PwC - The economic crises is Treasurer's biggest opportunity

Funding, commodity price volatility and financial counterparty risk were significantly impacted by the global economic crises and provided significant challenges for treasury teams

The PwC Global Treasury Survey 2010: Can the crisis make treasury stronger, reveals that nearly 80% of treasurers believe that their key role in managing the impact of the crises has earned them greater attention in the boardroom with more than 60% viewing it as reinforcing their reputation for adding value to the business.

The Global Treasury Survey, which sought the views of nearly 600 international corporate treasurers in business, examines how the profession has responded to the crisis, assesses its latest standing and looks at how treasury teams can turn the experience to their advantage.

Ina de Vry, Financial Risk Services director PwC says, “The survey confirms that the best practice developed in the years prior to the crises would have provided a sound foundation for dealing with its impact in areas ranging from liquidity and counterparty risk management to the volatility in commodity prices and foreign exchange rates.”

However, despite the success in managing these challenges, there remains a major concern that lessons of the crisis have not been learned, as more than 80% of those surveyed reported that treasury department budgets have not increased.

Treasurers that applied best practice ­in terms of financial risk management and long-term financing were better able to ride out the storm. This best practice includes:

Ø Liquidity: Treasuries should diversify sources of funding, spread the maturity of long-term debt, institute effective cash flow forecasting and strengthen cash as well as working capital management to make best use of the liquidity.

Ø Bank relationships: This must be mutually beneficial to ensure commitment. Bank relationships demand a balanced scorecard measurement of the value so both parties know where they stand.

Ø Counterparty risk: This is not just about bank failure, but also includes the possibility that payments will be frozen or credit access will dry up. Counterparty risk demands real-time warnings of problems such as Credit Default Swap spread.

Ø Commodities and currency risks: Standardised hedging techniques do not work in irrational or illiquid markets. Treasuries need to work with the business to understand the dynamics that produce the exposures and combine this with a real in-depth knowledge of the markets to achieve the optimal hedging strategy.

Francois Prinsloo, Financial Services Director at PwC noted that:” The survey clearly illustrated a renewed recognition by treasurers of the importance of solid bank relationships. The financial crisis has focussed the minds of treasurers (and banks) in terms of how bank relationships are viewed and managed – specifically in difficult times. The survey further shows that treasurers now would prefer a long-term relationship with their banks, but note that their banks may prefer a transactional focus. It is important to balance these two strategies and to ensure that the relationships are not only beneficial for all parties, but also sufficiently robust in the long term.”

The survey further emphasises that the renewed recognition of the value contributed by treasury teams would appear to be fairly universal. Treasuries should take advantage of this window of opportunity and state the case for adequate technology and manpower at a time when budgetary restraints are beginning to decrease. As they emerge sufficiently equipped, treasuries will then be properly placed to implement best practice before the next crisis looms.”