How to build your treasury team for the 21st century

By James Higgins

18 June 2018

The role of the corporate treasurer has evolved over the past decade. Treasurers have had to become risk managers, corporate strategy advisors, compliance officers, data scientists, regulator managers and liquidity risk  managers – all, in addition to the traditional skillsets their roles required.

The problem with this is that some of the more traditional skills of the corporate treasurer have taken a back seat, perhaps none more so than the ability to manage a rising interest rate environment.

Dealing with interest and risk within the digital treasury

Dealing with interest is always a risky business. And it’s something that many millennials now working as treasury professionals have never had to work within the manner it was required pre-2007.

Cheaper, more traditional capital market and funding tasks have been diminished given the prevalence of inexpensive overnight financing.

The bad news for treasurers the world over, is that we are now almost certainly facing a period of mounting global interest rates. And that interest rate rise brings additional problems with it. Difficulties arise because many treasury professionals have never been fully equipped to deal with these challenges, never mind the new responsibilities added in since 2009.

As global interest rates rise, the level of risk grows at an exponential rate. This is caused by the spread which banks apply over and above the central bank base rate to give their standard bank charge rate.  History shows us that the spread is usually around 1% when the base rate is below 1% but as the base rate rises to 3%, it’s likely to be more like 1.5% spread above base rate.  And by the time the base rate is 5%, the spread can easily be more than 2%.

What does this mean for my treasury team?

Well, first and foremost, financing becomes more expensive. But it’s a balancing act. The cost of lost opportunities for investing the maximum available balance becomes even more important.

Therefore, it becomes incredibly important for treasurers to get more cash invested without overdrawing accounts. The treasury professional’s need to make timely decisions with regards to offsetting balances and the centralisation of operations becomes more and more critical.

It used to be that treasury professionals just “had a nose” for this kind of task, but that’s not sufficient anymore. The board, along with the regulator, will want to see evidence-based investment strategies.

With a rising tide of challenges on the horizon, it’s time to change the approach. And the answer lies in automation and analytics.

The rising interest rate environment will create both risk and opportunity, so optimal treasury teams will need to be focused on value-added activities, meaning everything outside of this could and should be automated. Automation adoption should focus on three key area to enable this to happen: risk management, data analysis and concentration of funds.

Risk management: The crisis shifted the focus from return on equity to liquidity.  Automation tools exist now to automate your liquidity reporting based on pre-defined rules, exposures and limits.  Reporting exceptions, now the treasurer is only called into action when an issue arises, leaving them more time to focus on returns in the market.

Data analysis: The crisis and low-interest rates meant that treasurers stopped chasing their ops teams as fiercely for early positions as there was no real incentive to deal in the market early in the day. As rates return, you don’t want analysts spending hours every morning gathering data on last nights closing balance, and generating a figure which is already out of date by the time it’s produced. What you want, is a definitive centralised cash position when you arrive at your desk in the morning.

Concentration of funds: Automated cash and liquidity analytics tools will help treasury teams quickly and easily identify pockets of uninvested cash sat around the banking estate. With analytics highlighting dormant cash, treasurers area able highlight requirements for additional banking products and services such as notional pooling and cross-currency pooling and negotiate on bank charges.

There is little doubt that automation has the potential to unlock treasury resource and that this will only become more prominent as rates rise.

To find out more about automating cash and liquidity analytics, click here.

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