Isaac Thomas, executive vice president and head of cash management, Abu Dhabi Commercial Bank, describes the region’s changes and challenges.
Global Finance: How do the regulatory frameworks of Middle Eastern countries lend themselves to regional cash management?
Isaac Thomas: Given different levels of economic and regulatory activity in Middle Eastern countries today, we need to take a holistic view of regulatory frameworks that can lend themselves to regional cash management. Regional treasury centers prefer countries with regulations that are easy, transparent and straightforward.
The regulatory frameworks in each of the Middle Eastern countries have indeed shown remarkable improvements in recent years. Different organizations—including respective central banks—have played a big part in this change. They are actively engaging with international organizations, such as the World Bank, IMF and IFC, to bring in best practices in modern value-transfer mechanisms.
GF: What are the bottlenecks companies must deal with?
Thomas: [Issues of] government support, ease of doing business, legal protection, factors affecting economic activity and trade, lack of efficient corporate governance and financial disclosure regulations are some of the bottlenecks that corporates typically face while setting up regional cash management businesses in a particular country.
GF: What are challenges for the automation of clearing and payments systems?
Thomas: The most dominant mode of payments in the region continues to be physical cash. Obviously, this is not a preferred mode from an automation and compliance perspective. Central banks in most countries are actively leading the way in introducing noncash payroll products using cash cards and mandating large-value cash transactions to be done via electronic transfers.
Checks are still the second-largest payment instruments in use today. Traditional manual check clearing is prevalent in most regional markets. Check fraud remains a serious issue in most Middle Eastern countries, but check truncation and RTGS [Real Time Gross Settlement] now are gaining acceptance as credible mitigants.