Experts discuss the impact of geopolitics, interest rates and technology on how treasurers will manage their cash and liquidity in the next year.
Risk was one of the major themes that permeated many aspects of discussion at the recent ACT Cash Management Conference. This was best summed up by Winny Li, Group Treasurer at pharmaceutical company PPD, when she said: “Everyone is seeing [the impact of] geopolitical risk and how that affects us day-to-day. As a treasury team in a global company, we have had to learn about sanctions policies and how to become involved in strategic decisions.
“We have all learnt that this world is a very uncertain world, but I would say that, looking forward, we need to keep calm and deal with the issues when they come, in the most efficient and logical way.”
Kevin Cook, CEO of cash management platform TreasurySpring, echoed these views. He added that treasurers need to understand what the geopolitical environment means for interest rates. “Many people hadn’t experienced rising interest rates before, so have been trying to work out what they should be doing with their cash and what they should be doing with borrowing,” he said. “While people widely agree we have probably reached peak interest rates with the three core currencies of the US dollar, sterling and euro, there is less agreement on the path of decreasing rates. There is a wide disparity of opinions on when and at what pace we will see rate cuts.”
He added that while rates cuts might be expected to follow a smooth path, “in the past, they have tended to be precipitous”. This uncertainty, he said, could have an impact on credit availability – he observed that there were growing concerns among institutions such as the IMF over the level of real estate exposures within the banking sector. “Over the course of this year, there are many things that make predicting the path of interest rates challenging, with stability being unlikely.”
Austin Matthews, Assistant Treasurer at media and telecoms group Sky, noted that other risks could be found in inflation, consumer demand and issues such as supply chain strains. He added that his organisation had seen more requests for parent company guarantees and letters of credit. “We have been planning for this, making sure we have the resources available to deal with these requests,” he said.
However, as Mike Rigby, Managing Director and Head of UK Specialist Sales at Barclays Bank, said, treasurers still need to maintain their focus, asking how it was possible to achieve this.
Matthews suggested that “with intense regularity” his team would be “drilling into the numbers” to see what lies behind them. “I would advise everyone to do the same – it is not just the numbers you are being presented with, it is what’s behind the numbers. We are trying to get into the detail to make sure everything is robust and that the results make sense.”
“As treasurers, you should be utilising your IT systems wherever possible and to think through what your requirements are so that you can build something that is good for your organisation,” said Li. “We are aiming to eliminate manual intervention as much as possible from the source going into the reports, but we still need the human analyses to make sure we can use the data to help with the decision-making process.”
In terms of practical cash investment advice for the coming year, Cook advised treasurers to ensure they had a good panel of options to easily access ‘decent’ rates. Being able to access higher rates of interest can act as a ‘buffer’ so that organisations can maximise the value of their cash. “From a cash investment perspective, if you think that rates are going to go down, and assuming you have good visibility and forecasting tools, and you know when you are going to need that cash, you can lock in today a rate that you are happy with long term,” he said.
On the borrowing side, he advised treasurers to review what refinancing needs were coming up, looking at when they are due, and whether they are fixed or floating. “If they were fixed more than two years ago, it is very likely they will be more expensive now. If it was on a floating rate, it might be that you will be better off over the course of the year.”
He also advised treasurers to review their supply chains to identify the weakest points where organisations might need credit support, guarantees or collateral. “Have you got visibility, do you have the tools to tell you what the credit situation is across your supply chain?” he asked.
Building on this, Li suggested that treasurers should make sure their foundations, structure and treasury framework are working for them. “And make sure you have a good relationship with your banks,” she advised. “Since the pandemic, people are realising that treasury is becoming more and more strategic, and also just how important cash is – if you manage your cash well, then you will serve your shareholders well too.”
On a final point, both Li and Matthews agreed that ESG issue would remain “hugely important”. “We will support the business wherever we can,” said Matthews, while Li added that her treasury department worked closely with the ESG department to ensure there was no “greenwashing”.
“Sustainability is very close to our hearts,” Cook said. “We have found over the last couple of years that there is a real desire among treasury people to support this agenda and to do more from a sustainability perspective. We are trying to facilitate options on both sides of the balance sheet, and talking to our clients, we know that sustainability is a priority.”
Barclays Bank PLC is registered in England (Company No. 1026167) with its registered office at 1 Churchill Place, London E14 5HP. Barclays Bank PLC is authorised by the Prudential Regulation Authority, and regulated by the Financial Conduct Authority (Financial Services Register No.122702) and the Prudential Regulation Authority. Barclays is a trading name and trade mark of Barclays PLC and its subsidiaries. Find out about the Financial Services Register.