Corporate Treasurers cautiously hold on to cash piles, despite low interest rate environment

Results of a recent survey of 60 Corporate Treasurer’s in South Africa recently undertaken by Nedgroup Investments reveals that the majority of respondents have not changed the way they manage money, despite a low interest rate environment and a record R5

According to Sean Segar, Head of Product, Cash Solutions at Nedgroup Investments, 68% of treasurers surveyed are sitting on higher cash balances than they were last year this time, but 75% of respondents said that the lower interest rate environment has not led to them changing the way they manage money.

“In fact 87% would like to see even more conservative money market funds without exposure to small banks and corporate paper, indicating just how risk averse this group is,” he says.

Segar explains that this is due to the impending migration towards the Basel 3 implementation and the stringent capital and liquidity requirements that it will bring for banks. “Banks will no doubt pass on the high costs of compliance to borrowers, while the impact on depositors will be mixed with the interest rates banks will be willing to offer varying depending on the type of depositor and how badly the bank needs them. This adds an additional layer of complexity for a treasurer,” he says.

According to Segar, the ability to forecast cash flows is becoming more and more important in order to optimise yields. Only 3% of respondents reported that they are unable to do any cash flow forecasting, while 23% can plan for only one day in advance. Meanwhile, 32% of respondents said they can comfortably plan a week ahead, 29% a month ahead and a further 13% said they can forecast their cash flows six months in advance. Segar says this opens up superior yield opportunities.

“This means that very little cash needs to sit on call as even the ability to plan a day ahead enables treasurers to earn better yields than call,” says Segar.

According to Segar, the survey also highlighted the effect that the turmoil in Europe has had on Treasurer’s perceptions of the local economy. “When asked about how they feel about the outlook for South Africa, the vast majority of respondents stated that ‘It’s not easy, but I’d rather be here than in Europe,’” says Segar.

“Money market funds have grown to R230 billion since their inception in 1995 and it’s clear from this survey that they are a very vital cash management tool,” says Segar.

Seventy-three percent of respondents currently make use of money market funds in some way or another, with a further 17% indicating that while they do not use money market funds at present, it makes sense for them to do so in future.

Interestingly, and contrary to the case in Europe as noted by Fitch, yield is the most important aspect for local treasurers when selecting a money market fund. “In Europe, corporate treasurers are more interested in capital preservation than yield,” says Segar.

Local treasurers are also content with the regulatory environment of South Africa. Forty-two percent of corporate treasurers surveyed believe the financial services regulatory environment in South Africa is “world class”. A further 53% call it “sound” and the remaining 5% minority classified the regulatory environment as “worrying”.

“Meanwhile, 91% are happy with the regulatory environment surrounding Money Market funds. Seven percent say there is not enough regulation relative to banks, while 2% think it is too onerous,” concludes Segar.