Treasury Management
Treasury management is concerned with the management of treasury risk. Treasury risk can be defined in a number of ways, ranging from the long term risk of suboptimal performance of a Housing Association against its business plan to short term cash flow costs of treasury decisions. Treasury management is just one part of the risk management framework required to manage all risks that a HA is exposed to. The scope of treasury management can be defined with three core headings, the first two of which are unlikely to be delegated by the board:
- Strategy and policy
- Governance and operations
- Financial and operational risk management
The Opal Wave Housing Performance Management Treasury Management solution enables treasury departments to manage risks as well as ensure that investments are performing as planned. As with all business cashflow is key, allowing the modelling of how the money will be spent by project. This will tie into the medium and short term plans. Allowing the planning when money will be required, this can be offset against the rents coming in and cash made available. Also allows the planning of when loans maybe required.
By using the Opal Wave Housing Performance Management Treasury Management solution types of risks that can be monitored are :
Liquidity, cash management and investment risk
This will arise if a HA does not have sufficient liquid assets or readily available funding facilities to meet its obligations as they fall due. The management of this risk is at the heart of the treasurer’s day to day operations and is essentially cash management and ensuring compliance with loan facility terms and covenants.
Funding and refinancing risk
This will arise if a HA is unable to refinance, when required, any existing maturing borrowings, to fund capital expenditure or make other financings in accordance with the refinancing provisions made; or can only do so on market terms which are inconsistent with business plan assumptions.The management of this risk includes monitoring the conditions prevailing in the market and maturity profile of existing finance, undertaking the negotiation of finance in accordance with prevailing market conditions and the avoidance of reliance on any single counterparty.
Interest rate risk
This exists for all Housing Associations in one form or another.The periods of considerable volatility in interest rates over a number of years have had profound consequences for Associations interest rate risk management decisions are often seen as ‘lumpy’, in the sense that they are taken relatively infrequently and involve relatively large amounts of money (by contrast to routine liquidity risk management decisions). Notwithstanding this, many Associations devote considerable resources to active monitoring and management of interest rate risk. The key for the Housing Association is in defining exactly what interest rate risk it is exposed to and how best to manage this in the context of the overall risk position of the business.