Cash & Liquidity Management

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Bridging Local and Corporate Needs in CEE with a Regional Network Bank To identify and benefit from local investment conditions in CEE, as well as supporting the cash management needs both of local entities and the wider company, companies need a banking partner with local expertise, and solutions to support domestic needs and wider corporate objectives.

Bridging Local and Corporate Needs in CEE with a Regional Network Bank

by André Rijs, Head of Central & Eastern Europe, Payments and Cash Management and Rob Rühl, Head of Business Economics, ING Economics Department

Central and Eastern Europe (CEE) is an important area of growth for many western companies. Much of CEE weathered the financial crisis better than western Europe, and today we are witnessing a renewed interest in the opportunities that the region presents. Most countries in CEE continue to experience higher rates of economic growth than their western European counterparts. Poland, for example, did not see a recession, unlike the rest of Europe. Not only does the region have considerable potential for sourcing and sales, but as treasurers seek to maximise the value of cash, higher interest rates in CEE are also proving attractive as a haven for short-term investments. Clearly there are some challenges with this approach, such as the need to monitor and manage interest and FX risks carefully, but treasurers should remain up to date with the opportunities that exist in CEE. To identify and benefit from local investment conditions, as well as supporting the cash management needs both of local entities and the wider company, companies need a banking partner with local expertise and solutions to support domestic needs and the wider corporate objectives.

Risk and return

Pre-crisis, corporate investment decisions were predominantly influenced by yield and liquidity. While risk was a factor, it was typically not the priority. The crisis caused the situation to change fundamentally. Risk and liquidity emerged as the predominant investment themes, and yield hardly figured amongst treasurers’ priorities. Today, with continued low western interest rates, treasurers are seeking to find a new balance between risk and reward, in which security and liquidity remain the priority, but in which yield now has a place. In order to achieve this rebalancing of risk and reward, treasurers need to look beyond familiar investment approaches; for example, there will be situations when repatriating cash and investing in the company’s base currency, in its home country will not necessarily be the best approach. As figures 1 – 3 illustrate, CEE brings some interesting possibilities that a bank such as ING can help to realise, by bridging corporate investment and cash management requirements with those of local entities.

Addressing local challenges

Ahead of investing in a new region, of course, treasurers need to have a good level of visibility over the cash flow needs of the business as a whole through an  effective cash positioning and forecasting programme. Furthermore, there are some local challenges that need to be addressed. 

Firstly, while CEE is a maturing market, there is still little standardisation between countries and different regulatory and tax regimes which can make it complex to determine an appropriate investment strategy.

Secondly, automation of financial transactions and information flows is not universal, with significant use of legacy communication methods such as fax and postal transmission of bank account statements.

Thirdly, FX risks created by holding investments in currencies other than the company’s base currency need to be managed. While these challenges may seem daunting, working with the right banking partner, with on-the-ground presence and in-depth local, regional and pan-European coverage and expertise, goes a long way to addressing them.

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