Opportunities in Uncertainty: Top Treasury Priorities for 2019

Ron Chakravarti

Ron Chakravarti,
Global Head,
Treasury Advisory and Market Management,
Treasury and Trade Solutions, Citi

Kelvin Ang

Kelvin Ang,
Americas Head,
Treasury Advisory,
Treasury and Trade Solutions, Citi

Duncan Cole

Duncan Cole,
EMEA Head,
Treasury Advisory,
Treasury and Trade Solutions, Citi

Andrea Vanara

Andrea Vanara,
Asia Pacific Head,
Treasury Advisory,
Treasury and Trade Solutions, Citi

There is a sense of uncertainty over the global economic prospects as 2019 unfolds. The world economy has slowed and the probability for recession is increasing. While the U.S. domestic demand remains strong despite uncertain global conditions, currency volatility remains quite calm across both developed and emerging markets.


The Economic Policy Uncertainty (EPU) Index has reached its highest level ever, driven mainly by a volatile geopolitical, regulatory, trade, and legislative environment. With the growing economic risks, treasury organizations should evaluate their priorities, identify opportunities and develop plans for what lies ahead this year. There should be a sharper focus on the implications of geopolitical risk, the ongoing business model evolution, the move towards digital treasury and changes in financial services, the challenges of forecasting errors, and the continuous need to combat cyber threats.

Deal with Geopolitical Risk

There are no hedging strategies available when it comes to geopolitical risk. However, there is much that treasury can do to plan in anticipation of various scenarios, and execute accordingly. The crux to dealing with geopolitical risk is to plan early and understand the potential impact to treasury, its liquidity structure, intercompany loans, bank relationships, accounts and services. Three broad areas of geopolitical risk on the horizon are as follows:

Embrace Business Model Evolution

New business models are emerging, driven primarily by the globalization of supply chains, changes to major trade agreements, growth in computing power, storage and capacity, and the advent of newer digital technologies. Treasury should consider how they can adapt to the change(s) and how this will position themselves to compete with other treasuries.

Another aspect of business model change is merger and acquisitions activity, which typically causes reorganization of the business. It is important to carefully assess the impact on cash flows, organizational structure, legal entity structure, global supply chain, treasury systems, and technology infrastructure. The proliferation of digital native businesses, in recent years with their nimble business model and technology roots crossing traditional industry boundary, is also changing the business landscape.

Treasury efficiency can become a key differentiator in efforts to contribute to business competitiveness. To achieve this efficiency, resource and talent planning should take into consideration a new set of skills to ensure treasury is nimble enough to change at the right pace to accompany new treasury requirements in an ever-changing environment.

Mobilize to Digital Treasury

Digitization and complete automation of treasury operations is fast becoming a reality with leading treasurers focusing on three broad themes to chart their digitization path.

Treasury efficiency can become a key differentiator in efforts to contribute to business competitiveness.

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The path towards digital treasury can run alongside the traditional need to completely centralize cash and risk, which remains a long-term goal for many, and to achieve the high visibility required over the deployment of balance sheet resources and control over inflows and outflows at a time of heightened cyber threat.

Solve for Forecasting Error

The demand for cash forecast accuracy has a strong correlation with the potential cost of inaccuracy. Forecasting error across many industries is a primary source of earnings volatility and to a certain extent, balance sheet deficiency. Accurate forecasting remains a challenge and without new leading-edge technologies, companies today simply resort to reducing their hedge tenor and ratio. Although this may yield positive results under specific market conditions over time, it is not effective.

Even though sophisticated forecasting models are being deployed these days, many corporates are still making intuitive guesses on inputs such as the forecasting error standard deviation. While it is conceivable that a futuristic real-time digital treasury may mitigate some of these concerns, there are two techniques that will truly free up treasury staff to focus on other priorities and mitigate ineffective hedging practices.

  1. Adopt machine-learning techniques that dynamically or automatically feed real-time and validated inputs, such as a forecast error variance measurement into a company’s risk management model embedded within its TMS
  2. Utilize the data received to feed an automated rules-based hedging program based on company-specific risk thresholds and cost sensitivities.

Full automation can be achieved by combining both, provided counterparty risk policies are digitally mapped alongside pre-agreed margins.

Prepare for Cyber Threats

Cyber threats to business is escalating and associated damages are estimated to be in the hundreds of billions of dollars. Other than fraud loss, the impact is usually multi-fold including business disruption, reputational impact and loss of data. Highly sophisticated attacks are now commonplace and the assumption is that any organization will be breached at some point. Other than the wide availability of hack tools and software these days, the proliferation of smart devices and their connection to the internet exposes further weakness points to cyber criminals.

In response to this threat climate, regulations are forcing organizations to carefully assess security protocols or face heavy fines in the case of a breach. Treasury can manage cybersecurity risk through a combination of developing a strategic and robust contingency plan, making a sound security protocol investment and adopting a four-pronged approach.

There is much uncertainty on the horizon. Companies where the treasury team is effectively managing and mitigating the financial risks, collaboratively working as a true business partner and actively looking for opportunities to support the business, will be best prepared to weather any storm. This is the real value of treasury.