Major UK corporates strengthen cash reserves for next crisis

New Investec research shows nearly three out of four (73%) corporates and large SMEs are looking to strengthen cash reserves as part of the long-term switch in risk management, so they are in better shape for any future crisis.

The change in policy and planning builds on experience during the coronavirus crisis which has seen companies substantially boost cash reserves – Investec’s research shows one in six (16%) say their cash reserves are now at an all-time high.

Its study among 100 senior executives at corporates with total cash deposits of more than £6.17bn and average reserves of around £62.3m found 58% had seen cash reserves increase over the past year. Around one in five (17%) say reserves are 40% or more higher than last year.

The research for Investec, which provides bespoke deposit accounts for corporates with between £5m and £150m on deposit, found that for those companies that have seen cash reserves rise, the main reason for this was that their revenue had increased during the coronavirus crisis. Around 58% say this, but more than half (51%) say cancelling investment projects has boosted reserves while 44% attribute increased reserves to cost-cutting. Around one in three (34%) have sold assets while 17% say government crisis loans mean they have more cash.

Companies generally say they have cut back on investing in their operations during the crisis with 82% confirming this. Around one in five have reduced investment by 20% or more compared with two years ago.

FJ Eigelaar, head of client group funding at Investec, said: “The coronavirus crisis has changed business attitudes on a wide range of issues and appears to have driven a shift in views on cash reserves.

“Many companies are already cash-rich following the crisis and nearly three out of five now plan to keep more cash on reserve, so they are in better shape when or if the next crisis or unforeseen event comes.

“That should mean increasing the emphasis on cash management and ensuring that reserves are in the best possible range of accounts so that companies can react appropriately.”

Investec’s study found not all companies have seen cash reserves increase – 38% say they fell during the past year with 9% saying they are 30% or more lower. Around three-quarters (73%) of corporates and large SMEs who have seen their cash reserves fall say it is because they used it to fund operations, while 58% had to use the money to fund projects they were committed to but no longer had all the funding for because of the crisis.

Investec offers a wide range of bespoke deposit accounts for corporates and large SMEs for minimum deposit sizes of £5m. Products include notice accounts, instant access accounts and its Access 50 account offering higher rates than notice accounts and also the flexibility of fee-free instant access up to 50% of the deposited amount.