20 Haziran 2016 Pazartesi

Daralma Dönemlerinde En İyi Hazine Uygulamaları

Treasury Best Practices in a Down Cycle

The resources sector is currently going through an extremely difficult period. Soft global demand has led to sharp falls in the cost of commodities – most notably in crude oil and iron ore. And the descent has not been smooth, as prices remain highly volatile. Both of these factors combine to create a taxing environment for corporate treasurers in the sector.

For treasurers operating in Asia, the downturn has presented fresh difficulties in what is already a challenging place to do business. In addition to the volatility in the commodities market, treasurers need to be on top of ever-changing regulations across multiple jurisdictions, as well as a complex regional currency environment.

Despite the bleak backdrop, it is possible to turn adversity into opportunity. A down cycle can provoke a treasury department to evaluate its systems and processes in a way that leads to the best practices being adopted. The end result is a company that is not only able to weather the current storm, but is also well-prepared to take advantage of the upswing when it comes.

Doing more with less

How best to manage these challenges was the subject of a panel discussion held by HSBC in Singapore. Hosted by Lance Kawaguchi, Managing Director, Global Sector Head – Resources and Energy Group for HSBC’s Global Liquidity and Cash Management, the session brought together a number of industry experts who shared their views on best practice and how it can be applied in Asia.

Mr. Kawaguchi set the scene by explaining how the downturn has highlighted a number of key themes. With commodity prices low, liquidity management has become of the utmost importance, as companies need to be sure that they can access every available dollar. A related concern is the efficiency of existing processes, as headcount pressures mean that treasurers are having to do more with less, making automation an attractive option. 

Another development, which has become a major focus in Asia, is working capital management, and people are exploring how best to improve important metrics such as days sales outstanding.

"Historically, liquidity and working capital efficiency, at least at the CFO level, took a back seat during the peak times," said David Andrada – HSBC’s Regional Sector Head – Resources and Energy Group, Global Liquidity and Cash Management, who explained how these themes were developing in Asia. "It has now really taken centre stage."

Access to accurate information is critical when managing liquidity or working capital, but it is often the case that treasurers in large organisations lack the necessary visibility to make an informed decision. A survey of 130 companies by Deloitte helps highlight the problems. Over half the respondents used more than one source of information to identify and quantify exposure to foreign currencies, while 36 per cent of those who took part were completely reliant on manual processes such as spreadsheets to calculate the level of exposure1. Both factors can increase the chance of human error.

"If you’re a CFO or treasurer and you’re looking at a forecast, can you really act on it?" asked Benny Koh, Managing Director, Global Treasury Advisory Services, Southeast Asia, Deloitte. "Many people say no. Why? Because they don’t trust the forecast."

Opportunities in Asia

The challenges of managing a treasury in Asia are outweighed by the significant advantages of operating a resources business in the region. Asia is still home to many of the world’s fastest growing economies, which are significant contributors to global demand for commodities. Energy resources are particularly important – as imported oil helps fuel growth in the region’s two largest economies, China and India. Looking beyond the current turbulence in the market, the region will continue to generate strong demand over the long term.

Special attention needs to be paid to China. Not least because of its seemingly boundless appetite for resources; but also because its closer integration into the global financial system presents new cash management and payment options for companies trading with or investing in the world’s second largest economy.

The flagship policy is renminbi internationalisation, a process that has quickly established the currency as a viable alternative to the US dollar when trading with China. It is already the fifth most used currency in international payments, and using it to settle trade can provide a number of financial benefits – such as transparent pricing, and natural hedging for the importer.

The resources sector has a special role to play in the ongoing development of the currency’s international use. "I definitely think that the next uptick of renminbi usage will be driven by the resources sector," said Vina Cheung, HSBC’s Global Head of Renminbi Internationalisation, Global Liquidity and Cash Management. In particular, she said that the sector typically makes large transactions, which helps expand the international use of the currency.

Away from trade settlement, a more liberal capital account in China presents treasurers with new cash management options. As it becomes easier to move renminbi out of the country, companies are able to link together their onshore and offshore pools of the currency. Combine this with an efficiently integrated payables and receivables process within China, and the result is greater financial flexibility that can have a material impact on treasury decisions.

Self-financing in renminbi can be made easier, as funding needs in China can be met with money sent onshore from the global pool. At the same time, surplus renminbi in China can be moved to offshore supporting working capital needs.

"There is already sufficient depth in offshore markets to manage and invest in renminbi," said Mr Andrada, who pointed out that companies tend to keep their global pools in the financial centres where offer a wider range of banking services and investment products denominated in renminbi – namely Hong Kong, Singapore, and London.

Prepared for change

The slump in commodity prices forces a treasury department to review existing systems and policies. In addition to addressing immediate concerns relating to the current market, treasurers can take advantage of the situation to prepare for challenges yet to come.

One anticipated event that could impact treasury functions is the full implementation of the Third Basel Accord, more commonly known as Basel III. This global regulation aims to ensure that the banking system is more resilient to financial and economic stress. It will require banks to hold higher levels of capital. It also makes them consider the stability of deposits, which means that they might not be able to hold money for a client if it could be withdrawn at short-notice.

Treasurers could feel this in two ways. If banks are unable to lend as much as before, companies will have to reconsider their source of funds. Liquidity optimisation is therefore set to become even more important, as it increases the opportunities for self-financing, and thus foregoing external sources of capital.

The other impact relates to investment policies. Due to the scale of commodity companies, their deposits can be very large. This used to mean that they could receive a higher yield, but Basel III could make it difficult for a bank to take on a large amount of cash if its primary purpose is investment. More and more companies are therefore reconsidering their investment policies for non-operational cash and are thinking about using other instruments – such as asset management and money market funds.

A forward thinking treasurer in the commodities sector is able to prepare for these changes as part of a broader reassessment of practices. The end result could be that the resources sector is better prepared to tackle upcoming challenges than industries that have not been hit by a downturn. Treasurers who work with their banking partners to address future issues will flourish, while those that hesitate could be left behind.

"There is no better time to think and be creative," said Mr. Andrada. "In the current down cycle, doing nothing is not a strategy."

1 Deloitte 2016 Global FX Survey, P7. http://www2.deloitte.com/content/dam/Deloitte/uk/Documents/risk/deloitte-uk-global-foreign-survey-16.pdf

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