The volatile foreign exchange (FX) markets challenge CFOs and corporate treasurers when managing their currency risks and reporting financial results.
Since 2022, the dramatic rise of the US dollar against virtually every other world currency has wreaked havoc on the profits of US multinationals as the value of their foreign earnings plummeted. In the second quarter of 2023 alone, the average hit to earnings for publicly traded North American companies was a whopping $0.05 per share, according to the Quarterly Currency Impact Report conducted by consulting firm Kyriba. Currency volatility has moderated somewhat in 2023, but shifting expectations for inflation and future interest rates have made the environment no less challenging for finance executives.
“The US dollar has been meandering this year, and that still causes headaches for treasurers because of the peaks and valleys,” says Andrew Gage, senior vice president at Kyriba.
Gage’s firm tracks the impact of currency fluctuations on the financial results of 1,700 public companies, half in North America and half in Europe. In the second quarter of 2023, companies disclosed a combined $29.14 billion in currency impacts on their financial results. The actual numbers are far larger for the whole group, as most companies do not quantify the impact of currency movements on their results. The trend, however, is clear. FX volatility remains high, and the pain is felt across global markets as the US dollar fluctuates.
“Currency volatility is like Jupiter’s Red Spot: It moves around a lot,” says Gage. “We saw some of that in European results for the second quarter, and I think companies in Europe may experience more [currency] headwinds than those in the US through the end of this fiscal quarter.”
Volatility Becomes The Norm
Corporate reactions to the increased volatility in FX markets vary. A survey of 245 corporate treasury departments worldwide conducted in 2022 by Deloitte & Touche found that 76% were using derivatives to hedge their currency exposures, while 24% reported other preferences. A large plurality of respondents, 45%, ranked FX volatility as one of the top five challenges for their organization. “The volatility has come down from last year, but a lot of organizations are just beginning to come to terms with it,” says Erik Smolders, a managing director at Deloitte’s Treasury Advisory Services. “Some companies want to eliminate their FX exposures; others see it as a cost of doing business and are willing to take some of it on the chin.”
Invariably, those taking it on the chin emphasize the results of their foreign operations in nominal numbers without adjusting for changes in currency prices, hoping that investors will look through currency fluctuations and focus on underlying business trends. “It depends on how companies have been talking to their investors over the years,” says Smolders.
However, the increase in volatility has upped the ante for corporate finance executives, and many are now looking for more-effective ways to manage their FX risks. “I’ve had many more companies ask for assessments of their hedging programs in the last 12 months,” says Smolders. “They want to know how to handle their exposures better and manage costs.”
US and Asian multinationals, typically less inclined to hedge currency risks than their European counterparts, are increasingly looking for solutions to manage risks in a more volatile environment. Netflix is a case in point. As a global leader in video streaming services, Netflix has exposure to more than 45 currencies in its operations and has historically tolerated the swings in reported earnings due to currency movements. However, 2022 was a tipping point for the company. CFO Spence Neumann revealed in a 2022 third-quarter earnings call with analysts that “there’s about 2.5 points of FX drag in our margin. That equates to about—it’s about $1 billion of revenue drag.”
In 2023, the company implemented an FX risk management program to limit the impact of short-term currency movements and reduce the need to raise prices or cut costs in response to them. Netflix disclosed it would use standard forward contracts to hedge some—but not all—of its currency risks.
Hedging’s Higher Cost
When managing currency risks, the solution can sometimes be as painful as the problem. With the heightened volatility in currency markets, the cost of hedging risks has risen dramatically for companies since the US Federal Reserve began raising interest rates in early 2022. Treasury executives now need to decide when the higher costs of hedging risk outweigh its benefits.
“The responsibility of the treasury department to manage currency risk isn’t only about hedging. It’s also about managing the cost of hedging,” says Kyriba’s Gage. “A lot of corporate risk management programs were established in low interest rate environments. Now that rates are back up, companies need to think differently about them.”
Deloitte’s Smolders also advises his clients to take a measured approach to identifying foreign currency exposures before deciding if and how they should be hedged. He recommends that companies take steps before considering what derivative instruments to use for hedging purposes.
First, companies should determine if they must take on a currency risk or if they can offload it to suppliers or customers and avoid worrying about currency price fluctuations.
Second, larger companies can reduce the amount they need to hedge by netting their currency exposures in costs and revenues across their organizations.
Third, intercompany hedging activities have tax issues. If a company can hedge its net currency exposure, it should consult with tax advisers about where and in what markets to undertake the hedge.
Finally, accounting for hedges remains an issue in currency-risk management. Most companies use simple forward currency contracts for hedging because they are simple and likely to qualify for favorable hedge accounting treatment. When derivative hedges are deemed ineffective, which requires complicated calculations, the results must be recognized in the income statement.
Mining the Data to Manage the Risk
The key to good currency risk management is having good data from which to make decisions. For many large companies, producing that data is challenging, since different parts of their organization still operate in silos.
“Companies need to have confidence with their currency exposures, and they need the ability to analyze them across their organizations,” says Gage. “They need the right data at the right time.”
That remains an elusive goal for most large companies. In the 2022 Deloitte survey, the largest number of respondents (83%) cited the lack of visibility into their currency exposures and the reliability of their forecasts as a key challenge they faced in managing FX risks. The second most-cited challenge (71%) was the manual identification and capture process for those exposures.
“Getting good data out of enterprise resource planning systems is a consistent challenge for companies,” says Smolders. “Companies operating with more than one system have more problems.”
The renewed volatility of the currency markets in the past two years is a powerful motivator for companies to accelerate the digitalization of their treasury function. This can provide the data they need to make better decisions about their overseas investments and operations. Global financial executives will struggle to control them effectively without an accurate big-picture view of companywide currency and financial exposures.
The volatility is not likely to decrease anytime soon. Wars, inflation, supply chain crises, and divergent central bank monetary policies will likely continue to make FX markets more treacherous for global corporations.
“Companies have had to navigate through sustained crises for about four years now, and I don’t see that changing,” says Gage. “Currency volatility is now a front-burner issue for them.”
Methodology: Behind The Rankings
Global Finance selects its award winners based on objective factors such as trans-action volume, market share, breadth of offerings, and global coverage, as detailed in public company documents and media reports.
Our criteria also include subjective factors such as reputation, thought leadership, customer service, and technology innovation, using input from industry analysts, surveys, corporate executives, and others. Although entries are not required in order to win, decision-making can be informed by submissions that provide additional insight.
|BEST FX BANKS 2024
|Best Global Foreign Exchange Bank
|Best FX Bank for Corporates
|Best FX Bank for Emerging Markets Currencies
|Best Liquidity Bank
|Best FX Market Maker
|Best ESG-linked Derivatives
|Best FX Commodity Trading Bank (Offering currency and commidity trading)
|Country & Territory Awards
|Standard Bank Angola
|UniCredit Bank Austria
|Bank of Bahrain and Kuwait
|BNP Paribas Fortis
|Bank of China
|Banco Popular Dominicano
|National Commercial Bank Jamaica
|National Bank of Kuwait
|BGL BNP Paribas
|Hong Leong Bank
|Komercijalna Banka AD Skopje
|Mercantil Banco Panama
|Banco ltau Paraguay
|Banco de Credito del Peru
|Qatar National Bank
|Al Rajhi Bank
|OTP Bank Serbia
|FirstRand (First National Bank/Rand Merchant Bank)
|Banque Internationale Arabe de Tunisie
|United Arab Emirates
|Banco ltau Uruguay
|Mercantil Banco Universal
Best Global Foreign Exchange Bank: UBS
Last year was nothing short of historic for our Best Global Foreign Exchange Bank, UBS. Between the takeover of its longtime rival, Credit Suisse, in what analysts call the most important banking M&A in history, and the substantial growth of its foreign exchange (FX) operation in developing markets, the behemoth bank has done it all with unrivaled excellence.
The takeover of its rival’s operation led to substantial growth in clientele and traded volume in European markets, resulting in solid profitability growth. It also led to key additions to UBS’ FX team, further expanding the bank’s knowledge.
At the same time, UBS teams in Asia, the Middle East, and Latin America have kept working relentlessly to improve the bank’s digital offering for emerging market currencies.
As a result of this unmatched year, the Swiss-based giant now ranks as one of the largest private wealth managers in the world, with undisputed market share in Europe. It has also watched its emerging markets FX operation mount into one of the world’s largest, expanding the bank’s offerings to its clients worldwide.
Among the bank’s most significant global technological breakthroughs is UBS’ FX Engine Room, with which the bank can place all analytics in one place for use by its global sales force, thus broadening the footprint of its operations to clients looking to trade currencies on a global scale. —Thomas Monteiro
Best FX Bank For Corporates: BBVA
Driven by constant strategic investments and rock-solid market positioning, BBVA takes home our award as the Best FX Bank for Corporates in 2023.
With a global presence covering key markets such as the US, Mexico, Colombia, Peru, Argentina, and Europe; adherence to the Bank for International Settlement’s FX Global Code; and a commitment to compliance, BBVA offers a comprehensive FX-services suite that caters to both the broader and the most specific needs of corporates worldwide.
The Spanish-based bank has maintained its core principles, providing world-class strategy and research-tailored insights while investing in cutting-edge technology.
Notable innovations have included improved onboarding with eMarkets and dynamic FX pricing in Colombia, 24-hour FX trading, and a customized mobile app for small and midsize enterprises across the network.
BBVA’s accomplishments among corporates helped the bank strengthen its leadership in Mexico, Peru, Colombia, Spain, and Turkey. The bank improved its position in Argentina, where it increased its share in the corporate FX spot market and sustained leadership in imports and exports. —TM
Best FX Bank for Emerging Markets Currencies: Santander
With solid growth in key emerging markets and an increasing foothold in both the US and Europe, Santander reaffirmed in 2023 its status as a pivotal institution for corporations operating in some of the globe’s fastest-moving markets.
By providing extensive coverage with over 50 currency pairs; an unmatched clientele; and knowledge of the market in countries such as Brazil, Mexico, Argentina, and Spain, the bank can guarantee that its clients stay ahead of the curve amid the intrinsic difficulties associated with emerging market currency trading.
In a year in which currency volatility proved a challenge for those based in both developed and developing markets, Santander’s comprehensive trading platform offers diverse options for trading across various channels. It includes streaming capabilities for online pricing in spot, forwards, swaps, non-deliverable forwards, FX options, and structured product trading.
The Spanish-based giant also provided top-of-line global research, market updates, strategies, and FX publications to its clients, ensuring an edge over the competition.
Moreover, with a dedicated team of expert trading and sales professionals based in several key markets for emerging markets currencies, Santander’s clients were able to navigate the complex FX landscape confidently and efficiently. —TM
Best Liquidity Bank: Itaú Unibanco
Liquidity concerns spilled over in 2023 into some of the world’s key markets due to the failures of historical powerhouses such as Credit Suisse and Silicon Valley Bank. Farther south, in Brazil, Itaú Unibanco not only weathered the challenges but also achieved outstanding performance metrics.
These numbers ensured the top-line stability of the bank’s reserves and liquidity offerings, showcasing Itaú’s resilience in the face of global economic uncertainties.
In 2023, the Brazilian financial giant posted an impressive net income of $6.3 billion and a loan portfolio amounting to a robust $224.5 billion. Backed by solid reserves and growing profitability, Itaú’s FX operation thrived, showcasing an above-average return on equity of over 21%.
This trend was also backed by the bank’s continuing investments in technology. Via an impressive compound annual growth rate of 43.5% since 2020, these helped guarantee speed and ease whenever clients needed large sums of foreign currency.
As a result of the bank’s best-in-breed liquidity offering, it effortlessly operated some of the largest FX transactions of its history, such as a $1.2 billion dividend payment for a prominent global beverage company and a single-tranche transaction totaling $1.3 billion for a client in the energy sector. —TM
Best FX Market Maker: Bank of New York Mellon
Bank of New York Mellon (BNY Mellon) won the Best FX Market Maker award due to its market position, excellent client service, financial performance, and continued technological development. BNY Mellon is one of the top five global US dollar payment clearers. Its client franchise includes 97 of the top 100 banks worldwide and 89 of the top 100 investment managers.
BNY Mellon Treasury Services added new business across strategic payment solutions and liquidity products. It drove higher payment volumes while generating traction as it built its digital payments and related FX and trade businesses. FX revenue has increased, primarily driven by the volume of client transactions, including hedging activities. The bank is a leading provider of global payments, liquidity management, and trade finance services. The bank has extensive experience providing trade and cash services to financial institutions and central banks outside the US.
In emerging markets, the bank is active with custody, global payments, and issuer services. BNY Mellon is a full-service global provider of FX services, actively trading in over 100 of the world’s currencies. It serves clients from trading desks in Europe, Asia, and North America. —Darren Stubing
Best ESG-Linked Derivatives: Societe Generale
The 2023 global leader in sustainable finance, Societe Generale (SocGen) once again proved its core commitment to meeting the diverse demands within the broad environmental, social, and governance (ESG) spectrum.
The global sustainability markets’ recovery from the challenges of 2022 is expected to propel full-year 2023 green, social, sustainable, and sustainability-linked bond issuances to between $900 billion and $1 trillion, according to S&P Global. SocGen’s customers were able to enjoy best-in-breed market positioning, gaining a significant edge over the competition.
The French powerhouse’s FX team helped support its ESG products for customers worldwide, including the bank’s flagship ESG benchmarks, sustainability swaps, sustainability options, and sustainability-related derivatives.
The bank also stepped on the gas by providing hybrid trade financing offerings to its customers, linking traditional finance to sustainability goals, thus helping to fuel ESG investments the world over.
Additionally, in November, SocGen launched its first-ever digital green bond, registered directly on the Ethereum public blockchain. This strategic move aims to enhance transparency and traceability in ESG data and broaden the bank’s currency-related sustainable offerings. —TM
Best FX Commodity Trading Bank: JP Morgan
JP Morgan was awarded Best FX Commodity Trading Bank, as its well-executed strategy consolidated its FX commodity trading activities, capitalizing on its top ranking in fees and market share in investment banking.
The bank is the top ranked in research, underpinning its strength in FX commodity trading. It has a longstanding leadership position in energy, power and renewables. It has made significant investments in the low-carbon energy transition. From local production to worldwide trading, JP Morgan has a strong presence in the metals and mining industry, including key areas in the Americas, Europe, the Middle East, Africa, and Asia-Pacific; and the bank has deepened its footprint in Australia and India.
JP Morgan has achieved excellence in FX commodity trading execution, aided by technology and analytics. Its FX and commodities trading platform provides access to fast and reliable electronic market-making and order placement across every commodity class—including base metals, precious metals, energy, agriculture, and commodity indexes—with tradeable prices in multiple currencies. Its platform can send over 120 currencies and receive more than 40 across 200 countries. —DS
|FirstRand (First National MerchantBank)
|Central & Eastern Europe
|Raiffeisen Bank International
FirstRand, the operator of the Rand Merchant Bank (RMB) corporate investment bank and of the retail and commercial lender First National Bank (FNB), for South Africa and the region, is this year’s award winner as Global Finance’s Best Foreign Exchange Bank for Africa. This top African financial institution has been rewarded for carefully marshaling its foreign exchange (FX) business and its mobile and online offerings.
Offering FX solutions from personal travel to corporate, remittance partnerships with international companies such as PayPal and MoneyGram, and an FX clearing hub for African banks, FirstRand has been a trailblazer in the African FX market over the past year.
The company says its mobile application and online enhancements for FX are a “continuous focus for individuals and commercial clients,” adding that “smart messaging such as SMS, emails, and [app push notification] are in progress” for 2024.
Straight-through processing enhancements have made a difference in getting clients to move away from manual payments to platform transactions, with the FNB banking application bringing FX transactions to a readily accessible mobile platform.
FNB and RMB are also building a foothold in the world of cryptocurrency transactions and FX blockchain payments. With an FX staff complement of 599, FirstRand accounts for approximately 33% of all banking sector FX volume in its primary market of South Africa.
A further presence across Africa in countries such as Mozambique, Zambia, Botswana, Namibia, Nigeria, and Ghana saw FirstRand’s regional FX profits grow in 2023 by 15% over the previous year. In August 2023, RMB launched a foreign currency clearing solution for African banks.
DBS Bank is the largest bank in Southeast Asia, with global operations across 19 markets. With its vital FX centers in London, Tokyo, and Singapore, the bank presents itself as a seamless connectivity and liquidity provider with FX products, including nondeliverable forwards, FX swaps, and precious metals. As of 2023, DBS’ one-stop global cross-border payment solution has covered 132 currencies across 190 countries.
The bank’s FX business supports large corporations, multinational corporations, and small and midsize enterprises (SMEs) by offering a spectrum of services, such as sophisticated FX payment with integrated, competitive, and committed FX rates—as well as access to transparent pricing and analytical tools. Regardless of size, corporate clients all have access to efficient and secured FX and forward transaction platforms that safeguard against currency fluctuations.
DBS’ commitment to the FX business is also reflected by the increasing number of employees who have dedicated themselves to it over the years and by the bank’s ongoing effort to build global distribution channels with new technology investments and initiatives.
Central and Eastern Europe: Raiffeisen Bank International
Raiffeisen Bank International (RBI) has long been a significant player in the Central and Eastern Europe (CEE) banking market—it founded its first CEE subsidiary in Hungary back in 1986—and is today active across 12 countries in the region, with almost 18 million customers and some 45,000 employees.
FX is a large part of the bank’s business, and RBI is actively trading in the currencies of most countries of the region, offering a comprehensive product portfolio with competitive pricing and reasonable rates for more than 100 currency pairs. It has been at the forefront of digital innovation, using cutting-edge systems to speed trading, improve accuracy, and reduce trading costs.
Two years ago, RBI established partnerships with AxeTrading, a fixed-income-trading software company, and with Integral, a leading FX tech provider, to provide real-time streaming of FX prices into bond trading. Since 2021, it has also been rolling R-Flex, a digital solution for FX conversion, across CEE, starting in Romania before RBI in Croatia and Hungary adopted what it describes as a simple yet secure user-friendly platform that prioritizes clients’ needs. The plan is to extend R-Flex across RBI’s operations in other CEE countries, giving customers access to a state-of-the-art system that simplifies and speeds FX trading.
Latin America: BBVA
Amid the volatile FX landscape of 2023, BBVA managed to secure the top market position in several key markets across Latin America, thus providing its customers with unmatched opportunities and products.
In addition to its unique market knowledge, one of the main secrets behind BBVA’s success throughout the year was its relentless dedication to boosting its award-winning technological capabilities. The Spanish-based bank’s FX operations underwent significant enhancements, showcasing this dedication to innovation and client-focused services.
The onboarding process for eMarkets clients saw substantial improvements, incorporating DocuSign for streamlined and efficient client interactions. The introduction of direct market access marked a pivotal moment, providing FX spot clients with a new algorithmic execution service. Real-time FX application programming interface offerings for external clients, encompassing FX and payments, strengthened the bank’s connectivity.
BBVA further implemented dynamic pricing in Colombia and introduced FX SBP (single bank platform); and BBVA eMarkets in Argentina, covering spot and nondeliverable forwards. Enhancements in FX online services for enterprises in Colombia allow for payments from accounts held in other banks.
These strategic improvements earned BBVA recognition in the Global Finance awards and position the bank as a leading force in the dynamic landscape of FX operations in Latin America.
Middle East: Al Rajhi Bank
The winner as the Best Foreign Exchange Bank in the Middle East, Saudi Arabia’s Al Rajhi Bank is the largest Islamic bank worldwide and has a dominant franchise in the Gulf Cooperation Council’s biggest banking market. Al Rajhi is ranked as the No. 1 bank in the Middle East for remittances by payment value.
The bank’s FX performance has been boosted by digital transformation. Retail, SME, and corporate businesses have expanded, with escrow accounts growing substantially. Its FX franchise has strengthened, with an increasing number of global counterparties and an extensive peer network of banking and financial institutions, further developing its treasury capability to deal in large FX trades. Al Rajhi’s Treasury Group has increased interbank FX counterparties to improve price and FX flow coverage and to access new markets and currencies. Onboard banknote and bullion interbank counterparties have been introduced to enhance supply, storage, and price economies. Several new module enhancements have been carried out on the core treasury management system to onboard new products.
North America: JP Morgan
Like all global banks, JP Morgan has invested heavily in its IT infrastructure and trading networks over the past decade. Headquartered in New York, the bank is in all major world financial centers. It provides corporate clients with everything from FX trading services to international payment processing, cash flow, and working capital management.
In a more volatile environment for global currencies, size matters. JP Morgan, UBS, and Deutsche Bank are the three largest players in the FX trading markets, accounting for roughly 30% of global FX transactions. The bank has an enormous pool of liquidity, with millions of customers across its consumer, commercial, and investment banking operations. It can execute large spot trades in up to 300 currency pairs internally by matching up customers, or it can work complicated orders across multiple external electronic markets. It is also one of the largest providers of FX derivatives contracts globally.
Technology is a significant selling point for JP Morgan. It employs artificial intelligence to enhance its FX trading algorithms that optimize execution services in all market conditions. It also helps companies to fully digitalize their treasury functions across global operations to give them a clearer picture of their FX and risk management needs.
Western Europe: UBS
Already a powerhouse in the European market, UBS skillfully took advantage of Credit Suisse’s March collapse to achieve once-in-a-lifetime boost to customer growth.
By combining its former rival’s market shares with its own, the bank was able to gather unrivaled positioning, which should remain for years to come, in the continent’s FX market.
Naturally, the M&A came with challenges, as UBS faced the need to regain confidence among former Credit Suisse clients and to onboard its rival’s top-line staff. This process led to a challenging yet rewarding second half of 2023, as customer satisfaction grew while FX margins temporarily compressed.
But despite the intricacies of the merger, the bank has continued to invest in deepening its already best-in-class suite of technological offerings for FX.
With significant improvement across the currency-trading spectrum, from FX swaps with its Neo STIR Analytics platform to improved FX liquidity algorithms with a new smart order router, UBS’ European-based customers enjoy a unique combination of unrivaled market positioning and knowledge with state-of-the-art technological FX products.