Role of SA’s corporate treasurers is evolving and becoming crucial to the bottom line
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2012
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The role of corporate treasurer is becoming increasingly crucial as companies recognise the need to maximise returns on their cash piles. Furthermore, due to increased interest rate pressures, regulatory pressures and industry competition, treasurers are finding themselves operating in a much more complex environment.
These were the issues explored at the Nedgroup Investments Treasurers Conference held in Johannesburg today. Sean Segar, Head of Product, Cash Solutions at Nedgroup Investments says the treasury environment is altering due to a number of regulatory changes imposed on the financial sector. He says, these changes have, and will continue to have, knock-on effects for corporate treasurers in terms of their investment strategies and objectives.
Segar explains that because of regulatory tightening, banks are finding themselves under increased funding pressure due to new capital and liquidity requirements. He says despite the fact that Basel III implementation is still potentially a number of years away and is creating additional uncertainty, banks are already positioning their balance sheets for these increased liquidity and capital requirements even if they are not finalised.
“Banks are becoming more conservative as they prepare for the stringent capital requirements imposed by Basel III. This will have a significant impact on corporate treasurers given that banks funding term structures and funding mix are likely to change,” he explains.
Another factor for consideration, according to Nigel McKenzie, Financial Analyst at Nedbank Securities is the level of non-bank competition also looking to capture corporate deposits on their balance sheets. “As a result of the new and proposed legislation, the lines between bank and non-bank entities are blurring. In order to win the business, a non-bank entity such as a life insurance company may pay slightly higher interest rates, which is forcing banks to reconsider their pricing structures, as well as the mix of income from household and retail markets.”
According to Segar, the current low interest rate environment is placing additional pressure on treasurers to achieve decent returns on their cash piles. Interest rates are already at a 38 year low and there are increasing calls for lower interest rates in order to jump start the economy. This will put increasing pressure on real returns.
“The changing rate and more complex environment means that, corporate treasurers are having to manage their cash piles more sensibly and explore new investment strategies.”
Segar says as a result, treasurers are getting much better at managing and forecasting their cash positions. “The higher returns required by treasurers means that they are looking to invest in longer dated instruments. In order to do this they need to have better and more accurate cash forecasting.”
He says the banks have also developed better products that allow treasures to do so and he urges treasurers to take advantage of this.
“A small amount of planning and cash forecasting will, in most instances, allow cash investors to place their cash in a 24 hour notice account. This minor change could result in a meaningful lift in their returns. Furthermore, treasurers that are able to forecast further into the future are able to place funds on longer terms at even better yields,” concludes Segar.
Source: Epic Communications (Pty) Ltd
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