Recap of the first ‘Meet the Expert’ interview series and full overview

| 04-08-2020 | by Kendra Keydeniers |

A couple of months ago, we started the ‘Meet the Expert’ interview series with experts from the treasuryXL community with different treasury expertise.

Treasury needs to deal with an increasing availability of alternative financial products, intensifying risk management requirements, regulatory and compliance constraints.

What do our experts think about this rapidly growing movements within the treasury world? What developments do they expect in the future? What opportunities do they see?

We interviewed 10 experts over the last 10 weeks and asked them about their treasury career, experiences, the future of treasury and of course how COVID19 impact treasury from their perspective.

Did you miss an interview? No worries, here is a full overview of the ‘Meet the Expert’ series:

 

 

 

Bertus van de Kamp

Senior Business Consultant & Cash Management Specialist

read interview

 

 

 

 

 

Wim Kok

International Business Consultant & Trade Finance Specialist

read interview

 

 

 

 

 

Aastha Tomar

FX & Derivatives | Debt Capital Markets | MBA Finance | Electrical Engineer | Sustainability

read interview

 

 

 

 

 

Michael Ringeling

Corporate Treasury, Corporate Control and Banking

read interview

 

 

 

 

 

Olivier Werlingshoff

Cash- and Treasury management

read interview

 

 

 

 

 

Ger van Rosmalen

Trade Finance Specialist

read interview

 

 

 

 

 

Francois De Witte

Owner at FDW Consult | Sr. Project Manager at Gaming1 | CFO at Safetrade Holding

read interview

 

 

 

 

 

Arnoud Doornbos

Interim Treasury & Finance | Consultant | FX & Interest Derivatives | Treasury Outsourcing| Risk | Fintech | TMS

read interview

 

 

 

 

 

Vinzenco Masile

Treasury Expert/Credit Risk Manager

read interview

 

 

 

 

 

Arnaud Béasse

Debt Management Specialist

read interview

 

 


A big thank you to everyone that worked with me on this series, to everyone that selflessly shared their knowledge and experience with all of us! You guys rock.

If you’ve enjoyed our series so far, don’t worry, this is just the beginning! We are looking into more perspectives to share with you later this year when we will start the second ‘Meet the Expert’ interview series.

Take care and thanks for reading,

Kendra Keydeniers
Community & Partner Manager at treasuryXL

Bent u voorbereid op de introductie van de BMR?

| 11-3-2019 | ILFA Group | treasuryXL |

Financiële instellingen moeten nú de overgang van de Eonia- en Euribor-tarieven voorbereiden of rekening houden met hogere kosten en risico’s.

De Euro Overnight Index Average (Eonia) en de Euro Interbank Offered Rate (Euribor) zijn kritisch belangrijke rentebenchmarks voor de eurozone. Samen worden ze gebruikt als referentietarief voor meer dan 175 biljoen euro aan financiële producten van corporaties, non-profit organisaties en MKB-bedrijven, inclusief lange termijn-hypotheken in verschillende Europese landen. Toch staan deze benchmarks op het punt vervangen of getransformeerd te worden, omdat geen van beide voldoet aan de onlangs geïntroduceerde EU Benchmark Regulation (BMR).

De LIBOR- en EURIBOR-schandalen brachten aan het licht dat benchmarks vatbaar zijn voor manipulatie. De BMR is ingevoerd om dit risico te bestrijden voor alles wat valt onder de BMR-definitie van ‘benchmark’. Deze definitie is opzettelijk breed gemaakt om een breed scala van financiële producten en bestaande transacties te omvangen. Voor velen, iedereen die bijdraagt aan indices of deze levert of gebruikt, zal de BMR dus belangrijke implicaties meebrengen. De gevolgen van BMR hebben al geresulteerd in een verminderde bijdrage aan benchmarks en hogere nalevingskosten en regelgevingslasten. De verhoogde lasten vormen een reële bedreiging voor de levensvatbaarheid van vele benchmarks en beleggingsstrategieën die hierop zijn gebaseerd.

Er zijn al voorbereidingen getroffen voor een overgang van LIBOR, het equivalent van Euribor, voor Amerikaanse dollars en andere belangrijke valuta. Er is echter veel minder aandacht besteed aan Eonia en Euribor, die een veel kortere overgangstijd zullen hebben. Bedrijven moeten nú handelen om overgangsplannen te ontwikkelen, waarbij de overgang naar schatting voor sommige bedrijven meer dan $ 100 miljoen zal kosten. Uitstel van actie zal de uiteindelijke overgangskosten alleen maar verhogen en zal daarnaast de financiële, operationele en reputatierisico’s vergroten.

Er wordt onderzocht hoe Euribor kan worden hervormd om een (in het beste geval) naadloze overgang mogelijk te maken, maar het blijft onduidelijk of dit scenario haalbaar is tegen de deadline van 1 januari 2020. Gezien de omvang van de betrokken bedrijven zou er een Plan B voor hervorming van de Euribor moeten zijn. Voor Eonia zijn er geen hervormingspogingen en daarom is vóór januari 2020 een overgang naar een alternatief tarief vereist. Een alternatieve referentierentevoet voor het overnight rente tarief is nog niet beschikbaar, hoewel de ECB werkt aan ESTER (Euro Short-Term Rate) en van plan is om lancering vóór 2020 te realiseren.

Terwijl de hervormingsprocessen voor zowel Euribor als Eonia in beweging zijn, moeten marktpartijen niet wachten om te handelen. De ILFA Group identificeert vijf stappen die bedrijven nu kunnen doen om zich voor te bereiden op de transitie:

1. Ondersteuning van sectorbrede initiatieven om Euribor te hervormen en alternatieve referentietarieven te ontwikkelen voor zowel Euribor als Eonia.
2. Zorg ervoor dat er robuuste schriftelijke noodplannen zijn opgesteld voor het geval een benchmark wezenlijk verandert of ophoudt, zoals vereist door BMR.
3. Neem voorzorgsmaatregelen om potentiële toekomstige uitdagingen en risico’s te beperken, zoals veranderingen in fall-back taal in contracten, het evalueren van gedrag en juridische risico’s en het bekendmaken van informatie over nieuwe transacties met betrekking tot Euribor of Eonia.
4. Voer een ‘ondernemingsscan’ uit om een inventarisatie van Euribor- en Eoniagebruik in producten samen te stellen en inventariseer het proces van voor naar achter om de transitie-uitdagingen en -effecten te beoordelen.
5. Ontwikkel een gefaseerd overgangsdraaiboek zodat een programma snel kan worden gestart en uitgevoerd als dat nodig is.

De overgang naar de nieuwe benchmarks zal een uitdaging zijn, vooral omdat marktpartijen al worstelen met de realiteit van een LIBOR-conversie. Aangezien Eonia en Euribor echter niet voldoen aan BMR betekent dit dat ze niet kunnen worden gebruikt voor contracten die na 2020 zijn aangegaan, tenzij er corrigerende maatregelen worden genomen om de benchmarks te hervormen.

 

 

Arnoud Doornbos

Associate partner at ILFA Group

 

Tips voor het verkrijgen van financiering

| 4-2-2019 | ILFA Group | treasuryXL |

Nederlandse banken maken een forse terugtrekkende beweging en dit leidt bij ondernemers tot onrust. Geluiden over uitsluitend uitzettingen aan bestaande relaties en het niet opengaan van de bankdeuren in 2019 dragen bij aan het onrustige klimaat. Ook de steeds kritischere houding van banken en ‘cherrypicking’ van zaken die wel gedaan worden zijn een doorn in het oog van mkb-ondernemers. Dit alles heeft uitwerking op de transacties en hun prijs. Immers, als de financieringsvoorwaarden worden aangescherpt en marges omhoog gaan, zal dit direct invloed hebben op de kostprijs van de bedrijfsvoering.

Ik ben dan ook van mening dat de Nederlandse banken in de komende jaren tegen steeds lagere leverages zullen gaan financieren. Denk aan maximaal 50% loan-to-value tegen looptijden van hooguit 5 tot 7 jaar. Door de komst van Basel 4-kapitaaleisen zal de terughoudendheid van banken alleen maar toenemen en zal er een gap ontstaan van ongeveer 2,5 tot 3 miljard euro per jaar. Dit zal ingevuld moeten worden door nieuwe financieringskanalen.

Wanneer u een financiering aanvraagt, is het belangrijk een aantal praktische tips te volgen:

1. Mkb-financiering is maatwerk
Ten opzichte van een aantal jaar geleden is het aantal (bancaire) financieringen vandaag de dag enorm uitgebreid. Voor de crisis bepaalden vooral banken de markt, maar tegenwoordig is er een groot alternatief aanbod van financieringsproducten. Wanneer er in een onderneming een investeringsbehoefte is, is het heel belangrijk in een vroeg stadium vast te stellen wat deze behoefte precies is, hoeveel geld benodigd is en bij welke partijen dat het best ondergebracht kan worden. Laat u vooral bijstaan door een (onafhankelijke) adviseur met kennis van het financieringslandschap.

2. Het belang van de businesscase
Om precies te weten waar u aan toe bent en om niet voor verassingen te komen staan bij het aanvragen van een financiering is het belangrijk dat door grondige analyse alle financiële aspecten van de financieringsaanvraag inclusief onderbouwing in kaart gebracht worden. Door een credit rating toe te voegen, worden alle relevante financiële risico’s van de onderneming in kaart gebracht. Ook laat de rating zien hoe deze risico’s beïnvloed worden door de investering. Een potentiële financier kan hierdoor een goede inschatting maken van de kansen en risico’s van een investering. Wat niet vergeten moet worden is een haalbaarheidscheck waarbij gekeken wordt naar de haalbaarheid en kans van slagen van de financieringsaanvraag. Hierbij wordt onder meer
gekeken naar de hoogte van de investering in relatie tot de mogelijkheden om de financieringslasten te dragen.

3. Kopen of leasen?
Het is belangrijk vast te stellen of eigendom van machines, auto’s, meubels en andere soortgelijke zaken nodig is. Het kan enorm schelen op de investering en kapitaalvernietiging kan voorkomen worden wanneer, waar mogelijk, gekozen wordt voor lease. Ga na of objecten daadwerkelijk in bezit moeten zijn of dat het puur om gebruik gaat. Mocht gebruik voldoende zijn, is een leaseconstructie of servicecontract een goede optie.

4. Een betrouwbare financieringsaanvraag
De financieringsaanvraag bevat alle relevante cijfers en brengt de terugverdientijd, KPI’s en doorlooptijden helder in kaart. Er staan veel statische gegevens in zo’n aanvraag, maar ook de kwaliteit van de onderneming, de branche, de organisatie van de bedrijfsprocessen en de organisatie van het personeel. Deze gegevens samen zorgen voor de perfecte financieringsaanvraag die nodig is om het vertrouwen van financiers te krijgen. Uiteindelijk is vertrouwen de basis voor een aangeboden lening of financiering.

 

 

 

Arnoud Doornbos

Associate Partner

 

De Treasury Review

| 17-05-2018 | Arnoud Doornbos | treasuryXL

Een Treasury Review zorgt voor duidelijkheid en structuur omtrent de treasury van een onderneming. Treasury Scans kunnen u snel inzicht geven in uw treasury risico’s.Door de groei van een onderneming kan de treasury steeds complexer worden. Het optimaal beheren van de financiële middelen wordt alsmaar lastiger, waardoor de gerelateerde risico’s toenemen. In toenemende mate hebben organisaties behoefte aan duidelijkheid en structuur wat betref hun treasury. Er is behoefte aan een professioneel treasury beleid, gegoten in een door het senior management ondersteunt treasury statuut.

Het opstellen van een treasury beleid begint met een inventarisatie. Duidelijk moet zijn hoe de betreffende organisatie in elkaar steekt. Deze inventarisatie, ook wel Treasury Review genoemd, is een analyse van de huidige treasurysituatie van een organisatie. Het is een zeer nuttig instrument om vast te stellen hoe de treasury activiteiten georganiseerd zijn en hoe deze activiteiten zich verhouden tot de activiteiten van organisaties uit de peergroup. De Treasury Review geeft een goed zicht op risico’s en laat zien waar verbeteringen kunnen worden doorgevoerd, welke tevens met structurele kostenbesparingen gepaard kunnen gaan. De complete Treasury Review analyseert de organisatie op diverse punten:

  • Beleid en strategie
  • Risicomanagement
  • Cashmanagement
  • Financiering
  • Bankrelatiemanagement
  • Systemen en processen

Fases

Het uitvoeren van een Review begint bij de identificatie, oftewel het doornemen van alle treasury rapportages, bestaand beleid en contracten en alle andere belangrijke documenten. Ook worden er interviews afgenomen bij de medewerkers die betrokken zijn bij het treasury proces, zodat de processen beter begrepen worden. De volgende stap is de analyse van alle verzamelde d ata. Alle gegevens die zijn verzameld tijdens de identificatiefase worden verwerkt en vergeleken met de gegevens van soortgelijke organisaties. Ook wordt er gekeken naar de best practices in de markt. De laatste stap van de analyse is de rapportage. De uitkomsten van de Review worden gerapporteerd en vertaald naar een praktisch goed uit te voeren stappenplan. Dit stappenplan kan de organisatie helpen bepaalde verbeteringen door te voeren omtrent de treasury.

Identificatie – Belangrijke documenten; Interviews
Analyse – Verwerken en vergelijken; Best practices
Rapportage – Uitkomsten; Stappenplan

Vervolgstappen

Na het uitvoeren van de Treasury Review heeft de treasurer een rapportage in handen met daarin verbeterpunten per onderdeel van de organisatie. Op dit rapport kan verdieping worden aangebracht zodat de treasurer precies weet welke stappen genomen moeten worden om de treasury te optimaliseren en structurele kostenbesparingen door te voeren. Dit geldt niet alleen voor treasurers in de private sector, maar ook voor de (semi-)publieke sector.

Treasury Scans

ILFA Group heeft zowel brede als getailleerde kennis van treasury en veel ervaring met procesoptimalisatie en implementatie. Voor organisaties en instellingen uit verschillende sectoren, variërend van overheden tot handelsondernemingen, is ILFA in staat om de treasury te optimaliseren. Om organisaties snel inzicht te kunnen geven in hun potentieel op specifieke onderdelen heeft ILFA de Treasury Scans ontwikkeld. De Treasury Scans van ILFA zijn opgebouwd uit vier snelle stappen. Doordat ILFA samen met u deze stappen volgt, krijgt u niet alleen inzicht in, maar ook grip op uw rente-, valuta- en/of liquiditeitsrisico’s.

Stappen

De eerste stap van de ILFA Treasury Scans is identificeren. Een goede identificatie is een belangrijke voorwaarde om potentiele risico’s zorgvuldig te kunnen kwantificeren. ILFA verkent samen met u uw organisatie en businessprocessen. Hierbij worden formele en informele werkwijzen getoetst om vast te stellen hoe, wanneer en waarom risico’s ontstaan.

De tweede stap is kwantificeren. Meten is weten, maar hoe moeten we meten? ILFA levert niet alleen de rekenmodellen, we delen ook onze inzichten en kennis zodat de juiste inhoudelijke afweging gemaakt kan worden. We zorgen er voor dat u de mogelijkheid heeft real time te kunnen monitoren wat de impact van wijzigingen in rentestanden, valutakoersen of schommelingen in uw liquiditeit is.

Stap drie is consolideren. Niet alle risico’s zijn te managen. Gelukkig zijn treasury risico’s vaak wel te managen, maar hoe doet u dit effectief? Wij reiken u een oplossing aan voor potentieel impactvolle risico’s binnen uw organisatie die niet behoren tot uw core business en waar een passende oplossing voor bestaat. Deze oplossing kunnen bestaan uit het inzetten van financiële instrumenten of het treffen van interne beheersmaatregelen.

De laatste stap, stap vier, is beheren. Het managen van risico’s is een continu proces. De effectiviteit van uw acties wordt bepaald door de kwaliteit en continuïteit van deze acties. We helpen u bij het opzetten van de juiste beheerkaders, het tijdig en consequent ontsluiten van de noodzakelijke informatie, inrichten van ondersteunende tooling en het opstellen van overzichtelijke rapportages.

ILFA Group

Nieuwsgierig geworden naar de rente-, valuta- en liquiditeitsrisico’s van uw onderneming of wilt u weten wat uw verbeterpotentieel is? Neem vrijblijvend contact met ons op. Mocht u meteen willen weten hoe uw onderneming er voor staat kunt u op onze website een Treasury Quick Scan doen. Door de Quick Scan heeft u direct en vrijblijvend inzicht in het verbeterpotentieel van uw organisatie.

arnoud-doornbos

 

 

Arnoud Doornbos

Associate partner at ILFA Group

 

 

Best read articles of all time – Impact of Basel III on Notional Cash Pooling

|08-05-2018 | Arnoud Doornbos |

afbeeldingIt has been 2 years since treasuryXL started up. Our plan was to develop a website for treasury professionals, with unique input by treasury professionals. It was, and still is, our intention to increase the awareness and recognition of all the different Treasury functions within the corporate world. To celebrate more than 2 years of treasuryXL, we have researched all our articles and found those that have attracted the most attention, and decided to share with you our findings. We hope you enjoy this short series of 6 articles looking back over the last 2 years.

Since the start of the financial crisis a growing need for more bank independency with companies has arisen. Bank counterparty risk became an issue. A large cash management bank announced in 2015 to stop their transactional banking services for continental Europe. What will happen with current cash pools running with banks in the UK? Increased regulations (Basel III) may stop certain banking products. All types of events where companies feel a growing need for more bank independency.

Basel III

In the coming years, banks have to prepare themselves for compliance with the new Basel III rules on financial institutions.
The financial crisis of 2008 brought the shortcomings of Basel II to light. The capital requirements for banks were found to be insufficient and banks were running risks which were not identified by Basel II.
Therefore the focus of Basel III is to restore previous mistakes and adding requirements to both the quality and composition of the capital held by banks and liquidity position and governance to manage the risks.

Effective liquidity management is a way to look for “Idle” cash. An increasing number of companies therefore choose for notional pooling as it enables them to gain more insight into their (global) financial position and in order to optimize the interest income on their accounts.
Simultaneously Basel III imposes stricter requirements on offsetting balances (credit and debit), and this brings notional pooling possibly into danger. The question is what impact the introduction of Basel III has to notional pooling services offered by banks.

Notional Pooling

Notional pooling is a mechanism for calculating interest on the combined credit and debit balances of accounts that a corporate parent chooses to cluster together, without actually transferring any funds between the accounts. It is ideal for companies with decentralized organizations that want to allow some autonomy to their subsidiaries, including their control over bank accounts.

Treasury Services- without notional pooling

Benefits of notional pooling

The use of notional pooling has increased tremendously in recent years. At the moment it is a commonly used structure to concentrate balances and maximize the interest income on bank accounts. In addition it will provide companies with an increased understanding of their financial position and the company is therefore able to manage their money more effectively. Another commonly used technique is physical pooling (zero balancing) where the money from the participating accounts is transferred via a physical transfer to a higher-level account. The difference between them is that with notional pooling the money shall be paid only virtual and with physical pooling a physical transfer of money takes place. By using physical pooling through physical money transfer, internal debt positions will be created. Notional pooling and physical pooling can also be combined in an overlay structure.

Liquidity management

Basel III introduces a number of new financial ratios that aim to strengthen the capital base of banks.
One of the most significant ratios is the liquidity coverage ratio which banks are required to hold in high-quality liquid assets (cash money or assets which can be sold on the market quickly). This liquidity coverage ratio shows how far banks are able to withstand sufficiently a ‘crisis’ on cash flows for a period of thirty days. Moreover, the new law increases the capital requirements for banks and make these requirements more risk-weighted than before. The requirements are also countercyclical, intended to encourage banks to build up more capital in economic good times.
Liquidity management is gaining popularity by two simultaneous developments. On the one hand, credit is a less attractive source of profit for banks, which enforced banks to shift their focus to activities without capital requirements. On the other hand, companies need to make optimal use of internal cash as bank financing is becoming increasingly difficult. Notional pooling offers the option to concentrate the balances at several (international) accounts and optimize the interest.

Uncertain future for notional pooling

Basel III does not always allow that liquidity ratios are calculated by means of netting the outstanding balances of accounts in the notional pool. This means that banks must calculate their ratios based on the gross value of individual accounts. To cover the negative positions in the notional pool banks need to hold more liquidity. The negative position is seen as overdraft, which is associated with unattractive Risk Weighted Asset (RWA) for the bank. The conditions for reducing this RWA vary by bank and are depending also on the central bank of an individual country. To prevent that banks are required to hold a higher amount of risk capital they must be in possession of a legal right of offset. However, the process to obtain this right involves a lot of time and high costs (both for the bank and the company) and requires the necessary legal and tax knowledge. First, the law in the jurisdiction of each participant of the notional pool must allow compensation in the event of bankruptcy. In addition each participant of the notional pool must sign a paper that allow them to guarantee for other participants. Finally, the company must demonstrate that netting has occurred periodically.

Regarding the future of notional pooling, there are a number of scenarios to think of when it comes to the continuation of this service by banks:

  • Banks will only allow entities in the notional pool if there is an enforceable right of compensation;
  • Banks will charge the higher costs related to notional pooling to the companies;
  • Banks offer notional pooling selectively based on the creditworthiness of the company.

If banks decide to increase the price for notional pooling, it is likely that companies will go for alternatives for their cash management activities (e.g. physical pooling). Therefore it is advisable to contact your bank regarding notional pooling, so you are not faced with unnecessary surprises.

Treasury Services monitors the developments in the Basel III framework closely and combines its expertise in the areas of Payments, Treasury and Risk in order to provide its customers the best advice.
The Treasury Services Cash Management Scan analyses the impact of Basel III on your current cash pools and will explain how to manage this in the future.

Bank independent Cash Pooling

Treasury Services has developed a solution to set up cash pooling structures completely independent from banks through software. This creates significant additional savings and advantages compared to a cash pooling solution with banks.

The bank independent cash pooling allows companies to pool different bank accounts with different banks in different countries.

The advantages are:

Treasury Services advantages Cash pooling tool

The solution we have developed is a complete solution. It does not only consist of a software solution, but also proposed changes for policies and processes, and we investigated the legal and fiscal constraints.

For  more information please refer to this link.

 

arnoud-doornbos

 

 

Arnoud Doornbos

Associate partner at ILFA Group

 

Forward Rate Agreement (FRA)

| 05-01-2018| Arnoud Doornbos |

Money Market outlook

At the press conference on 14 December 2017, the ECB announced that expectations for economic growth and inflation have been adjusted upwards. But despite optimistic growth, the ECB is not yet fully convinced of a continued upward trend in domestic price pressures. And thus Draghi: “An ample degree of monetary stimulus … is necessary for underlying inflation pressures to continue to build up.”

For this reason, the ECB will maintain the buying program at least until September 2018. And only then will an increase in policy rates come into the picture. Since the beginning of 2017, investors have seen the chance that the ECB will implement an increase in policy interest rates. This has not yet had an effect on the three-month Euribor rate. This has been stable at around -0.3% for the whole of 2017, and we expect that this will be the case in the vast majority of 2018 as well.

But markets will go up again for sure during time and borrowers need to prepare themselves for that moment. A good interest rate risk management can help to extent the pleasure of using favorable low interest rates for your company. Hedging your short term interest rate exposure with FRA’s could be a good idea. Good timing is essential.

 

 

Definition

A Forward Rate Agreement’s (FRA’s) effective description is a cash for difference derivative contract, between two parties, benchmarked against an interest rate index. That index is commonly an interbank offered rate (-IBOR) of specific tenor in different currencies, for example LIBOR in USD, GBP, EURIBOR in EUR or STIBOR in SEK. A FRA between two counterparties requires a fixed rate, notional amount, chosen interest rate index tenor and date to be completely specified.

FRAs are not loans, and do not constitute agreements to loan any amount of money on an unsecured basis to another party at any pre-agreed rate. Their nature as a IRD product creates only the effect of leverage and the ability to speculate, or hedge, interest rate risk exposure.

 

 

 

How it works

Many banks and large corporations will use FRAs to hedge future interest or exchange rate exposure. The buyer hedges against the risk of rising interest rates, while the seller hedges against the risk of falling interest rates. Other parties that use Forward Rate Agreements are speculators purely looking to make bets on future directional changes in interest rates.

In other words, a forward rate agreement (FRA) is a tailor-made, over-the-counter financial futures contract on short-term deposits. A FRA transaction is a contract between two parties to exchange payments on a deposit, called the Notional amount, to be determined on the basis of a short-term interest rate, referred to as the Reference rate, over a predetermined time period at a future date.

At maturity, no funds exchange hands; rather, the difference between the contracted interest rate and the market rate is exchanged. The buyer of the contract is paid if the published reference rate is above the fixed, contracted rate, and the buyer pays to the seller if the published reference rate is below the fixed, contracted rate. A company that seeks to hedge against a possible increase in interest rates would purchase FRAs, whereas a company that seeks an interest hedge against a possible decline of the rates would sell FRAs.

 

Valuation and Pricing

 The cash for difference value on a FRA, exchanged between the two parties, calculated from the perspective of having sold a FRA (which imitates receiving the fixed rate) is calculated as:

where N is the notional of the contract, R is the fixed rate, r is the published -IBOR fixing rate and d is the decimalized day count fraction over which the value start and end dates of the -IBOR rate extend.

For USD and EUR this follows an ACT/360 convention and GBP follows an ACT/365 convention. The cash amount is paid on the value start date applicable to the interest rate index (depending in which currency the FRA is traded, this is either immediately after or within two business days of the published -IBOR fixing rate).

For mark-to-market (MTM) purposes the net present value (PV) of an FRA can be determined by discounting the expected cash difference, for a forecast value r:

where vn is the discount factor of the payment date upon which the cash for difference is physically settled, which, in modern pricing theory, will be dependent upon which discount curve to apply based on the credit support annex (CSA) of the derivative contract.

Quotation and Market-Making

 FRA Descriptive Notation and Interpretation

 

How to interpret a quote for FRA?

[EUR 3×6  -0.321 / -0.301%p.a ] – means deposit interest starting 3 months from now for 3 month is -0.321% and borrowing interest rate starting 3 months from now for 3 month is -0.301%. Entering a “payer FRA” means paying the fixed rate (-0.321% p.a.) and receiving a floating 3-month rate, while entering a “receiver FRA” means paying the same floating rate and receiving a fixed rate (-0.321% p.a.).

Due to the current negative Money Market rates means receiving actually paying and the other way around.

 

 

 

 

 

 

Arnoud Doornbos 

Interim Treasury & Finance

 

 

Waarom organisaties de online treasury toolbox gebruiken

| 27-6-2017| Arnoud Doornbos | Sponsored content |

Met een bepaalde frequentie moeten financiële instrumenten en dus ook derivaten gewaardeerd worden. Ondernemingen die volgens de IFRS verslaggeving regels rapporteren, moeten bijvoorbeeld de marktwaarde van de derivaten op hun balans rapporteren en de veranderingen van deze marktwaarde verantwoorden in de resultatenrekening. Andere mogelijke redenen waarom de waarde van een derivaat moet worden berekend, is in het geval van tussentijdse beëindiging of wanneer een bank het kredietrisico uit hoofde van een derivaat wil berekenen.

In praktijk blijkt dat deze waardering van derivaten vaak lastig is voor bedrijven en daarom wordt uitbesteed aan (dure) consultants.

Treasury Services heeft daarom nu een revolutionaire online Treasury Toolbox gelanceerd.
De  Treasury Toolbox levert transparantie in de steeds complexere wereld van waarderen van derivaten.
Met dit tool kan vanaf nu de accountant, de controller, de treasurer, de finance manager en de CFO zelf gemakkelijk de berekeningen doen. De zeer gebruiksvriendelijke Treasury Toolbox is online in de cloud verkrijgbaar.

De analyse tools zijn ook beschikbaar om de consultancy diensten te vervangen door online tools.

Wat biedt de Treasury Toolbox?

Onafhankelijke waarderingsinstrumenten 

Instrumenten voor het bouwen, analyseren, prijzen en vergelijken van financiële transacties en derivaten volgens de laatste marktpraktijken via multiple curve bootstrapping.

 

Bij de lancering van de Treasury Toolbox zijn pricers voor gecollateraliseerde rentederivaten in AUD, CAD, CHF, EUR, GBP, JPY en USD beschikbaar gesteld. Dit zal uitgebreid worden met meer prijsinstrumenten. Ook het aantal munteenheden zal worden uitgebreid.

Business analyse instrumenten

Instrumenten voor het analyseren van bedrijfsprojecten of reeks gecommitteerde en verwachte kasstromen. De instrumenten zullen de risico’s analyseren, de marktprijs (reële waarde) van de risico’s berekenen en het zal effectieve hedges berekenen vanuit een risicomanagementperspectief.  Meer analyse instrumenten zullen binnenkort worden gelanceerd. Ook het aantal munteenheden worden uitgebreid.

Waarom onafhankelijke (her)waarderingen?

Regelgevende vereisten
(EMIR, IFRS, MiFID) Met het voorop gestelde doel om een ​​stabieler banksysteem te vormen, hebben autoriteiten onafhankelijke en dagelijkse waarderingen nodig. EMIR, IFRS, MiFID, AIFMD, ICBE en KID PRIIPS zijn voorbeelden van externe stakeholders die onafhankelijke waarderingen nodig hebben. 

Verbeterde collateral management
De Treasury Toolbox instrumenten kunnen dienen als een onafhankelijke bron om een ​​correcte berekening van collateral te verstrekken die uitgewisseld worden op uitstaande derivaten. 

Check de tegenpartij (bank) prijs
Derivatenprijzen zijn voor veel organisaties een “zwarte doos” geworden. Niet alleen de wiskunde die moet worden gebruikt, maar ook de inputvariabelen zijn onbekend voor veel organisaties. De Treasury Toolbox instrumenten leveren een correcte reële waarde berekening voor derivaten met collateral.

Vermindering van het reputatie risico
Door gebruik te maken van instrumenten die een juiste reële waarde berekening maken, kunnen onaangename verrassingen worden vermeden omdat u in controle bent.

Risicomanagement
De Treasury Toolbox online markt instrumenten verhogen de juistheid van het risico management en waardeert met uitgebreide risk-return informatie.

Outsourcing
De Treasury Toolbox instrumenten maken het mogelijk om de steeds complexere processen met betrekking tot de fair value berekeningen en risicoanalyses uit te besteden.

Waarom organisaties de Treasury Toolbox gebruiken

Best Practice (her)waarderingen
De Treasury Toolbox instrumenten maken gebruik van de meest recente inzichten uit de financiële markten hoe derivaten en gestructureerde producten geprijsd en geanalyseerd moeten worden.

Transparantie
Samen met de online training “Modern Bootstrapping” uit de Treasury Academy levert de Treasury Toolbox transparantie over hoe deze berekeningen worden uitgevoerd volgens de laatste inzichten van het prijzen van derivaten.

Controleerbaarheid
De Treasury Toolbox instrumenten verrichten de berekeningen en de analyse precies zoals uitgelegd in de training “Modern Bootstrapping”, die online beschikbaar is in de Treasury Academy. Door inzicht te geven in de wiskunde en de invoergegevens in de modellen, is de oplossing transparant geworden.

Kosten efficiëntie
In de Treasury Toolbox kunt U kunt kiezen uit verschillende concurrerend geprijsde abonnementen voor de diverse prijs en analyse instrumenten.

Directe beschikbaarheid in de Cloud
De diverse prijs en analyse instrumenten kunnen op elk apparaat, op elke locatie en op elk moment via ons beveiligde online SAAS-platform worden gebruikt.

Advanced Portfolio Management T
Transacties kunnen in een portefeuille worden opgeslagen en alle rapporten kunnen worden geëxporteerd.

 

Met de Treasury Toolbox hebben organisaties nu een zeer krachtige tool beschikbaar welke voor vele doeleinden ingezet kan worden.

De Treasury Toolbox is te vinden op de website van Treasury Services.
Treasury Services geeft ook demonstraties en gebruikers trainingen van de diverse instrumenten uit de tool. Dit kan op locatie maar ook online op afstand.

 

 

 

Arnoud Doornbos

Associate partner at ILFA Group

 

 

Basel III and the impact on cost of hedging

| 30-3-2017 | Arnoud Doornbos | Treasury Services |

Corporates will save hedging costs and administrative costs significantly if they shift their hedging activities to exchanges such as CME (Chicago Mercantile Exchange).
In the summer of 2007 a large number of defaults on U.S. mortgage loans did arise. The banks were hit hard by the global domino effect that resulted. A major financial crisis which was followed by an economic crisis led to a revision of the capital requirements of Basel I and Basel II.

New Basel III

The core of Basel III is that many banks have to hold more capital and liquidity to their outstanding investments than they used to in the past. The rules are implemented as from 2013 and should eventually be fully effective in 2019.

Basel III will be a huge challenge for banks in the coming years. The impact on the pricing of financial products and transactions between banks and their clients will be significant.
Since July 2008, the Basel Committee for Banking Supervision has been working on Basel III for all banks worldwide. The European Commission has introduced three Capital Requirements Directives which contains concrete actions and requirements in terms of risk, capital and liquidity management within a bank. The new requirements, part of Basel III, aim to improve the quality and level of capital reserves of banks.

The capital requirements of certain products have increased and banks are encouraged to create additional capital buffers during good economic times so that they are better positioned to absorb losses during periods of economic stress.

Impact of Basel III on liquidity management

Besides sharpening the capital requirements Basel III has a major impact on liquidity management. The new liquidity standards are based on a stress test. In addition Basel III also introduces new long-term liquidity standards that reduce the mismatch between the maturities of assets and liabilities.
Banks will have to increase their reserves sharply in the coming years. Previously, banks only had to keep 2 % capital to their outstanding investments. Now with Basel III this capital requirement has been increased to 7 % (4.5 % hard buffer and an additional 2.5 % margin in bad times) . As a result banks will probably not distribute their profits in the coming years but will add to their capital buffers. Furthermore many banks will have to issue new shares in order to attract extra money in order to meet the new demands.

Counterparty risk

Within Basel III it has been determined that capital must be held for the credit risk on a counterparty a bank is exposed to in OTC derivatives or equity financing transactions. In addition, market participants are encouraged to take one central counterparty (clearing houses) for OTC derivatives. Any time a bank takes a risk against another party the probability of default exists. To offset this concern, and to support on-going stability within the interbank market, banks have long emphasized the importance of measuring and managing counterparty risk. Now banks have becomes noticeably less comfortable trading with other counterparties including other banks.

The recent deterioration in credit ratings that has hit many U.S. and European banks has led to a heightened sensitivity over counterparty risk. These apprehensions may not be voiced directly, but they become evident when front office trades that would have cleared in the past, no longer do because credit lines have been reduced. There is increasing focus on limiting exposures, even among global banks. And that is starting to affect the way we do business.
CVA (Credit Valuations Adjustment) desks have grown in popularity, as banks seek more effective ways to manage and aggregate counterparty credit risk.
The market has changed now in terms of how counterparty credit risk was calculated. Now, no client is assumed to be truly risk free. Different prices are now expected for different clients on that same interest rate swap, depending on variables including the client’s rating and the overall direction of existing trades between both parties.
On all new interest rate, FX, equity, or credit derivatives, CVA desks price the marginal counterparty risk for inclusion into the overall price charged to the client. CVA is a highly complex calculation.

CVA looks at default through the spread of the counterparty. A swap facing a single B credit that trades at 1200 in CDS is going to be charged a lot more than the same swap facing a AA counterparty. The CDS spread is normally a core input of CVA pricing.

What we see in practice is that in the manual process, the CVA desk team of a bank often passes along suggestions to the salesperson for improving the credit risk in a trade and enabling the sales person to offer the trade at a lower credit price. Examples of that would include improving the collateral agreement with a client, or inserting a break clause.
In the traditional CVA approach, a bank accepts a new trade, takes a fee and uses that fee to buy good hedges for all the risks in that trade. These hedges should eliminate all of the bank’s risk, but this is not necessarily the case once Basel III is taken into account.

Basel III does not recognize all types of hedges that the bank might want to use. Therefore the regulatory capital for certain trades will not be zero, even if the bank has used the full CVA fee to hedge all its risks.
The first impact Basel III has on CVA desks is on pricing. Pre-deal pricing needs to be reviewed to ensure the costs of imposed regulatory capital are covered. If not, additional pricing may need to be added. And the decision on which risks are efficient to hedge also becomes affected not just by strategic or business reasons, but also by the regulatory capital impact.
As part of Basel III’s updated regulatory capital guidelines, a new element has been added: V@R on CVA. Regulators have specified very precisely how the underlying CVA must be calculated for this charge. Banks will therefore need to decide whether to adjust their pricing and balance sheet CVA to match the Basel III rules, or to use different CVA calculations for pricing and regulatory purposes.

EMIR / Dodd-Frank

The Dodd-Frank / EMIR financial reform bill gives a new set of derivatives rules that either will clean up the market or send the world spiraling off the deep end. The truth is probably somewhere in between. The crux of the derivatives regulation is the requirements that standardized swaps be centrally cleared and traded on a Swap Execution Facility, or SEF. This moves derivatives from bilateral agreements between bank and client to centrally cleared products where credit risk is no longer bank-held, but is centralized in a clearinghouse where daily margin is managed. Once clearing is in place, customers no longer are locked into a single dealer, long and short positions can be netted, and SEFs can begin to match buyers and sellers without having to worry about the credit lines of each counterparty or dealer.

This will begin the migration of the derivatives business from a principal-based OTC market toward an agency-based bid/offer SEF market.

Treasury Services’ analysis:

  • Hedging is penalized decreasing the liquidity in the markets leading to increased costs to hedge financial risks for corporations. This is further emphasized by the penalization of the interbank markets through requirement of more capital, and additional constraints on liquidity on interbank transactions.
  • There will also be an increase in administration costs for corporates costs due to EMIR.
  • Corporate credit by banks is penalized: More capital is required in general. For back-up facilities on commercial paper programs it is required that banks will have to have 100% of liquid assets whilst these facilities are fully undrawn. The cost of carry will obviously be invoiced to the client. The ability of the bank to borrow long term will determine the availability of back-up facilities.
  • Restrictions in maturity mismatch (including for repayments) are introduced. This may mean that the risk of borrowing short term to finance long term investments will be transferred to the corporate sector.

The advantages of the OTC market compared to exchanges has become questionable. High cost savings can be achieved by shifting your hedging activities to exchanges such as Chicago Mercantile Exchange (CME).
Shifting hedging activities to an exchange such as CME requires changes in your risk management function. This supplies the possibility to bring the cost of hedging back in your control.

 

Arnoud Doornbos

Associate Partner

What’s FinTech and how does it change the financial world?

| 22-2-2017 | Arnoud Doornbos |

FinTech is a term that is becoming popular in the financial world. Only one third of the financial experts know what this means  and understands  what consequences it has for their business. How this innovation is currently changing the ecosystem of money, is still relatively unknown.

FinTech is a contraction of the words financial and technology. In other words: it covers all innovative financial products and services that simplify and accelerates the way we handle money. For traditional banks FinTech is still an uncomfortable concept. Why? Because a large portion of the revolutionary financial concepts are derived from technology driven start-ups. These start-ups change the traditional ecosystem. This is enormously important in a country like the Netherlands where the majority of firms is financed by banks and personal finances of the people are predominantly held by financial institutions  which find it often difficult to modernize.

The emergence of ICT in the financial sector may also have different consequences. Those FinTech companies that focus on a single product or service can erode the business model of banks. At the same time the same technology also offers opportunities for traditional players to improve their service and reduce costs. Also, traditional players have a competitive advantage over new entrants based on their knowledge of regulations and access to information from relationship banking (also called soft information).

FinTech companies have greatly changed the rules of the sector. Today we can pay via our mobile phone, quickly apply for online credit and invest online with one click. The list of innovative ideas is endless and an enrichment for everyone.

FinTech VC investments

The explosive growth of the financial technology industry continued in 2016.

  • 2016 has seen 839 deals globally attracting $15.2bn of investment
  • Global investment is up 27% to Q3 2016 vs the same period in  2015 and has surpassed the 2015 total of $14.9bn
  • Global deal size is slightly ahead of 2015 Q3 levels, with the average increasing from $14.3m to $18.1m, partially attributable to large Chinese investments such as Alipay

 


Source: Pitchbook Innovate/Finance

Most money was invested in start-ups. Projections show that the amount of investment will continue to rise.

The power of this technology-driven financial services lies in the fact that it is fast, efficient, transparent and mobile. You can use these services as long as you have Internet access. Of course, this strongly contrasts with the discontent which experienced customers from traditional banks.

Looking ahead — the FinTech industry could experience even greater growth moving into the coming year. The future remains positive from an investment perspective. We may expect an uptick after relative slow growth in the second half of 2016 due to political risks such as the Brexit and the US elections which fueled great uncertainty across all emerging sectors. Along with increased attention, the industry could see a large number of fresh launches and FinTech could make its way into an even stronger growth pattern in 2017 as investors have become more certain about industry prospects.

The possibilities for FinTech in Netherlands

In the Netherlands, there is also a strong rise of FinTech companies. Companies like Paypal are rapidly gaining market share. The biggest and best-known Dutch company FinTech Adyen. This company was recently valued at more than € 2.3 billion.

The FinTech Top 100 announced in 2016 that there are eight Dutch FinTech startups are part of the leading European companies in the financial technology. The financial infrastructure and the international focus play an important role. In addition, capital and expertise is also necessary for innovation, two factors Netherlands as a European Member State meets. The Netherlands also rise in 2016 from the 5th to the 4th place in the ranking of most competitive economies in the world.

The infographic shows that, perhaps inspired by Adyen, payment providers constitute a large share of the pie. Also data startups and alternative financing (crowdfunding example) are well represented in the Netherlands.

Dutch FinTech awards 2017

FinTech startups are disrupting the financial sector. Innovative companies are eager to please millions of frustrated banking customers. Investors are fascinated by the phenomenal profits made by banks struggling with outdated technology. Today, more and more money is being invested in FinTech. The Uber of the banking sector has not yet emerged, but this is only a matter of time. On April 21 the Dutch FinTech Awards 2017 will be held in Utrecht at the Rabobank Headquarter. The panel of judges of this years event consists of seasoned investors, academics, marketeers, entrepreneurs with an extensive track record in finance and/ or technology.  (http://www.fintech.nl).  The author of this article is one of the judges

Future

What we see in practice is that components of banking products and services are being redeveloped by the FinTech Industry.
These FinTech solutions are smarter, faster and better.
As a result we now see that different FinTech companies will work together. The individual Fintech products often turn out to be complementary to each other.
FinTech companies now recognize that collaboration with other FinTech companies leads to high growth and a better product range.

The Uber of the banking sector

 

The Uber of the banking sector has not yet emerged, but this is only a matter of time.

 

 

Arnoud Doornbos

Associate Partner

 

 

 

 

Impact of Basel III on Notional Cash Pooling

|17-1-2017 | Arnoud Doornbos |

afbeelding

 

Since the start of the financial crisis a growing need for more bank independency with companies has arisen. Bank counterparty risk became an issue. A large cash management bank announced in 2015 to stop their transactional banking services for continental Europe. What will happen with current cash pools running with banks in the UK? Increased regulations (Basel III) may stop certain banking products.
All types of events where companies feel a growing need for more bank independency.

Basel III

In the coming years, banks have to prepare themselves for compliance with the new Basel III rules on financial institutions.
The financial crisis of 2008 brought the shortcomings of Basel II to light. The capital requirements for banks were found to be insufficient and banks were running risks which were not identified by Basel II.
Therefore the focus of Basel III is to restore previous mistakes and adding requirements to both the quality and composition of the capital held by banks and liquidity position and governance to manage the risks.

Effective liquidity management is a way to look for “Idle” cash. An increasing number of companies therefore choose for notional pooling as it enables them to gain more insight into their (global) financial position and in order to optimize the interest income on their accounts.
Simultaneously Basel III imposes stricter requirements on offsetting balances (credit and debit), and this brings notional pooling possibly into danger. The question is what impact the introduction of Basel III has to notional pooling services offered by banks.

Notional Pooling

Notional pooling is a mechanism for calculating interest on the combined credit and debit balances of accounts that a corporate parent chooses to cluster together, without actually transferring any funds between the accounts. It is ideal for companies with decentralized organizations that want to allow some autonomy to their subsidiaries, including their control over bank accounts.

Treasury Services- without notional pooling

Benefits of notional pooling

The use of notional pooling has increased tremendously in recent years. At the moment it is a commonly used structure to concentrate balances and maximize the interest income on bank accounts. In addition it will provide companies with an increased understanding of their financial position and the company is therefore able to manage their money more effectively. Another commonly used technique is physical pooling (zero balancing) where the money from the participating accounts is transferred via a physical transfer to a higher-level account. The difference between them is that with notional pooling the money shall be paid only virtual and with physical pooling a physical transfer of money takes place. By using physical pooling through physical money transfer, internal debt positions will be created. Notional pooling and physical pooling can also be combined in an overlay structure.

Liquidity management

Basel III introduces a number of new financial ratios that aim to strengthen the capital base of banks.
One of the most significant ratios is the liquidity coverage ratio which banks are required to hold in high-quality liquid assets (cash money or assets which can be sold on the market quickly). This liquidity coverage ratio shows how far banks are able to withstand sufficiently a ‘crisis’ on cash flows for a period of thirty days. Moreover, the new law increases the capital requirements for banks and make these requirements more risk-weighted than before. The requirements are also countercyclical, intended to encourage banks to build up more capital in economic good times.
Liquidity management is gaining popularity by two simultaneous developments. On the one hand, credit is a less attractive source of profit for banks, which enforced banks to shift their focus to activities without capital requirements. On the other hand, companies need to make optimal use of internal cash as bank financing is becoming increasingly difficult. Notional pooling offers the option to concentrate the balances at several (international) accounts and optimize the interest.

Uncertain future for notional pooling

Basel III does not always allow that liquidity ratios are calculated by means of netting the outstanding balances of accounts in the notional pool. This means that banks must calculate their ratios based on the gross value of individual accounts. To cover the negative positions in the notional pool banks need to hold more liquidity. The negative position is seen as overdraft, which is associated with unattractive Risk Weighted Asset (RWA) for the bank. The conditions for reducing this RWA vary by bank and are depending also on the central bank of an individual country. To prevent that banks are required to hold a higher amount of risk capital they must be in possession of a legal right of offset. However, the process to obtain this right involves a lot of time and high costs (both for the bank and the company) and requires the necessary legal and tax knowledge. First, the law in the jurisdiction of each participant of the notional pool must allow compensation in the event of bankruptcy. In addition each participant of the notional pool must sign a paper that allow them to guarantee for other participants. Finally, the company must demonstrate that netting has occurred periodically.

Regarding the future of notional pooling, there are a number of scenarios to think of when it comes to the continuation of this service by banks:

  • Banks will only allow entities in the notional pool if there is an enforceable right of compensation;
  • Banks will charge the higher costs related to notional pooling to the companies;
  • Banks offer notional pooling selectively based on the creditworthiness of the company.

If banks decide to increase the price for notional pooling, it is likely that companies will go for alternatives for their cash management activities (e.g. physical pooling). Therefore it is advisable to contact your bank regarding notional pooling, so you are not faced with unnecessary surprises.

Treasury Services monitors the developments in the Basel III framework closely and combines its expertise in the areas of Payments, Treasury and Risk in order to provide its customers the best advice.
The Treasury Services Cash Management Scan analyses the impact of Basel III on your current cash pools and will explain how to manage this in the future.

Bank independent Cash Pooling

Treasury Services has developed a solution to set up cash pooling structures completely independent from banks through software. This creates significant additional savings and advantages compared to a cash pooling solution with banks.

The bank independent cash pooling allows companies to pool different bank accounts with different banks in different countries.

The advantages are:

Treasury Services advantages Cash pooling tool

The solution we have developed is a complete solution. It does not only consist of a software solution, but also proposed changes for policies and processes, and we investigated the legal and fiscal constraints.

For  more information please refer to this link.

 

arnoud-doornbos

 

Arnoud Doornbos

Partner at Treasury Services