The coronavirus has created significant issues for the treasury operations of global companies. Top-of-mind concerns include managing liquidity, mitigating FX market risk and facilitating cross-currency payments.
In this uncertain environment, companies that are nimble and adaptive are rising to the challenge, finding new ways to navigate the crisis and embracing innovative electronic solutions.
A key concern across many companies has been ensuring they have enough global liquidity to manage day-to-day business such as purchasing or payroll. Intracompany cash flows have slowed across the board, but it’s been especially evident in manufacturing, while sectors like health care and medical equipment have seen activity increase. Not surprisingly, risk is being closely managed.
Managing rates, FX positions and hedges in a volatile environment has been challenging, with interest rates dropping as central banks reduce rates and increase stimulus. At times, FX volatility has been high and liquidity low, leading to wider than normal bid/ask spreads. While transactional FX volumes initially spiked, activity has been more muted recently as companies delay payments or reduce international activity. Again, companies are focused on risk management strategies, as well as adjusting existing hedge ratios based on revised forecasts.
Conditions continue to evolve. In February, we found that companies were pushing through only essential transactions, but by March, they were quickly deploying companywide business continuity measures to promote operational effectiveness.
There was a focus on tactical strategies that could deliver greater efficiency in a remote working environment, plus larger movement of funds due to PPE purchases. Companies were also looking to optimize their cash positions, with many considering cost-cutting measures.
April saw attention turn to mission-critical projects to focus treasury operations on liquidity and balance sheet strength, while nonessential projects were put on hold. Now, as the global economy slowly starts to open up, priorities have shifted.
Adapting to the crisis has forced sudden changes in how day-to-day FX business is conducted. Companies have moved toward electronic execution and STP settlement as people adjust to working from home, with e-banking and digital documentation becoming especially important. However, where processing paper documents is still the norm, it’s been necessary to quickly devise solutions. For example, certain restricted markets like APAC, which have currency controls in place, require original paperwork to document FX transfers.
Working with regulators, it's possible to implement a paperless solution with electronic submissions, allowing us to review documents online and process transfers for clients. It’s an approach that’s been available for a few years, but the coronavirus has accelerated demand. This dynamic is reflected across treasury operations — the crisis is acting as a catalyst for what will likely be a permanent shift to digitization.
