Liquidity, improvements in cash forecasting and optimising capital structures are major priorities of treasury officers as they emerge from the pandemic to manage a whole new set of risks, according to new research.
The findings come in the latest Deloitte Biennial Global Corporate Treasury Survey drawing on interviews with 245 treasurers around the world. The results have been informed by reactions to COVID-19 as well as an economic landscape blighted by rising interest rates, high inflation and geopolitical uncertainty following Russia’s invasion of Ukraine.
With that in mind, a majority of CFOs, 54%, have mandated enhanced liquidity risk management as a “critical” task.
“Almost unanimously, most of our respondents have selected liquidity risk management and being a steward for financial risk management as critical mandates,” the report says.
The challenges loom large to achieving those aims. Of those polled, 64% said “visibility”, or knowing precisely what was in happening global operations, was a key concern, while 59% pointed to poor digital capabilities and 53% to weak treasury systems as obstacles.
Though more than half spotlighted enhanced liquidity management as their leading priority, others are also working on improved cash forecasting skills (41%) and better capital structures (37%).
Knowing what is happening in business units around the world is a drain on treasurers. “Visibility into global operations and risk exposures continue to be the most challenging and time-consuming areas,” said the report. Treasurers are looking to boost visibility of cash and financial exposures, cash forecasting and working capital.
Foreign exchange uncertainty has ballooned as banks move to counter rising inflation. Here again, the survey reveals hurdles to overcome. A whopping 83% said their “key challenge” was, once again, “visibility” of their FX exposures and the reliability of forecasts. A similarly significant 71% said their challenge was the “manual” exposure to FX risk identification process.
The response to FX risk has been hedging using derivatives (76%), with 55% using natural hedging, matching costs and revenues in the same entity; and 51% using natural hedging across entities. More than a quarter, 27%, said they had hedged by passing on risk to suppliers or customers. One in 10 (9%) did not undertake any FX risk management.
“While exposures are properly hedged according to policy,” said the report, “a large portion of the respondents expressed concerns that FX exposures may be inaccurate and not properly captured.”
When it comes to cash forecasting, a big majority (86%) of those questioned are confident it is accurate at the one-month horizon. But confidence drops steeply the further out the horizon. The main causes appears to be a lack of data (60%) and a lack of effective tools, (50%). The report says “group-wide collaboration” will be needed to improve matters.
The biggest regulatory impacts for treasury teams will come from IBOR (the Interbank Offered Rate) transition and from ESG issues. Treasury teams are mostly responding to ESG through diversity and inclusion policies (51%), sustainable debt instruments (42%), and compliance with the ESG demands of financial institutions (38%).
There is, however, no escaping further change to the business landscape following COVID-19. “The conclusion we draw from the survey,” says the report, “is that organisations are quickly taking actions to address liquidity management, financial risk, business continuity and operating model priorities, many of which are learnings from what organisations experienced during the pandemic.”
Gavin Hinks is a business and finance journalist