About Me

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I am deputy editor at The Banker, a Financial Times publication. I joined the magazine in August 2015 as transaction banking and technology editor, which remain the beats I cover. Previously I was features editor at Profit & Loss, an FX and derivatives publication and events company. Before that I was editorial director of Treasury Today following a period as editor of gtnews.com. I also worked on Banking Technology, Computer Weekly, and IBM Computer Today. I have a BSc from the University of Victoria, Canada.

Saturday, 4 August 2012

Cash Management, Operational Risk and Working Capital: Most Important Areas for Treasury

24 July 2012

Since the financial crisis in 2008, the treasury role has changed and become more strategic. The importance of treasury to the organisation has increased, with much more emphasis on cash management and forecasting, working capital management and above all operational risk management.

Treasurers are reporting an increased importance to all their functions - an ‘urgency of now’, according to the gtnews 2012 The Expanding Role of Treasurers Survey, sponsored by Bank of America Merrill Lynch (BofA Merrill). Across nearly all questions, they tend to rate the importance of the function, its threats and opportunities higher today than 12 months ago.

While the importance of treasury to the organisation might have increased, the relative importance or ranking, of core treasury functions has not changed. Corporate treasurers think that the three areas of greatest importance to their organisation in 2012 are:

  •     Cash management and forecasting.
  •     Operational risk management (ORM).
  •     Working capital management (WCM).

Ninety-one percent of respondents believe that cash management and forecasting is “important” or “very important” this year, compared with 73% who believed that this was the case a year ago. More than eight out of 10 (82%) view operational risk management as important, whereas 79% think that working capital management is a key discipline.

Other areas ranking in the top five services of treasury include banking relationships (counterparty risk analysis), which was chosen by 76%, and financial and capital allocation (68%).

Single euro payments area (SEPA) solutions and treasury outsourcing are viewed as the least important areas this year. Interestingly, even today treasurers do not believe that eurozone breakup contingency planning is of great importance to their organisation, with only 17% believing that it is “very important” and 16% thinking it “important”. It is, nonetheless, more than the 9% who thought it was an important or very important issue 12 months ago.

Breaking down the results by region, financial and capital allocation makes it into the top three areas of importance for corporates based in Asia-Pacific (chosen by 78% of respondents), while North American corporates are more interested in supply chain management (SCM) and new technology and systems than corporates in other regions.

The results suggest that treasury’s role in new technology and systems may be more important to organisations with annual revenue below US$1bn. And more respondents at smaller organisations also see treasury activity/service in banking relationships (counterparty risk) as more important.

Despite the fact that outside challenges are increasing, as well as the importance of services to the organisation, the portfolio of treasurer/treasury responsibilities has remained largely unchanged over the past 12 months. The similar percentages of respondents indicate treasury has ownership, both today and 12 months ago, for, in descending order:

  •     IT/systems in treasury.
  •     Capital markets/investment.
  •     Credit risk management/mitigation.
  •     WCM.

Next-level responsibilities also appear unchanged over the past 12 months.

This may indicate that, while the role of the treasurer expanded quickly in the aftermath of the financial crisis, treasurers are now working to cope with the new remit without a corresponding increase in staffing levels. A mantra voiced throughout treasury across all industrial sectors is “doing more with less”.

There may be some differences in responsibilities between western Europe and North America. For example, 63% of North Americans indicate that treasury has ownership for WCM versus 35% of western European respondents. Two-thirds in North America have responsibility (own or monitor) insurance versus about one third of western Europeans. Fifty-eight percent of western Europeans, in turn, own trade finance, compared with 30% of North American respondents.

Treasury Success Factors and Areas of Improvement

Success factors for the treasury function align with core organisational needs. The most importance success factors are:

  •     Risk management effectiveness.
  •     Liquidity targets.
  •     Improving working capital efficiency.

Western European respondents view risk management effectiveness as the most important success factor, whereas improving working capital efficiency is first for North America-based respondents, of whom 88% provide a top two rating versus 57% for western Europeans.

Reduced borrowing costs, the third most important service 12 months ago, dropped to fourth place. This area remains higher in the rank order for western European respondents (third) than for North American respondents (sixth), despite treasurers in both regions selecting it about equally.

Interestingly, ORM is rated as one of the three most important treasury activities/services to the organisation and risk management effectiveness is rated as the leading success factor for treasury. However, operational risk appears to fall lower among treasury responsibilities, with treasury playing more of a monitoring role (as it does with merger and acquisition (M&A)) than an ownership role: only 21% say that they “own” this process, while over half (56%) say they “monitor” this activity. From this result one could conclude that the treasury function would like more ownership of operational risk, to meet organisational expectations or to increase its business impact.

The highest-rated opportunity for treasury to enhance performance in the financial supply chain is by improving operations through automation (77% of respondents cited this option). For at least three quarters of all respondents, the five most important opportunities to increase automation are in areas of:

  •     Cash management with 89% ranking this within the top two ratings of importance.
  •     Cash forecasting (83%).
  •     Account reconciliations (82%).
  •     Payments processing (75%).
  •     Liquidity management (75%).

Treasurers see that the negotiation of commercial and payment terms represents a second major opportunity to enhance performance (69%) by targeting the financial supply chain, particularly in North America.

Treasurers See Limited Regulatory Impact

Regulations/directives appear to have a fairly limited impact on organisations’ business, with the exception of International Financial Reporting Standards (IFRS), which significantly affects about three in five. Less than a third of respondents report a great impact to their organisation’s business from SEPA, Basel III and the Payment Services Directive (PSD). Even fewer organisations have seen a great impact from other major regulations/directives. There has not been a significant change in perception from 12 months ago.

As expected, SEPA and the PSD have a greater impact on western European companies, with 46% and 41% of respondents respectively ranking these regulations within the top two categories.

Potential Threats to Business

Negative economic growth/recession remains the greatest threat to treasury business, according to 73% of respondents who chose this option within the top two rating categories, along with stability of the banking system. Slow economic growth is ranked third as a potential. Interestingly the ratings are higher today than 12 months ago, possibly reflecting heightened risk/uncertainty.

Exchange rate volatility, the third most important threat in the last 12 months, is fourth today overall, although it remains in third place for western European respondents.

Overall, the euro crisis/contagion threat has increased in importance today versus 12 months ago. While emerging in Europe, the euro crisis/contagion appears to be as much of, or possibly more important, a threat to North Americans (70% of North America-based treasurers rank this within the top two rating categories versus 56% of their western European peers). Just 24% of North Americans indicate the euro crisis/contagion was an important threat 12 months ago.


Although the treasurer’s role has undergone enormous change as a result of the 2008 financial crisis, this year has seen more stability in the role and its remit. Treasurers are reporting an increased importance to all their functions, but the relative importance (rank order) of core treasury functions has not changed, nor has the portfolio of treasurer/treasury responsibilities. The constrained resources in treasury may mean that treasurers are not looking for extra responsibility to take on.

That said, risk management is an area that treasurers are concerned about and would like more ownership of. ORM is rated as one of the three most important treasury activities/services to the organisation and risk management effectiveness is rated as the leading success factor for treasury. However, operational risk appears to fall lower among treasury responsibilities, with treasury playing more of a monitoring role to date.

Looking at potential challenges for treasury, negative economic growth/recession remains the greatest perceived threat to treasury business. Stability of the banking system and slow economic growth are also at the top of the worry list, whereas exchange rate volatility is less of a concern today as it was last year. The euro crisis/contagion fear has increased in importance and is spreading well beyond Europe, which may well be an indication of things to come.

The gtnews Expanding Role of Treasurers Survey was conducted from 16 March to 5 April 2012. The total number of respondents was 137, predominantly from western Europe (43%) and North America (30%), with 10% from Asia-Pacific and the remainder 17% from Latin America, Middle East/Africa and central and eastern Europe. Corporates with annual revenue between US$1bn and US$9.9bn made up 34% of the respondent profile, 29% came from smaller corporates with revenue under US$250m and 20% from corporates with revenue between US$250m and US$999.9m. The largest corporates, those with revenue of more than US$10bn, made up 17% of the respondents.

First published on www.gtnews.com

EXPERT OPINION - gtnews 2012 buyer’s guide to Treasury Management Systems

15 June 2012

Alexandre Clar, Director Global Treasury (EMEA), PPG

1. What were the catalysts that convinced your company to implement a/renew its treasury management system (TMS)?
The main catalyst for the implementation was the business decision to develop better global visibility of treasury risk and liquidity. Consequently, we made the move to transfer all three treasury centres - US, Asia-Pacific and Europe, Middle East and Africa (EMEA) - onto a single platform.

2. What key steps should be undertaken when selecting a suitable TMS?
Key steps begin with designing a robust, objective selection process that is flexible, iterative and enables you to make agile decisions. Identify TMS experience or expertise within your business and ensure that is effectively deployed. Get to know your vendor: ensure that the implementing team is known and fully trusted. Make a firm choice as to the external hosting, or not, of the TMS software. Think about treasury function continuity and knowledge sharing, i.e. how easy and intuitive it is to train internally and to communicate with stakeholders.

3. What TMS do you use and why was it chosen?
We use IT2. We saw it as the best means to design a global solution and implement more integrated business processes. We wanted to cut manual work and journal creation, reduce probability for errors or out of balances, build our own treasury reports and dashboards from the TMS, so that we free up professional resources to focus on strategic activity and performance and better service to our affiliates. That was principally in the areas of cash, liquidity, foreign exchange (FX), and risk management where we now have powerful, automated analytical tools and real- time capability. We were also particularly excited about IT2’s capability to define and lock in treasury policy, controls and best practice on a global basis: their fully configurable process maps are highly flexible and constitute an audit friendly solution that enable us to support treasury policy easily.

4. How does your TMS help provide greater visibility in your cash flows?
IT2 provides a single environment for managing the entire treasury operation, from front office dealing, resulting maturities, cash flows and market exposures through to netting, cross-currency pooling, Oracle and SAP ledger entries. We can therefore have instant visibility into the entire treasury position on the basis of real-time analyses and marked-to-market accounting values. In the near future, centralised bank account administration in IT2 will enhance our visibility of cash and authority on accounts. In addition, IT2 NET, our TMS’s web-based front end, will also extend visibility, accessibility and reporting to a 150 users internationally. We will therefore have an up-to-date picture of exposures, forecasts and requested deals from a broader number of affiliates.

5. How can a TMS help to reduce operational risk?
A TMS can automate and eliminate manual processes and workarounds that give rise to operational risk. By superseding spreadsheets and manual, possibly multiple, deal re-entry, (e.g. to track deals, cash flows, for risk management and accounting) the risk of human error is reduced. A TMS can also enforce processes and approvals within mandated workflows. Automating key controls, such as approval of trades by two treasury functions, is part of PPG’s treasury’s policy, which specifies automated, traceable, centrally visible and documented processes within such workflows. In addition, bank account management (BAM) via a central TMS and repository can ensure in the future that mandates and signatories are up to date, preventing delays or unauthorised activity.

Tony Osentoski, Director, Europe and Asia-Pacific Treasury, Cytec Industries

1. What were the catalysts that convinced your company to implement a/renew its treasury management system (TMS)?
The catalyst was, simply put, the growth of Cytec’s business both in volume and geography. The European and Asia-Pacific operations have been expanding rapidly over the past several years and the resulting workload equated to a mandate to invest in streamlining treasury operations within a TMS or to substantially increase staffing levels.

2. What key steps should be undertaken when selecting a suitable TMS?
Key steps start with implementing a robust selection process. Evaluate vendors’ ‘strength in depth, and ensure that full support and training is available. Find out if the vendor committed to the product and whether the product represents state- of-the-art technology. You will need to secure buy-in from the whole team: legal, technical accounting, senior management and internal control. Last, stay resolutely focused on your stated objectives at every stage of the selection process. It is very easy to be distracted by some of the ‘nice to have’ items offered by many TMS vendors, so it is important to stay focused on the core items that you want centralised and/or automated within a single TMS.

3. What TMS do you use and why was it chosen?

We selected IT2. It is state-of-the-art technology that comprehensively addresses our objectives for cash, risk and operational efficiency. The solution is highly intuitive and easy to roll out to a lean, global treasury operation. It interfaces seamlessly with our three enterprise resource planning (ERP) systems - BAAN, Infinium and SAP. Simply, IT2 offered the processes and tools we needed to fulfil our project objectives, including cutting bank costs, reducing the time taken across the range of activities, from reconciliation to managing hedging, and improving our visibility of cash and global FX and interest rate (IR) position.

4. How does your TMS help provide greater visibility in your cash flows?
Our TMS affords comprehensive, easy visibility of the entire treasury business to any authorised user. By building daily reporting and cash forecasting into treasury activities worldwide, putting treasury payments, notional pooling and netting activity onto one system, and introducing daily maturity analysis and in-house mark-to-market valuation of our outstanding FX contracts, we have an improved understanding of our developing cash flows, liquidity and FX results. In addition, bank costs are transparent and can be reduced through central management and consolidation of our facilities usage. In the first year alone, we cut our Asia-Pacific and European banking costs by 18%, a substantial six figure sum. We’re now going a step further. By introducing web-based cash management for subsidiaries and applying key performance indicators (KPIs) to the accuracy of the subsidiary cash forecasts, we hope to achieve a better understanding of actual and forecast cash. This will allow us to act more aggressively in hedging our FX exposures, after we have a proven legal entity forecasting track record established.

5. How can a TMS help to reduce operational risk?
A TMS helps to reduce operational risk by bringing complex processes together, on a single platform, in the simplest and most visible way. For example, we have insourced the monthly processing of tens of millions of dollars in intercompany payments with our multilateral netting programme, cutting the complexity and operational risks of the programme, as well as its cost. By locking down processes within defined pathways, or workflows, on a single platform, we enforce key controls and treasury policy. At a simple level, that’s making sure that the ‘four eyes’ rules apply, or that account signatories are up-to-date. At a more complex level, it’s making sure that settlements are executed, counterparty risk is managed according to policy, and sweeping, hedging and treasury processes are performed in compliance with policy.

Peter Schädelbauer, General Manager, Lindner Group

1. What were the catalysts that convinced your company to implement a/renew its treasury management system (TMS)?
The steady growth of our group of companies and the expansion abroad required a rapid and efficient reorganisation of the existing banking department into a modern group treasury. There were several issues that required the implementation of a TMS in order to be solved. The group had a heterogeneous system landscape with diverse ERP systems, various online banking solutions and no standardised reporting. A tremendous amount of time was required for the daily financial planning, as well as for intercompany interest and loan invoicing. In order to meet the requirements of a modern treasury and to keep up with the increasing internationalisation of the group, the introduction of a TMS was a logical and necessary step.

2. What key steps should be undertaken when selecting a suitable TMS?
Since a wide range of TMS are available, it is important to find the system that best suits the company. The desired features and requirements need to be defined and reviewed beforehand to see whether the demands put forward can really be fulfilled in the end. What constitutes a basic prerequisite, and what is merely a bonus feature? Beyond that, the implementation process has three stages: Stage 1 - the preparation - is arguably the most important phase, and includes the creation of the catalogue of requirements. The pre-selection of possible system providers takes place in this stage as well. Stage 2 - the advanced and final selection phase - is followed by stage 3, where the solution is implemented and the system goes live.

3. What TMS do you use and why was it chosen?
We use the BELLIN TMS in the current version tm5. We were convinced by the modular structure, the licensing model and the cost-performance ratio of the system. However, its easy accessibility was another deciding factor, since tm5 features a very workflow-oriented design. The internet-based TMS allows new group companies and users to be added quickly. All this leads to a high acceptance in the entire group, not only in the finance and treasury departments. New users learn to use the TMS quickly and easily and thus do not see it as an additional burden. In the Lindner Group, 206 users currently work with tm5. This number is evidence of its high acceptance.

4. How does your TMS help provide greater visibility in your cash flows?
Owing to the fact that all relevant accounts worldwide are electronically connected to the TMS (via SWIFT) and all deals and transactions are entered in the system, creating a daily financial status of the Lindner Group causes no more problems. It is available ‘at the push of a button’, so to speak. The current status can be reported at any time. Moreover, all planned cash flows are entered. The liquidity planning enables both a rolling forecast and an actuals plan for the daily comparison of plan and reality. Planning is no longer static, it has become dynamic. All in all, the visibility of cash flows and the corresponding liquidity management was improved a great deal due to the TMS.

5. How can a TMS help to reduce operational risk?

All relevant financial information of the Lindner Group is available centrally in a single system. All transactions are recorded in the TMS, both internally (with companies in the group) and externally (with banks), from forward exchange transactions to guarantees. All operational risks in the area of finance can be made visible and thereby reduced considerably by means of the system. A simple example: counterparty risk is reduced by setting and monitoring limits in the TMS. Furthermore, the operational project risk can be reduced by co-ordinating the treasury and sales departments. For example, hedging transactions can be assigned to the project. A comparison of the project cash flows to the plan makes it possible to quickly display differences and to adapt the hedging strategy accordingly.

First published on www.gtnews.com

The Forum for Global Corporate Treasury: SWIFT Tools and a Case Study on Multi-currency Notional Cash Pooling

Workshops on the second day of the Forum for Global Corporate Treasury examined the benefits that SWIFT offers corporates and took an in-depth look at managing cross-border liquidity.

One of the first concurrent workshop on day two of the Forum for Global Corporate Treasurers in Amsterdam examined what SWIFT had to offer corporates and also the challenges involved in trying to re-engineer the highway to your banks. Rasmus Heskier Schioenning, partner, Trintco, led off the discussion by looking at the three categories of solutions that corporates are interested in:

Payments, which use FIN and FileAct and can include additional messaging services (interact), other message types, 3SKey security and browsing (not used by corporates at this time).
Treasury: FIN and foreign exchange confirmation via FIN, centralised treasury confirmation matching for corporate treasury and electronic bank account management (eBAM).
Trade: letters of credit (L/Cs) and guarantees, alternative instruments for trade settlements or bank payment obligation (BPO), and electronic invoicing (e-invoicing).

Not many treasurers in the room had implemented SWIFT to date. Historically thought of as an expensive option and for the likes of mega-corporates with lots of resources, Heskier Schioenning said that the SWIFT proposition is now gaining attention from medium-sized corporates, mainly as a result of SWIFT service bureaus.

But there are still challenges to adopting SWIFT, which Heskier Schioenning identified in four stages:

  • Initial investigation and building the business case.
  • Request for proposal (RFP)/quote (RFQ).
  • Implementation.
  • Already live with SWIFT and want to use the investment further.

His advice was to address the challenges with a “common sense” approach and put in time at the beginning to investigate the business case and plan the roll out so that everyone’s expectations are realistic. “Expect a number of bombs on the road,” he said. One treasurer in the room that had implemented SWIFT in Europe and was in the process of rolling it out in Africa, agreed that they had had a few set-backs along the way.

“Do not shortcut the process and jump to start,” said Heskier Schioenning. “One pitfall to avoid is not aligning the SWIFT project with other initiatives and missing clear mandates from management.”

Heskier Schioenning also outlined new SWIFT initiatives that are coming down the pipeline, such as:

  • SWIFT business intelligence.
  • Sanctions screening.
  • MyStandards.
  • SWIFT reference (managing corporate reference data).

Managing Cross-border Liquidity

In the second set of workshops, Eric Vastenhound, global treasury operations manager, International Flavors & Fragrances (IFF), presented a case study of how treasury changed its cash management infrastructure with Bank Mendes Gans’ (BMG) multi-currency notional pool. The company, which operates in 32 countries, collects money from its entities across the globe and its mantra is “cash is a corporate asset”.

The key drivers for its current cash management infrastructure are that IFF is a net borrower and has overdraft positions in every location. It has a strong and stable cash flow, as all its production entities are profitable and generate cash (business-to-business (B2B)). To treasury, liquidity equals mobility.

At the end of 2009, IFF treasury selected BMG’s multi-currency notional cash pool. To date, the BMG overlay structure includes 36 entities in 22 countries and 114 accounts in 14 currencies. Vastenhound said that the notional pool go-live was very smooth and took only a few months after all the legal documentation was gone over with a fine-toothed comb. Most of the time was spent with client on-boarding.

The credit and debit positions of all participants in the pool are offset irrespective of the currency. Vastenhound said that they notional translation of local currencies to US dollar as the common base currency; therefore there are no foreign exchange (FX) transactions. Any balance in any company/convertible currency is acceptable as the overall balance (at the European Central Bank (ECB) rate) of the pool is zero (or within the credit line). This will, therefore, limit the need for intercompany loans to fund local working capital requirements. Subsidiaries withdraw or deposit funds in any currency they need. Vastenhound said that treasury was quite relaxed about cash transfers because the limit in the use of the cash pool. In this way it is used as an in-house bank (IHB) and money does not leave the company.

Vastenhound said that the cash pool needs a credit line attached to it. The net balance (in US dollar equivalent) should be close to zero. He explained that there is a 1% penalty paid by entity if it borrows from the cash pool and that is paid into the master account. This sparked a debate among the attendees as to how the IHB derives the interest rate and the requirement to be transparent about the process mainly for the auditor’s benefit.

In 2012, IFF treasury plans to:

  • Further explore intercompany loan opportunities.
  • Introduce new currencies.
  • Introduce MT101/103 on domestic accounts with non-core banks.

First published on www.gtnews.com

The Forum for Global Corporate Treasury: Risk is the Name of the Game

24 May 2012

The main theme of the Forum for Global Corporate Treasury was risk, plain and not so simple. Corporate treasurers remits are stretching well beyond their comfort zones and into areas of risk that they never had to deal with before, whether that is due to the eurozone crisis, the downgrading of their banks and also more operational type risk.

The Forum for Global Corporate Treasury 2012 opened with an interesting keynote presentation from Conception Alonso, principal economist at the European Central Bank (ECB), who spoke about the bank’s role in stemming the worst effects of the crisis by pumping in over €1 trillion (see The Forum for Global Corporate Treasury : Show Report: The Eurozone and Beyond - Part 1). Alonso and chair of the Forum, Peter van Rood from AkzoNobel, set the scene for the main theme of the day: how to manage and control risk, which seems to be coming at corporate treasurers from al directions.

The eurozone crisis discussion paved the way to the first workshop entitled ‘Sovereign Credit Ratings in the Eurozone’, led off by Frank Gill, senior director, sovereign ratings group, Standard and Poor's (S&P). After charting the number of European sovereign downgrades that have happened in the past few months and followed by bank downgrades, he pointed out that without moving more rapidly towards a fiscal union, beyond just a monetary union, it will be impossible to make a clear distinction between sovereign and bank ratings.

He also described the five main factors that contributed to an S&P rating:

  •     Political: institutional effectiveness and political risks.
  •     Economic: economic structure and growth prospects.
  •     External: external liquidity and international investment position.
  •     Fiscal: fiscal performance and flexibility, as well as debt burden.
  •     Monetary: monetary flexibility.

Interestingly, Gill argued that S&P was presently “more constructive” than the market, whereas the he believes that the market is exaggerating the potential risk. He believes that the eurozone countries will not just walk away from the project but will do everything to make the union work.
Risk Management: What Keeps You Up at Night?

In the second set of workshops, three corporate treasury practitioners grappled with the wide array of risks that they and their peers face. Daniela Sibille, director, treasury manager, Europe, Middle East and Africa (EMEA), SunGard Corporate Treasury, said that in the past five years her view of risk has changed and developed. Liquidity risk kept her awake at night, as SunGard operates in more than 100 countries and her job is to ensure that cash is available when and where it is needed.

Sibille highlighted the issue that many corporate treasurers face, particularly those whose companies are quite aggressive in acquiring other companies. “Five years ago it was relatively easy to get banks to fund acquisitions, but that is not the case today,” she said. “Today, we sweep all our funds to London. But as we expanded into new countries, we found that it is not that simple to move cash out of these regions.”

Although SunGard does not face supply chain risk due to the nature of its financial services and software business, it does face a double whammy in terms of counterparty risk, as its 10 biggest clients are also its main banking partners. Sibille found it difficult to assess counterparty risk and was not convinced that credit ratings agencies (CRAs) were that useful for this purpose.

Keara Killian, director, treasury and risk management and EMEA treasury, Getty Images, faces a very specific type of risk as Getty employs hundreds of photographers across the world, many in war-torn or conflict zones. The company deals with the risks associated with kidnappings or injuries, including deaths, of its photographers through captive insurance companies.

Mustafa Kilic, head of regional treasury and group risk and insurance manager at Indesit, which makes home appliances, explained how his team reshaped treasury and redefined risk before the financial crisis in 2008. He asked the company’s executives what risks they were concerned about and got hundreds of answers, which led him to believe that no one in the company was sleeping at night. He explained that there is a need to classify and categorise risk, as well as understand the interdependencies.

“Risk management should see ahead, before ‘black swans’ are coming,” he explained and asked the attendees whether they had been warned of new threats coming down the pipeline by the risk management team - only a few treasurers said yes. He argued that to identify risk teams need key risk indicators (KRIs) instead of key performance indicators (KPIs).

Kilic explained that KRIs are “triggering items” hidden under the radar that could have a profound effect on liquidity risk, for example. These risks are interdependent and could have a domino affect much later on, such as a natural disaster like an earthquake, or a competitor taking marketshare from your company. These risks can be managed and planned for, and he advocated that all should look at updating their business continuity plan. When speaking to gtnews before the panel, he explained that a liquidity crunch is really the end of a chain of other unmitigated or unrecognised risks.

The Challenges of Short-term Cash Investing

The final plenary of the day took up the issue of liquidity again, from the angle of short-term investments. Money market funds (MMFs), and in particular government MMFs, were the instruments of choice for Séverine Le Blévennec, director, EMEA treasury, Honeywell, as bank deposits became less available. She also uses tri-party repos and fixed income securities.

All the short-term investment instruments used by Le Blévennec must comply with the investment committee’s policy. To be able to use tri-party repos, she had to build a solid business case and argue for a change in the investment guidelines.

Le Blévennec said that she is always looking for the “sweet spot between liquidity risk and return”. Michel Bekkers, group treasurer, adidas, agreed with her, saying that it was a difficult balance to strike - especially since the price of the preservation of capital may mean negative yield. “Yield is not a driver in this situation,” he said, “only a secondary consideration.”

First published on www.gtnews.com