July 5th 2022 ∙ 3 min read

Business is conducted in the demanding environment of highly volatile financial markets. In addition to the disruptions that have occurred in the supply chain, companies have to deal with the extreme volatility of raw material prices, rising cost of financing and the recent developments in the fluctuating cost of energy.

Companies have the choice to tackle all these risks at once through appropriate financial tools that help stabilize their flows and improve their results.

Interest rate risk management

Factors affecting the costs of financing are inextricably linked to global inflationary pressures and the consequent change in monetary policy by central banks. The changes expected from the European Central Bank (ECB) regarding interest rates (following the measures taken by the Fed and the Bank of England) will not be slow in coming, regardless of the geopolitical situation and the possible slow down of the Eurozone growth perspective.

Graph: 5-year medium - and long-term interest rates in EUR 

More specifically, 

• The ECB Board attaches greater importance to the (certain) upward surprises of inflation than to the (uncertain) downside risks to growth.
• Moreover, ECB Head stressed that first interest rate rise is expected in July (vy 25 base points), while subjected that the expected rise in September might be higher. 

So a company, regardless of the type of  financing it has acquired, whether a bond loan or working capital, regardless of where the specific financing is held, can hedge the market risk and stabilize the base interest rate at very low levels by using the appropriate financial tools.

This can be achieved by selecting interest rate exchange products where the Bank undertakes to pay you the respective Euribor and you pay the pre-agreed fixed interest rate.  

This strategy changes the interest rate profile of your Company's financing from fluctuating to fixed and is protected from interest rate fluctuations, ensuring fixed financing costs regardless of interest rate conditions.

Alternatively your company can manage the financing cost by choosing a maximum limit beyond which the Bank undertakes to reimburse you for a fee. This structure allows the Company's liabilities to be charged with interest at a floating interest rate, while setting a maximum limit that the floating interest rate can reach.

The aforementioned transactions are fully customizable according to the needs of the client. What we are essentially achieving is enabling structured cash flows so that companies can budget the total cost of financing.

Managing energy prices

One of the major uncertainties that has emerged in recent years, and affects the final cost of the product produced by companies, is the cost of energy. The key driver behind the significance that energy costs have acquired in the business model is, in principle, the 'green transition' policy deployed by the EU.

In particular, the European Commission (E.C.) recently adopted a directive aiming to reduce clean emissions by 55% by 2030 with the ultimate goal of achieving climate neutrality by 2050.

This directive is a key point in terms of the electricity generation mix in the EU and especially in Greece, which has adopted a strategic plan to achieve these objectives.

Graph: TTF Natural Gas fluctuation and System Marginal Price (SMP)

Natural Gas

The war in Ukraine had a major impact on natural gas prices. It is worth noting that they are currently higher than in January, as there is uncertainty about compliance with agreed flows from Russia to the EU, changes in agreements for payments in RUB for countries unfriendly to Russia, the blockade of Russian oil, and bilateral sanctions. Europe has secured its demand needs until 2023 through the LNG market, however the market remains uncertain as an immediate solution in the geopolitical arena is not in sight. 

Electricity

Since the outbreak of the energy crisis, which is still in full swing, as an outcome the energy cost increased in Greece. The European Commission, in response to the difficulties and disruptions of the global energy market caused by the Russian invasion of Ukraine and in an effort to manage this crisis, presented the "REPowerEU" plan, which aims to ensure energy independence from Russia by 2027. 

Corporate customers can hedge against the risk of unforeseen fluctuations in market prices of: 

• TTF Natural Gas through Averaging Swaps or Futures with the underlying index of prices of Natural Gas TTF NatGas.
• unforeseen fluctuations in the market price of the System Marginal Price (SMP) with Averaging Swaps based on SMP Baseload electricity prices published in HEnEx.  

What we achieve:

• The Averaging Swap Agreement changes the Company's payment profile from fluctuating to fixed. In this way, if the company chooses to hedge against price increases, in the event the current market value of the energy product is greater than the fixed value, the customer receives the difference. If not, the company must cover it.
• In this way the customer eliminates the risk of price fluctuations and better plans cash flows. 

So, regardless of the energy provider the company uses, it's possible to stabilize and budget production costs.

“As the budget of the key factors affecting companies' balance sheets is more difficult to prepare in a demanding environment of global change and macroeconomic instability, NBG has made it its primary objective to work closely with corporate clients to ensure that they have all the value added tools they need. 

As a result, the Bank has developed an International Market product platform in order to facilitate and further develop companies’ management of Assets and Liabilities.”

Thanos Cholevas
Head of Global Market Solutions