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Moving real-time treasury from theory to reality

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Moving real-time treasury from theory to reality

While real-time technology is most popularly associated with the payments space, there are applications right across the treasury. Shahrokh Moinian, Head of Cash Products, Deutsche Bank, explains how treasurers can implement the solutions that are already available and start laying the foundations of their own real-time treasury

Real-time payments are proliferating widely – with 45 schemes up and running worldwide – while the rise of open banking, powered by advancing technology and regulations such as the second Payments Services Directive (PSD2), is further simplifying payments processes and enabling treasurers to aggregate banking services onto a single, API-empowered dashboard to achieve a clear overview of cash positions.

Yet the potential impact of real-time technology reaches beyond the payments space, with use cases arising in other everyday treasury functions, such as liquidity and foreign exchange (FX) management, and cash-flow forecasting.

A recent survey commissioned by Deutsche Bank and carried out by Euromoney reported that 85% of treasurers would value the ability to manage liquidity in real time, while a further 87% responded that they foresee instant payments having a positive impact on liquidity planning, forecasting and placement. [i]

But, of course, treasury transformation is not straightforward. In order to extract the benefits from advancing technology, treasurers must work with their existing legacy systems – finding the right solutions to fit with their existing infrastructure and adapting this over time to come in line with real-time capabilities.

Fortunately for treasurers, there are tangible steps that they can take now to start building their real-time treasury capabilities – whether it involves implementing real-time conversion of foreign-currency payments, real-time – or near-real-time – FX hedges, or establishing instant cash concentration through solutions such as virtual accounts. New technologies, such as robotic process automation (RPA) and artificial intelligence (AI) can help – reducing costs, creating additional value, and freeing the treasurer to focus on strategically managing liquidity.

Steps towards real-time liquidity management

Nearly 50% of treasurers responding to the survey identify liquidity management as the area with the most immediate need for automated functions. When combined with real-time capabilities, this could enable corporates to reduce their working capital buffer and borrowing requirements – instead putting funds to work on new investment opportunities.

As real-time payments and collections gain traction, and treasurers seek to support the global liquidity and risk management needs of their business more proactively, the demand for intra-day cash pooling is rising – and banks are now developing the capacity to provide it.

While most cash-pooling arrangements, such as zero balancing and target balancing, involve an end-of day sweep between the master and participant accounts, intra-day cash pooling allows for multiple sweeps during the working day. This ensures that cash is centralised at a group level, is accessible immediately, and can be moved to where it’s needed to plug a gap or where it generates the most return in a matter of seconds – reducing borrowing costs and optimising interest returns.

The next step will be carrying out these sweeps in real time – enabling an almost constant zero balance on subsidiary accounts. For this to come into effect, however, the maximum cap on instant payments will need to be lifted, since most schemes are currently restrictive in terms of the amounts that can be transferred instantly. In Deutsche Bank’s recent whitepaper, The road to real-time treasury, Carola Schmitz-Becker, Vice President of Corporate Treasury at Deutsche Post, highlights that these sweeps are vital in “ensuring that subsidiaries receiving instant payments outside business hours do not trap cash in low-yielding accounts”, further illustrating the strategic focus that real-time technologies are catalysing in treasury.

FX in real time

Another significant area of strategic focus for any treasurer is managing FX. For multi-national corporations operating across borders and currencies, real-time visibility over FX exposures are central to unlocking the full benefits of real-time payments, collections and liquidity management, ensuring these benefits are not fragmented across geographies and currencies.

The FX conversion and booking process is often disconnected from the rest of the transaction, making it hard to check when the cross-currency payment was executed, and what rate was used, and thereby potentially creating significant exposures for corporates without their being aware. By leveraging real-time technology, however, banks are able to provide  time-, date- and rate-stamps for each transaction as it happens.

But the impact of real-time technology on FX management need not be simply reactive. Dynamic workflow automation platforms, such as Deutsche Bank’s DB Maestro, are able to generate responsive risk management solutions in real time. Powered by a rules-based engine, these platforms aggregate data from multiple sources (including enterprise resource planning (ERP) systems, treasury management systems (TMS) and other internal systems) to calculate the treasury’s net currency exposure, and executive tailored hedges derived from the treasurer’s predefined risk profile.

However, the move to registering and feeding exposure data to a platform in real time may be a gradual process. Treasurers can begin by using the data they already have available, in whatever frequency their systems can support. Once the data is fed in, the platform can begin calculating and executing hedges in a matter of seconds. As companies, working alongside their bank provider, adapt their internal systems and processes, treasurers can begin to utilise faster and more comprehensive hedging. Eventually, this process can be shifted into real time.

Collections and cash-flow forecasting

The credit and collection, or receivables function, is a prime candidate for AI-backed operations, reducing non-performing debts, creating metrics for customer credit, minimising administration costs, and providing effective cash-flow forecasting, all in real time. Companies such as US-based HighRadius, Receivable Savvy, and Germany’s collectAI now use self-learning solutions to provide greater intelligence in receivables management, from setting data-driven customer credit limits to prioritising and identifying the best method to contact debtors. Others, such as YayPay, look at customer payment habits and apply machine learning to predict payment dates, forecast cash flows and enhance liquidity planning.

PwC’s Global Treasury Benchmarking Survey reports 75% of treasurers still struggle to produce an accurate cash-flow forecast at a given point in time, let alone in real time.[ii] Fintechs, such as CashLab, Taiga and Cashforce, however, are now using rules-based logic to collate process and visualise large volumes of data extracted from multiple internal and external sources and layer on different factors to create a real-time cash-flow forecast.

These platforms enable users to simulate a series of alternative future cash-flow scenarios, and immediately see the impact of changing key variables (such as the historic payment behaviour) on future cash flow. While rules-based cash-flow forecasting is not new, the latest AI tools can bring together far larger data volumes than many previous systems, learn and refine rules and recommendations over time, based on forecast accuracy, better highlighting rising or falling risk in the forecast, and identifying optimal liquidity management strategies and countermeasures.

New opportunities

As treasurers seek new ways to support and partner the business, and fulfil their liquidity and risk obligations, they should be looking to take early advantage of some of these new opportunities. The immediate value of, and ability to realise, the real-time treasury vision will vary across industries and individual organisations, their commercial and financial drivers, international exposure and technological sophistication. However, treasuries will inevitably, incrementally, be forced to operate in real time, allowing treasurers to partner the business in new ways and add demonstrable value to the organisation.

And it’s not just corporates who are looking to form thoughtful, technology-driving partnerships: in the interim, banks, too, will be looking to team up with fintechs to ensure they have the full range of capabilities to support their clients’ real-time operations. Take, for example, Deutsche Bank’s recent partnership with Mumbai-based API specialists Quantiguous, which aims to combine the fintech’s technical know-how with the Bank’s extensive experience and client base to develop an efficient API-based treasury dashboard.

It is increasingly evident that the road to real-time treasury is one that we must travel together as an industry, and the journey is already well under way.

To read Deutsche Bank’s whitepaper “The road to real-time treasury” in full, please click here.

[i] See Euromoney report “Treasury Non-Stop: Excitement builds for real-time” on the impacts of real time and APIs on treasury, published July 2018

[ii] See https://pwc.to/2uKjHBl, p24

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UK might need negative rates if recovery disappoints – BoE’s Vlieghe

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UK might need negative rates if recovery disappoints - BoE's Vlieghe 1

By David Milliken and William Schomberg

LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.

Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.

Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.

Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.

“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.

“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.

Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.

Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.

Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.

Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.

Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”

“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.

By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”

Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.

“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.

Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.

($1 = 0.7146 pounds)

(Reporting by David Milliken; Editing by William Schomberg)

 

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UK economy shows signs of stabilisation after new lockdown hit

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UK economy shows signs of stabilisation after new lockdown hit 2

By William Schomberg and David Milliken

LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.

The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.

A separate survey of households showed consumers at their most confident since the pandemic began.

Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.

The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.

Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.

Official data for January underscored the impact of the latest lockdown on retailers.

Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.

“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.

The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.

BORROWING SURGE SLOWED IN JANUARY

There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.

Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.

That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.

The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.

Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.

“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.

Some economists expect higher taxes sooner rather than later.

“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.

Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.

The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.

IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”

However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.

Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.

“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”

($1 = 0.7160 pounds)

(Editing by Angus MacSwan and Timothy Heritage)

 

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Oil extends losses as Texas prepares to ramp up output

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Oil extends losses as Texas prepares to ramp up output 3

By Devika Krishna Kumar

NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.

This week, both benchmarks had climbed to the highest in more than a year.

“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.

Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.

Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.

“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.

Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]

The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.

“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.

(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)

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