Managing Risk, Leveraging Opportunity
by Frank Kutschera, Head of Cash Management Corporates for UK, Ireland and Scandinavia, Global Transaction Banking Division, Deutsche Bank
While commentators tend to refer to the global financial crisis as a specific occurrence that took place in 2008-9, it is clear to every treasurer that the crisis was not just a one-off event, but simply one phase of a longer period of change, volatility and uncertainty that is still being played out today. Risk management swept to the top of treasurers’ agendas in 2008, but rather than being superseded by other business needs, it has remained firmly positioned at the top of treasurers’ list of priorities.
Continuity and change
While its importance has not changed, the concept of risk management has shifted considerably over this period. In 2008-9, many treasurers found that their risk policies and models were not designed to take into account such extremes of volatility, and they therefore had to take remedial action. Since then, however, most treasurers have implemented robust risk management policies, procedures and reporting that are appropriate to a new economic era.
Consequently, risk management is now less about managing fear, and more focused on identifying ways to create competitive opportunity by reducing risk effectively. Since the global financial crisis, treasurers have found an enhanced role at the top of the organisation and many are using this mandate to extend their influence more widely across the business to anticipate and respond to business challenges. Consequently, treasurers are addressing not only traditional market risks, but also becoming more involved with commercial issues, such as credit and supply chain risk.
As a bank, we have always supported treasurers’ financial risk management objectives with risk expertise and solutions. The challenge facing us now is how to support these changing requirements and aspirations that require a greater depth of understanding of the needs and constraints of the wider business, not simply treasury. Furthermore, our role is also changing - treasurers are not only seeking our advice on the choice of solutions to address business challenges, but also asking us to share our experiences derived from working with corporations globally.
The convergence of cash and trade
An example of the expanding role of the treasurer is the growing synergy between cash management and trade finance. These were typically managed as separate functions before 2008, but treasurers are increasingly taking responsibility for both activities and combining them in a more proactive approach to optimise working capital and manage credit and supply chain risk. While these risks are critical to every organisation, different companies and industries typically have diverse approaches to managing them. For example, some use supply chain financing solutions to engage key suppliers and maintain the resilience of the supply chain, while others avoid trade finance solutions and manage their vendor relationships as part of a standard procurement process.
To address the wide variety of corporate needs in cash and trade, we have brought together our own cash management and trade finance functions at Deutsche Bank to both anticipate and respond to changing organisational structures amongst our customers. By effectively mirroring our customers’ business functions, we can provide solutions that address the full spectrum of working capital, credit and supply chain requirements through holistic, integrated solutions. In addition, we have realigned our expertise and solution design by industry segment. This structure allows us to gain a greater depth of understanding about our customers and provide advice and bespoke solutions that are specifically targeted to meet each industry’s challenges and needs.