Bank relationships are core to US businesses’ operating cash investment mix, according to the 2019 Association for Financial Professionals Liquidity Survey.
The AFP survey, underwritten by State Street Global Advisors, took responses from nearly 500 US corporate treasury and finance professionals in March this year. It found that 93% of respondents consider the overall relationship with their banks to be a determinant when deciding where to place their organisations’ cash and short-term investments.
“The continued dominance of banking relationships highlights the key recurring investment themes of safety, liquidity and yield, the AFP noted.
Just over two-thirds (68%) of respondents indicated that the credit quality of a bank also is a deciding factor when determining where to invest. Organisations that are privately held, non-investment grade and net debtors are more reliant on their banks than are other companies.
A shift towards yield
“Banks are financial professionals’ key partners and that relationship is a major determinant in deciding where to place operating cash,” said AFP president and chief executive officer, Jim Kaitz.
“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 emphasise bank relationships in an uncertain interest rate environment.”
Looking forward, as real-time payments take shape, US treasury departments will need to consider sourcing liquidity in real time. Thirty-nine percent of survey respondents expect the money market industry to provide liquidity 24/7.
The AFP’s latest liquidity survey also revealed a shift toward yield for money market funds (MMFs). 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%). That marks a shift from last year when yield was ranked third after the “relationship value from the investment manager”.
“We continue to see high cash balances acting as a buffer in the face of market uncertainty,” said Barry F X Smith, chief operating officer of State Street Global Advisors Global Institutional Group. “Cash management is increasingly being used by investment professionals as part of a broader corporate strategy.”
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