Citi Warns Treasurers To Update Approach To FX Risk

Citi released a new report this week warning corporate treasurers to improve their FX risk mitigation efforts.

The bank said Thursday (Mar. 2) that results from its Risk Management analysis, provided by its Citi Treasury Diagnostics benchmarking solution, suggest corporate treasurers’ approach to FX risk mitigation have remained largely unchanged “despite unprecedented recent market conditions.”

Most of the companies surveyed have mature FX risk mitigation solutions deployed in their enterprises, the research found. But nearly 60 percent have identified “reducing earnings volatility” as a key goal in their risk mitigation efforts, while the businesses continue to report impacts on earnings because of FX volatility, said Citi.

“It seems likely the year ahead will be one of heightened unpredictability in the currency markets, with further disruption to corporate earnings,” said Citi Treasury & Trade Solutions Global Head of Treasury Advisory Group Ron Chakravarti in a statement. “Yet, status quo prevails. The biggest question is, will more multinationals adapt their legacy FX risk management processes and practices to navigate the changing market environment?”

In its announcement, Citi noted that, “remarkably,” the majority of businesses surveyed don’t differentiate between their approach to FX hedging in emerging markets and developed markets. Sam Herson, Citi’s global head of FX risk management solutions and co-head of Western Europe head of corporate FX sales, said this needs to change.

“Many corporates are aware that they need to deploy a different approach between developed and emerging markets; however, their current FX policy remains virtually the same,” the executive said. “The challenges in identifying and hedging FX risk have always been around, but as companies continue to future deploy their balance sheets to the emerging markets, corporates need to consider differentiating their currency strategies.”