Corporate Treasury Survey Reveals Drive to Protect Assets

Uncertainty over the macroeconomic outlook and the banking system means corporate treasurers are making the protection of assets and ensuring continued access to funding their top priorities, according to a Fitch Ratings survey.

The need to protect assets has driven up the minimum rating that corporates target for their liquid-asset holdings over the last few years. This flight to quality for liquid assets has been most pronounced in emerging markets, where 56% of corporate issuers target a minimum rating of A- for their holdings, compared to just 19% in 2008 and 48% last year. The findings are from a survey of 181 companies, mainly from Fitch’s portfolio of rated Europe, Middle East and Africa (EMEA) and Asia-Pacific corporate issuers.

The results show issuers are also closely scrutinising which financial institutions they trust to hold their liquid assets. In this case, it is issuers in the developed markets that are most likely to have taken action, with 42% of respondents from developed markets saying they have made changes to their banking or counterparty relationships, compared to 36% in Fitch’s 2010 survey.

The most notable changes to counterparty relationships include increasing the number of counterparties to reduce single-bank exposure without completely severing relationships with weakened institutions. A significant proportion of respondents also tightened their rating requirements for counterparties in the last year.

In a separate report in December 2011, Fitch noted that corporates have taken steps to mitigate the risk of their exposure to individual banks as a borrower. Issuers with bank facilities above €400m showed evidence of good diversification, with a median concentration of tranches from a single borrower of around 14%.

The average lending group had a viability rating of between a+ and a-. Even under a stress test that lowered major Spanish, Italian and French banks to the bbb viability level, the average banking group strength fell by a notch or more in less than 10% of cases. The inclusion of French banks in the stress test had the greatest hypothetical impact.


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