative by accelerating economic growth at a harmonic pace, in an inclusive and sustainable manner.