The state treasury must never run out of money – imagine what would happen if pensions or family allowances were not paid on time. Based on budget figures running into billions, someone must tell the state treasury’s dealers what funds will be needed and when, and how much money is expected to come in.
Finland’s economic policy is drafted by politicians, but implemented by the state treasury. The financial experts at the treasury know how to handle large figures. Among other things, they are responsible for the state’s cash and debt management, as well as for capital funding. The cash position changes from day to day, from hundreds of millions to billions of euros.
Such a job requires result orientation and professional skills. This year, the state treasury’s experts won the title of ‘Most Impressive Sovereign Funding Team 2009’ in a competition held by EuroWeek magazine.
In addition, deputy director Ari-Pekka Latti of the treasury’s liquidity and funding department was shortlisted in the category of ‘Most Impressive Sovereign Funding Official’. Latti and his team are responsible for investment and loan decisions based on the day’s cash position. The team selects counterparties, agrees on transactions and monitors the set limits. “On a daily basis, our liquidity is usually on the surplus side and we invest rather high sums. We rarely resort to borrowing. We might, for example, invest €800m in the market during a single morning,” explains Latti.
A Tight Economic Situation Brings its Own Difficulties
In March 2009, the state treasury adopted OpusCapita liquidity management cash flow forecasting system. Its main user is the treasury back office, led by senior manager Taina Nissinen. The system has thereby become a daily planning tool for both the back office and the liquidity management teams, helping them to ensure the state’s solvency.
The forecasting system links data on around 1,000 bank accounts, gathered from the state’s 73 accounting offices and more than 200 users. Forecasts are automatically compiled from this data. The result is an up-to-date view of the state’s incoming and outgoing cash flows. Short-term forecasts for single days are continuously updated for the next 30-day period, while long-term forecasts cover the upcoming 12 months.
These are based on cash flows, and each accounting office has an account at its own disposal. Such accounts are centrally covered by the state treasury. The back office automatically receives the daily figures from the OpusCapita system. Data pertaining to due debts and credits is provided by the state’s debt management application, Wall Street Systems, which is integrated into the cash flow forecasting system. This data is compared to the treasury system and then forwarded to the liquidity and funding units.
“In the liquidity management department, we analyse the figures and compare our views, on which we base our estimate of the day’s liquidity,” Ari-Pekka Latti explains. “If we need more money, we look for it on the market. However, we usually invest. Most of our investment decisions are already made in the morning, although we don’t have the day’s exact income and expense figures by that time.”
Experience helps in estimating the outcome. The state’s monthly income and expense cycle is quite straightforward: tax-paying days mean peak income, whereas the biggest expenses arise on due dates for pensions, state subsidies and family allowances, for example.
If the economic situation is unstable, forecasting becomes difficult. “Most of the state’s income is accrued from taxes. Indeed, the uncertainty of many companies’ situations has made these very hard to predict. A tight financial situation means additional work for us, while forecasts are more critical than before,” Taina Nissinen sums up.
During the day, OpusCapita gathers the final figures from the accounting offices and, during the afternoon, corrections are made as necessary. At the end of the day, the individual accounts are swept into a main account. The last transactions are performed just before 19.00 Finnish time, when the European TARGET2 system closes down.
A decline in the return on capital employed of globally listed companies over the last decade has been noted in recent EY and PWC reports. This is despite businesses taking an increased focus on balance sheets since the financial crisis in 2008.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?
Global trends, technology and the role of the treasurer in 2025 were hotly debated by treasurers at this year’s Treasury Leaders Summit in London. A focus on technology and automation was universal, others argued over the impact of macroeconomic and global trends on treasury.