The 2012 guide to Liquidity Management: Liquidity survey - Looking to the long term

Laurence Neville
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Faced with an unusually broad and persistent range of challenges, treasurers are looking for sustainable solutions.

Liquidity management has never been more important. Four years on from the onset of the financial crisis, treasurers continue to intensify their efforts to improve the flow of liquidity across their corporate structures. Meanwhile, the ongoing and seemingly intractable debt crisis in the eurozone – and the threat to the euro itself – has added to treasurers’ headaches in managing counterparty risk.

Working capital, funding requirements and the ability to react to economic and political developments – and continue to function in spite of them – are companies’ main concerns. As Lisa Rossi, global head of liquidity management at Deutsche Bank, notes, this has widened the breadth of treasurers’ once chiefly functional roles and forced them not only to think more strategically, but also to find solutions that enable them to do more with less across their organizations.

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As further constraints are placed on resources, the management of time, costs, budgets and human capital is requiring the use of technology to enhance and promote operational efficiencies. "Fortunately, technology has become generally cheaper and more readily available, as well as being easier to apply," notes Willem Dokkum, global head of sales payments and cash management at ING. Indeed, advances in technology are accelerating, according to most bankers interviewed for this article, and are delivering practical benefits in the forms of increased transparency and control over working capital and liquidity. "It means organizations are able to better manage risk and maximize internal funding across time zones, currencies and numerous banking relationships," adds Rossi.

Practical steps

The economic and financial environment has necessarily prompted treasurers to make changes to how their departments operate. However, Yera Hagopian, liquidity solutions executive, treasury services EMEA, at JP Morgan, says the broad range of challenges facing treasurers – an even deeper and more sustained period of low interest rates and a number of economic tremors ranging from sovereign downgrades to the threat of eurozone member exits – has prompted treasurers to take a longer-term view. "Corporates are looking for sustainable approaches to address their liquidity management challenges rather than a series of knee-jerk reactions," she notes.

Martijn Stocker, global head, liquidity management, transaction banking, at Standard Chartered
Martijn Stocker, global head, liquidity management, transaction banking, at Standard Chartered 
In practical terms, corporates are aiming to achieve broadly the same goals they have pursued for the past few decades – only more effectively. "Clients are increasingly looking to manage their liquidity risks more tightly, and take control of unproductive surplus cash within the organization as they seek more efficient means to channel the funding of their working capital needs," explains Martijn Stocker, global head, liquidity management, transaction banking, at Standard Chartered. "Therefore, there has been a greater demand for more diverse capabilities in liquidity management products as clients’ needs grow."

However, as trade flows evolve – with emerging markets becoming relatively more important to the global economy – the range of challenges that liquidity management must address is also changing. "One of the key trends in the market today is the increasing demand and complexity of liquidity management as companies expand beyond their home or current operating sphere," says Elyse Weiner, global head, liquidity and investments, at Citi.

Even companies formerly considered best in class are revisiting their processes to take advantage of new technologies and, in some situations, deregulation, according to Weiner. "In the midst of a succession of financial crises, now primarily centred on the eurozone, risk management is top of mind with treasurers as they consider ways to mitigate both funding and supply chain risk through rationalization of bank relationships and accounts and re-engineering of operational processes, and trade finance options. There is a laser-like focus on de-risking the business and contingency planning."

The 2012 Liquidity Management Survey

A total of 16 banks participated in Euromoney’s 2012 survey, the seven global network banks plus nine leading cash management banks: Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Commerzbank, Deutsche Bank, HSBC, ING, JP Morgan, KBC, RBS, Santander, SEB, Société Générale, Standard Chartered and UniCredit. Each bank completed a questionnaire covering its cash position reporting services, liquidity management infrastructure, sweeping and cash pooling services, investment services and liquidity management support.

Cash position reporting

The strained financial environment continues to highlight the importance of using existing cash from the business more effectively. The growing corporate use of Swift reflects this trend: it had around 900 corporate users at the end of 2011 and has an ambitious goal of 5,000 corporate users by 2015.

As a result of difficult financial conditions, cash position reporting has assumed greater importance and forecasting has become a paramount concern for treasurers: unless they know where cash is, they cannot deploy it effectively. "There is a growing emphasis on accurate cash forecasting and in-depth reporting to enable treasurers to do their job even more effectively than before," says Dokkum at ING.