Risk and Liquidity Top Corporate Agenda

For some corporate treasurers, the economic downturn and ensuing market volatility has been a time to re-emphasise the importance of core treasury competencies.

“When you’re flush, it’s very easy not to focus on process refinements such as working capital optimisation, forecasting improvements or bank relationship consolidation,” says Alenka Grealish, managing director of research consultancy Celent’s banking group.
“You can get by like that while the orders are coming in, but when you face an exceptional downturn coupled with extreme financial market volatility, all the weaknesses become exposed. It’s now a matter of going back to the building blocks of treasury: monitoring and managing cash. But it’s very hard to balance the urgent matters with the long-term strategic tasks that are required to optimize the firm’s treasury and financial supply chain.”
In the past year, counterparty risk and visibility of liquidity have been at the top of many a corporate treasurer’s agenda.
Dennis Tosh, director, global trading and automotive risk management at the Ford Motor Company, believes that treasurers have had to scale a steep learning curve. “But now treasurers are very focused on counterparty risk both in terms of traditional measures, such as settlement risk, daylight exposures, and mark-to-market exposures, but also more sophisticated measures such as potential and peak,” he says.
At Ford, Tosh has focused on ensuring that ‘scarce’ hedge capacity is employed where it can have the most impact, from a risk-reduction standpoint. He says that centralization of the vast majority of derivatives and of investment transactions has helped Ford cope well with the economic and financial turmoil of the last 12 months.
Ford has also needed to monitor transactions that cannot be centralized for regulatory reasons. “We’ve needed robust processes to ensure we know what our exposures are and good communications with the countries where we transact locally so that policies and transactions can be applied on a global basis,” says Tosh.
Visible liquidity
The ability to monitor liquidity has been just as important as tracking exposures, according to Richard Martin, head of payments and cash management, international cash and trade, Barclays. “In the current situation, it’s absolutely critical that you have the right liquidity profile, i.e. the right liquidity in the right place that can be accessed at the right time,” he says.
“Availability of credit facilities is clearly crucial as well, but treasurers also need to have visibility of the liquidity within the group’s bank account structure to fund shortfalls and optimise idle balances.”

Martin says SWIFT is seen as increasingly important. “Both SWIFT Corporate Access options, SCORE and MA-CUG, give treasurers the ability to receive detailed information from multiple banks and integrate it into their treasury management systems,” he observes.


“Treasurers can also use SWIFT Corporate Access services to manage cash concentration structures and automate the centralisation of liquidity. This provides not only visibility, but also control over how they use excess liquidity, either internally or externally.”  

As well as supporting the visibility and mobilisation of cash, SWIFT also has an opportunity to facilitate the treasury requirements of a new breed of Chinese-owned multinational corporate, according to Peter Wong, founding chairman of the International Association of CFOs and Corporate Treasurers (China).
Wong asserts that these firms will differ from conventional MNCs in terms of decision-making structure, treasury centre location and regulatory requirements. “The internationalisation of Chinese enterprises and banks may offer opportunities for SWIFT to develop new products that are consistent with the reporting and compliance requirements of mainland regulators,” he says.
This article was first published in the preview edition of Sibos Issues, the official daily newspaper of Sibos (SWIFT International Banking Operations Seminar) 2009 in Hong Kong September 14-18. Sibos Issues is written and produced by Information Partners on behalf of SWIFT.



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