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.
- The coronavirus has created concerns around liquidity, FX market risk and cross-currency payment
- Challenges — and solutions — have been evolving month by month.
- Adapting to the crisis has led to change in how FX business is conducted, with an acceleration of the move to electronic solutions
Liquidity is key
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 healthcare and medical equipment have seen activity increase. Not surprisingly, risk is being closely managed.
FX risk management challenges
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.
Companies face an evolving landscape
Conditions continue to evolve. In February, we found that companies were pushing through only essential transactions, but by March, they were quickly deploying company-wide 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. We’ve been able to help with solutions such as receivables, which allow clients to efficiently repatriate funds into their concentration accounts. 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, and we are providing clients with solutions and advisory to optimize cash and liquidity.
A catalyst for further electronification
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 eBanking 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, restricted markets like certain ones in APAC, which have currency controls in place, require original paperwork to document FX transfers. Working with regulators, we implemented 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.
Bank of America