• International
    • International Trade

Risk management priorities for a post-pandemic world

  • Article

The impact of the pandemic was clear in our 2021 corporate risk management survey, where liquidity and supply chains dominated the corporate risk agenda. To meet future risks and find opportunities, the treasury must be flexible, adaptive and move strategically.

The treasury function has been evolving in the last couple of years towards a more strategic role, but more recently, the pandemic has altered the flow of that evolution. Cash became king once more in 2020, as traditional risks like liquidity and supply chain came back into focus. In our survey, 90% of CFOs said keeping sufficient cash buffers had become a more important treasury duty over the past three years and 85% said the same for optimising working capital. This reign still lasts as 45% of CFOs said questions about cashflow and liquidity were top of their CEO’s mind.

Will cash remain king?

But there are pros and cons to having a large cash buffer. Within the eurozone in particular, companies are punished for holding excess cash in a negative rates environment. Because of that, Yasemin Artar, Head of Corporate Sales in Europe at HSBC, believes this is a temporary measure.

“We have seen during the course of COVID that companies have held ample cash. This was also supported by the relatively easy access to funding, particularly via government schemes. At the same time, a lot of corporates were delaying investments due to the uncertainties created by the COVID environment, so many firms now have excess cash. But I think this is more of a temporary measure,” she said.

Now that economies are reopening, investments will be on the agenda once more and those that continue to hold on to large cash reserves will find negative rates working against them.

The growing risks on the supply chain

What may have a more long-lasting effect is how the pandemic has impacted on commodities and supply chains. Shanella Rajanayagam, Trade Economist at HSBC, says that the pandemic has significantly disrupted trade and that disruption is likely to continue in the coming months.

“In the last few years, there has been a very strong demand for consumer goods from Western economies, but also movement restrictions affecting activities at ports. This has led to congestion at major ports around the world, there's been issues around the availability of shipping containers, and also air freight capacity remains limited due to the grounding of passenger aircraft. So as a result, many businesses are facing severe supply chain disruption,” she says.

“They're grappling with input shortages, particularly around semiconductors, and also with container freight rates surging. And all of this is happening as businesses are in the midst of peak container shipping season, as retailers try to get their orders in ahead of Christmas. So given the lay of the land at the moment, it is likely that shipping disruption will persist at least until the end of this year. And we expect freight rates to only start normalizing into next year.”

Emerging market opportunities

Despite the vulnerability of supply chains and how the pandemic is playing out across geographies, 63% of CFOs say the development of emerging market economies will provide a “large boost” to their business models in coming years.

There is a longer term story here for emerging markets, because economies beyond China stand to benefit from ongoing supply chain reconfiguration.

Shanella Rajanayagam | Trade Economist, HSBC

“There is a longer term story here for emerging markets, because economies beyond China stand to benefit from ongoing supply chain reconfiguration,” says Rajanayagam. “And this was something that was already happening even prior to COVID, but could certainly be accelerated in the wake of the pandemic.

“[Additionally] the longer these US-China tariffs remain in place, the more likely it is that US businesses will look to alternative suppliers to circumvent these duties. And indeed, China has already lost some import market share in the US to other emerging Asian countries and to Mexico as well.”

Corporates do face risks in emerging markets, including tariffs and red tape, but many countries are taking steps to advance trade liberalisation and sign new trade deals, such as the Regional Comprehensive Economic Partnership deal in the Asia Pacific region, which is due to take effect next year and the African Continental Free Trade Area, which brings together about 54 African countries.

“Corporate clients are diversifying their supply chains, primarily from Asia. With high transportation and shipping costs, it doesn’t make sense for certain clients to import from Asia. Turkey, for example, is becoming an increasingly popular region for European retailers,” says Artar.

Corporate clients are diversifying their supply chains, primarily from Asia. With high transportation and shipping costs, it doesn’t make sense for certain clients to import from Asia.

Yasemin Artar | Head of Corporate Sales in Europe, HSBC

FX, interest rates and future risks

In this year’s survey, 57% of CFOs said they had incurred lower earnings due to unhedged FX risk, which was slightly lower than the 70% in the 2018 survey. But Artar says in her experience, it’s still firmly on the agenda.

“We've seen corporates extending the tenors, and they are incorporating more flexibility. The main focus has been on hedging the operating cash flow. And corporates have also been adapting the different effects of changes in their supply chain into their treasury policies,” she says.

Meanwhile, the spectre of rising inflation has also started to concern companies, albeit with some regional differences. Artar points out that inflation worries are far less in Asia than Latin America, where cost prices are passed onto the end-consumer a lot more visibly.

“[But] in general, corporates don't want to have uncertainty in their cash flows. And they are nervous about interest rate rises too, for example, with the Bank of England. There’s a potential move expected within the next year, and we see a lot of the UK corporates looking into hedging higher interest rate risks as well,” she adds.

Looking to the future

With much in flux as economies exit pandemic restrictions, the next 12 months will hold risks and opportunities for companies. For Rajanayagam, digitisation and diversification should be the focus for corporates.

Businesses would really do well to embrace the next wave of digital technologies. AI, the Internet of Things, blockchain, all of these technologies could help businesses enhance their value proposition.

Shanella Rajanayagam | Trade Economist, HSBC

“Businesses would really do well to embrace the next wave of digital technologies. AI, the Internet of Things, blockchain, all of these technologies could help businesses enhance their value proposition, better cater to the needs of their customers, and also better manage inventories and trade more easily,” she says.

“And when it comes to diversification, I think if the pandemic has taught us one thing, it's the importance of spreading risk. And that really applies to trade as well. So looking for new ways to trade your product, looking for new market opportunities, and also thinking about diversifying suppliers to the extent that that's possible.”

Artar agrees that diversification and flexibility have become more and more important, when it comes to treasury policy and when looking to adapt to new circumstances.

As companies come out of the pandemic, there are new risks and opportunities ahead, such as emerging markets and digitisation, while old risks like FX and supply chain management are changing. Risk management today requires versatility and flexibility for the strategic evolution of treasury to continue.

Rethinking Treasury: The road ahead

CFOs and treasurers are navigating through numerous challenges. Explore more from our corporate risk management survey.

Need help?


To discuss service offerings from Global Banking and Markets, kindly speak to your relationship manager.