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Bank deposits, short-term investments – Industry roundup: 15 June

Bank deposits make up 55% of organizations' short-term investments

According to the 2022 AFP Liquidity Survey from the Association for Financial Professionals (AFP) (underwritten by Invesco), a typical organization currently keeps 55% of its short-term investments in bank deposits, the highest figure since 2016. Comparable trends have been observed for short-term investments outside of the United States, with holdings at 69%. The AFP Liquidity Survey was conducted in March of 2022 and received responses from 284 business practitioners.

The poll revealed that 34% of firms are preparing their portfolios by controlling the length of their holdings, with 57% of them doing so in advance of anticipated hikes in the federal funds target rate. Others are contemplating making bond maturity ladders, investing in floating rate notes, or employing a barbell strategy with particular securities, stated the survey.

The number of businesses planning to increase their cash holdings in the US has declined by 10 percentage points to 37 percent since 2021, suggesting that businesses are being cautiously hopeful while building up liquidity to reduce uncertainty.

Other conclusions are as follows:

  • Sixty-three percent of firms responded that safety remains the most important short-term investment goal, given the economic uncertainties brought on by rising inflation rates, the Federal Reserve's projected actions, and the hostile geopolitical climate.
  • Twenty-five percent of firms are thinking about Environmental, Social and Governance (ESG) investment criteria, which is much more than the 17% revealed in the 2021 survey.
  • Twenty-six percent of respondents say their companies have plans to have their operating cash and investment portfolios ready for the June 30, 2023 LIBOR expiration date, an 11% increase over 2021.

Jim Kaitz, President and CEO, AFP, commented that safety is prioritized by most firms as their top investment goal, and they are “hopeful as a smaller percentage of respondents report an increase in cash and short-term balances at their organizations over the past year compared to a year earlier, suggesting that companies are less constrained than they were in 2021.”

BofA expands Virtual Account Management (VAM) to US Businesses

Bank of America announced that their Virtual Account Management (VAM) solution will become available to US businesses. The geographical expansion comes on the heels of the addition of the Netherlands to the existing UK and Ireland capabilities last year. Companies can reportedly use VAM to create virtual accounts that function as sub-ledger accounts linked to physical accounts.

According to Liba Saiovici, head of Global Receivables of Bank of America's Global Transaction Services, "large companies nowadays typically have a complex account structure causing challenges for real time visibility and reconciliation." Businesses eager to streamline their banking relationships and improve the efficiency of their treasury operations and global liquidity management will reportedly benefit from the VAM solution.

A treasurer using VAM can reportedly build a virtual account for a particular entity in less than 24 hours. They then have the ability to view the account's transactions in real time alongside those of other virtual accounts linked to the same physical account. The next-generation cash management product from BofA is said to make treasury transformation simpler for businesses because of its user-friendly interface.

Fernando Iraola, co-head of Global Corporate Sales GTS and head of Latin America GTS, Bank of America, commented, "since first introducing VAM seven years ago, we've made substantial enhancements to ensure the platform's design and capabilities support a company's local treasury operations while also being globally consistent." Additionally, Iraola added that bringing this strategic tool to the United States complements the expansion, as they currently work with 95% of the Fortune 1000 companies. VAM's global rollout will continue in 2022 and 2023, with new countries added in Europe, Latin America and Asia.

Account takeover attacks intensifying as BNPL thrives, warns Imperva

Account takeover (ATO) attacks are on the rise as a result of the increasing popularity of "Buy Now, Pay Later (BNPL)," according to Imperva, Inc., a pioneer in comprehensive digital security with a mission to assist enterprises in protecting their data. Attacks on financial services and fintech companies have increased by 58% in the last month alone, as noted by the Imperva Threat Research Team. They suggest that this shows how bot operators are progressively turning to ATO as a dependable source of profit and disruption. ATO attacks grew by 148 percent across all sectors in 2021.

Reports indicate that the BNPL sector is expanding rapidly and is expected to be worth nearly US $4 trillion by 2030. However, it is said that it is also an appealing target for bot operators because many of the companies offering BNPL loans are new, which means they do not have a vast amount of historical fraud data to help them identify potentially fraudulent purchases. Furthermore, the lack of regulation surrounding BNPL loans in comparison to other credit agreements makes Account Creation Fraud (ACF) easier for bot operators. ACF entails using stolen personal information from data breaches to create bogus accounts and purchase items illegally.

According to the 2022 Imperva Bad Bot Report, financial services, travel and retail are the top industries involved in BNPL transactions and are most impacted by ATO attacks. In fact, the financial services sector—which is at the heart of BNPL—was the target of more than one-third (34.6%) of all ATO attacks. The rate of ATO attacks on financial services organizations is projected to keep substantially increasing as the shift toward digital payments continues, supported in part by the increase in BNPL products.

Lynn Marks, Senior Product Manager, Imperva, commented that a comprehensive strategy based on an advanced bot protection solution can help detect and reduce automated fraud as well as assist fraud teams in preventing fraudulent activity on user accounts. Marks suggests that this will be necessary to manage the risk of BNPL fraud.

The UK-Singapore digital economy pact to promote secure e-payments and reliable data

According to reports, the UK-Singapore Digital Economy Agreement (UKSDEA) went into effect on 14 June to provide businesses with end-to-end digital trade, including safe electronic payments and trusted data flows. The Ministry of Trade and Industry stated that the agreement will provide consumers with better online protection and secure cross-border payments.

Singapore and the United Kingdom (UK) will reportedly promote clear and concise measures on open application programming interfaces, the adoption of internationally accepted standards, and the advancement of interoperability between e-payment systems under the UKSDEA.  Additionally, the agreement also aims to eliminate paper-based trade by accepting electronic versions of trade administration documents from both countries.

Both countries seek to promote the interoperability of electronic documents including bills of lading and invoices in order to allow the cross-border digitalization of supply chains. It will reportedly reduce transaction costs, speed up operations and lower costs for enterprises.

Reports indicate that it will also increase trust in data flows by allowing businesses in Singapore and the UK to transfer information seamlessly across borders as long as they comply with the regulations. Furthermore, data localisation will be prohibited because it is reportedly unnecessary for trade and may raise the cost of data storage.

The agreement is also said to promote trust in digital systems, such as those used by companies that use crypto and source code protection. Additionally, the agreement includes provisions for assisting small and medium-sized businesses and removing barriers in the digital economy.

Italian banks to load up in sovereign bonds

Italy's government debt crisis 10 years ago threatened to bring down the nation's banks. Today, lenders have reduced their holdings of bonds issued by the government, stopped making bad loans, and increased their capital reserves. However, as the European Central Bank (ECB) begins to end bond purchases, the demand to increase holdings of sovereign bonds will increase once more.

Concerns about Italy's government debt are reportedly affecting domestic banks. On Monday, 10-year Italian sovereign bond yields surpassed 4%, the highest level since the end of 2013, while the yield spread with equivalent German Bunds surpassed 240 basis points, the widest in two years. Reports indicate that investors were prompted to sell Italian banking stocks in response to expectations of higher interest rates in the eurozone. The FTSE Italia All-Share Banks Index dropped 3%.

According to data from the Italian banking association, ABI, Italian banks held 407 billion euros in domestic sovereign bonds at the end of March 2022. Citi’s data showed that the country's banks held 6.6 percent of total assets in Italian sovereign debt in March 2022, nearly half the proportion held in 2015. Additionally, at the end of March, Italian banks had a total of 16.9 billion euros in net non-performing loans, accounting for 0.96 percent of total loans. This compares to a peak of 88.8 billion euros in November 2015 for net non-performing loans.

Reports indicate that Italian lenders have successfully broken their bad loan habit. After provisions, bad credits total 17 billion euros, accounting for less than 1% of total bank loans, providing lenders more capital. Additionally, foreign investors have begun to sell Italian bonds ahead of the ECB's end of net asset purchases in July. Reportedly, Italian banks and their investors may be reluctant to buy.

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