Corporate Deposits Less Sticky, but Not Rushing for Exit
Recent reports about European multinational companies minimising bank deposits in riskier sovereign nations highlight the relatively flighty nature of large wholesale deposits compared to retail funding. However, Fitch Ratings’ research indicates corporates in countries such as Spain and Italy have still kept significant deposits with local banks. The quality, including the granularity and comparative ‘stickiness’ of deposits is factored into Fitch Ratings’ analysis of banks.
Fitch’s 2011 survey of corporate treasurers, which covered 181 of the largest companies in Europe, the Middle East, Africa (EMEA) and Asia-Pacific, found that 42% of respondents in developed markets had changed their relationship banks, compared to 36% in the 2010 survey.
Despite these widespread reviews of banking relationships, the survey also found that more than half of corporates surveyed in Italy and Spain had kept 60% or more of their liquid assets in local banks. Fitch would expect this number to be significantly higher for small and medium-sized enterprise (SME) deposits, because smaller companies, while able to switch banks, are likely to find it much harder to move their banking relationships to a completely different country.
Recent press reports indicated GlaxoSmithKline (GSK) has been performing a daily cash-sweep to move funds out of most European countries since early last year, while Vodafone has reportedly done something similar with its Greek accounts. It is easier for large multinationals to manage their exposure in a particular country because they typically have wide ranging global banking relationships and more options for their liquid assets.
Fitch and banking regulators acknowledge that there is a difference between the stability of different types of deposit. Corporate deposits are more risk-sensitive and therefore more likely to leave a bank over credit concerns. Retail deposits tend to be more rate-sensitive but can prove to be more stable, or sticky, to the extent that they are protected by deposit insurance. Substantial corporate deposits in Germany can also be covered by insurance schemes, giving companies little incentive to differentiate between banks or focus on bank credit risk in that country.