More firms boosting bank deposits
In a sign of increased business optimism, more companies are depositing cash in short-term investment accounts in banks, with an overwhelming majority of depositors citing better cash flows as a reason, according to a survey from a finance professionals group and the parent of Citizens Bank.
Bank deposits now accounting for 52 percent – the largest percentage ever – of short-term corporate investment balances, according to data from the Financial Professionals (AFP) and underwritten by RBS Citizens, which is based in Providence, R.I.
The deposits continue to grow for three key reasons: there are few alternatives with any yield; companies are uncertain about future changes in money market funds; and many banks allow corporate customers to defray service fees through earnings credit rates on large cash holdings, according to the AFP Liquidity Survey, which gathered data from 740 respondents.
Despite a slow economic recovery, 36 percent of companies reported higher cash reserves in the last year, with 73 percent of those companies attributing those bigger reserves to improved operating cash flows.
“There are definitely signs that could be indicating change and rising optimism in the marketplace,” Matt Richardson, a senior vice president for RBS Citizens, said in a statement.
Meanwhile, 68 percent of respondents cited safety as a priority in the increased bank deposits, with 28 percent citing liquidity.
In another finding from the survey, fewer than a quarter of survey respondents reduced reserves, which they mainly used for capital expenditures (43 percent), retiring debt (28 percent), acquisitions and launches of new businesses (20 percent), or stock repurchases or dividends (20 percent).
“The pace of economic recovery is the determinant of cash decisions,” Jim Kaitz, AFP’s president and CEO, said in a statement. "We see corporate cash piles remaining in traditional vehicles until business prospects significantly improve or short-term rates inch up."
(Image courtesy FreeDigitalPhotos.net)
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