Treasury Strategy & Transformation
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Supporting a New Decade of Treasury

by Michael Spiegel, Head of Trade Finance and Cash Management Corporates, Global Transaction Banking, Deutsche Bank

When many treasury departments were first established, often in the 1970s and 1980s, they were typically tasked to manage the liquidity requirements and financial risk of the business, particularly as companies expanded their geographic footprint. Twenty or thirty years later, while liquidity and risk remain the lynchpin of the treasury department’s activities, the effects of the 2008 financial crisis mean that treasurers must now conduct a broader spectrum of activities. Treasury management has evolved as a result of certain drivers, facilitators and consequences of treasurers’ expanded role, and how banks are positioned to support them.

An expanded view of liquidity and risk

Since the liquidity crisis – and indeed, this is the best description for the global financial crisis as many companies found their access to liquidity severely constrained – treasurers have had increasingly to concentrate on liquidity beyond cash management. In particular they rapidly saw the need to maximise access to liquidity, and to understand and influence the inflows and outflows of funds in order to reduce working capital requirements. Furthermore, with access to bank credit lines often constrained and with capital markets contracting, treasurers started to look at alternative sources of financing, especially with regard to trade and structured finance.

Treasurers have also expanded their horizons from a risk management perspective. While they traditionally focused on interest rate, currency, counterparty and, in some cases, commodity risk, this has now expanded to an enterprise-wide risk framework, including credit, insurance, concentration and liquidity risks as part of treasurers’ overall objective to enhance financial stability and sustainability.

A sustainable supply chain

The emphasis on sustainability is crucial. Treasurers recognise that squeezing suppliers, for example, is an unsustainable way of enhancing liquidity. Instead, there is a greater emphasis on partnerships and ensuring the integrity and stability of the financial supply chain, from clients through to suppliers. While this is an issue that has been discussed for some time, we are now seeing concepts being translated into action, with proactive initiatives to work more closely and effectively with supply chain players. Strengthening the financial supply chain is critical both to creating an efficient working capital cycle, and also to leverage financial assets as collateral for alternative forms of financing.