Choosing a Counterparty Bank

by Jacqui Drew CA (SA), Senior Manager, Financial Instrument Solutions, Deloitte LLP

In the current economic environment, addressing the question for corporates of “Who do I transact with?” in respect of derivative transactions is an extremely pertinent and yet challenging one to answer. 

When preparing this article, I took the opportunity to talk to corporate treasurers, system providers, treasury consultants and, of course, auditors to further understand the dilemmas faced, as well as the decisions to be made, when considering corporates’ choice of counterparties. Interestingly, the five common themes across all these stakeholders were:

• What mandates do I have available; 
• Assessing who I want to transact with; 
• Considering the creditworthiness of the counterparty;
• How counterparties perceive my credit risk; and 
• Assessing whether I am getting a fair price. 

However, the overriding principle across all of the above points is the development and maintenance of trusted relationships with the counterparty banks through good times and bad. 

Before deciding which counterparty bank corporate treasuries would like to transact with, corporate treasuries need to fully appreciate which counterparties they have mandates with for transacting particular instruments. For example, corporates may have mandates with particular counterparties for specific types of trades or for specific geographical locations. Many corporate treasuries will only consider counterparty banks within the lending group when considering derivative transaction counterparties. 

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