Instead, most participants continue to do business in Russia – mostly because they are in industries that benefit from the health and humanitarian exceptions to sanctions. In other cases, the business is essentially local, but uses the corporate brand – this means care must be taken when withdrawing. Having an exception from sanctions still leaves issues:

• Even if your currency transactions are legal, a lot of banks refuse to handle them, because they do not want to take the risk of dealing with the country.
• Many banks withdraw, reducing the choice of service providers. There was a lot of discussion about Citi – most participants use them, but there has been some confusion as to whether they are staying. The message to all participants is that they are.
• Even when cross-border transactions are processed, there can be a lot of delay: the banks’ compliance departments examine everything very closely – but they are overworked.
• The definitions of sanctions exempted products are inconsistent between various sanctioning groups (notably, the US and the EU), and they leave logical inconsistencies
• The sanctions and regulations on both sides are something of a moving target, so compliance can be challenging.
• There was an informal trouble zone in the countries surrounding Russia: Georgia, Kazakhstan, etc. This business is now moving to USD and EUR, which has reduced liquidity.

Despite this, our participants found it is generally possible to make payments into and out of Russia, even if the process can take a long time. Banks are moving to close offshore rouble accounts, especially in London, but they are being flexible over deadlines. Dividends are definitely not allowed, but most other types of payment seem to be possible. While some participants continue to move towards the exit – protecting local employees remains a priority – other are finding that their business in Russia is doing surprisingly well.

In terms of banking, everyone seemed to be using Citi [this discussion took place before Citi announced their withdrawal from Russia – from March 2023], though most were opening accounts with Raiffeisen as a backup. This is a return to the Communist era, when Raiffeisen was the main conduit for payments to and from Russia.

Bottom line: for our treasurers, the main concern is slowing economic growth in the west, increasing energy prices, higher interest rate and inflation. This is impacting their main business, which is typically not in Eastern Europe. As for Russia itself, people continue to move towards the exit – but those who have to stay, for mostly humanitarian reasons, are finding that business is complicated – but it continues.

• Difficulty obtaining supplies, resulting in lost sales, or seasonal goods arriving too late for the season (one participant is in the apparel industry, where this is crucial).
• Manufacturing inventories building up, as products cannot be completed or sold due to one or two missing components – but the rest have been bought and paid for.
• Supply chain management building extra inventory buffers
• Difficulty managing FX hedging programmes, as future cash flows become even harder to predict and forecast
• And, of course, this is all happening against an environment of rising interest rates, which increases the cost of holding inventory
• Margin pressures, due to increased shipping costs – especially given the increased use of emergency shipments, which come outside the agreed rates
• Coupled with inflation and recession risks, there is an increasing concern over distributors’ being left with unsold inventory, with an accompanying credit risk

As always, we had a lively discussion – I encourage you to read the different stories our participants had to tell. They contain lessons for all of us. The main takeaways:

• There is increased use of supply chain financing programmes, both supplier financing and factoring. Suppliers are becoming less reluctant to use them, and several participants have extended these programmes to countries and areas where they were not used before.
• An increasing trend to use fintech platforms for this, rather than single bank programmes – often for capacity reasons, as well as ease of use.
• In many cases, treasury is working with procurement and the suppliers to find a collaborative solution. This can involve paying suppliers early, to help them.
• One participant spoke of a failed implementation of supply chain financing – the lesson being that you need to have the right team.
• In each case, treasury is working with the business to try to find the right trade off between the cost of holding more inventory, and the cost of missed or late sales.
• One participant uses internal factoring to make the best use of cash within the company, before they go to the outside market for funding. This is a cash optimisation tool we often forget.
• One participant’s company manages very large, multi-year fixed price contracts, with many suppliers around the world. This is a particularly challenging environment.
• Again, while treasury tends to view inventory and working capital as an evil, it can also be a competitive advantage, if you can supply when your competitors cannot.

Managing and funding working capital is one of the biggest challenges we face. In an environment such as today’s, it is an area where treasurers can truly add value to the business.