Innovation and Investment in a Post-Crisis Market
by Jens Mikolajczak, Head of Cash Management Corporates, Germany,
Global Transaction Banking, Deutsche Bank
Over the past two years, the financial markets have been affected by uncertainty, instability and a lack of trust. We have seen the banking crisis spill into the so-called ‘real’ economy, with organisations of all types suffering the effects of declining consumer confidence. There have been positive outcomes of the crisis, however. Firstly, we see that cash management has been elevated as a discipline which is critical to the survival of the business. Secondly, in an environment where trust and certainty has been at a premium, some banking players have emerged strongly and proven themselves as reliable business partners committed to investing in their clients’ success.
Banking response to the crisis
At the peak of the crisis, we saw that many banks’ attention appeared to be distracted away from their customers and focused internally. Cash management providers were often forced to prioritise issues relating to mergers, write-offs and obtaining government support, which in many cases meant that they could not always sustain a commitment to their clients. In the case of banks headquartered outside Germany, those that had received government backing were obliged to rein in their international aspirations and focus mainly on their home markets. This withdrawal of resources has had an impact on their corporate clients, inevitably resulting in treasurers rethinking and reviewing their banking relationships with regard to both credit supply and cash management services. Consequently, many of these companies have sought an alternative provider that could demonstrate the resilience, long-term commitment and ongoing investment in products, services and geographic expansion that they required.
Treasurers’ new demands
While the economic signals seem to be improving, many corporates are still experiencing considerable difficulties. At the peak of the crisis, some industries suffered a fall in revenues of 50% and conditions are still far from ‘normal’ in pre-crisis terms, although it is becoming easier to do business. Corporate treasurers’ expectations and demands of their banking partners have changed irreversibly, however, in a variety of ways.
Treasurers increasingly recognise the importance of a reliable partner not only to supply credit but also to deliver services that facilitate the business, such as cash management and trade finance. Reversing the loss of trust that undoubtedly occurred during the crisis is a slow and cumbersome process. There is still nervousness in the market. Even commoditised services such as salary payments are now at the heart of treasury as the reputation risk is high should they not be delivered on time. Consequently, it is essential that a banking partner remains committed to delivering the highest level of efficiency, accuracy and security in its core processes to support its clients’ day-to-day requirements.
Information and communication
While maintaining access to liquidity has become a priority, so too has ensuring that accurate, timely information on the company’s liquidity position is available when required. Communicating with stakeholders such as business owners, shareholders, senior managers, regulators and tax authorities is a key requirement for financial managers. This necessitates a well-developed information system, which is designed to deliver accurate, complete and timely data in a format that can be integrated with internal systems and used for financial decision-making. Achieving a consolidated view of the company’s liquidity is inevitably more difficult if the company works with multiple, disbursed providers, as information has to be brought together from various locations, often in different formats, unless using a single bank communication channel such as SWIFTNet and standard XML formats. Enhancing bank communication, by working with a provider with the necessary expertise and technology solutions, rationalising cash management partners and implementing bank-independent connectivity, has become an important issue for treasurers. Many are relying on Deutsche Bank for expert advice and solutions across each of these areas to enhance the reliability and completeness of information on their cash and liquidity position.
Risk and relationships
Relationships between corporate treasurers and their banking counterparts have become more intense with regards to risk discussions of all types, not simply credit. Not all banks and markets are available to corporate treasurers, so companies need to maximise access to internal resources and accelerate their cash flow cycle. Banks with the right solutions and expertise can bring considerable value to these discussions, such as looking at ways of reducing days sales outstanding (DSO) which can bring huge benefit, and increasing the resilience of the financial supply chain with supply chain financing.