Head of North America Balance Sheet Strategy and Advisory Support, BNP Paribas
From technology to ESG, the corporate treasury landscape in the Americas has a dynamism that requires all stakeholders to pay attention. Triné Alimena, Director, Head of Balance Sheet Strategy, Commercialisation & Execution, Corporate Treasury, Liquidity & Investment Advisory, BNP Paribas, and Fernanda Sacramento, Senior Cash Management Sales, BNP Paribas Brazil, examine the path of progress.
Shifting market forces, constant regulatory additions and updates, globalisation versus de-globalisation, the focus on post-Covid-19 efficiencies: the list of pressures on businesses – and individuals – seems to endlessly morph from one month to the next. It’s exhausting, but maintaining awareness and continuing to respond is essential for survival.
This is why, for example, many companies have compressed their digital transformations from years into months, boosting investments in what were once ‘nice-to-have’ technology solutions, and propelling them into the heart of every organisation as ‘must-haves’, notes Sacramento. “They had to think very quickly how to respond to Covid-19. Now they face almost constant change.”
The same applies with globalisation. Since the current run of crises, the response has evolved dramatically. The risks imposed by, for instance, Covid-19 lockdowns and sanctions following Russia’s invasion of Ukraine, have heavily impacted global supply chain management approaches.
The shift from a single-country/single-supplier system to a multi-supplier regional or even global model is much in evidence among clients, says Sacramento. “Across the sectors, businesses have to diversify. They have to rethink, re-source and rebuild new supply-chains in each country and region. They are removing concentration risk, and the efficiency of their new models depends on the precise use of technology.” Indeed, she argues, digitalisation is “a key investment that cannot be postponed”.
Corporate challenges are mirrored by those of the banks. It’s been a shared experience since as far back as the 2008 financial crisis, says Alimena. “In many ways, this has brought us closer. We’ve vastly improved our dialogue with clients, putting more focus on needs-fulfilment on both sides.”
Indeed, the days of pitching products to corporates “in a vacuum” are on the wane, she continues. “The smartest banks and the most adept clients are focused on truly supporting each other through their collective goals. Discussions are centred on what needs a bank can fulfil for its customers, and in return, the value that providing those services delivers to the bank.”
Banks are striving to evolve alongside, and in support of, their clients, Alimena feels. She sees it as a truly symbiotic relationship now. “The more we invest in and focus on ways to help the client extract the most from within themselves, the more it fuels their growth. That, in turn, helps the bank’s balance sheet.”
Advantage treasury
There is an unintended benefit from the current run of crises. Treasury teams and their banks have been forced to undergo a major maturing of processes across many facets. Central to this maturation is the rapid increasing of their respective efficiency and agility. “Organisations have discovered how to either adapt to change or significantly reduce their vulnerability to shifts in the market,” explains Alimena. This has seen many renew their focus on optimising working capital and reducing their reliance on external funding sources.
In the wake of the 2008 financial crisis, for example, a raft of new federal regulations was introduced, recalls Alimena. These impacted the banks in particular and affected everything from liquidity risk to bank account and relationship management. For some businesses it made access to external funding more difficult, and for most it became more expensive.
Cutting-edge AI is currently solving some back-office challenges in the banking industry, automating certain processes and reducing the risks inherent in manual activities
“Building cash through operations, extracting liquidity that was trapped in the cash conversion cycle, became the only way to create free cash flow for an organisation,” she explains. “So the hardest work was forced upon companies at a time when technology was still evolving; they had to find new ways to generate cash within themselves.”
As banking and treasury technology evolved, so the treasury function’s view of cash improved. Post-crisis, this helped it to assist more in activities such as M&A and other capital investments, driving the role’s increasing strategic importance. With technology helping to extract cash, there becomes less of a reliance on external funding sources. During the pandemic, and in the current rising interest rate environment, the preparatory work helping to reduce reliance on external funding and mitigate negative market forces has, in many cases, already been done.
Seeing gold stars
The success of treasurers in managing the changes under intense pressure has seen several enhance their cash forecasting. This offers rewards on a number of levels. For Alimena, companies that have driven the strongest improvements are seen by the bank as “gold-star relationships”. Their successful cash flow and balance sheet management is at the centre of how banks operate too because it ensures their core stability, being central to how they meet regulatory and, ultimately, profitability targets.
‘Gold star’ forecasting is therefore not only an opportunity for the corporate to make better cash deployment decisions but is also a means of increasing the strength and depth of its bank relationships. As Alimena explains: “Companies that are better positioned to provide a precise and forward-looking view on their cash positions have a way of evidencing their stability and providing comfort to their banking partners”.
The relationship-building potential derived from the transparency inherent within technology-driven cash forecasting makes that investment essential for treasury. Banks take this view too. Sacramento cites research from FEBRABAN[1] (the Brazilian Federation of Banks) which notes Brazilian banks’ expenses in new technologies reached R$24.6bn in 2019 — a 24% growth over the previous year, with an increase of 48% in investments. The speed with which new and additional challenges are emerging means speed is of the essence, she warns.
Manual spreadsheet-based forecasting or reconciliations is time consuming and an unnecessary risk. “It puts you behind your competitors,” states Sacramento. “And if your buyers and suppliers know they are receiving a better experience from your competitor which has invested in automation, you are already on the back foot.” Of course, banks face a similar challenge. But for the forward-thinking larger bank, it is an opportunity to collaborate with an appropriate fintech.
BNP Paribas has a long-term commitment to collaboration with partners all over the world, including in Brazil. For Sacramento, the mix of bank credibility with fintech agility is aimed at “accelerating innovation and delivering timely solutions to support client efficiency and competitiveness”.
Society matters
While the delivery of the right technology at the right time is likely to be advantageous to most companies, one of the key challenges being faced by every business is that of sustainability. The approach taken is often formalised by the setting and meeting of ESG goals.
The European market is often cited as being more advanced in its ESG delivery than other regions, but the rest of the world is making great strides to catch up. The volume of conversation around ESG should mean that it has entered the consciousness of corporate treasurers almost everywhere. However, Alimena notes a more nuanced approach in the Americas, with two major differentiators having emerged.
The first is how ESG principles are woven into the practical management of the organisation. This covers aspects such as its carbon footprint, and the way the labour force is treated internally and across its supply chain. The second is how ESG is built into financial, especially investment, policy.
There is clear emphasis on tackling not only the E but also the S & G principles across the full spectrum of industries and clients in the Americas. The most focused are the publicly traded companies, for obvious reasons, says Alimena. “But we know anecdotally that many start-ups are incorporating this at the outset. They are building companies rooted in being as impactful and as responsible as they can from a societal impact perspective.”
With many of the region’s large companies in catch-up mode, but nonetheless “extremely focused on it”, Alimena turns to the investment policy side of the story as a rich ground of opportunity. She believes the most significant shift towards ESG-focused investment policies is by major publicly held organisations. “Those with excess cash are adopting ESG as an investment differentiator, which works in two ways. It acts as a differentiating investment vehicle for their portfolio, but it also differentiates by impact, enabling good to emerge through their investments as well as their other activities.”
For companies looking to engage with ESG, the predominant Americas option is to use ESG-focused MMFs, says Alimena. While she feels the intensity of marketing around a fund’s engagement with ESG varies, the reality is that each and every fund has substantially improved on this aspect over the past few years. And with the adoption too of sustainable deposit products, companies have another convenient means of diversification.
It is in part incumbent upon banks such as BNP Paribas to inform and educate clients as to how changing ESG needs are being met by financial services players, says Sacramento. BNP Paribas places ESG as central to its strategic approach, offering an expanding range of sustainable solutions. But, she says, “we understand that we need to go beyond the standard offering to really make a positive impact”.
This sees it constantly exploring ways to differentiate itself from current market norms. “In Brazil, for example, we recently launched a solution that focuses on the social aspect because the market as a whole has a significant tendency to focus on the environmental,” she explains.
The effort does not detract from BNP Paribas’ existing strong focus on the environmental element, but rather complements it. The programme donates a proportion of cash management fees paid by clients to a globally recognised NGO that is dedicated to tackling hunger and malnutrition. Clearly this is not a balance-sheet or finance-related solution but, as Sacramento explains, “sometimes a solution can just be driven by philanthropy”.
Pushing boundaries
Brazil is undergoing some major changes at the moment, and not just politically. In the payments space there’s a significant amount happening, with innovation being a huge driver in the country’s banking industry over the past few years. “The central bank is playing a very important role by supporting new technologies and calling on all stakeholders, including fintechs, to collaborate and launch new solutions every year,” notes Sacramento.
Market engagement gave rise in 2020 to the roll-out of the country’s instant payments mechanism. This provided the bedrock for intense activity around further digitalisation, even heralding the emergence of several new digital banks.
It does not stop there, she adds. “Open finance is being rolled out; it’s a massively important change in the market, giving banks and FIs a more secure way of enabling customers to share their financial data with financial apps and other third parties. Banking-as-a-service is top of mind of all the banks and many corporates too.”
In Brazil, the adoption of cutting-edge AI is currently solving some back-office challenges in the banking industry, automating certain processes and reducing the risks inherent in manual activities. Brazilian banks are also using blockchain as part of their asset tokenisation programmes, as well as for international transactions.
“Our increasing push for digitalisation is creating opportunities for our clients to innovate while improving their customer experience and reducing risk,” says Sacramento. But while she sees the direction of travel towards digital as forward only, she stresses the importance of maintaining human interaction “to really understand what the client needs”. Indeed, she continues: “the personal experience at the end is valued by our clients, it’s what differentiates us.”
Technological progress to date in Brazil is supported by the central bank. It has shifted its stance in recent years from reactive to proactive, notes Sacramento. “It is bringing innovation to market and opening up and facilitating discussion among all the key stakeholders to explore how new technologies can be implemented safely.”
The central bank’s innovating agenda, which brought instant payments, also heralded intense market competition among existing banks and their new digital counterparts. This gives customers many more options where the best experience for them wins, whether that is through no-touch digital or deeper relationships.
It’s fair to say that with central bank support, the industry in Brazil is now continuously promoting innovation. Conversations around the payments space have been joined by diverse topics such as credit accessibility and banking documentation requirements as change gathers pace. Indeed, Sacramento believes the arrival of open finance will “completely transform the way banks operate” in the next few years.
Keep talking
There is no doubt that progress in the Americas is firmly on the agenda. There’s much that can still be done, comments Alimena, but it is noteworthy that dialogue between companies and their banks is now fully open. Indeed, today there is a good reason why bankers now call themselves relationship managers, and salespeople are increasingly referred to as advisers. “It’s because our conversations are now focused not only on what we need as a bank but also what we can do to solve the challenges and opportunities of our customers, and exploring how these two objectives can be jointly met.” And while Alimena acknowledges that technology has a vital role to play in this, she is unwavering in her belief that it is only ever the enabler. “The real key is having that closer dialogue so that everybody can grow together.”
Sacramento’s view that technology “is now a must-have, not a nice-to-have” underpins her belief that corporates need to begin addressing technology in a different way. “It’s not an expense,” she states, “it is an investment”. The same, she adds, might be said about the push to incorporate ESG into treasury and finance. And as with technology, this too, she feels, requires closer co-operation.
“In every industry, we need to think out of the box to create, deliver, and adopt solutions. As a bank, we want to provide the best ways to address ESG topics, but we want to hear from corporates about what they need so we can begin co-creating.”
Ultimately, the depth of conversation now possible between bank and client is proof of how relationships have finally made it to the foreground, concludes Sacramento. “We need to look behind the machine and we need to see there are people there who understand the clients’ needs, and know how to address them in the best and most efficient way.”
