Given the rise in ECB interest rates, which will continue in the coming months, Antonio Berga, co-founder of the Spanish treasury management fintech Embat and an expert in financial management, gives us an analysis of the situation. Berga indicates that, in these months Different scenarios will be presented, depending on the company:
- Conservative
- Those companies that have recently refinanced at attractive rates
- Those that have cash in balance and can make it profitable
«The first thing is to be cautious and put common sense in decision-making in the face of this normalization of monetary policy”, indicates Berga. Looking at the yield curve, for those companies whose financial teams advocate more conservative funding policies, the most reasonable thing would be to take measures and refinance the debt at a fixed cost in order to have visibility of the financial costs, and to do so as soon as possible to try to guarantee stability in rates for the coming years. Possibly they will not earn (or they will not save the last euro in interest) but they will sleep peacefully with the stability they have “bought”.
Those teams that have recently refinanced and have already guaranteed rates for the next 3-5 years, possibly they want to take advantage of the situation and delay the decision to refinance for later. Possibly now “they will beat the system”, but the doubt will be where the types will be when it is their turn to refinance the debt.
As for those companies with cash on balance in this environment, they have several alternatives to generate profitability, depending on the nature of that available liquidity. If it is treasury that they do not require in the short term, they can either pay off debt in the face of rising credit costs and clean up the capital structure; Or, if they consider making the surplus profitable, they can look for financial products that may now begin to offer higher returns to compensate for inflation and rate hikes.
«Alternatively, they can reinvest the liquidity in financial and operational instruments in favor of their own business, such as ‘dynamic discounting’, offering financing to their supply chain to improve the profitability of the business.»
