Management Systems in Italy Aid Corporate Cash Efficiency; Automated Systems Bring Homebanking to Businesses

By Lane, David | American Banker, November 13, 1984 | Go to article overview

Management Systems in Italy Aid Corporate Cash Efficiency; Automated Systems Bring Homebanking to Businesses


Lane, David, American Banker


Financial controllers of companies in Italy are beginning to see a bright new world opening up. Electronic banking, which has become more widely available to the corporate sector, has made corporate homebanking, or cash management, a reality.

Several factors specific to the Italian environment underline the pressing need for systems to facilitate effective management of companies' financial resources. The widespread undercapitalization of Italian companies is fundamental. This weakness in balance sheets, caused by overexpansion, failure to reinvest profits, or the reluctance of family owners to dilute their shareholdings, has led to large-scale dependence on bank borrowings to finance not only working capital but fixed investment as well.

With the high cost of money, (interest rates to the average company are still around 20%), heavy reliance on the banks hits hard at the bottom line. So there is a real incentive for owners and managers to keep a tight rein on cash management.

Another factor is the large number of banks with which companies tend to work. Italy boasts nearly 1,100 credit institutions, and medium-sized companies generally work with a minimum of twenty. At the top end of the industrial scale it is not unusual for companies to maintain accounts with 70, or even more, different banks.

While managing this number of banks in itself stretches the corporate treasurer's resources, Italian bureaucracy tosses in a complicating factor. Obligatory financing of 50% of the value of export orders in foreign exchange necessitates opening and closing special export financing accounts, a significant administrative burden for companies that sell their products abroad.

Banks do nothing to ease these problems. This summer Treasury Minister Giovanni Goria launched a scathing attack on the banks, both for their lack of clarity regarding actual banking conditions, and their failure to adhere to the conditions they say they are applying to the accounts. In a blast that rocked Italy's credit institutions, Mr. Goria confirmed what most treasurers know: that it is essential to keep a watchful eye on what the banks are doing, and to check bank movements with scrupulous care.

"We are regularly confronted with banks which change their conditions without informing us," complained the finance director of a multinational corporation located south of Rome. "Value dates vary according to the operation, and from bank to bank. So we have to verify the dates of every movement." A mail service that often delivers daily statements three weeks late, and sometimes accumulates months of delays, hinders the checking process.

While the expense of borrowing from the banks -- due to high interest rates and the high levels of indebtedness of the corporate sector -- underlies the need for efficient treasury management, the volumes and complexities of transactions emphasize the need for automated systems. In fact for the past eight years, Financial Management Consulting, a consulting firm in Milan, has been providing companies with the computerized means of managing treasuries and keeping a sharp check on what the banks are doing.

Given the harsh criticism that has been leveled at Italian banks, it is perhaps surprising that some banks are now actually leading the way in cash management systems. "Certainly cash management provides an element of competition between the banks themselves, and may be disadvantageous to some," said a senior banker. "But it is a service which corporate customers want and need. Cash management's arrival and development in Italy was inevitable."

The Instituto Bancario San Paola di Torino was first off the starting line, with trial installations of its SIFF system (Sistema Informativo Flussi Finanziari -- Financial Flows Information System) operating with customers since May 1983. After its recent acquisition of the Banca Provinciale Lombarda, San Paolo Bank in Turin now ranks third in Italy's banking league table. …

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