KPMG: On Managing Finance, Treasury And Financial Risks

 

Russian corporate culture of managing treasury and financial risks has made a significant step forward in raising its efficiency.

The global financial crisis helped Russian companies to correctly prioritize issues when identifying key risks. Effective management of these risks will represent another major step forward in the development of the Russian economy.

Certain risks that have attracted increasing attention in strategic decision-making deserve mention here: liquidity risk, interest-rate risk and the risk of changing prices for sold goods/commodities. These results match our conclusions on the influence of key risks on the business activities of Russian companies and also correlate with those factors that had negatively impacted on companies during the most active phase of the financial crisis – the reduction in the money supply, rise in interest rates and price slump on commodity markets.

Even though the methods and tools applied by Russian companies to manage liquidity risk are consistent with global best practice, management efficiency remains unsatisfactory owing to the low degree of automation of the processes for accumulating and analysing information on cash flows. Only 16% of the surveyed CFOs and heads of corporate treasury declared that the company's treasury obtains the requisite data from a unified treasury IT system integrated in the ERP.

Natural hedges remain the most popular method for managing exchange-rate risk (38%). The method for forming loan loss provisions, cited in 2007 as the least popular (3%), grew in 2009 to 13%, which may be attributable to the consequences of the controlled devaluation of the Russian rouble on the eve of 2009 and significant growth in the volatility of the rouble exchange rate as a result of the new policy implemented by the Bank of Russia.

Analysis of the popularity of interest-rate risk management methods indicates that borrowing funds at lower interest rates (27% of respondents) is the most common method used by CFOs and the heads of treasury functions. However, it is also worth noting here that this method has become slightly less popular compared to 2007, which is attributable to an abrupt decrease in the supply of funds on debt capital markets.

Recent events in the global economy have once again clearly demonstrated the degree of dependence of the Russian economy on the level of commodity prices, thereby making pricing risks the number one concern for most Russian companies. At the same time, however, only one out of every eight surveyed companies confirmed that it hedged against these types of risks through exchange-traded and over-the-counter derivatives. The remaining 87% of organizations do not hedge their risks or consider that this approach is impracticable in respect of sold and procured goods and commodities.

The treasury function has been transformed into a profit center at almost half the companies, which previously declared that it was a cost center. It can be concluded that the treasury function continues to gain ground owing to gradual improvements in cash management at Russian companies.

Detailed analysis shows that Russian companies still face challenges in respect of the automation of treasury operations and processes, as stated by 70% of respondents. Respondents cited as the second priority issue for the treasury general complexities in the risk management process, which reflects growing corporate interest in comprehensive risk management, which is linked as a rule to financial modeling.

Roman Malyuga, Head of the Finance and Treasury Group, KPMG in Russia and the CIS notes: “The hierarchy of areas for the expansion of the treasury at companies remains virtually unchanged since our last survey two years ago. As in the past, the three preferred areas remain management of corporate finance, interest-rate risk and management of the working capital of the company.”

 

For further information please contact Irina Pashinkina, Head of PR, KPMG in Russia and the CIS, tel.: +7 (495) 937 44 77 (ext 15355), Mob.: +7 (916) 396 25 33

 

 

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