IS IN HOUSE BANKING RIGHT FOR YOUR ORGANIZATION?

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IS IN-HOUSE BA NKING RIGHT FOR YOUR ORG A NIZ ATION? | © K Y RIBA CORP. 2017 | 5
Financial Counterparties Before
FX, external lending
and borrowing
Intercompany
loans and payments
Typical Model Prior to an In-house Bank
Most financial activity (FX, loans, deposits) and
inter-entity payments involve physical cash transfers
to and from legal entity’s bank accounts.
Financial Counterparties After
In-house Bank Model
Intercompany loans/deposits, FX and payments settle through
book accounting entries at the in-house bank. Only transactions
between the in-house bank and external banks involve cash.
Payments on Behalf, FX,
external lending and borrowing
Internal cashflow
External transaction
I N-HOUSE BANK ACCOUNT DE S I GN
By creating an in-house bank structure and
moving to a mostly internal transaction basis
and “on-behalf-of” processing (i.e. corporate
headquarters executing transactions on behalf of
subsidiaries), bank accounts can be rationalized.
The in-house bank account design should be
based on the following:
• Internal payments are settled without the
need for physical cash transfer whenever
possible. Specific exceptions (e.g. dividend
payments) should be identified by the Tax
department.
• Cash is only moved to manage the
consolidated needs of the IHB.
Account Structure (Master vs. Sub Accounts)
• The in-house bank owns multi-currency
master accounts with banks.
• The in-house bank manages liquidity in the
master accounts through external borrowing
or lending.
• Business units maintain current accounts with
the in-house bank sub accounts.
• Business units may run net credit (cash) or
debit (overdraft) balances in the sub accounts.
• Business units earn/pay interest on net debit/
credit balances.
• Overdraft balance limits are set and reviewed
in accordance with company policy.
The graphic below shows the impact of introducing an in-house bank