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Top treasury priorities revealed

Macroeconomic and geopolitical forces are creating an environment of heightened risks, divergent growth, and tax and regulatory uncertainty for corporates. Here we draw on Citi Treasury Diagnostics, our global treasury benchmarking platform, to reveal the top treasury priorities of leading companies, and share insights into how the corporate treasury can support global business objectives.

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Authors

Kelvin Ang-90x105

Kelvin Ang
Americas Head Treasury Advisory Group

Treasury and Trade Solutions, Citi

Declan McGivern-90x105

Declan McGivern
EMEA Head Treasury Advisory Group

Treasury and Trade Solutions, Citi


Andrea Vanara-90x105

Andrea Vanara
APAC Head Treasury Advisory Group

Treasury and Trade Solutions, Citi

Given stock-market volatility, the collapse in oil prices and the Federal Reserve’s stance towards rising interest-rates – even as monetary stimulus spreads in many other nations – we see divergent prospects for the real economy.

Corporates are encountering a fluid geopolitical risk outlook, increased regulatory scrutiny, evolving global financial system dynamics and heightened investor expectations. These will shape the backdrop for treasury organizations this year.   

Strengthening enterprise risk management

In Citi’s view, geopolitical risk is at a 25-year high. Tensions continue to flare in many regions of the world, from East Asia to the Mid-East to Latin America. A relative slowdown in key economies, such as China, has led to market volatility and increasing financial risks for companies.

Adding to this is uncertainty from coming key elections and plebiscites, including the US presidential election and the UK referendum on the EU.

Against this backdrop, corporate treasurers should consider strengthening enterprise risk-management processes. Treasury organizations should extend risk aggregation and centralization constructs – such as in-house banks and netting centers – to encompass subsidiaries across their organizations’ global footprints.

They should also reassess risk policies and measures with the objective of both tightening existing risk-management processes and broadening the purview for mitigating non-traditional risks.

It is also prudent to develop risk playbooks for potential business-disruption scenarios, enabling treasury to be better prepared for contingencies.  

Driving balance-sheet efficiency

Chief financial officers are facing growing pressure to optimize corporate balance sheets. This is the result of a combination of investor expectations for higher returns, the impact of past merger-and-acquisition (M&A) activity, and organic growth into new markets – all putting pressure on corporate balance sheets.

While M&A activity often leads to balance sheet ‘bloat’, market expansion can lead to deterioration in the credit quality of customer receivables. Inefficient subsidiary funding management can expose excess equity and risks in many jurisdictions.

Consequently, treasurers should focus on right-sizing corporate and subsidiary balance sheets.

Using financial skills resident within their treasuries, they should also assess corporate finance strategies to deploy more efficient alternatives to fund working capital (perhaps off-balance-sheet) and ensure appropriate working-capital utilization metrics and risk-management techniques are deployed.

Citi_priorities-600

Source: Citi

Improving liquidity and funding management

Evolving global financial system dynamics, changing capital control regulations, and increased regulatory scrutiny all call for a fundamental reassessment of the funding infrastructure of corporations. Improving liquidity planning and management is a priority for many treasury organizations.   

Going forward, treasurers should implement ongoing processes for reassessing banking and liquidity structures – the critical “pipes” through which they gain visibility and control over internal cash usage.

With volatility in foreign-exchange markets and interest-rate divergence, they should continuously address whether natural hedges are in place, old ones have gone or new ones have arisen as the operating business changes.

With regulations changing how banks operate, treasurers should closely review bank relationships and evaluate which offer the long-term partnerships to achieve corporate objectives.

Lastly, addressing the quality of cash-flow forecasting will be another critical corporate priority.

Striving for robust governance and controls

Strengthening enterprise risk management, driving balance-sheet efficiency, and improving liquidity and funding management all require treasury to ensure that a robust governance and control environment is in place. Centralized, globally distributed processes are critical to achieving an integrated control environment.

Citi’s treasury advisory engagements suggest that most treasury organizations will not have the luxury of easily adding more staff, making it all the more important to find ways to redeploy existing resources on a risk-focused basis. 

Wrapping up

In the year ahead, treasurers will have their work cut out protecting the organization against uncertainty while supporting growth objectives.

All in all, there is one overarching message: the job of the corporate treasurer continues to become more and more complex… and more and more valuable to the health of the corporation.

This feature appears in Citi’s latest Treasury and Trade Solutions Perspectives magazine. To read the magazine click here.



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