By Karibi Iketubosin
The global outbreak of COVID-19 has created one of the most severe liquidity crises in modern history. In a matter of weeks, market volatility spiked, currencies plummeted, and financial institutions faced unprecedented uncertainty.
Teams I have worked in have focused on crisis management and business continuity from the first reports of the pandemic. In this commentary, I outline key steps that treasury departments can take to safeguard liquidity and ensure operational resilience in these turbulent times.
First and foremost, it is essential to assess exposure quickly. In early March 2020, as reports of the virus spread, my team ran immediate stress tests on our portfolio. We evaluated scenarios such as a 30% drop in foreign currency inflows or a sudden halt in corporate loan repayments.
By identifying where the bank would be most vulnerable, we could target our efforts. We communicated daily with risk and finance colleagues to update these scenarios as new data (like falling oil prices) emerged.
Securing adequate liquidity became our top priority. We bolstered our cash reserves by temporarily reducing dividend payouts and delaying non-critical expenses. We also tapped the Central Bank of Nigeria (CBN) refinancing windows to increase our local currency funding. While the CBN’s policy rate stayed at 13.5%, the market was tightening; we preemptively drew on its standing repo facility to lock in funding. On the foreign exchange side, we confirmed our access to offshore lines of credit to ensure dollar liquidity for key importers.
We implemented several operational measures:
Real-Time Cash Tracking: We enhanced our dashboard to flag intraday cash gaps. If a large client withdrawal or FX transaction pushed balances below a threshold, the system immediately alerted senior treasury staff for action.
Prioritizing Payments: We adjusted our payment schedules, prioritizing critical obligations (like payroll, taxes, and key suppliers) over non-urgent disbursements. This optimized our short-term cash flow.
Stress Testing Every Shift: Given the rapid changes, we began stress-testing intraday as well as overnight. This meant running Monte Carlo simulations every trading shift, not just once per day.
Crisis Response Essentials
Liquidity Buffers: Maintain higher-than-normal levels of liquid assets. This includes cash and short-term government securities (T-bills, etc.) that can be sold or pledged at short notice. We increased our holdings of T-bills in March 2020 to reinforce our buffer.
Diversified Funding Lines: Secure backup facilities from multiple sources. Relying on a single counterparty or market can be risky if conditions sour. We ensured that both domestic and international lines of credit were in place.
Regulatory Communication: Keep open channels with regulators. We maintained daily communication with the CBN and our auditors to explain our liquidity position and ensure compliance, which helped speed up approvals for any contingency funding.
Contingency Funding Plans: Prepare clear action plans for different stress scenarios. Our team developed a matrix of responses (e.g., “If external funding dries up, we will…”) and shared it with senior management.
Operational Continuity: Ensure treasury staff can work securely from anywhere. We quickly shifted to secure remote access via VPN and cloud applications. All treasury traders and cash managers had encrypted tokens and laptops to work from home without interruption.
Technology and digital infrastructure were invaluable during this period. At the bank, we leveraged our cloud-based treasury management system to enable remote work from Day 1. Traders could enter transactions and update positions from home. We used video conferencing to run the daily treasury “huddle” instead of a conference room meeting. Additionally, we focused on cybersecurity hygiene: as we enabled new remote desktop sessions, our IT team bolstered firewalls and multi-factor authentication to prevent breaches.
Collaboration across the bank was also critical. I coordinated closely with the finance team to adjust our forecasts and with compliance to ensure any emergency liquidity measures met regulatory requirements.
We also engaged the customer relationship teams to communicate with corporate clients. By informing them of possible payment deferrals or support programs early, we helped reduce surprise withdrawals and keep funds stable.
Finally, morale and clear communication within the treasury team mattered. In times of crisis, clarity of purpose keeps stress in check. We held weekly calls not just for status updates but to share information and ensure everyone knew what to expect. The team’s ability to stay calm and analytical in a chaotic market was our greatest asset.
In conclusion, COVID-19 has tested treasury departments worldwide, but banks that act decisively can mitigate the impact. Early stress testing, securing diverse liquidity sources, leveraging digital tools, and maintaining clear communication are all vital.