EXCLUSIVE: “Treasury. time to shine” – Beata Lubinska, Allica Bank in ‘The Fintech Magazine’

After years working in siloed treasury teams for major banks, Allica’s Beata Lubinska found a fintech that understands strategy starts with the balance sheet

Banks are in the business of using money to make money at the lowest risk. So, it would seem obvious that the treasury department would be front and centre in every key decision that a bank makes.

That, however, is often very far from the reality. For many banks, treasuries operate in silos, divorced from the strategy-makingheart of the organisation. And yet the fundamental concerns of treasury departments are the fundamental concerns of any bank.

If anyone needed a lesson in that, they only have to look to the collapse of Silicon Valley Bank where a perilous mismatch of the duration of loans and duration of assets created a giant-sized risk that led to corporate failure. It’s the sort of mistake that Beata Lubinska, treasurer of UK challenger bank Allica, has written books about – how financial institutions must strategically plan to optimise their balance sheets to reduce the risks.

Her guiding principle is to ensure treasury is at the heart of every decision at Allica, which gained a UK licence in 2019 as a specialist bank for established SMEs and reached profitability in June 2022, making it one of the fastest UK fintechs to do so.

Spelling out her views, Lubinska says: “There is definitely a growing role of the treasury department in general, in the banking industry in particular, and it is no exception here in Allica.

But that kind of integrated thinking hasn’t always been her experience. In a career that’s spanned almost 20 years in treasury departments at a number of banks, both in Milan and London, she often found herself working in siloed environments – and it defined her thinking.

“In the past, I have seen quite a lot of this silo-based attitude, when the main treasury risks, which treasury is supposed to manage, or supposed to look at, are approached on a separate basis,” she recalls. “We had different people in the team who – as is quite often the case, in the biggest institutions – didn’t speak to each other. So they didn’t know what the other person was actually doing in order to increase the profitability of the bank, or to deliver the strategy.

“At Allica, we look at the balance sheet holistically, at the risks that the bank is exposed to, and try to get a better understanding of what should be the positioning of the balance sheet to the market, in terms of the risk exposure, or interest rate risk. Or how we should manage the liquidity in order to achieve the lowest achievable cost of funds and improve our margin.

“Treasury is also very active in the pricing of products, which in turn can steer the behaviour of the balance sheet. So, for example, we can incentivise products that are strategic for the bank, and which are adding value to the balance sheet, and we can get rid of the products which are value destroyers.”

Taking such an approach certainly seems to be working for Allica, which provides banking services for established businesses with between 10 and 250 employees – a market it identified as being badly underserved.

THE NUMBERS GAME

The bank’s loan book exceeded £100million by April 2021 while its deposit book exceeded £1billion by March 2022. But that year it also completed the acquisition of the £600million GB SME lending portfolio of Allied Irish Bank (UK).

“Allica has purposefully invested in technology because we really believe that without automation we won’t succeed”

Allica’s 2022 balance sheet shows that its loans increased year-on-year by 138 per cent to £1.35billion while customer deposits increased year-on-year by 78.2 per cent to £1.51billion. In other words, it’s putting its cash to work. The bank made a profit of £3million in the second half of 2022, helped by interest on loans increasing by £54.2million and an additional £6.6million being earned in interest from its liquid assets portfolio.

This was offset by higher interest expenses of £19.7million due to an increase in the group’s interest-bearing liabilities but the bank’s liquidity coverage ratio was 145.2 per cent at the end of 2022, 45.2 per cent higher than the regulatory minimum of 100 per cent.

A expanding business itself, in 2022 Allica raised £155million in funding rounds. The last major tranche came from TCV, a leading technology global investor, which joined existing investors Warwick Capital and Atalaya Capital Management. With staff numbers increasing from 184 to 324, including the development of a software engineering team in India, the bank is working harder than ever to distribute cash to other growing SMEs: Allica is forecast to complete £3billion of lending by 2024.

UNLOCKING THE FUTURE

The use of financial technology tools, including AI, is key to the treasury team’s ability to keep on top of that success.

“Without automation, the treasurer cannot see the holistic picture,” says Lubinska. “You can’t see the cash flow need or business requirement, over the next one week, two weeks, one month, or even longer time horizon.

“This is known, in treasury, as robust liquidity management, which is divided into two parts. You have the short-term liquidity management, which includes not only the tactical management – like what should be my funding need in order to cover the needs of the business for the next one week, or two weeks, or basis points within a two-week time period. That was really challenging. Without the pipeline hedging strategy, we would be in a much worse place today. But this programme is fine-tuned, calibrated, and it’s working well for us.”

Allica partners with technology providers, an example being deposit aggregators, but it is also investing heavily in developing its own technology.

“We have opened a subsidiary in India where we have access to the best finance engineers, probably in the world, and we are leveraging their knowledge to develop products, optimise the offering and service for clients as well as the treasury department,” says Lubinska. “Allica is famous for being technology-driven. We’ve purposefully invested in technology because we really believe that without automation, we simply won’t succeed.”

So what’s on her personal technology shopping list? Something to help fine-tune funding optimisation strategies, perhaps?

“I want to have a tool that tells me, almost instantaneously, where the treasury should be heading to, where the best funding opportunities lie. I need a more strategic view, in terms of optimisation techniques,” says Lubinska. “But I haven’t seen that solution yet.”

This article was published in The Fintech Magazine Issue 30, Page 47-48