Question (gtnews): What do you think were the hot topics at this year’s EuroFinance?
Answer (Harry Blok, director corporate finance, AkzoNobel): This is a cash management event and many treasurers will be looking for solutions for cash management problems, but I am not sure that they will find new solutions for day-to-day issues. What they will be looking for are the relationships that will help them develop a way forward. New ideas and innovations are desirable, but you do not need an event such as EuroFinance to get up to speed with new technologies. The event is useful to meet with the people behind the technologies, in order to get a better understanding, or just meet new people and expand your network.
If you look at the speakers and panel discussions, the conference is focused on risk management and volatility. I expect to hear about regulatory changes that are coming in as a result of the economic downturn, how to handle your cash management affairs in a volatile environment, etc. A panel earlier today said that you don’t need to know exactly what is going on – when and what will happen – but you need to be prepared for change and able to deal with volatility. The situation is not as predictable as it was before and the models we used to work with are no longer relevant.
Q (gtnews): How, in your opinion, has this volatility affected a treasurer’s job?
Answer (Blok): This level of volatility is new for most treasurers. A treasurer typically wants to know what is going to happen, what the cash flows are and how to manage foreign exchange (FX) and interest rate (IR) risk. A treasurer typically wants to forecast, anticipate and hedge risk. But the outside world is changing and treasurers need to find ways to deal with this instability. Most importantly, they need to understand the fundamentals behind this volatility. I guess this is the most important reason for treasurers who come to EuroFinance.
Looking at the poll conducted in the opening plenary session, many believe that they are well prepared to solve certain problems, even though their treasury systems are not up to speed. People trust that, within their network, there is someone who can support them. This relates back to volatility: you can’t always anticipate what is going to happen, but you must ensure that either you are well prepared for different scenarios or have access to the right resources – people and systems – to be able to manage new situations. The new dynamic within treasury is to deal with such uncertainty and to operate more like a businessperson who normally operates in a changing market, looking for new opportunities, looking to build the network, making it stronger and creating value with partners.
Partnering is extremely important. When I first joined AkzoNobel, as an in-house tax advisor, we cherry-picked our consultants depending on the region/country and specific expertise but then we decided to go with one global non-audit service supplier. That move was extremely difficult, because we had to build new partnerships and that takes time.
I see the same thing happening today with banking relationships. It is not just a product that a corporate buys; banks need to understand your needs and you need to understand what the bank can offer. Trust is so important within my team, banks, government bodies and regulators. It is important to invest in the relationship, which is why treasurers are here.
In addition, corporates want to learn from each other, and this conference is an easy access point for knowledge without spending too much money. A treasurer can discuss with a peer from another company about a SAP problem, for example; whereas if they hired an SAP consultant they would have to pay for that expertise. That is the beauty of a professional peer network.
Q (gtnews): What keeps you awake at night?
Answer (Blok): I sleep very well. But if you are asking me what the top priorities are, fundamentally I think we need to adjust to a situation where there will be limited growth in the mature markets going forward, within the foreseeable future. As a company, if we still want to outperform in the market then we need to focus on operational excellence, innovation and sustainable growth. These are key themes and I am concerned that not everyone is aware of this.
If you only assume that your company’s growth rate will be the same as the gross domestic products (GDPs) of the countries where you operate and expect to stay alive, then I think you are wrong. These GDP growth estimates are based on historic data and are still too optimistic, as far as I am concerned. In business we need to be very realistic about where our opportunities lie and where we can still grow, or project our growth as well as we could in the past.
If you translate that into what a director of corporate finance does, I try to efficiently fund our operations and repatriate cash as efficiently as possible to headquarters to distribute to our shareholders. I want to make sure that these are based on realistic business growth projections. I believe that there are many opportunities in the areas of innovation and optimisation of current businesses, but we need to make sure that these are incorporated adequately in our businesses’ projections.
Global sustainability is one issue that personally concerns me. If the world continues at the current level of material consumption, then I do not believe that it is sustainable. We need to have a clear view as to how to meet future demands/requirements, not only set on a voluntary basis by consumers, but also by what the planet can handle. The challenge is for corporates to anticipate and behave accordingly. The main focus is not only sustainable finance, supply chains and value chains within the group, but also in terms of interacting with governments, banks and funding.
Banks have an important role here. There are many small and mid-sized enterprises (SMEs) that are extremely concerned about funding. Innovation does not only take place at the blue-chip level but especially at SME level. This is an untapped market for banks. These entrepreneurs are worried about funding, but they also believe in their ideas and innovative capabilities enough to be willing to pay risk premiums. I believe that sustainable growth comes from a very healthy SME market with innovation, entrepreneurship and risk taking.
Risk is also about opportunities. Entrepreneurship requires risk taking and looking for challenges, and for some people to do the things that other people won’t do. This requires a different mind-set from traditional banking and treasury.
Q (gtnews): Do you think the role of the banks will further diminish in the future?
Answer (Blok): If I look at the overall trends in the market, I find a strong focus on IT and process efficiency in cash management. Companies want to integrate their IT systems and processes with their banks, to make cash management as efficient as possible. But by offering this process optimisation, banks – to a certain extent – make themselves redundant.
For example, a company wants its cash management bank to work as efficiently as its in-house bank (IHB) in cross-border cash flows. This is not currently possible due to monetary restrictions, but also because within many banks there is a lack of IT system and process harmonisation. But if cash management is viewed purely as a process that can be automated, then an off-the-shelf product should fulfil the requirements. Will that part of a bank’s activities disappear over time? In the long run it may be destined to, because cash management could be considered a routine/standard process that can be automated.
However, banks do much more, and offer other products and services complementary to cash management services. And one cannot ignore the role banks play in debt and capital markets transactions. As the market requires them, I am sure that banks will continue to be – or become more – innovative and remain in business. But as in any other industry, the landscape will look different in 10 years from now.
Q (gtnews): What effect will new regulations have on the relationship between corporates and banks?
Answer (Blok): Basel III is one of the reasons that the blue-chip corporates with strong investment grade ratings have access to cash and credit. The question is whether the capital requirements set by Basel III are really as rigid as people think, or are they just typical given the type of business the banks are in.
Solvency II, Dodd- Frank and Basel III all aim to force financial institutions (banks and insurers) to manage their risks appropriately. Should banks be risk-averse in this volatile environment? Probably not, as the economy needs entrepreneurs, also in the banking sector.
Large corporate are well represented at this EuroFinance event, and there are only a few SMEs. If you posed the same question to the SME market, you would get a very different answer because they are concerned about liquidity. Although this conference focused on the big corporates, the needed boost to the global economy will also come from the SME segment, which is full of entrepreneurship, innovation and creativity.
In short, the question, what effect the new regulations will have on the relationship between corporate and banks is not easy to answer because there are different effects for different corporates. But banks and regulators should be mindful of the fact that credit is not only required by blue-chips with strong ratings, but also by SME’s with higher risk profiles. And, again, this should not be seen as a risk only but above all as a growth opportunity.
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