Cash & Liquidity Management

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German Treasury Feeling the Pinch Corporates in Germany are facing similar problems to their counterparts across Europe, with liquidity and risk management becoming priorities, says Jens Mikolajczak, Head of Cash Management Corporates Germany in Global Transaction Banking at Deutsche Bank

German Treasury Feeling the Pinch

Corporates in Germany are facing similar problems to their counterparts across Europe, with liquidity and risk management becoming priorities, says Jens Mikolajczak, Head of Cash Management Corporates Germany in Global Transaction Banking at Deutsche Bank

How has the economic crisis affected corporate cash management in Germany?

The ongoing turmoil has led corporates across all industry sectors to rethink their cash management arrangements. Of course – and these issues are not unique to Germany – credit supply has become extremely pertinent as some banks are withdrawing from certain business areas and some have disappeared altogether.

With short term funding in the capital markets becoming difficult, corporates are looking to other methods of securing working capital.

So “back to basics” has been a key theme: many treasurers have refocused on their core role of maintaining day-to-day liquidity and ensuring that the company can continue to do business. However, this has also meant a renewed emphasis on squeezing efficiencies from the most basic processes by, for example, expediting collections and extending payment terms. A further repercussion has been that the treasurer’s role has become much more prominent in many organisations. These trends have resulted in the Boards of many corporates seeking advice and support from transaction banking practitioners.

Companies are also seeking closer relationships with their core bankers, with discussions intensifying. This enables banks such as Deutsche Bank to interact more closely with clients and structure solutions that meet specific needs and leverage the strengths of the bank.

In light of the changed economic landscape, which financial instruments are proving popular?

With short-term funding in the capital markets becoming difficult, corporates are looking to other methods of securing working capital. With the current adverse conditions bringing counterparty risk to the top of the agenda, corporates are now taking a much stronger interest in the financial health of their key trading partners. This has meant that instruments and techniques, such as supply chain finance, that enable corporates to share information and take an active interest in the funding needs of their buyers and suppliers, are growing in popularity.

In order to actively manage liquidity and reduce external borrowing, cash concentration, sweeping and pooling as well as intra-day account information are figuring highly. These techniques allow corporates to make the best of the cash they have available, maximising credit interest while reducing reliance on external borrowing wherever possible.

In the context of cash management, the phrase “flight to quality” is something we’ve been hearing a great deal. How has this impacted your work?

Indeed, this phrase is certainly in common currency at the moment and I feel it is reflected in corporate behaviour in several ways. Firstly, corporates are evaluating more closely the integrity and financial health of counterparties and banking partners. This has meant that many corporates have turned to those institutions – such as Deutsche Bank – that continue to maintain a strong brand and capital base.

Secondly, operational risk has become a greater concern. With liquidity being managed so tightly, failing systems could have a real, even catastrophic, effect on a corporate’s ability to continue trading. For this reason, it is paramount from a corporate’s perspective that their bankers maintain the availability and reliability of systems. At Deutsche Bank, for example, we have sustained our investment in core systems so we continue to post market-leading statistics in this area.

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