The Global Treasurer outlines the key trends and challenges that will shape corporate treasury strategies over the next 12 months – article published on theglobaltreasurer.com on 2Feb2022 and written by Liz Salecka. Input by our consultant Patrick Kunz:
The pandemic, a seismic shift to homeworking, and ongoing economic uncertainty have made the past two years challenging and unpredictable for corporate treasurers.
As companies enter the new year, hopes are rising that containment of the Omicron variant and improved economic conditions will see a return to some semblance of business as usual.
However, numerous challenges remain on the horizon for corporate treasurers including escalating inflation, rising energy prices and further concerns over economic growth globally.
Interest rate hikes and FX volatility
According to the International Monetary Fund’s latest forecast, global growth will fall 4.4 percent in 2022, down from 5.9 percent last year.
Adding to this, the market expects central banks to raise interest rates in a bid to curb inflation, while greater FX volatility threatens to make risk management a key challenge for treasurers globally in 2022.
“As was widely expected by the markets, the Fed – now in hawkish mode – has practically green-lit a rate rise for the first time in three years in March as it tries to take on surging inflation, which is running at its hottest in 40 years,” says Nigel Green, CEO at financial services firm deVere Group.
However, he warns that indications of five or more interest rate hikes by the Fed this year could prove economically damaging.
“There’s a real risk that numerous interest rate hikes would cause a recession and may not even slow inflation as the soaring prices are triggered by supply chain issues which the Fed’s hikes will not solve.”
Meanwhile, in Europe, Patrick Kunz, a former treasurer and now interim treasurer and consultant at Pecunia, points out that the European Central Bank (ECB) should consider acting on interest rates too.
“Diverging interest rates in the EU and US will have an impact on the euro to US dollar exchange rate and, probably, also on some other currencies that are more linked to the US dollar,” he says. “For many treasurers, hedging is easy, but understanding and knowing your exposures is not always that easy.”
It is important for all treasurers to recognise how much their future cashflows will be impacted by changing FX rates, he adds.
Cashflow forecasting remains king
Alongside risk management, Kunz also believes that cashflow forecasting will be among the top three priorities for treasurers this year, and notes that this is largely because it is an area that can always be improved.
“It has to be on the radar for every treasurer as a treasurer is by his/her very nature forward-thinking. If treasurers can perfectly predict their future cash positions, they can make other anticipations based on this,” he says.
“But you can never get this perfect as it is dependent on so many external and internal factors. Also, as the world itself and business changes every year so too should a treasurer’s forecasting method.”
Greater automation
The deployment of fintech, new software tools and the latest treasury management systems (TMS) looks set to play a big role in 2022, enabling treasurers to get the information they need, work in a more optimal way, and eliminate unnecessary admin.
“Treasury is never a standalone department. Treasurers get input – and, namely cash, from sales and procurement – while accounts payable departments want them to pay bills on time. Getting this information from different systems and consolidating this into useful information is key,” says Kunz.
He points out that the use of Excel spreadsheets is no longer fit for purpose within treasury, with treasurers gaining greater access to more and more data.
“Treasurers should seek to automate where possible so that they have more time for the real work involved in treasury today – that is looking forward and making sure there is enough cash in the right place and that there is a low level of risk in the company,” says Kunz.
Regulation and compliance
For many treasurers, 2022 is likely to bring new regulations which will see them work more closely with banks to ensure compliance.
“The twin trends that dominated global markets in 2021 – cryptocurrencies and environmental, social and governance (ESG) – will continue to come under increased scrutiny from regulators in 2022,” says Hari Bhambra, global head of compliance solutions at Apex Group.
“In 2021, the EU led the way with the introduction of the EU Sustainable Finance Disclosure regulation and we expect other geographies to follow in 2022,” he adds “We are likely to see more alignment of ESG disclosure standards across countries, facilitated by regulations opening up further cross-border commercial arrangements.”
Know-Your-Customer (KYC) and Anti-Money Laundering (AML) requirements are also expected to be firmly back on the agenda for treasurers this year. Banks are facing more scrutiny by their central banks when checking for fraudulent payments and money laundering, according to Kunz, and this will impact on treasurers too.
“Most banks are not capable of doing this efficiently, which means banks have become much stricter when accepting clients and onboarding them,” he says. “A standard bank account opening can take months in some countries and still risk being declined by the bank.”
It not unusual for banks to hold back payments if they have concerns, particularly if the sender has a name that matches one on a blacklist, he adds.
“Hopefully collaboration between banks can help make managing these issues more efficient,” says Kunz, noting that if treasurers must sort out any issues relating to KYC and AML regulations it can cost them valuable time.
Instant payments
Another topic that looks set to dominate the next 12 months is the ongoing movement towards instant payments.
Kunz believes that achieving real-time payments is becoming even more vital for treasurers as they strive towards having “an instant treasury” instead of relying on older, end of the previous-day information.
“I believe we are at a turning point in 2022 where the combination of technology, collaboration between banks and standardisation will help achieve the first steps for global instant payments,” he says, pointing out that banks need to agree on a common payments standard.
He believes that ISO 20022 will become standard to achieve this and enrich payments by providing standardization
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