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Working Capital and Liquidity Management: Safety First

by Transaction Banking, Standard Chartered Bank

Losses in the US sub-prime market have had a global impact on corporate liquidity, which has driven corporate treasuries to take measures ranging from squeezing internal liquidity to tighter risk management of banking relationships.These and other initiatives were discussed during the ongoing series of thought leadership forums organised for senior Asian corporate treasury personnel by Standard Chartered Bank’s Transaction Banking team.

The sub-prime debt crisis has obviously had a profound effect on economic activity, which in turn has fundamentally affected the way in which corporations are managing their working capital and liquidity. In many cases, existing approaches to risk, investment (in terms of both cash and new ventures) and funding have had to change radically to cope with a new and very uncertain world.

Bank liquidity

One of the most noticeable environmental changes for treasurers over the past eighteen months has been the drastic reduction and repricing of bank liquidity. One consequence of the government bailouts of certain global banks has been the pressure on those banks to concentrate their lending in their domestic markets. In addition to this liquidity drain, there has been the more general reduction in confidence among banks, which has seen many of them radically tighten their lending criteria. Sabre-rattling by some governments over increasing capital requirements has only added to this caution.

One potentially bright spot amid the current liquidity gloom is the role of local banks.