Cash balances balloon as corporates shun risk
Rising interest rates and macroeconomic uncertainty mean that corporate cash balances are running at levels not seen since the global financial crisis.
Cash-management income generated by the world’s 10 largest transaction banks increased by 26% during the first half of this year compared with the same period in 2021, according to the Coalition Index for Transaction Banking.
This increase was attributed to liquidity and balances benefitting from interest-rate hikes across leading economies, and continued growth in payables and receivables.
Rising interest rates in an inflationary environment and greater deposit growth at risk-averse corporates making a flight to safety have driven balance sheet-based business revenues from cash management and trade finance services across most transaction banks globally.
In trade finance, the impact of rising interest rates is not a positive factor
Unlocking working capital and managing risk are even more important to corporates when the macroeconomic environment is as uncertain as it is today, says Faiz Ahmad, head of global transaction services at Bank of America (BofA) – one of the banks covered by the Coalition report.
“There is growth in payables solutions, such as supply-chain finance, but we are also seeing more interest in inventory and receivables solutions,” he says.