Question (gtnews): What do you think were the hot topics at this year’s EuroFinance?
Answer (Daniela Sibille, director, corporate treasury Europe, Middle East and Africa (EMEA), SunGard): The hot topics were cash and risk management. Although these are usually good generic topics for most treasurers, this year they are even more important because of the constraints in the marketplace. Although we always talk about cash management, it has become more important because liquidity is much scarcer than it was previously. As treasurers, we must strive to ensure our companies have the liquidity that they need to run the business.
In this way cash management touches on risk management. The market is changing – banks have had to review their balance sheets because of incoming regulations, which will impact their ability to lend. As it becomes more difficult for corporates to access bank funding, they will need to rely much more on their own cash. Treasurers will also need to look at alternative sources of funding.
In the various EuroFinance sessions these two themes came up quite often, even when we spoke about credit ratings agencies (CRAs) and why it is important to review your rating. Because if you want to move away from bank funding and look at issuing in the bond market, you will need to have a good credit rating.
The conversation was really around how we can raise funds for our companies and make sure that the liquidity is available, when and where it is needed.
Q (gtnews): What keeps you awake at night?
A (Sibille): If I knew what the next big issues were going to be, then I would be more relaxed. What is troubling is that the economic crisis does not appear to be winding up. Things are not improving and it seems as though the current situation will stay as it is, or get worse. The euro crisis is a big issue, particularly the situation in Greece. During the Vivartia presentation, I was surprised that some companies think that it would be better if Greece defaulted, or even left the euro. Unfortunately this is still a possibility and it is very difficult to anticipate what the consequences would be.
We can try to build contingency plans, but this is something we have never dealt with before. So theoretically we can try to mitigate risk, but we don’t really know how big the impact will be and whether other countries would then leave the euro. A Greek exit could have an avalanche effect. This is the biggest issue at the moment, although as a company we do not have much exposure to Greece. But any repercussions across the eurozone would be a concern.
Q (gtnews): How, in your opinion, has the job of treasurer changed since you started your career?
A (Sibille): It has changed considerably. The crisis has put treasurers in the spotlight. We have moved from a role that was within the finance department, or close to accounting, to a more defined role in the company and have taken on responsibility for a large proportion of the company’s risk management. The constraints on financing, and also the currency volatility seen in the past few years, have meant that there is a greater awareness of what treasurers do and their role within the company. Today treasurers have greater access to the board of directors and are able to add insight to commercial decisions.
Q (gtnews): Do you think the role of the banks will further diminish in future? If ‘yes’, which alternative sources of funding will fill the gap?
A (Sibille): Banks are challenged in today’s environment and will continue to be challenged by the economic crisis and incoming regulations. They have had to change the way they approach lending. The new regulations are here to stay and there may be further regulations that make the lending business even more difficult. It is quite possible that some banks may have to withdraw from the lending arena.
This means that corporate treasurers will have to look at alternatives source of funding. Banks will still be there for the cash management and foreign exchange (FX) activities, but companies need to start thinking long term about funding alternatives in case their banks are not able to lend. Corporates can explore cash retention, or look at borrowing in the Asian markets where there is more cash availability. Maybe Asian banks will have a greater appetite for business in future years.
Q (gtnews): What steps will you take in the year ahead to make your treasury department more efficient?
A (Sibille): It will be important to focus on the information quality that we produce internally, particularly cash flow forecasting in terms of amounts and currencies. It is possible to be more precise in understanding our cash needs and surplus. We plan to do an in-depth risk analysis in order to begin to understand and forecast risk before it materialises in front of us. These are the two main areas we are looking to improve.
We want to be able to do an evaluation of risks versus opportunities. It is important to clearly define what level of risk you are comfortable with and also identify opportunities. You might be prepared to take on a certain level of risk if you see a good opportunity from an investment or other activity. This is a decision that should be taken together with the business.
By undertaking a risk analysis, it may be possible to find another way to achieve the same end. It does not mean that we are not going to do the activity. If we can identify the risk and measure it, we can hedge to eliminate the risk. For example, we proactively hedge and use insurance policies.
It is important not to ignore risk because it is not going to go away – it is still there whether you like it or not. Risk analysis is also an opportunity to learn because once you have done it, then you have a path to follow. You may find some new opportunities just by taking a look at the risk and alternatives open to you to offset it.
Q (gtnews): Do you expect several more years of difficult economic conditions? If so, how should a treasurer respond to the challenge?
A (Sibille): The current economic environment is here to stay, or even get worse. A treasury needs to ensure that the company is covered to face a longer crisis period. The company must be funded and should never face the situation where it can’t access funds. Treasurers should review every opportunity to fund the company, which may include improving and enlarging banking relationships. This is now the time to examine how the company is funded and look for possible alternatives. This should be done now because it needs to be effective in two, three or four years.
We need to be looking at the medium- to long-term cash flows. We can’t look just at one to two year flows, but must look at least five years out and understand where the company will be at that time. Previously, it was possible to refinance six months or a year before you needed the funding, but now you need to start at least two years in advance.
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