What sort of conversations are you having with corporate CFOs?
The big unknown for them is how their companies’ revenue will be hit during this crisis. There are some sectors that are vulnerable, such as the steel sector in Ukraine. On the other hand, from a demand standpoint most companies are focused on domestic growth rather than exports. That at least makes the task slightly easier — if you’re trying to determine what your turnover is going to be like for the next 24 months, demand nearest home is the easiest to ascertain.
One bright spot for a number of the companies we see is their efficiency. They were just down-and-out bankrupt businesses in the 1990s. But many of them had to go through a pretty severe restructuring over the past 15 years, and those that are still standing today are more efficient than they were before.
How has the bank’s own finance function and funding outlook changed?
As a triple-A financial institution, we’re only moderately affected by the changes in the capital market and we still have access to funding. The dramatic increase in government-guaranteed bank debt has made the volume of triple-A securities a lot greater, but we’re a very modest issuer and we have a strong reputation among central banks in the securities markets in Asia.
Within our treasury, liquidity management has been challenging. We run high levels of liquidity, which is good, but if you do that you need to invest it and obviously the definition of what is liquid has changed over the past year. If you carry a senior bond from a bank — which you could normally sell within half a minute — there’s been no market for that over the past six months. We now carry a €15 billion liquidity cushion, half of which is in the money markets.
Because we deal extensively with a range of global financial institutions. We had to keep a close eye on them last year to understand the various government interventions. As all the major governments of the world are our shareholders, we were confident that they would stand by their banking systems. But at the end of the day we have to protect our liquidity. That’s an issue that has concerned every CFO in the past year.
Are there personal lessons you’ve learned from the crisis?
I’ve learned a huge number of lessons, but not because things have gone horribly wrong for us. We’ve been fortunate that the structure of our asset-liability management is so simple, not taking a lot of FX and interest-rate risks. We have the good fortune of being a very well capitalised institution. Maybe 12 months ago people thought the bank was over-capitalised. Well, if that is so now, I’m very glad of it.
Over the past five years, institutions such as ourselves and the World Bank have been criticised for being too conservative. When I started here, I thought the same. Well guess what? Now, in the middle of the crisis, we’re the only institutions that can continue to invest more this year than we did last year.
Tim Burke is senior editor at CFO Europe.