The year 2016 was a ‘watershed’ year for many corporate treasurers with surplus cash. Regulations such as Basel III are impacting their banks’ willingness and ability to accept short-term deposits, newly introduced reforms in the US are having a significant effect on prime money market funds (MMF), while the low, and in the Eurozone, negative interest rate environment is also impacting corporate investment strategies.
What’s happening to corporate cash balances?
Corporate cash balances continued to rise in 2016, a consistent trend since 2012, but the rate of growth is slowing.
Furthermore, the proportion of companies whose cash levels had not changed increased for the first time since 2012, from 31% in 2015 to 44% in 2016. Even so, nearly half of corporations surveyed have increased their cash balances over the past 12 months. The reasons why companies hold this cash are also shifting. In 2015, over a third of companies held cash to finance capital investment and M&A, but this dropped to 19% in 2016. Conversely, while 23% of companies held cash to finance working capital in 2015, this rose to 43% in 2016.
2016 also marked an important change in treasurers’ primary cash investment challenges compared with previous years. Sixty per cent noted that the low or negative interest rate environment was their number-one concern. This contrasts with visibility, regulatory, asset availability and trapped cash that have topped treasurers’ list of investment challenges over the previous five years.