BankingCorporate to Bank RelationshipsBank relationships core to operating cash investment mix

Bank relationships core to operating cash investment mix

According to the 2019 Association for Financial Professionals Liquidity Survey, bank relationships determine where companies put their cash

A survey of nearly 500 corporate treasury and finance professionals has confirmed that bank relationships are core to businesses’ operating cash investment mix.

The 2019 Association for Financial Professionals Liquidity Survey, underwritten by State Street Global Advisors, examined the current and emerging trends in organizations’ cash and short-term investment holdings, investment policies and strategies.

Key findings from the report include:

  • Bank relationships remain core to a company’s operating cash investment mix
  • Real-time payments operating in a 24/7 environment
  • Retreat to yield for money market funds
  • Environmental, social and governance (ESG) investment parameters in operating cash off to a slow start

Short-term investment holdings and strategies

According to AFP, the results from this survey will provide treasury and finance professionals with critical benchmarks on short-term investment holdings and strategies. Overall, 93% of respondents consider the relationship with their banks to be a deciding factor when determining where to place cash and short-term investments. This highlights the key recurring investment themes of safety, liquidity and yield for the treasury function.

Another highlight from the report is that privately held organizations and organizations that are non-investment grade and net debtors are more reliant on their banks than are other companies since 68% of respondents indicate that the credit quality of a bank also is a deciding factor when determining where to invest.

AFP president and chief executive officer, Jim Kaitz said: “Banks are financial professionals’ key partners and that relationship is a major determinant in deciding where to place operating cash. However, our research does show that bank deposits have gradually declined year-over-year. It will be interesting to see if practitioners will continue to emphasize bank relationships in an uncertain interest rate environment.”

Relationship value

Barry F.X. Smith, COO of State Street Global Advisors Global Institutional Group added: “We continue to see high cash balances acting as a buffer in the face of market uncertainty. Cash management is increasingly being used by investment professionals as part of a broader corporate strategy.”

The report also revealed a shift toward yield for money market funds. Although a fixed or floating net asset value (NAV) was still the most popular reason for choosing a money fund at 56%, yield ranked second (40%), followed by fund ratings (38 percent). This is a shift from last year when yield was ranked third after the relationship value from the investment manager.

As real-time payments take shape, treasury departments will need to consider sourcing liquidity in real time as 39% of survey respondents expect the money market industry to provide liquidity 24/7.

The survey concluded by saying: “It is hard to predict if we will see a difference in how cash and short-term investments are being managed a year from now. Financial professionals will make their decisions based on economic conditions; if they feel confident about the economic environment, they may also feel more confident about taking some risks and changing the way they manage their organizations’ cash and short-term investments.”

The report can be read in full here.

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