Companies are holding their short-term investments in banks due to concerns over the economy, according to the 2020 AFP Liquidity Survey, underwritten by Invesco.
In a survey of nearly 375 corporate treasury and finance professionals in early March, 51% of respondents revealed that they increased their short-term investments in banks.
This is the highest percentage in three years and a reversal of a downward trend that began in 2015.
Although the survey was taken before the full effect of liquidity preservation efforts had set in due to the COVID-19 outbreak, this flight to caution likely reflects concerns that the pandemic poses a critical threat to the global economy.
Safety continues to be the most-valued short-term investment objective for 62% of organizations, followed by liquidity at 34% and yield at a distant third with 4%.
Given the current recession, we should probably expect larger shares of companies opting for safety in the future.
As the crisis surrounding the pandemic unfolds, trust in banking partners will be paramount as the survey reflects.
- Ninety-three percent of respondents consider the overall relationship with their banks to be the primary driver in bank deposit selection.
- Seventy-three percent indicated that the credit quality of a bank is a deciding factor in determining where to maintain balances.
“Bank deposits saw an increase for the first time in five years, and that’s not a coincidence.
Although we performed this survey in the early days of the pandemic, financial professionals could see the gathering storm.
With companies needing more access to liquidity and drawing down on credit facilities, their relationships with their banks will become more important than ever,” said AFP president and chief executive officer, Jim Kaitz.
- The percentage of companies with written investment policies declined by nine points to 71%. However, this area will likely be prioritized amid the current recession.
- The majority of cash and short-term investments held outside the U.S. is in U.S. dollars (52%) and bank products, mirroring a domestic approach to investing.
“As a global provider of cash solutions, we have successfully navigated the recent environment through our longstanding strategy that considers safety and liquidity in tandem with (or alongside) yield.
The heightened importance of reliable practices and planning in uncertain environments is consistent with the findings in this annual survey, and we see that borne out with the consideration of cash segmentation strategies with many of our global clients both in the U.S. and abroad,” said Laurie Brignac, CIO and Head of Global Liquidity, Invesco.
For more information, visit www.afponline.org/liquidity