80% of corporates expect their cash reserves to remain steady or grow over the next three years — yet the vast majority of liquidity is kept in bank accounts where yield is close to zero, a new survey from Nordea shows. But despite having the authority to do so, very few corporates are taking full advantage of longer duration or higher risk investments to get better yield. In fact, 57% are happy to accept low returns in current market conditions –something that can easily turn into a cost for the business.
Read the full survey and report.
Most corporates surveyed keep the vast majority of their liquidity in simple overnight deposits. In fact, nearly six in ten of our respondents said they kept more than 75% of their liquidity in the bank.
“Corporates hold a lot of liquidity. Every company clearly needs cash reserves in order to fund operations, and to invest in acquisitions, capital purchases, and growth. Yet many corporates accept that they’re probably holding more cash than they need to – cash might be scattered around the group or lack of accurate and up-to-date reporting may make it difficult to forecast cash flows and future cash needs. As a result, they cautiously maintain a larger liquidity buffer,” says Johan Trocmé, Head of Corporate Research Sweden, Corporate and Institutional Banking at Nordea.
“We see low returns increasingly becoming an issue. Negative short-term interest rates are becoming even more widespread and are expected to stay negative for a couple of years. Consequently, many corporates are starting to face bank charges for their overnight deposits in most key currencies. These charges will erode the cash pile and many CFOs and company Boards are going to find that unacceptable,” concludes Trocmé.
Nordea surveyed more than 170 Nordic corporates, representing all four countries and a range of industries. The report is published in response to the changing risk landscape, most importantly the significant increase in FX volatility, and the sharp fall in interest rates, which is affecting both corporates’ debt costs and their liquidity yield.
As well as reflecting the current landscape, the report looks at the techniques that corporates are using to manage different areas of financial risk, primarily their use of hedging, which is essentially an insurance policy that turns uncertainty about the future (for example, fluctuations in commodity prices, interest rates or FX rates) into a manageable and predictable cost.
For additional information: Johan Trocmé, Head of Corporate Research Sweden, +46 10 1563422
Other Cash Management news
Awards and organisational news Nordea Priser
Nordea Transaction Banking has, for the second year in a row, won The Banker’s Transaction Banking Award for the Nordic region.
Insights and knowledge sharing
Nordea’s Summer of Innovation program has recently completed in Stockholm and Helsinki, successfully testing ten prototyped solutions during a period of six...
Nordea will partner with Finnish company Basware, a global leader in networked purchase-to-pay solutions, to provide a dynamic discounting solution to custom...
Awards and organisational news
Nordea has been named as Best Bank for Trade Finance Services in Western Europe by Global Finance magazine.
Conferences and events
Connect with Nordea at Sibos in Toronto. We'll be at our stand and taking part in many session at the Metro Toronto Convention Centre between 16 and 19 October.