The treasury: from back-office to strategic lead

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The treasury can expect a bright future at the top table – so says research conducted by Nordea. We surveyed 82 large corporate treasuries and interviewed more than 60 CFOs and treasurers to find out how the treasury function has changed and what it will look like by 2017.

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“Almost 60% of respondents said providing advice would be a key responsibility for the treasury in two to three years” – Nordea Treasury 2017 report

Our conversations with treasurers have made it clear that the treasury function is in transition. While treasurers express some uncertainty over market conditions and exposure, they are hopeful about how their own positions have developed and certain about their ability to add value to their businesses.

We set out to find out exactly how the treasury has fared during a period in which it has had to react to a vibrant macro environment and increased automation of processes – and to see what the future holds. 

From back-office to the top table

Our Treasury 2017 report reveals that treasurers and CFOs alike acknowledge the importance of the treasury to the strategic decision-making process. Providing advice to the business is now a key part of the treasury’s role, and treasurers and CFOs expect it to become even more important over the next two to three years.

That is not to say that the transactional element of the treasury’s role is going away – around 60% of respondents said that it remains of high importance and will continue to do so.

But the focus on driving through efficiencies is not resulting in the treasury becoming a back-office administrative function. Organisations value and need its input on key strategic decisions, particularly around funding and exposure to risk.

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“The treasury’s priorities are liquidity and access to funding”  Nordea Treasury 2017 report

A broad remit

As might be expected, ensuring access to cash and liquidity is the top priority for the treasury. Behind this come funding and capital markets, and managing exposure to interest rates and FX. To meet these key objectives, the treasury has a broad remit – from providing internal bank services to subsidiaries, to reducing translation risks and overseeing trade finance arrangements.

In line with the treasury’s focus on managing risk and exposure, large corporates are working with their banks to hedge more risk – particularly around interest rates and FX.

And over 60% of treasuries expect to be hedging still more FX and interest=rates risks in two to three years. Corporates are also expecting to carry out more hedging against commodities, income on liquidity and the credit risk of their own customers.

One area where the treasury’s involvement has declined is in trading. Our research shows that only a third of treasuries have a trading mandate – and for those that do, the main objective is usually sustaining market knowledge rather than generating a profit.

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“Centralising the group’s cash and liquidity is the top priority for treasuries between now and 2017”  Nordea Treasury 2017 report


Operating a lean treasury

The treasury is having to find more efficient ways of operating to meet the growing demands on its time from its increasingly diverse workload. For many treasuries, technological advancements hold the answer.

Automation and digitisation are enabling easier and faster transaction and communication processes. And by reducing transactional pressures, they are allowing treasuries to focus more time on adding value by informing business strategy. 

Many corporates are looking to realise greater efficiencies by centralising their treasuries – a more achievable prospect thanks to technological developments. Centralisation can provide organisations with a clearer view of their finances – particularly where global expansion has resulted in complex and fragmented financial arrangements. 

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“The treasury is being challenged to execute transactions more efficiently, while providing strategic advice on a wide range of cash-management issues, and our research shows that treasury is delivering” – Nordea Treasury 2017 report


A reassessment of bank relationships

To give them a clearer view of funding and exposure, many large organisations are also seeking to simplify their banking relationships. We found that companies with a turnover of less than €1 billion have three core banks on average, and are taking on more banks as their businesses expand into new regions.

And as might be expected, the largest corporates, with a turnover of over €5 billion, have more core banks – 11 on average. But the number of core banks they work with is declining.

Some large corporates have rationalised their banking arrangements and now have a small number of primary banks, which they turn to for most transactions and support on new business ventures. That said, they also typically continue to have relationships with other banks if these offer greater presence in a particular market.

The challenges ahead

To retain its seat at the top table, the treasury will have to become more efficient in the way it manages transactions, and also more knowledgeable about markets and risk. Our research shows that it has already taken great strides towards this.

To add even more value to the business, the treasury should regularly review how it manages risk and secures funding to ensure it is supporting strategic business needs effectively.

And while we recognise that the treasury cannot be available around the clock to troubleshoot, it should aim to have the capability and competence to advice on the big risks – if and when they arise.

To find out more about the main issues facing the treasury, download the Nordea Treasury 2017 report from Nordea Insights: insights.nordea.com/go/treasury-2017.