Despite lowest rates in 40 years, SA Corporates have not changed the way they manage cash, survey finds

Interest rates in South Africa are currently at their lowest point in approximately 40 years. Although capital markets recently started to price in interest rate hikes as soon as the first half of 2014, corporate treasurers do not foresee a change until t

This is according to the recent results of the annual Treasurer’s survey undertaken by Nedgroup Investments Cash Solutions. The survey gauges perceptions of current issues facing corporate treasurers, CFO’s, financial managers and other financial decision-makers.

46% of survey respondents said they foresee no change in the interest rate until the second half of 2014. Meanwhile, 24% indicated that they expect rates to increase in the first half of 2014 and 13% said they expect rates to increase before the end of 2013.

Sean Segar of Nedgroup Investments notes that most companies are not resorting to indiscriminate “yield chasing” to compensate for the low prevailing interest rates.

In fact, 82% of respondents said the low interest rate environment had not had any effect on the way in which they managed their companies’ finances.
Only 7% of respondents said they had been taking on more risk given the current environment, while 11% indicated that they were taking on less risk.
Segar says by strategically forecasting cash balances, treasurers can take advantage of opportunities to invest the cash portion of their balance sheets and generate valuable incremental returns.

However, survey results indicate that treasurers are currently sitting on more cash than they were a year ago and expect to increase this in the near future.
“Only 25% of respondents said they would have less cash in a year’s time, while 47% said they envisaged an increase in the levels of cash on their balance sheets in the next 12 months,” says Segar.

Corporates are likely holding on to higher cash balances because banks are not lending as freely as they used to.

“The impact of regulation on the banks is really starting to be felt now and corporates are finding it increasingly difficult to access the levels of finance they have become accustomed to. This has resulted in corporates holding higher cash balances. Also excess capacity together with general economic instability, labour unrest and uncertainty around power supply have resulted in projects being deferred and cash earmarked for these projects remaining unspent,” says Segar.

“The majority of respondents indicated that they thought Basel 3 would have an impact on the short-term cash investment landscape, with 86% expecting more corporate entities to place paper directly into the market as a means of funding.”

Views on the regulatory environment in South Africa were positive. 32% of respondents described the regulatory environment for financial services in South Africa as ‘world class’ and 60% described it as ‘sound’.

In terms of respondents’ outlook for the future of the country, 62% chose the option: ‘Not easy but I’d rather be here than Europe’. 20% held a negative outlook for the country.

“The pressure on corporate treasurers to generate yield for their investments is increasing, but they generally remain responsible investors. On-going regulatory changes are adding to the complexity of treasury management in an age of economic uncertainty. Treasurers are urged to plan carefully to take advantage of any investment opportunities that could make their cash work harder, but without taking on undue risk,” concludes Segar.