Tracking Bank Exposures

Report date: 
21 Apr 2020

In the various sessions we have held on the COVID-19 crisis, we have heard that companies are drawing down on their credit facilities and issuing debt to ensure liquidity, while at the same time they are concerned about some banks and the ability of the banking system to withstand credit losses which could potentially occur as a result of business slowdown during the lockdown. This call was to explore these issues further.

In summary, we have different approaches to ensuring liquidity. Some participants have drawn down on their credit lines, while others have not. In some cases, banks have made it clear that drawing down, even on committed facilities, is not welcome, while others have happily accepted it. If there is a consensus, it is that, for the time being, most government programmes to ensure liquidity are being effective, but treasurers still feel nervous. There is definitely an overall trend towards conserving cash and doing funding sooner, rather than later.

Managing bank counterparty limits is difficult at the best of times, especially where you have to use banks which do not have credit ratings. These are often located in countries where the published financial data is not of the highest quality. These problems have not got any easier with the crisis, but there are no breakthrough solutions. Some participants have speeded up their cash repatriation and move cash to higher rated banks more frequently. They are also reviewing limits more frequently.

As always the treasurers who put the risk management processes in place before the crisis are the best placed to manage it.

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