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Creating a resilient treasury for now and the future

COVID-19, Derivatives, Deutsche Bank, Digital Transformation, Economist Intelligence Unit, Fixed Income, Forex, IBOR, LIBOR, Liquidity, Money Market

October 26, 2020

  • COVID-19
  • Derivatives
  • Deutsche Bank
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The Covid-19 pandemic, a sharp economic downturn, incoming regulations and emerging technologies all feature prominently on this year’s agenda – what does that mean for the treasury function? As treasurers look to safely navigate this formidable landscape,  what do these new priorities mean for them in 2020 and beyond?

By Ole Matthiessen, Global Head of Cash Management, Deutsche Bank

These are uncertain times for treasurers. Just as many began 2020 believing that their strategies were locked in and ready to go, the

economic picture for the year changed dramatically. The Covid-19 pandemic spread globally at extraordinary speed, moving day-to-day work out of the office and into people’s homes. As treasury made this transition to a remote way of working, the focus of treasury was shifting in tandem – a reaction to the rapidly changing macro-economic environment.

So, as treasurers look to navigate these challenges, what are their concerns and priorities for the immediate future and longer-term? To answer this question and more, the Economist Intelligence Unit’s annual corporate treasury report, in collaboration with Deutsche Bank, surveyed 300 treasury professionals over April and May 2020. It found that this year’s treasury agenda is now driven by three core priorities: the economy, regulations and new technologies.

A changing economic landscape

Coronavirus is undoubtedly shaping a “new normal” for corporate finance – one that will require the treasury function to implement robust forms of risk management. This need is reflected in the results of the survey; 43% of participants cite pandemic risk as a key concern in the short term, and 27% believe it to be a medium-term concern. Global economic growth and inflation/deflation risk – both of which are impacted by Covid-19 – also ranked highly.

So how is treasury reacting to this sudden shock? At the start of the pandemic, long-term cash-flow forecasts were quickly discarded in favour of short-term forecasts, giving treasury departments a more accurate and ongoing picture of their cash and liquidity. Then, as uncertainty surrounding interest rates and inflationary trends become more acute, treasurers have increasingly looked to diversify their investment portfolios.

Incoming regulations

Amid the fog, ensuring regulatory readiness always factors highly in the treasury agenda. This year, the focus hones in on the replacement of the London Interbank Offered Rate (LIBOR) and other Interbank Offered Rates (IBORs) – with 38% of respondents citing these as their top regulatory focus. The clock is ticking on LIBOR’s era as a global benchmark for lending and borrowing and, by end-2021, firms in the US and UK are expected to have completed the transition to alternative risk-free rates (RFRs). But with a variety of potential replacements still in play, combined with complications to project work brought about by the crisis, treasurers lack clarity over what the future may hold.

Emerging technologies

In the wake of disruption, treasurers are relying on technology more than ever – accelerating the digital transformation of treasury. With lockdowns and social distancing in place, cloud-based applications, which give businesses access to their systems and data remotely, have played a key role in facilitating “business as usual”. As this digital transformation advances, treasuries are also prioritising the skill sets needed to realise the full benefits of this data and technology. This year, 30% of respondents are confident they have all the skills required to manage the widespread technological change – up from 22% in 2018.

Opportunities on the horizon

With fading prospects for any quick return to normality, treasurers must continue to expect choppy waters for some time. A range of complications, including the virus, struggling economies, incoming regulations and emerging technologies, must be factored in to any successful treasury strategy. But the industry is equal to the task. Treasuries have access to the essential skills and tools to help them protect company cash while also extending their insight and strategic counsel to support corporate growth. Treasury has proved to be incredibly resilient in 2020 and, with the right strategies and partners in place, it can weather the storm until better days return.

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