Process and Technological Readiness of Treasury in the Czech Republic

The Czech Association of Treasury (CAT) and Advanced Risk Management, a Prague-based advisory and software company specialising in finance and financial risk management, have analysed the results of the recent Study of Process and Technological Readiness of Treasury in the Czech Republic.

The main goal of the study was to examine the roles and competencies in treasury departments and the status of IT support for treasury processes in medium and large companies in the Czech Republic. We looked at treasury activities in terms of current trends leading to maximum use of information technology.

The study was carried out via an online survey in which participants were asked about procedures and experience in the areas of short-term and long-term liquidity planning, exchange rate and credit risk management and especially the degree of automation of these processes and overall satisfaction with IT support. The survey was completed by 40 respondents, mostly representatives of CAT members.

Conclusions

Cash Flow and Liquidity Planning

The study found that the most common horizon for short-term liquidity planning is one month. Approximately half of the companies surveyed plan on a daily or weekly basis. Surprisingly, only 17% of them are able to draw up a short-term plan within minutes. Only 43% of the respondents prepare a long-term plan for more than one year, while the time required to prepare a long-term plan ranges from a few minutes, in the case of a fully automated solution, to several weeks – almost in half of the cases. The results indicate that a large share of routine work persists in almost half of the companies and thus, there is a great possibility to plan and manage liquidity more efficiently. Only 2% of respondents have a fully-automated tool for preparing such plans.

Exchange Rate Risk

Although more than half of respondents said they monitor exchange rate risk on a weekly basis, 55% admitted they model exchange rate developments and their effects only if something extraordinary happens or they do not model it at all . About two-thirds use derivatives to hedge exchange rate risk. However, the results showed that only 10% of the respondents are able to value all the derivatives used.

Credit Risk

It is positive that about two-thirds of responding companies use an automatic system of checking credit limits for delivery of goods or services, including regular updating of these limits. On the other hand, the remaining 33% do not perform this activity or do not reflect the risk of non-payment in their cash flow outlooks. However, given the impact of the COVID-19 pandemic, around 33%stated they already need to monitor credit risk more; another 33% expect to increase requirements for planning in the near future.

IT Support

The aim of the last part of the study was to summarise the extent to which the above activities are automated and effectively supported by IT tools and to identify the persistent share of routine work. Although many companies reported some degree of automation of selected treasury processes, only 17% expressed explicit satisfaction with the current situation. Low priority or lack of capacity and resources were most often mentioned as a barrier to improvement.

Summary

The study revealed significant differences between the companies in their approaches treasury activities and in the degree of their automation. Considering growing risks and higher volatility in all markets and current trends towards maximum use of information technology, it is surprising that many companies do not perform some standard treasury risk management activities at all, or only with a very low frequency or short planning horizon. The reason can be seen in the high complexity of data collection, the calculation itself and subsequent checks.

At the same time, we believe a large number of companies fail to use the available time and their employees’ skills efficiently. A relatively simple solution would be to implement a suitable IT tool in order to automate routine processes.

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