It’s fair to say that 2016 was something of a rollercoaster ride for treasurers around the world. As such, when asked to predict what shape 2017 will take, the word that first springs to mind is uncertainty. The events of 2016 will certainly lead to an adjustment for many in the year ahead. Treasurers will be keen to understand the impact of last year’s political and other developments, while monitoring new events with renewed caution.

At the same time, however, the core priorities of corporate treasurers are the same as they have always been. A recent survey by Ovum found that treasurers’ priorities in 2017 included managing liquidity (a priority for 50% of respondents), cash visibility (27%), managing FX and credit risk (39% and 31% respectively) and data analysis to improve decision making (36%).

While the repercussions of recent and upcoming world events will loom large in the coming year, treasurers will continue to focus on the fundamental components of the job – and to ask how developments in technology can support them in increasing efficiency, reducing costs and making effective decisions.

Changing political landscape

The last year has been nothing if not surprising. On 23^rd June, the world was shocked by the UK’s decision to exit the European Union. More was to follow with Donald Trump’s election victory in November, as well as the resignation of Italian prime minister Matteo Renzi in December, following the resounding defeat of his referendum on constitutional reforms. Following this wave of political upheaval, treasurers will be watching events closely in 2017 – particularly the upcoming elections in France, Germany and the Netherlands.

Interest rates

Recent political events have the potential to impact treasurers in a number of different ways. Speaking after the US election, Daniel Jefferies, Group Treasurer of Equiniti Group, said he will be watching the rates environment closely in 2017, particularly in light of Brexit and uncertainty in other economies around the world. “About six weeks ago, before the US election, we were looking at the scenario where base rate was looking to be bumping along the bottom at a few basis points out to 2020 and beyond,” he explained. “But even in the last six weeks, we’ve seen that rate kind of flatten out, and there’s more speculation now about rates potentially going up rather than down.”

Rick Martin, Group Treasurer at GasLog, is similarly interested in the impact of political events on interest rates in the coming year. “My prediction is that President Trump is going to do a ‘Nixon to China’ on domestic policy,” he says. “Meaning? Just like it could only be an ardent anti-communist like Nixon to welcome China back to the family of nations, it will take a Republican president to push through Congress the sort of fiscal stimulus that President Obama could only dream of. And with that, US rates head up, even a bit more than they already have.”

Any such developments in interest rates would be of considerable interest to corporate treasurers. “In the US, with rising interest rates, treasurers will be looking at their cost of funds and when is the right time to tap the market for funding, from banks or through bonds,” notes Matt Tuck, Head of Global Transaction Banking at Barclays Corporate Banking. “The as yet unknown impact of Trump is also hampering clear decision making.”

In Europe, meanwhile, Tuck says that investment decisions are becoming harder to make in light of forthcoming elections in Germany, France and the Netherlands, alongside the impact of the UK’s approach to Brexit on the wider economy and trade flows. “Whilst low interest rates in Europe seem to be here for the foreseeable future, the volatility created by unknown political outcomes will be weighing on treasurers’ minds, with continued uncertainty around FX post-Brexit,” he adds.

Funding

The changing political environment may also affect companies’ funding decisions. While different companies have different priorities, Tuck says that a common theme has been to renew banking credit facilities early – in some cases very early – in order to lock in funding/backup at favourable margins and attractive structures.

“Issuing debt in the capital markets will also be at the forefront of treasurers’ minds; despite higher USD rates, long-term debt is still historically very cheap,” he says. “Treasurers are also very interested in new digital applications to improve processes and automation of cash management and trade. Part of this has been driven by some organisations employing smaller treasury staff, with treasurers (like professionals in many industries) trying to do more with less.”

Managing political risk

After the events of 2016, treasurers will be unlikely to make any assumptions about the outcome of upcoming elections and other political events. Nevertheless, predicting and mitigating political risk is a considerable challenge.

Paul Taylor, Managing Director, Regional Sales Head, GTS EMEA at Bank of America Merrill Lynch, points out that companies have different levels of exposure. “Multinationals with a broad exposure across multiple national, legal and tax jurisdictions have been reviewing their banking arrangements,” he says. “They are probably less keen on dealing with large numbers of counterparties now, because that’s more risk to manage. So they are looking at consolidating banking providers. They want very certain statements from their providers that those banks still plan to be there, and that they have a strategy in place to cover any sort of dramatic political challenge.”

2017: what’s on the agenda?

Paul Taylor, Managing Director, Regional Sales Head, GTS EMEA, Bank of America Merrill Lynch says that five key themes are emerging from conversations with corporate clients:

1. Back to business. I feel that for many corporate treasurers, the last few years have been about regulation, responding to change and addressing financial risk. A lot of people are saying that they have realised this is the new reality: the world is constantly changing, and the changes can be quite dramatic, as we’ve seen this year. But they are realising that they can’t live in obeyance of that and are focusing on new projects.
2. Staying alive. Treasurers want to make sure they are managing compliance risk, political risk, regulatory risk, technology risk and counterparty risk. For example, they have seen several of their banking counterparties exit markets, products and clients this year. As such, they want to ensure that their banks will still exist – and that they will still want to continue serving them as clients.
3. Increasing efficiency and reducing cost. In the last few years, we’ve seen a lot of treasuries centralising and adopting payment factories, shared service centres and in-house banks. We have people looking at the working capital cycle and figuring out how their companies can become more efficient. We’ve also seen more use of solutions such as e-procurement, virtual account management and supply chain finance. These are rapidly becoming core solutions, and increasingly, treasurers are proactive about using them.
4. Supporting growth. With companies getting back to business, we have seen a big pick up in the M&A cycle in 2016. We’ve had a lot of conversations in the pre- and post-M&A integration space around treasury, with companies which are looking at acquisitions asking how they can get the maximum benefit from that integration.At the same time, companies are moving into new markets and are dealing with increasingly global client bases. As such, they want a treasury set-up which is geared towards easy market entry and easy treasury integration. This is an element of the treasurer’s life which might have seemed somewhat exotic five or ten years ago, but which is now very much part of the job.
5. Predicting the future. Treasurers are deluged with buzz terms such as fintech, blockchain, bitcoin and dematerialisation. But they are concerned about investing too early because, as yet, there is no interoperability between these solutions and no industry standard. They don’t want to back Betamax in a world of VHS; and on the other hand, they don’t want to miss out completely when others may be benefitting. The challenge is to be able to predict the future, and we find many clients coming to us for our insights, for validation, and, increasingly, to adopt or pilot those solutions.

Automation, security and technology

Mark Smith, Global Head of Liquidity Management Services at Citi, says that investing in automation and security will be another priority for treasurers in 2017 – not only as a means of achieving efficiency gains, but also to increase the security of treasury operations. Last year’s high profile cyberattacks have not gone unnoticed by treasurers, and many will be putting measures in place to minimise the risk of similar attacks on their own businesses.

“Automating manual processes brings a number of different benefits,” says Smith. “These include reducing errors and achieving a consistency of approach, as well as greater security compared to manual intervention. Automation also frees up different members of the corporate treasury team to focus on other areas, such as risk management and regulatory change.”

Meanwhile, treasurers will be monitoring developments in technology and gauging which opportunities can be leveraged. “There is major awareness of disruptors such as fintech and blockchain, and appetite to learn more, but resource and funding is limited,” says Mitko Iankov, Head of Market Development – GTM Europe, Thomson Reuters. “We expect corporates to embrace big data in a much more comprehensive manner, by tagging and organising internal data, sourcing data externally to complete the picture, and by recruiting data scientists that can help take the corporate to the next stage of their digital evolution (Industrial 4.0).”

Iankov adds that despite the presence of peer to peer lending, the vast majority of corporates still look to their banks for transactional banking and capital market access. “The value of that relationship does need more transparency and the shift of power is in favour of corporates (better rated and having more choice),” he says. “Multibank platforms and transparency of capital market fees means more leverage for the corporate.”

Frictionless user experience

Enrico Camerinelli, Senior Analyst at Aite Group, says that corporate practitioners are looking for a frictionless user experience across their financial relationships, and they want to access financial services in order to increase their operational efficiency.

“Banks, although capable of understanding their corporate counterpart’s business issues, are slow in implementing the identified proposition, making delivery time, speed of business, and turnaround time a major corporate concern,” he explains. “Solutions to this issue could come from fintech applications that enable a single customer view, a single digital solution for cross-business workflow, relationship services, network integration and faster turnaround of bank onboarding.”

Camerinelli adds that treasurers are looking for total oversight of areas such as working capital management and financial supply chain management. “Ensuring supplier financial stability and multi-tier engagement, rather than just immediate first tier suppliers, calls for sourcing and working capital management strategies (including supply chain finance and accounts payable),” he says.

“I certainly sense there is more engagement at a very early stage of setting up a growing business. The treasurer, in many cases, is one of the first people sitting around the table and talking about the foundation in setting up the business, which is an exciting place for treasurers to be.”

Mark Smith, Global Head of Liquidity Management Services, Citi

“These can be best supported with an application that could provide one web services portal to aggregate information from multiple banks, non-bank financing solutions, marketplace lenders and e-document platforms. Corporate subscribers only supply their information (eg KYC) once, making it available to all authorised parties through a single platform that links various marketplaces, financiers, distributors and business partners.”

He also points out that technology can help treasurers overcome challenges in areas such as funding and investments. “Corporate treasurers are committed to increasing yield on non-utilised funds through better investments and extending credit to supply chain partners, taking an active role in advising management on the best capital allocation strategies for deploying cash (eg dividends, buy-backs, investments),” he says.

Other areas to watch

Aside from the changing political landscape and developments in technology, the following trends and topics are also likely to be significant in 2017:

• Regulatory change. In keeping with the last few years, regulatory change continues to be a major area of focus – and this is set to continue in the coming 12 months. “One key theme for 2017 is managing regulatory change – and within that, tax changes,” comments Smith.“This includes changes such as BEPS, the anti-tax avoidance directive and Brexit, as well as potential changes to the North American Free Trade Agreement (NAFTA) following the election of Donald Trump in the US. It also includes regulatory changes around capital controls, including changing capital restrictions in China.”Against this backdrop, treasurers are continuing to face a wide range of compliance challenges spanning different areas of treasury. These challenges are covered in more detail in this month’s Regulation.
• Relationships. Jefferies says that in the current low rate environment, both banks and corporates are looking to get the most out of their relationships. “Certainly that’s what we do as well. We’re trying to align ourselves to the way that the banks are operating in order to develop the deepest relationships we can in areas such as operational efficiency, rates environment and foreign exchange.”
• Role of the treasurer. According to Smith, treasurers are continuing to be more engaged in driving business decisions on topics such as how and where best to set up working capital frameworks and liquidity pools. “I certainly sense there is more engagement at a very early stage of setting up a growing business,” he says. “The treasurer, in many cases, is one of the first people sitting around the table and talking about the foundation in setting up the business, which is an exciting place for treasurers to be.”
• Regional variation. While treasurers around the world will be affected by certain trends and developments, they will also be paying attention to trends specific to key markets. For example, Jason Marsden, Head of Client Solutions – TPS International at Standard Bank outlines some of the issues that treasurers will be focusing on in Africa.“Even though growth in Africa has slowed overall, the region still continues to deliver some of the highest growth rates relative to others,” he comments. “A key challenge for treasurers will be priming their operations to take advantage of the growth which can be expected once the commodity cycles recover.”Marsden adds that there is a strong focus on payment modernisation across a number of markets in Africa, as evidenced by the introduction of local and regional real-time payments solutions. “This should also lead to a review on some of the liquidity management rules and enable the deployment of more efficient structures compared to what is currently in place.”

Conclusion

While the core priorities of treasurers continue to be on managing cash, liquidity and risk effectively, the events of 2016 mean that treasurers are likely to be entering January with a greater sense of caution about the coming year. If treasurers took just one message from last year, it would be to expect the unexpected.

As Smith concludes, “There is an element of continuation in many of these themes. A number of new risks have come up over the last year, prompting companies to make sure that day-to-day activities are as automated as possible, and that their processes, controls and governance are fully bedded down. As different focus areas come along in 2017, it will be up to treasurers to make sure they are best placed to handle these.”