Citi Corporate Treasury Survey Finds Technology Front of Mind

Citi’s latest Treasury Diagnostics survey – which benchmarks corporate treasury attitudes to their treasury, working capital and risk management practices – finds that corporate treasuries are heavily focused on adopting technology, however challenges remain over integration and advancing the programmes.

The bank notes that many corporate treasuries have established greater resilience across their operations thanks to the impact of the pandemic, and continue to automate manual processes. For some, it notes this means future proofing treasury through intelligent automation – initially based on rules and then extending to algorithmic techniques to augment human decision making. For most, however, the report shows that addressing the basic building blocks of data, processes and people to best measure and manage objectives remains the focus.

The report finds that there is broad client interest in “all things digital” in treasury and finance, including the utilisation of emerging technologies for process automation and data-led insights. It finds that 57% of respondents are looking at transformative opportunities across both their core business and treasury function, while driving efficiency within treasury and augmenting decision making are now the top two expectations for investing in emerging technologies.

The survey also finds, however, that many companies need to first focus on the treasury infrastructural fundamentals, finding low levels of automation and connectivity with bank systems, thus highlighting the inability of some companies to effectively integrate their technology ecosystem.

On this point, 64% report that their treasury management system (TMS) is either not integrated or only partially integrated with their enterprise resource planning (ERP), a likely root cause for the significant use of manual processes to support cash flow forecasting. Additionally, 79% report that they do not have a fully integrated TMS/ERP platform with their banks, again explaining the need for manual reconciliations.

On the plus side, less than half (49%) report multiple e-banking platforms at each location, which would indicate, Citi says, a shift to a better use of data provided by banking partners within company infrastructure.

“While treasury objectives remain constant and digital opportunities exist in how those objectives may be delivered, for most treasuries, fundamentals need to be addressed to lay the technology foundation and data layers for realisation of future aspirations,” says Stephen Randall, global head of liquidity management solutions at Citi.

Playbooks

Depending on factors such as treasury maturity, legacy infrastructure, appetite to automate and aspirations for the role in which treasury will play, Citi says new playbooks for treasury are emerging.

The bank has introduced in the latest report, the Citi Digital Treasury Index, which assesses companies’ digital aspirations and preparedness expressed in their Citi treasury diagnostics responses. The Index provides guidance to companies’ treasuries as to how to commence their journey to digitalisation, offering playbooks for treasury. Each playbook is dependent on current levels of treasury maturity, digital effectiveness and future digital aspiration.

“Harvesting and utilising data as a means to optimise and meet company risk management objectives is now a top priority amongst many of our clients.” 

It finds that 74% of those surveyed are not yet in a position to fully embrace the digital opportunity of which 32% need to first focus on the treasury fundamentals before they can consider automating through emerging techniques, 42% are of sufficient treasury maturity to now consider process automation and leveraging data to augment decisions; and 25% are in a position of treasury digital maturity to support business growth through data-led initiatives.

“New digital technologies and the evolution of financial services has prompted corporate treasury to rethink its future,” says Flavio Figueiredo, global head, rates and currencies corporate sales and solutions at Citi. “Harvesting and utilising data as a means to optimise and meet company risk management objectives is now a top priority amongst many of our clients.” 

Risk Management Opportunities

While the advent of new digital technologies and the evolution of financial services has prompted corporate treasury to rethink people, technology and processes deployed to manage risk, Citi observes the fundamentals of treasury best practice remain. It says the study shows that effective treasury policies, delivered through processes and procedures, managed through key performance indicators is the foundation for achieving financial risk management objectives and a best-in-class treasury function.

These include the centralisation of cash and risk remaining the mantra with 63% of companies concentrating cash at global or regional level, with 80% of companies concentrating cash on a daily basis (however, only 61% have more than 75% participation where allowable).

Corporate treasuries report either hedging emerging markets currency and G10 exposures the same, or essentially not hedging EM at all

Addiitonally, despite the availability of advanced cash forecasting technologies, only 34% utilise statistical analysis of previous patterns to predict forward and 80% remain reliant on Microsoft Excel as a component of the tech stack supporting the forecasting process. 77% of companies report more than 75% daily visibility of their cash position, yet despite the availability now for auto-matching technologies, only 41% of survey participants report greater than 75% auto reconciliation levels.

Equally, while 62% of companies reported reducing earnings volatility as a key risk management objective, the number of companies that actually directly hedge earnings translation exposures is quite low at 12%.

It also finds that companies surveyed continue to follow a rolling, static, layered, or opportunistic approach to hedging forecasted exposures, however, short-dated hedging continues to be the preferred tenor with forecasting error a cause. On this, 43% reported option-based strategies as being permissible with 43% citing exposure uncertainty as the primary reason for their use.

Finally, while 79% of respondents reported having exposures to currencies outside the G-10, two-thirds (66%) report either hedging emerging markets currency and G10 exposures the same, or essentially not hedging EM at all. Costs, market liquidity, and local regulatory considerations were cited as the primary challenges when managing EM currency risk.

“Corporates are now conducting comprehensive policy and ERP/TMS technology reviews with the main question being asked by seniors – where, when and how does currency risk emerge?” says Jaya Dutt, global head of risk management solutions at Citi.

Participating companies in the survey varied in size, with 64% ranging from $2 billion to greater than $25 billion in annual turnover and representing all sectors of the economy and all regions across the globe, Citi says.