A total of 296 treasurers from a broad range of geographies and sectors took part in the HSBC Risk Management Survey 2018. Participants will be able to assess how their risk management stacks up against regional or industry peers and help them define priorities on what was confirmed to be a challenging risk management agenda. To complement this view, HSBC partnered with FT Remark who conducted a parallel survey among 200 CFOs.
In the survey, treasurers flagged technology, rising risk amid growing uncertainty, and a need to constantly evolve as key risk management themes.
59 per cent of the treasurers who participated in the survey said they expect digitalisation to materially impact the way risks are managed over the next three years. Standard tasks in areas such as liquidity management and operational FX risk management are targeted for further automation. Contributing factors to higher perceived uncertainty are the re-emergence of protectionist trade policies and an increased exposure to emerging markets. Participants acknowledge that risk management needs to be adapted to keep up with changes in macroeconomic environment, competitive landscape, regulation and corporate strategy.
Priorities vary across the three main regions covered in the survey. For example in EMEA, 65 per cent of participants would like to develop their team’s knowledge on digitalisation while in the Americas and APAC, risk management has been identified as a key priority for treasury team development. Mid-term expectations differ widely between industries. While more than 60 per cent of participants from the technology, media and telecommunications sector expect changes in operating business, geopolitical uncertainties, and changing FX regime to have a material impact in the next three years, the majority of consumer and retail sector respondents expect sell-side digitisation to change treasury. The industrials and chemicals sector respondents perceive treasury digitisation as the most impactful theme.
Results confirm the expected trend towards an increasingly strategic role of both the CFO and the treasury function. In the current environment of rising uncertainty and ever changing regulatory requirements, an efficient market price risk management is a key success factor. CFOs have to rely on their treasurers as trusted lieutenants who manage risks in line with best practice in order to safeguard financial statements and add to enterprise value.
While 73 per cent of CFOs say the risk management role of their treasurers has grown, 57 per cent are not yet fully confident that their treasury department has the skills required. Survey results listing FX as one of corporates’ key exposures confirm this view. While 70 per cent of CFOs say that their company’s earnings were negatively impacted by avoidable, unhedged FX risks in the last two years, more than half of CFOs believe that FX is the one risk their respective company is least equipped to deal with. Considering these results, it is not surprising that the majority of treasurers wants to further develop their risk management capabilities. However, most treasuries will likely have to manage this without further support as the survey showed only 32 per cent of CFOs provided more resources to their treasury teams in the last two years.
While 73 per cent of CFOs say the risk management role of their treasurers has grown, 57 per cent are not yet fully confident that their treasury department has the skills required
Survey results suggest that a centralised treasury approach is still favored, enabling treasurers to shift to a focus on managing group risk holistically rather than only individual exposures. Another key trend observable is the implementation of a more strategic hedging approach within treasury policies. The ability for such an approach ties back to scalable resources being available. It is most advanced in the EMEA region where the portion of companies employing automated forecasting tools is three times as high as in other regions. On average, EMEA participants are hedging a higher percentage of their expected FX revenues for a six-month tenor as compared to the other regions, while survey responses from the APAC region suggest that the use of flexible hedges such as FX options are more prevalent. One common theme across regions is that commodity price risk management is frequently facilitated by the treasury team (60 per cent across regions). In terms of underlying risk itself, rates are getting back on the agenda. Corporate treasurers perceive an increase of fixed-rate debt as twice as likely as a decrease, and more flexible instruments like caps and forward-starting swaps are in demand.
One area of improvement identified in the survey is the effectiveness of communication between C-functions and the treasury – especially for medium-sized companies. While almost two-thirds of CFOs in larger businesses with an annual turnover above USD5 billion rate communication as highly effective, the number drops to 40 per cent for smaller businesses – improvement is needed here if treasurers are to become CFO’s trusted lieutenants.
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