Japanese Treasury Practices Study Reveals Opportunities to Improve Cash and Risk Management

A SunGard study on corporate treasury management practices in Japan has found an opportunity to help corporations leapfrog over their competitors by enhancing their approach to cash management and risk management with treasury technology.

Japan is the world’s third largest economy by gross domestic product (GDP) with a historically strong domestic financial services industry. However, Japanese companies have recently faced the combined challenges of depressed demand and inflationary pricing pressure created by the global economic downturn. High levels of government debt and credit downgrades have increased the cost of borrowing, focusing attention on corporate liquidity and the importance of efficient cash management.

The key findings of the study include:

  • Japanese firms are primarily concerned with managing foreign exchange (FX) risk exposure, followed by credit and interest rate risk. As a company’s global exposure increases, FX volatility can have a greater impact on profits, product pricing, and performance. A treasury management system (TMS) can help improve visibility and control in these areas. Only 13% of Japanese companies already have plans to implement new technology.
  • Over half (58%) of Japanese companies reported that they do not use payment netting, which involves consolidating cash flows. Introducing cross-currency netting can help global firms carrying out multi-currency FX transactions to reduce FX costs.
  • Over half of respondents use domestic cash pooling and 11% use bank pooling for foreign currency, with 29% of respondents expressing concern about cash pooling arrangements. This suggests that treasurers could benefit from reviewing current arrangements with banking partners.
  • Credit risk is primarily managed with credit ratings data from an external information provider (49%) or managed internally on a case-by-case basis (26%). Close to half of Japanese finance managers indicate that using collection agencies is a significant priority, suggesting that improved credit ratings could help improve transparency and auditability of credit decisions.
  • Sixty-three percent of treasurers in Japan use in-house spread sheets or databases as their primary treasury tools, which are time-consuming and error-prone. There is a significant opportunity for these organisations to leverage more sophisticated technology to gain visibility into their cash position and process financial transactions such as FX, securities, derivatives and commodities.

Yohjiroh Yanagi, vice president of corporate liquidity, SunGard’s AvantGard Japan, said: “The results of this survey demonstrate that forward-thinking Japanese corporations are looking to gain a competitive advantage by enhancing their use of treasury technology to manage FX and credit risk. They are also migrating away from spread sheets to reduce the time required to gain visibility into their cash position.”

The study included 70 corporate treasurers at firms headquartered in Japan.

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