RISK MANAGEMENT | 08 JULY 2021

Centralising your FX Risk

Absa-CIB-Author

Gerald Katsenga

Head of Corporate Sales: Absa Regional Operations

SHARE

Remote working has broken down organisational borders, enabling multinational businesses to manage their FX risk from a single, centralised location.

More than a year later, the ripple effects of the COVID-19 lockdowns are still being felt. Employees in many countries are still working from home, and businesses are remodelling their operations to adjust to this disruptive new reality. Gerald Katsenga, Head of Corporate Sales: Absa Regional Operations, says this global shift has created opportunities for multinational companies to rethink their approach to foreign exchange (FX) risk management.

“The COVID-19 crisis created a hybrid model of office and work-from-home setup, and with that we’ve realised the possibilities that come with centralised execution,” he says. “Before the pandemic, you would have your various teams sitting in their various countries, running their own FX executions. Now, you’re not limited to geographies – those executions can be done from anywhere.”

To that end, Absa CIB now offers a FX hedging platform through which corporate treasurers can remotely manage their in-country FX risk from any location which is geography agnostic.

Centralised solution

“Previously, if you had subsidiaries in, say, Botswana, Zambia and Uganda, you would have treasury people in each country executing trades with their local banks,” says Katsenga. “You would have local treasuries for each of those local subsidiaries, that have been on-boarded at their local banks. You would seldom have had a single person executing trades, because you had to have that local relationship person with each bank. Through this platform, you can now have one person sitting in London, Dubai or Johannesburg, executing all those trades for all those countries, even though risk is the local subsidiary facing the local bank.”

With that centralised FX risk management, multinational organisations now get a single view of all their risk that integrates into the local subsidiary balance sheet as well as the local bank. “The headache that our clients used to have was, how do you match all those trades? How do you get Swift confirmation? How do you reconcile all your risk for each subsidiary? This Treasury platform allows you to receive Swift confirmations and reconcile all your executions across all your jurisdictions with ease,” Katsenga says. “That means you can have a single, centralised treasury manager, instead of needing to have local ground presence headcount to manage FX and liquidity risk that faces the various local banks.”

The advantages to centralised FX risk management stretch far beyond simply turning four or five (or more) remote job roles into one consolidated role. Katsenga says the main advantage of a centralised process is that it allows for on-boarding with those various in-country banks seamlessly.

“Each subsidiary still has to go through the process of Know Your Customer (KYC) in each jurisdiction, which is a regulatory requirement, in each of those countries,” Katsenga explains. “However, even though you’re trading in four or five different currencies, your execution can now be done on a single platform with a single dashboard view of all the various subsidiary trades. This centralised execution model works well for global corporates, and especially for organisations that are doing development work in various countries. They might not have a footprint for local offices in each country, but they will still want to make disbursements or payments to businesses in the various jurisdictions.”

Those centralised treasurers have full access to Absa’s FX research, which provides information relevant to the various jurisdictions. This gives the treasury manager an idea of the respective macros and helps them to plan their FX strategies better.

“It also takes away the time differences,” Katsenga points out. “If I’m managing my FX risk online, the confirmations will come straight to my computer, where they will reconcile with my enterprise resource planning (ERP) system. I don’t have to search for emails that go into my inbox, and then get someone else to try to run the recon.”

Single view

Katsenga sums it up as follows: “With this platform, businesses now have a single view of all their FX liquidity in all the jurisdictions in which they’re operating, run by a single treasurer sitting in a single place, which could be anywhere in the world where they have access to the internet.”

It sounds so simple, yet until the pandemic and its sudden shift to remote working, it’s a solution that few multinationals had seriously considered. Now, it’s how everybody works. For businesses that see themselves as global players, it’s just another way that their banking solutions have become truly international.

“While certain borders remain in place – at least in terms of nations and local regulations – this platform removes the borders in terms of your FX risk management,” says Katsenga.

Absa-CIB-Author
Gerald Katsenga

Head of Corporate Sales: Absa Regional Operations

Related Articles

EVENT

16th CII-EXIM Bank Conclave on India-Africa Project Partnership

Proud Sponsors and Participants of the 16th CII-EXIM Bank Conclave.
The CII Exim Bank Conclave on India Africa Project Partnership is an insightful annual event that brings together renowned senior ministers, policymakers and business leaders across different sectors from Africa and India. This event has successfully created access between Indian and African businesses and governments and continues to promote thriving opportunities between these two regions. This year Absa will be sponsoring three virtual events.

EVENT

African Continental Free Trade Area

The AfCFTA will unite all 55 member states of the African Union, bringing together the world’s largest working-age population to create an amazing platform that will empower global businesses, and help them find fruitful financial opportunities.

EVENT

The Case for Investing in South Africa

South Africa has a positive investment story to tell, and foreign investors are ready to listen. That’s the resounding message from the SA Tomorrow Virtual Conference, held in mid-June 2021.

EVENT

Freedom Day

To celebrate Freedom Month, we are offering an up to 50% discount on selective membership types, so you can start enjoying the benefits afforded to members of the SACHAM-sg. Be empowered and create new opportunities with valuable knowledge. Join now!