The Year of the Rat is traditionally associated with new beginnings – but for treasurers, 2020 is also likely to see the continuation of existing challenges, from an uncertain trade environment to funding constraints for suppliers. But despite these issues, there’s also considerable potential for new technologies such as AI and blockchain to drive greater automation and efficiency.
Saturday January 25th marks the Chinese New Year, which in 2020 brings the Year of the Rat. The rat was last seen in 2008 – a year still imprinted on many treasurers’ memories as marking the height of the global financial crisis. But as the first of the 12-year cycle of animal signs, the rat is traditionally associated with new beginnings, as well as with diligence and positivity.
That said, for corporate treasurers, 2020 is likely to include the continuation of a number of challenges. Risks arising from geopolitical events continue to be a major consideration for treasurers, not least because of the continuing trade war between the US and China. At the same time, treasurers in APAC will be confronted with numerous other issues, including regulatory change and the impact of funding constraints on suppliers.
But the year ahead will also bring plenty of opportunities for treasurers willing to embrace them. Technology has the potential to bring real benefits in the form of automation, efficiency and the ability to make better-informed decisions. By harnessing these developments effectively – and by partnering more closely with the business – treasurers will be better placed not only to overcome the challenges that 2020 will bring, but also thrive in this evolving landscape.
Given the turbulence that has shaped global markets in recent months, in the year ahead treasurers will certainly be looking for opportunities to drive improvements wherever they can be found. But it’s unlikely that the recent challenges will subside anytime soon. Christopher Emslie, Asia Regional Treasurer at General Mills, says that 2019 was a “year of uncertainty” – and he expects this to continue into 2020.
“With that uncertainty comes a lot of risk,” he says. “For us, the first goal is to try our best to mitigate those risks and make sure we’re in control of everything that’s happening. That means making sure we have the controls in place that will help us navigate difficult times – whether that’s social unrest in Hong Kong, Brexit or the trade war in China.” Emslie adds that as well as impacting companies’ ability to do business, geopolitical challenges also have implications for foreign exchange and currency volatility.
“The geopolitical situation in 2019 will likely continue to impact in 2020 and be loosely monitored by treasurers – including the global effect of US elections in 2H20,” says Mark Evans, Managing Director, Transaction Banking at ANZ Institutional. “Treasurers will also keep a close eye on the impact of the changing interest rate environment.”
Against this backdrop, Evans says that “for borderless businesses, treasurers will be focused on ensuring their credit profiles are appropriate for the dynamic economic conditions.” He also notes that businesses will be keenly interested in being prepared for changing benchmark rates and a possible negative interest rate environment.
Regulation and beyond
In addition to the implications of political and economic uncertainty for trade, regulatory change is another area that has brought numerous challenges for treasurers in recent years – and in 2020, treasurers will be keeping a close eye on regulatory developments and government initiatives.
“Although automation is helping stay ahead of the changing local regulatory and compliance landscape, local knowledge will be critical in ensuring businesses stay compliant with key regulatory and legal changes,” says Evans. “This will be an important point of consideration in the decision-making process as businesses explore new markets and tackle the growing costs associated with regulation and compliance.”
Faisal Ameen, head of Asia Pacific Global Transaction Services at Bank of America, says that treasurers “should continue to monitor and assess the impact of regulatory changes such as the import/export rules, currency restrictions and data onshore rules on their day-to-day operations.”
He adds, “On a positive note, government-led initiatives on distributed ledger technology, trade digitisation and real-time processing are gaining momentum in Asia Pacific and treasurers should continue to work with their banking partners to reap the benefits and improve operating efficiencies.”
Other topics of interest will include:
Funding. Kjel Christiansen, Managing Director, Americas and APAC at technology company Taulia, notes that “other more subtle trends are coming out which will have a direct impact on treasury.” For example, he points out that the cost of funds is steadily rising, while “Australian banks are tightening on lending.”
FX risk. Ameen says that as prevailing market conditions continue to stay volatile, “it is important for treasurers to reassess their FX risk management strategy continuously based on their existing risk appetite to manage their exposures.”
The rise of ESG concerns. As ANZ’s Evans explains, another notable trend is that businesses are increasingly embedding environmental, social and governance (ESG) principles for sustainable finance models. “I see this as another key trend as we experience greater awareness within the industry,” he says.
Bank of America’s Ameen likewise highlights the growing focus on ESG, which he says is “gradually becoming a business imperative, with treasurers now tasked to embed sustainable practices in their treasury processes.” He adds: “We expect this trend to turn into a priority with the rise of the millennials.”
Keeping track of cash. Challenging conditions are likely to keep treasurers’ attention squarely focused on the importance of razor-sharp cash management. “Prolonged economic certainty will keep cash at top of mind for Asian treasurers,” says Christiansen. “How we see that manifesting will be a renewed focus on liquidity and access to cash.”
Addressing supplier health. According to Christiansen, cash shortages will be most pronounced in the SME area, “where SMEs are still experiencing lending challenges from banks due to the lack of collateral to secure lending and a general lack of venture and growth capital. This then becomes a risk for larger businesses in the region and indeed the globe, as supplier risk increases.” He notes that treasurers can address this issue by implementing early payment solutions that will provide suppliers “with a confident source of liquidity.”