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Cash & Working Capital

In-House Banks Nothing New

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March 05, 2015

IHBs are having a moment again but companies were learning their merits at least 20 years ago.

Companies have been recognizing and reaping the benefits of in-house bank structures for many years. Take sweetener and food ingredient company Tate & Lyle, which International Treasurer wrote about in September 1994.

At the time, the company had split its treasury into two parts, the regular treasury finance portion and an in-house bank. The IHB was actually a separate legal entity: Tate & Lyle International Finance PLC, and it served “as the center for all group funding activities.

“It is used to achieve economies of scale with funding, repatriate funds and manage debt tax-efficiently, and deliver ‘free,’ quality financial services to group operating companies worldwide.”

Indeed, there are savings galore: companies can reduce bank borrowings by a significant amount, cut the cost of its foreign currency exchange transactions; cut the interest rate on the company’s debt and boost the yield on investments. Companies can also save sometimes hundreds of thousands of dollars a year in banking fees.

And today companies are rediscovering the benefits, although it’s not straight-forward decision, as iTreasurer articulated recently.

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