A combination of regulatory deadlines and the need to optimize banking relationships are likely to have influenced companies’ strategies in this field. But market players say that this might be set to change as companies gear up for growth.
Euromoney’s 2013 cash management survey highlights that only 21% of non-financial companies with annual revenues greater than $100 billion re-evaluated their cash-manager relationship over the past 12 months, the lowest percentage for five years. This figure is substantially down from 58% in 2012.
“Over the last nine months we have seen corporate treasury departments focusing their resources on regulatory compliance, such as Sepa [the Single Euro Payments Area] and Emir [European Market Infrastructure Regulation],” says Mark van Ommen, associate director at treasury consultancy Zanders. “In many cases treasury transformation projects, including cash management bank selections, have been put on ice.”
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| Mike Edwards, Bank of America Merrill Lynch |
The deadline for the implementation of Sepa to simplify bank transfers denominated in euros is fast approaching on February 1, although the European Commission said on January 9 that it was prepared to offer an additional transition period of six months to ensure minimal disruption to Europe's payment system. Measures to meet this deadline have taken up a large amount of treasury departments’ time over the past year.
Nevertheless, not all agreed that there was a continuing decline of RFPs (requests for proposals) by companies looking to change their cash management arrangements.
“The peak and slowdown of the euro crisis, as well as the move towards Sepa adoption, have driven the scope and scale of many deals over the past 12 months and therefore increased the level of RFP activity,” says Mike Edwards, EMEA head of market management, global transaction services, Bank of America Merrill Lynch.
Edwards says that as the bank focuses on 2014, it is already seeing corporates progress on some of the larger transformational projects that they understandably put on hold in the past year or so.
Although over half, 53%, of non-financial companies surveyed said they did not intend changing the number of cash managers they use in the next 12 months, van Ommen also expects corporates to start redefining their three-year to five-year treasury roadmap and undertake new projects in the coming year that might lead to relationship changes.
Nevertheless, the trend for large companies to look to consolidate their banking relationships continued. Euromoney data show that the number of cash managers used by large corporates fell from between seven to 10 in 2009 to two to four in 2013.
“Large corporates are likely to have the most defined set of bank relationships – indeed these will have been consolidated and strengthened over the past few years as both parties have reacted to the financial crisis and changing regulatory environment,” says Edwards at BAML.
The data further show that 16% of companies said they intended to decrease the number of cash managers this year while 12% said they planned to increase the number and 19% were unsure of their strategy.
“We see a trend among large corporates to move to an optimal group of between three and seven banking partners,” van Ommen says. “We also see that the larger corporates are becoming more advanced in aligning the wallet share of their banking partners to the credit commitment provided.”
Nevertheless, many treasurers still find that they require the services of local banks to cater for specific local requirements, van Ommen adds. An example of this is the use of a dedicated bank for the Nordic region.
While banks are upping their game to provide services to larger companies that might be gearing up to undertake a factory or infrastructure build, the survey shows that smaller/medium-sized companies might also provide greater opportunities for banks seeking to expand their transactional services business.
Euromoney data for non-financial companies with annual revenues of between $10 billion and $100 billion show that 50% of respondents said that they were re-evaluating their cash management relationships in 2013, only marginally down from 51% in 2012.