(MENAFN- Gulf Times) The same as in conventional banks, IT plays a vital role to have important information available for the running of the day-to-day Treasury business. Information is required to see the cash flow movements and exposures of foreign exchange and balance sheet assisting the treasury to make important decisions that may have an impact on the bank financial position. For that reason it's important that current IT systems or the planning of it are carefully accessed.
Islamic Treasury's criteria are slightly different from the conventional ones and especially the products suite used may offer some problems if not attended too. One of the steps moving towards the selection of treasury systems is to know what the general requirements are for the treasury, since this will help to know the system type sought after, like a cash flow focused model with only MIS reporting features, or others that may offer larger suites including sophisticated product possibilities.
Once the system type has been selected, the next step is to create the requirements of each item that treasury has under its wing, including related departments and activities that may have influence on the treasury transactions.
After all, the accounting behaviour, which is very specific for certain Islamic treasury products are highly important, including the timing of receiving and releasing of confirmations are crucial factors that are guided by Shariah principles must be taken care of in this assessment. One example of treasury product is the Commodity Murabaha transaction, which resembles a money market transaction in conventional banks.
The product behaviour differs from a conventional product in terms of execution as well as the accounting treatment of the product. When it comes to a conventional money market transaction, the principle amount is posted as an asset when it is a placement of funds, and a liability when borrowings concerned.
The interest portion received or paid are posted daily to the profit and loss account versus accrual accounts and are offset at the time of the maturity of the transaction.
In the case of a commodity murabaha transaction, the accounting postings are to include the profit amount to the principle amount when assets (placement of funds) concerned and liability for borrowings and the daily accrual process, whereby we are booking the profit and loss versus the asset- or liability account, thus reducing the principle amounts until maturity, which has a final posting at maturity maturing the entire transaction.
The confirmation flows part is very crucial item in terms of Shariah principles.
In the case of the conventional banks confirmations are send out after the validation completion processes, which are important back office activities of banks.
The Islamic banks confirmation flows are product dependent, whereby some transactions require first the counterparty confirmation action before the Islamic bank sends out theirs. The deed of sale versus an acceptance response might be such situation. On a general note the process of detailing the requirements for the complete treasury department must at all times include the treasury back office processes, and the financial control department specific accounting requirements.
Further the desired process and the security aspect of the bank must be captured to ensure that the IT vendor has a complete understanding of what is needed.
This way all parties concerned will be informed and expectations can be valued clearly against the potential outcomes without major surprises.
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