Monday 10 August, 2020

'Cash flow management critical for businesses navigating COVID-19'

 Scotiabank Senior Vice President Dr Adrian Stokes.

Scotiabank Senior Vice President Dr Adrian Stokes.

Prudent risk and cash flow management strategies will be critical for local businesses to navigate the economic shock triggered by the coronavirus (COVID-19) pandemic, says Scotiabank Senior Vice President Dr Adrian Stokes.

Addressing  a recent investment briefing of Scotiabank customers Stokes said local businesses will need to carefully assess the risks to their operations amid the uncertainties in order to remain afloat in an economy that has been projected by the International Monetary Fund (IMF) to plunge –5.3 per cent this fiscal year, the worst economic decline in Jamaica since the 1970s.

Also important for businesses, is access to cash, according to Stokes, who is in charge of the investment and insurance portfolios at Scotiabank.

Stokes stressed that the extent to which Jamaican businesses are liquid or have access to cash will determine their success at surviving the economic crunch.

In highlighting the importance of proper risk and cash flow management during periods such as now, Stokes said: “These ‘black swan’ events, low probability but significant pain when they occur, can wipe businesses out and therefore you have to ensure that you have a strategy that mitigates as much as possible the risk inherent in your business and also importantly, ensure that you have access to liquidity.” He pointed out that “liquidity is the lifeblood of any business (so) ensure that you have it or have good access to it”.

Stokes added that “without a good liquidity management system, usually what happens is that even good companies will become insolvent. The problem will start off as a liquidity problem but if you can’t manage, it will quickly degenerate into a solvency problem. So especially during the good times, you should be planning for a rainy day.”

For Scotiabank Jamaica Chairman Jeffrey Hall, while the government has done a good job in responding to the resulting health and social crises, the island has never experienced this level of economic shock. 

“The core issue that we face in the restore phase is the depth of the economic downturn... just to give people some perspective, Finsac in 1998 was –2.3 per cent. We have never experienced –5.3 per cent downturn annual GDP since the 1970s,” Hall pointed out as he also addressed Scotia investors.

Scotiabank Jamaica chairman, Jeffrey Hall

Consequently, he said there are likely to be more mergers and acquisitions and partnerships as Jamaican businesses, both large and small, try to find ways to adapt during and after the COVID-19 pandemic.

Importantly, Hall said access to adequate supplies of foreign exchange and viable financing options will be important for businesses to bounce back from the current economic downturn.

“As a business community we are going to assess our performance on M&A (mergers and acquisitions) as people look for synergies to reduce their core overhead base and stay alive,” he said.

“Our private debt to GDP is about 38 per cent - Trinidad is at 40, Costa Rica is about 60, Panama is about 80 and the US is about 190 – so we do have headroom and so we have to ensure that we deploy that headroom. (Also) credit bureaus have to function well (and) we have to ensure that capital markets function well,” Hall commented further.

As for the government, the Scotiabank Jamaica chairman said it will have to engage in more public-private partnerships and pursue further privatization of state assets to stimulate Jamaica’s economic recovery from the pandemic given the emphasis not to increase the public debt to GDP ratio, which has been pushed to 97 per cent as a result of COVID-19.

“We have to ensure that a wave of investments is possible for us,” he said.

Commenting on how Scotiabank has responded to its corporate and retail customers amid the pandemic, Stokes said the bank has been proactive and flexible.

“Our team has been very proactive in reaching out to customers and working with them through this critical period. Our corporate bankers, for example, have been working with many of our customers to find customised solutions. These solutions are designed to meet the specific needs of each customer’s business and that approach has been working well. Same thing on the retail side, our retail customers have been given the option to defer payments. In the insurance business, we have extended the period over which you can pay your premiums without putting your policy at risk.”

For persons looking to withdraw monies from their policies, Stokes indicated: “We know this is a time when persons will need additional cash and so we have taken the decision to waive fees on these types of transactions.

He continued: “In the investment business, information is very important in that space. Customers value information to enable them to, first of all, understand the environment and to make informed investment decisions. Our team has been very active with the provision of information to help our customers understand the environment... We are very happy with the work that we have done during this period to support our customers and to ensure that they can get to the other side of this pandemic.”

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