marcus evans | 6th Annual Banking Book Risk Management | 31 January – 1 February | Amsterdam

13-12-2022 | treasuryXL | marcus evans | LinkedIn |

We are proud to announce our media partnership with marcus evans group for the 6th Annual Banking Book Risk Management.

Taking place in Amsterdam from 31 January to 1 February, this leading event will bring together banking risk management experts from across Europe to address upcoming regulatory and macroeconomic challenges.

Amsterdam, The Netherlands

31 January – 1 February

This premier marcus evans event will bring together leading industry experts in Banking Book Risk Management transformation from across Europe to address the coming regulatory and macroeconomic challenges. Key industry professionals will explain how to adapt banking book risk frameworks for IRRBB and CSRBB compliance, meet macroeconomic challenges, enhance behavioral and deposit modeling, and integrate these risks into an effective FTP and steering strategy.   

 

Key Themes in the agenda:

  1. Develop and maintain the appropriate frameworks to enable effective IRRBB compliance
  2. Adapt banking book risk management to meet emerging macroeconomic challenges
  3. Address additional regulatory demands within the banking book
  4. Establish best practices for behavioural and NMD modelling
  5. Integrate interest rate risk into pricing and steering

 

Interested in joining this exclusive event? Then contact Mr. Ayis Panayi at [email protected]  for discounts available or visit the website https://bit.ly/3CpfzJQ. Looking forward to welcoming you at the event!

The Impact of Russian Aggression on Regional Treasury & FX

13-12-2022 | treasuryXL | ComplexCountries | LinkedIn |

This call was held at a point in the conflict where Ukraine had made serious inroads into Russian held territory, and there was a lot of talk about the potential use by Russia of nuclear weapons. So, one of the questions was whether treasurers are expecting a nuclear escalation, a spread of the conflict, and what to do to prepare for it.

Source

None of these concerns were mentioned. For most companies, the business in the countries surrounding Russia and Ukraine is minimal. The bigger concern is, and remains, the impact on the business outlook in the rest of the world, the impact of increasing interest rates, inflation, and logistics issues – though logistics seem to be improving.

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.

Contributors:

This report was produced by Monie Lindsey based on a Treasury Peer Call chaired by Damian Glendinning

To access this report

Access to the full report is available to Premium Subscribers of ComplexCountries. Please log in on the website of ComplexCountries to access the download.
Please contact ComplexCountries to find out about their subscription packages.

How to use pricing to create an effective hedging program

12-12-2022 | treasuryXL | Kantox | LinkedIn |

In this article, we explore the links between pricing and creating an effective currency hedging strategy. We reveal how a simple PEG framework —Pricing, Exposure, Goals— can allow CFOs and treasurers to correctly define their FX goals, the type of exposure they need to collect and process, and the best hedging program for their business.

Pricing as a hedging mechanism

Transactional currency risk, it is often said, occurs between the moment an FX-denominated transaction is agreed upon and the moment it is settled in cash.

That’s OK, but what if the transaction was priced well before it was agreed, which is a realistic description of how things really work?

That’s why at Kantox, we developed the concept of pricing risk. pricing risk is the risk that between the moment an FX-driven price is set and the moment a transaction is agreed upon, a shift in the FX rate might impact budgeted profit margins.

Closely related to this is the idea that pricing is itself a hedging mechanism. Why? Because you can remove pricing risk by frequently updating your prices.

And that brings us to the topic of pricing parameters and hedging. 

Dynamic pricing

Let us start with dynamic pricing. There is a growing list of industries where dynamic pricing is becoming the norm: travel, chemical traders, hospitality, railways, entertainment, insurance, online advertisement, retail and even shipping.

This trend reflects the fall in transaction costs made possible by the availability of real-time data and the rise of geolocation services and payment apps.

Meanwhile, algorithms take into account supply and demand conditions, competitor pricing and other variables.

Two things need to be considered when it comes to dynamic pricing:

(a) prices are ‘FX-driven’; that is, an FX rate is systematically part of the pricing formula;

(b) prices are frequently updated, therefore leveraging the full capacity of pricing to act as a hedging mechanism. 

Other pricing models

Despite its growing popularity, dynamic pricing is not the only pricing mechanism out there. We can single out at least two other very significant models: 

1. Steady prices for individual campaigns/periods. Some businesses, like catalogue-based tour operators, keep prices stable for an entire campaign/budget period and set new prices at the start of the following period. Things to consider here:

(a) Prices are also FX-driven, just like in dynamic pricing.

(b) The pricing impact of the ‘cliff’, or a sharp FX rate fluctuation between two campaign/budget periods, is fully passed on to customers at the onset of a new period. Here too, pricing acts as a hedging mechanism, but not to the extent it does in dynamic pricing.

2. Steady prices for a set of campaigns/periods. Some firms need or simply desire to keep prices steady not only for one individual campaign/budget period but for a set of campaign/budget periods linked together. Things to consider:

(a) Prices are not FX-driven: the FX rate plays no role in pricing;

(b) The pricing impact of the ‘cliff’ cannot be passed on to customers at the onset of a new period. Pricing, quite obviously, is not a hedging mechanism in this case.

Putting it all together: the PEG framework: Pricing-Exposure-Goals

The PEG or Pricing – Exposure – Goals framework provides actionable clarity when discussing pricing and currency hedging in the context of cash flow hedging programs:

For firms with frequently updated FX-driven prices, the goal is to protect the dynamic pricing rate in all their transactions. The exposure to hedge is the company’s firm sales/purchase orders. The right program is a micro-hedging program for firm commitments.

For companies that keep steady prices during individual campaign/budget periods, the goal is to protect the campaign/budget rate. The exposure to hedge is the forecasted revenues and expenditures for that particular campaign. The right program is a combination of a static hedging program, conditional orders and a micro-hedging program for firm commitments. 

Finally, for firms that keep steady prices across a set of campaign/budget periods linked together, the goal is to smooth out the hedge rate over time. The exposure to hedge is a rolling forecast for a set of periods linked together. The right program is a layered hedging program. 

Currency Management Automation solutions allow you to reach all your goals, whatever the pricing parameters of your business.

Embedded Finance Explained, by François de Witte

08-12-2022 | François de Witte | treasuryXL | LinkedIn | As embedded finance continues to evolve, there is an opportunity for treasurers to explore how these developments could help their businesses. The present article explores what embedded finance really means, what’s driving progress in this space, and where should treasurers begin.

Read more

Recording Panel Discussion | Treasury Trends for 2023

28-11-2022 | treasuryXL | Nomentia | LinkedIn |

Recently, we had a panel discussion about a few major treasury trends for 2023 together with Nomentia and experts Pieter de Kiewit, Patrick Kunz, Niki van Zanten, and Huub Wevers. If you didn’t get the chance to attend the webinar, you can find the recording here.

During this interactive live discussion we covered some of the following topics:

  • Market and FX Risk management in current times of uncertainty.
  • Top treasury technologies to consider for 2023. Will APIs deliver their promises?
  • Building the bridge between Ecommerce and treasury.
  • The rapidly changing role of treasury to facilitate business success
  • Treasury technology visions beyond 2023.
Watch the recording

 

 

Why you need to automate swap execution

22-11-2022 | treasuryXL | Kantox | LinkedIn |

Do you struggle with having a perfect match between your currency hedging position and the cash settlement of the underlying commercial exposure? We’ll let you in on a secret: most treasurers and finance teams do. But how can you simplify this time-consuming and resource-intensive task? In this article, we show why you need to automate swap execution and how you can do it.

We reveal why this is an essential issue for treasurers, how it’s typically handled, and why automated swap execution can help finance teams play a more strategic role in the business. 

Setting the scene

Treasurers know that it is practically impossible to have a perfect match between the firm’s currency hedging position and the cash settlement of the underlying commercial exposure. That’s especially the case if those hedges were taken long before. This is why swapping is so essential.

Let us briefly see an example. If you have a ‘long’ USD forward position with a given value date and you need, say, 10% of that amount in cash right now, a swap agreement allows you to perform that adjustment.

With the ‘near leg’ of the swap, you buy the required amount of USD in the spot market while simultaneously selling —with the ‘far leg’ of the swap— the same amount of USD at the value date of the forward contract. And that’s how you adjust your firm’s hedging position.

Pain points: a resource-intensive activity

Swapping can be extremely time-consuming and resource-intensive, particularly if many transactions, currencies and liquidity providers are involved. We recently saw how a large European food producer was struggling mightily with manual swap execution, a dreadful situation faced by many, if not most, companies.

Among the most common pain points, we can cite the following three:

  • Operational risk. Many tasks are manually executed: retrieving incoming payments, selecting liquidity providers and confirming trades. The entire workflow relies on emails that circulate back and forth with spreadsheets carrying potential data input errors, copy & paste errors, formatting errors, and formula errors.
  • Lack of traceability. Lack of proper traceability hinders the process of assessing hedging performance, as swap legs are manually traced back to the corresponding forward contracts.
  • Risk of unethical behaviour. Understood as the risk that early mistakes that are not immediately reported may lead to severe losses down the road, it is prevalent throughout.

Traceability and automated swap execution

Traceability is when each element along the journey from FX-denominated entry to position to operation to payment has its own unique reference number. But how can we apply this concept to solve the problem of manual swap execution?

The answer is automated swap execution, a solution that is embedded in Currency Management Automation software. It relies on the perfect end-to-end traceability between the different ‘legs’ of a swap agreement and the original forward contract. Meanwhile, FX gains/losses and swap points are automatically calculated. It’s dead simple!

Swap automation is a powerful tool for the treasury team. At the company level, it opens the way to:

  • According to recent surveys, increasing the efficiency of treasury operations is the No. 1 expectation in tech for CFOs.
  • Using more currencies in the business to take advantage of the profit-margin enhancing possibilities of ‘embracing currencies’.
  • Taking a concrete step toward the ‘digital treasury’ is a concern voiced by many CFOs and treasurers.

At a personal level, in terms of the daily workload of members of the treasury team, automated swap execution means:

  • More time to concentrate on high-value-adding tasks such as fine-tuning and improving cash flow forecasts.
  • Reduced stress levels.
  • Increased productivity at work.

And that’s no small achievement! 

Currency Impact Report October 2022

15-11-2022 | treasuryXL | Kyriba | LinkedIn |

According to a recent Kyriba report, the earnings of North American firms will suffer a shocking $34 billion fall in Q2 2022 as a result of headwinds. When compared to previous quarters, headwinds rose by 3583% since Q3 2021 and by 134% from the prior quarter.

Source

Currency Impact Report

The average earnings per share (EPS) impact from currency volatility reported by North American companies increased from $0.03 to $0.10.

The USD is at a 20-year high, and when combined with volatility and interest rate changes, many corporations have seen their currency risk double or triple, as well as their hedging expenses double.

Kyriba’s Currency Impact Report (CIR)

Kyriba’s Currency Impact Report (CIR), a comprehensive quarterly report which details the impacts of foreign exchange (FX) exposures among 1,200 multinational companies based in North America and Europe with at least 15 percent of their revenue coming from overseas, sustained $49.09 billion in total impacts to earnings from currency volatility.

The combined pool of corporations reported $11.82 billion in tailwinds and $37.27 billion in headwinds in the second quarter of 2022.

Highlights:

  • The average earnings per share (EPS) impact from currency volatility reported by North American companies in Q2 2022 increased to $0.10.
  • North American companies reported $34.25 billion in headwinds in Q2 2022, a 134% increase compared to the previous quarter, and 3,583% increase since Q3 2021.
  • European companies reported a 68% percent increase in negative currency impacts, with companies reporting $3.02 billion in FX-related headwinds.
Download the Report

SWIFT and CBDC projects: successful experiments

14-11-2022 | Carlo de Meijer | treasuryXL | LinkedIn |

Early October SWIFT launched two publications describing the results of two important experiments, one on interoperability and the other on tokenization. In these publications SWIFT has aid out its blueprint for a global central bank digital currency (CBDC) network following an 8-month experiment on different technologies and currencies.

By Carlo de Meijer

SWIFT thereby said that it had solved “one of the thorniest” problems central bank digital currency (CBDC) developers have been wrestling with: How to use them for cross-border transactions and how to create interoperability between different networks. The idea is that once scaled-up, via SWIFT’s interoperability  solution banks may need only one main global connection, rather than thousands if they were to set up connections with each counterpart individually.

“We see inclusivity and interoperability as central pillars of the financial ecosystem, and our innovation is a major step towards unlocking the potential of the digital future”, Tom Zschach, Chief Innovation Officer SWIFT.

Let us have a deeper look!

Present CBDC projects: the interoperability issue

As told in my last blog the emergence of CBDCs is gathering speed with a growing number of central banks worldwide building, studying or considering digital versions of their national currencies thereby starting to seriously map out the massive, costly infrastructure required to roll out digital currencies backed by countries.  .

Globally, nine out of 10 central banks are. now actively exploring into digital currencies, often using different technologies. However with a primary focus on domestic use.

Many Central Banks are thereby struggling with its technological complexities including the issues of interoperability and standardisation. Few of the roughly 100 countries are working on making them interoperable via technical standards and those that are, are generally doing so in small groups with neighbouring countries and trading partners, such as in the EU.

But with multiple players building different solutions, on different technology platforms, the danger is that it will result in a future digital financial ecosystem consisting of ‘digital islands’ that can’t interact with one another,  which may limit large scale adoption.

For the potential of CBDCs to be fully realised across borders, these digital currencies need to overcome inherent differences to interact with each other, as well as with traditional fiat currencies. That potential however can only be accomplished if the various methodologies that are being explored could unite and work together.

That is why the attention of a growing number of those central bank experiments, is rapidly turning to how the CBDCs of different countries could interact when using different networks. Making CBDCs interoperable is however difficult.

Two SWIFT Publications

Early October SWIFT launched  two publications outlining how CBDCs could work in the real world, with a particular focus on cross-border payments. They thereby explored the use of a blockchain system to connect these different blockchains, something that has not been achieved in the crypto space:

SWIFT views inclusivity and interoperability as central pillars of the future financial network/ecosystem. They have been looking at ways to make CBDCs work globally, making them compatible with regular currencies.

In these publications SWIFT described the findings from two separate experiments that started in December 2021, demonstrating how to successfully transact between different CBDC blockchains networks as well as with traditional payment networks.

 

Two Experiments

SWIFT conducted two separate experiments to prove its cross-border transaction feasibility and interconnection capabilities. In the last eight months SWIFT worked with different technologies and currencies thereby cooperating with Central Banks and financial institutions worldwide.

These experiments bridged assets between different distributed ledger technology (DLT) networks and existing payment systems, which allowed digital currencies and assets to flow smoothly alongside, and interact with, their traditional counterparts.

These experiments are part of the company’s wide-ranging and extensive innovation agenda to provision their strategic focus on enabling instant, frictionless, and interoperable cross-border transactions for the advantage of the SWIFT community.

Aims of the two separate experiments were

a) solving the significant challenge of interoperability in cross-border transactions by bridging between different distributed ledger technology (DLT) networks and existing payment systems, allowing digital currencies and assets to flow smoothly alongside, and interact with, their traditional counterparts.

b) as well as provide interoperability between different tokenisation platforms and existing account-based infrastructures.

Ultimate aim of the two trials was to create a blueprint for CBDC usage across borders.

 

First trial: Interoperability

In the first publication SWIFT released the results of the first experiment, that was  aimed at looking how CBDCs could be used internationally and even converted into fiat money if needed. This in order to overcome the difficulties encountered of interoperability between different blockchains.

How was the first trial set up?

In this first trial SWIFT narrowly collaborated with Capgemini. They thereby carried out CBDC-to-CBDC transactions between different DLT networks, as well as fiat-to-CBDC flows between these networks and instant real-time gross settlement system. SWIFT therefor built two simulated CBDC networks, one implemented on R3 Corda, and another on Quorum, a permissioned Proof of Authority (PoA) version of Ethereum.

CBDC network regulators thereby run and governed a ‘trusted DLT node’ created as part of Swift’s solution. This allowed them to have a view on transactions within the permissioned blockchain as well as its messages to the Connection Gateway. In this SWIFT implementation they lock the assets in an escrow, tell the SWIFT system it is locked, and then receive the funds from the other party.

Next Steps: CBDC Sandbox

The tests are followed by additional and more advanced testing environment by almost 20 commercial en central banks over the upcoming year 2023, including Banque de France, the Deutsche Bundesbank, HSBC, Intesa Sanpaolo, NatWest, SMBC, Standard Chartered, UBS and Wells Fargo

SWIFT has deployed the infrastructure into a running CBDC sandbox and visual interface where blockchain based central bank digital currencies (CBDC) can connect to each other globally through SWIFT, as well as connect their blockchain system to SWIFT’s more traditional ‘fiat’ system.

They are now collaborating in the more advanced testing environment, thereby further experimenting with CBDCs using real time variables, to explore how its platform could interact with the cross-border use of CBDCs, assess potential use cases and wider CBDC operability, build the solution further and accelerate the path to full scale deployment of the interoperability solution.

SWIFT will seek feedback through to late 2022.

 

Second trial: tokenization

A separated second experiment was carried out in collaboration with several  financial institutions and other technology partners such as Citi, Clearstream, Northern Trust, and technology partner SE.

This trial involved tokenization, a measure used to secure sensitive information. The test aimed to use tokenised assets to trade property like stocks and bonds.

This trial was aimed to evaluate how their existing infrastructure could be used as a single access point to multiple tokenization platforms

Under the experiment, the team explored 70 scenarios simulating real-time market issuance and secondary market transfers of tokenised bonds, equities and cash. This to mirror real-world market transfers of tokenized bonds and equities.

 

Importance of tokenization

Digital currencies and tokens have huge potential to alter he way we will all pay and invest in the future. Though tokenisation is a relatively nascent market, the World Economic Forum has estimated it could reach $24tn by 2027.

Especially when it comes to strengthening liquidity in markets and expands access to investment opportunities. The potential benefits include improved market liquidity and fractionalisation, which could increase investment opportunities for retail investors, and enable institutional investors to build stronger portfolios.

But that potential can only be unleashed if the different approaches that are being explored have the ability to connect and work together. SWIFT’s existing infrastructure can ensure these benefits can be realised at the earliest opportunity, by as many people as possible.

Single Connector Gateway

SWIFT explored the use of a blockchain system to connect these different blockchains to facilitate cross border payments, something that has not been achieved in the crypto space.

The test teams build a simulation of SWIFT’s enhanced platform and combined that  with a Connector Gateway to link different CBDC and traditional payment networks at the technical level with the aim of establishing network interoperability.

SWIFT’s new CBDC interlink solution will enable CBDC network operators at central banks to connect their own networks simply and directly not only with each other but all existing payment networks in the world through a single gateway, facilitating CBDC cross-border payments thereby ensuring the instant and smooth/seamless and scalable flow of cross-border payments.

 

Main Findings

SWIFT has confirmed that the two experiments conducted in recent months have yielded positive results. The results of the trial showed:

  • promise for cross-border interoperability among countries with varying and emerging digital ecosystems..
  • it may solve the challenges of cross border transaction by combining different DLT networks and current payment systems. It also showed the possibility of interoperability of multiple tokenized platforms.
  • it also showed that SWIFT’s existing infrastructure could be used to interconnect various CBDC blockchain networks around the world directly for cross border transactions, not only with each other but with existing payments platform systems via a single gateway.
  • SWIFT thereby successfully facilitated cross-platform transactions using CBDCs through both a fiat-to-CBDC payment network and different distributed ledger technologies.
  • these experiments also showed that it  was possible for digital currencies and tokenized assets to flow smoothly alongside, and interact with, their traditional counterparts on existing legacy financial infrastructure, guaranteeing instant and effortless cross border payments.
  • it proved that this tokenized network infrastructure could create and transfer tokens and update the balance in multiple wallets.

 

SWIFT’s future role

In collaboration with the community, SWIFT intends to explore its role further – both as a carrier of authenticated information about CBDC transactions, as it does today for fiat currencies, and as a carrier of actual CBDC value in whatever form it is issued.

Given SWIFT’s current infrastructure, all above mentioned advantages can be realized as soon as possible. The companies scale thereby adds weight to its blueprint. SWIFT has an existing network used in over 200 countries and connects more than 11,500 banks and funds.

By creating a global monetary authority digital currency network, SWIFT could thereby act as central hub and serve as a single access point to different blockchains while its infrastructure could be used to create and trade tokens across tokenization platforms.

SWIFT’s new transaction management capabilities could handle all inter-network communication. At scale such a single point of contact would more efficiently facilitate global transactions.

 

Forward looking

To become really utilitarian for cross-border payments, CBDCs and tokens will need to interoperate with the existing financial system infrastructure, which is why it is encouraging that SWIFT was able to show progress here. Solving the interoperability issue is a great step forward.

SWIFTs ground-breaking new innovation lays a path for digital currencies and tokenised assets to integrate seamlessly with the world’s existing financial ecosystem. By solving interoperability challenges the experiments may pave the way for deploying CCDC’s globally.

If successful and once scaled up banks may need only one main global connection, if they were to set up connections with each counterpart individually. This important step forward built on SWIFT’s core capabilities means that as CBDCs and tokens develop, they can be rapidly deployed at scale to facilitate trade and investment between more than 200 countries worldwide.

However for a massive use of CBDCs this also asks for tackling remaining issues. CBDCs have raised issues regarding surveillance and privacy that also should be solved. The SWIFT trials however have shown that their these results may be seen a s a great breakthrough

 

Carlo de Meijer

Economist and researcher

 

 

Only one week left! Live Panel Discussion: Treasury Trends for 2023

10-11-2022 | treasuryXL | Nomentia | LinkedIn |

A friendly reminder that next week at 11 AM CET (November 17th), we’ll be collaborating with Nomentia.

Participate in our live panel discussion regarding 2023’s predicted treasury trends. We invited industry experts to join us and have an open debate about the issues that treasurers would need to think about in 2023. Additionally, there is the option to ask questions.

Date & Time: November 17, 2022, at 11 AM CET | Duration 45 minutes

Some of the topics we’ll cover:

  • Market and FX Risk management in current times of uncertainty.
  • Top treasury technologies to consider for 2023.
  • Will APIs deliver their promises?
  • Building the bridge between Ecommerce and treasury.
  • The rapidly changing role of treasury to facilitate business success
  • Treasury technology visions beyond 2023.p

 

SIGN UP TODAY

November 17 | 11 am CET | 45 minutes

Panel discussion members:

Pieter de Kiewit, Owner of Treasurer Search (Moderator)
Patrick Kunz, Independent Treasury Expert (Panel member)
Niki van Zanten, Independent Treasury Expert (Panel member)
Huub Wevers, Head of Sales at Nomentia (Panel member)

 

 

 

 

 

The Impact of Rising Interest Rates on Working Capital

07-11-2022 | treasuryXL | ComplexCountries | LinkedIn |

No apologies for the second report on working capital and interest rate rises in a short period: we are seeing significant changes in the business environment, and treasurers are being challenged.

Source

This call focused primarily on the higher interest rate environment. One participant was mostly concerned about how to invest excess cash – the others are grappling with rapidly increasing working capital, driven by the need to keep bigger buffers, due to COVID and the Russia/Ukraine war, and the long delays in logistics circuits.

Funding challenges:

  • One participant manages treasury for South America, where there have been significant rises in interest rates, and, in some countries, funding shortages, with banks unable to provide cash and prioritising local companies. The challenges have been manageable, and they have not had to resort to drawing down all their lines to make sure they are available. This behaviour, which is akin to the rush on toilet paper in supermarkets, has been an issue in many markets, including more developed ones. However, there has been some, limited, pre-funding around significant events.
  • This has led to an increase in the number of banks in the funding panel.
  • One participant prefers their subsidiaries to fund themselves locally – but the cost of higher interest rates (for example, 35% in Turkey) is dissuasive, even if, economically, they are significantly below the inflation rate (>80%).
  • There is an increased focus on being more efficient in the use of cash within the company, so more pressure on cross-border pooling, accessing trapped cash, intercompany netting, etc.
  • Some participants are using the situation to selectively get higher discounts for pre-paying suppliers: this can be an effective way to increase the return on cash
  • Generally, the participants are at the point where these challenges cause additional work, but none of them is particularly serious.

Working Capital Management

  • Typically, treasurers have to fund working capital, but they do not manage it.
  • In all cases, there is a dialogue with the business about how much working capital the business can support, and how it can be reduced.
  • Higher interest rates are resulting in increased expense. Depending on the company, this may, or may not, be reflected in the measurements of the business units.
  • The participants all agreed with the business need to hold more inventory, but a dialogue is required to make sure this doesn’t get out of control. One participant works with the business on resisting calls to change payment terms, while another helps arrange pre-funding for suppliers, when needed.

Contributors:

This report was produced by Monie Lindsey based on a Treasury Peer Call chaired by Damian Glendinning

To access this report:

Access to the full report is available to Premium Subscribers of ComplexCountries. Please log in on the website of ComplexCountries to access the download.
Please contact ComplexCountries to find out about their subscription packages.