Looking Forward to 2011

As we enter this new decade, the world is finally moving on from the financial crisis – which has been responsible for the global constraint of business – to plans that ensure that strategies, infrastructure, processes and people are in place for the next 10 years and beyond.

Naturally, recovery will occur at various times across different regions, but it is in every country’s interest to get the larger economies back on their feet and contributing to global growth. Already, we are seeing renewed confidence from corporate leaders that is creating an appetite for more aggressive expansion plans, and an increasing demand for credit to fuel these ambitions. It is this trend that is motivating treasurers to look at how they can optimise their cash management activities as we enter 2011.

An Evolving Treasury Function

Over the past 18 months, we have seen the role of the treasurer change. It has evolved, become more prominent and broadened to accommodate the new global business landscape.

One thing is clear: the sustainability of the treasury function and its ability to provide stable revenues while other areas of banking have been hit by the financial crisis have provided a catalyst for change and ensured the position’s renaissance. What was once classed as ‘back office’, consigned to the unglamorous pigeon-hole of plumbing, is now recognised as the lifeblood of an organisation, integral to companies keeping cash moving around the world in a timely, efficient and transparent manner.

Focusing on the Client

Not only that, but at banks, treasury is now widely recognised as the foundation of every client relationship. Post-crisis, how a bank interacts with its clients continues to gain recognition, with an increased focus on the basics of managing cash, delivering operating efficiency and mitigating risk. Today, innovation – in the form of investment in people, processes and platform – is centred on building capabilities that deliver against clients’ global requirements, against the variability of local regulatory standards or client location.

A solid foundation, where a global banking provider works in tandem with its client to provide bespoke solutions will continue to be the bedrock to a successful relationship in 2011. It allows for new and enhanced solutions to be developed that best service a client’s immediate and future financial objectives and builds trust on an ongoing and lasting basis. Increasingly, CFOs and treasurers are taking a more holistic view of their company’s financing and cash management needs, encompassing geographical and functional demands.

Credit Versus Cash in 2011

Managing the cash of a corporate client – its very lifeblood – is the backbone on which banks can secure client relationships that endure through 2011 and beyond.

Previously, credit was the impetus behind a company’s relationship with its transaction banking provider. However, the constraints on credit – which is expected to remain throughout 2011 – have instigated a rethink in the way this relationship is sustained, as well as the way in which a company makes its cash work for them. In order to be successful, treasurers will need to maximise cash supplies and optimise the ways in which it works around the world.

Banking partners are here to help treasurers make sense of working capital drivers and to formulate and execute strategies to help maximise their clients’ working capital and optimise their liquidity.

The New Normal: Knowing Your Risk Points Around the World

The ‘new order’ that is defining the world today commands the need for a global banking solution with proven expertise to deliver greater consistency, transparency and control of global processes. This is achieved by optimising returns and minimising risk through centralised controls to facilitate one snapshot of a corporate’s financial health. Certainly, many banking providers will have spent the turn of the year pre-occupied with the creation of best practices, built on a foundation that puts the client at the very heart of everything a bank does. This is the cornerstone to creating a transparent, robustly risk-managed and cohesive global offering to corporate and financial institution (FI) clients.

Additionally, the impact of the financial crisis and the ‘jitters’ of lending are etched on the memory of many. Stung by a lack of counterparty risk management, which was exacerbated during the height of the crisis during September 2008, this risk is top of every treasurer’s agenda and will continue to be so for years to come. Commitment and stability are still buzzwords used to give confidence when committing to a long-term relationship. However, this is just one area of risk and it is essential that risk management throughout all operations is robust and carefully managed throughout the financial supply chain.

In today’s climate, better risk management is represented by having several counterparties spanning regions around the world, rather than a sole counterparty that congregates risk with one agent. However, with several parties handling a corporate’s global cash management needs, a strain is put on ensuring cash is efficiently moved around the world. It is this increased emphasis on risk management that is driving the adoption of a regional approach to a corporate’s cash management. For example, at Bank of America Merrill Lynch, we are seeing an increasing interest from corporate clients in our Asia-Pacific capabilities and we envisage this continuing through 2011. We also expect to see continued reviews by treasurers of their investment and hedging policies in order to effectively manage not only foreign exchange (FX) and interest rate risk, but also risks associated with counterparties, operations and suppliers.

For large corporates, the health of their suppliers is as important as their own company’s health. In recent times, treasurers have had to come to terms with the nuances of supplier relationships to understand who their key suppliers are, to ascertain where their risks lie and with whom they should work as a counterparty. The usual vehicles for the funding of suppliers are not as open as they used to be, and this is leading the quest for more effective working capital solutions which can be passed down through an organisation. This will lead to more innovative ways for suppliers to use their cash as treasurers become increasingly involved, which will make them better-placed to deal with any macro-economic impacts.

Naturally, regulation is an issue for every facet of the banking spectrum, and how banks are able to understand and advise corporates on regulation will continue to be important. Collaboration between banks, banks and corporates, and corporates themselves will be instrumental in responding to these developments. Navigating a corporate through the changing regulatory landscape will continue to be a key part of a treasurer’s role, and the rewards will bring a more robust and safer environment in which companies can do business around the world.

The Role of Technology

On the corporates side, we are increasingly seeing a move towards integrated systems and a heightened focus on information-sharing, on analytics and on standards such as SWIFT. In the FI space, there is clearly a move from managing transaction banking relations on a local basis to online banking portals that give treasurers a more centralised, global view of their cash and liquidity. This is a trend set to continue as global banking providers increasingly look for ways to better equip themselves to support large multinationals. This has set the trend of establishing highly centralised treasury operations in the form of shared service centres (SCCs), bringing more consistency, visibility, transparency and control, as well as economies of scale and optimisation of cash.

As market pressures begin to ease with the economic recovery, we see a ‘balancing act’ between risk management, and cash and operating efficiency. The quest continues to find new ways to increase the latter so we can expect to see the ongoing rise of payment hubs and factories coupled with a deeper focus on the quality of data transformation provided by banks in order for a cast of several to provide a treasurer with the information required to better forecast, reconcile and effectively manage cash.

The Treasurer in 2011

The strategic imperative for better cash management will ensure that the importance of the treasurer endures, particularly at more dynamic organisations. Today, there is certainly a far greater understanding of the importance of the corporate treasury role. It is now up to the treasurer to ensure that they maintain this pivotal position, like the conductor of an orchestra – managing bank and supplier relationships and coordinating the company’s internal need for funding. And all this on a limited budget and ensuring alignment with the company’s business strategy. Technology will play an integral role, and the decision-making process of banking relationships will encapsulate relevant solutions and how they are delivered to the client in a meaningful way. The bar has been raised and banks need to focus on providing best in class products and services and, importantly, to deliver on them, on time.

So, as we bring the curtain down on a decade that has forever changed the face of banking, will the ongoing steps towards recovery mean a diminishing role for the treasurer? We say absolutely not – although memories of the past two years will inevitably dim, we are working from a new playing field, and the agenda has been set.


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