Unspent Cash is King: Why Corporations Aren’t Letting Go

Since the global financial crisis, corporations have become more cash rich, not necessarily due to growth in business, but also due to an aversion to investing cash back into the business or sharing with shareholders as dividends. The cash levels are at record highs, with estimates of cash hoarding by corporations
ranging between US$1.5 trillion to US$5 trillion
, according to CNBC. From an industry perspective, information security or technology companies tend to be amongst the top non-financial companies with high cash levels, with pharmaceuticals and biotech companies following suit.

Key Drivers

There can be any number of reasons for companies to hold onto cash. Firstly, a good cash buffer gives a company flexibility to meet its business needs. A company may also expect potential credit constraints in the future, and therefore could hold cash as a precautionary measure. Secondly, due to a number of tax reasons, some companies are not providing dividends or investing back in other businesses or acquisitions, hence use of this excess cash is not directly visible. Thirdly, these companies are allowing for more research and development, thus the higher levels of cash levels amongst technology and pharmaceutical companies.

Similar Trend Seen with Asian Corporations

This trend is not only seen in the United States or Europe, but in Asia as well.
Nearly US$500bn of excess cash is held by nonfinancial companies
, primarily from Japan, Korea and China, the Wall Street Journal noted. For Asian companies, there are more diverse reasons why cash is held, with key reasons being the fruits of going global and the benefit of that investment, along with tremendous growth over the years that increased cash flows. This combination easily justifies the amount of cash built up by companies in Asia.

Considerations for Banks and Corporations  

While companies are inclined to hold more cash position, with the Basel III liquidity considerations in the industry, banks are focused on improving liquidity coverage ratios (LCR) as a primary goal. Therefore, banks are far more likely to pay rewards for LCR-friendly deposits versus excess cash positions, which has not been the situation in the previous years. As a result, companies are challenged to benefit from high returns on their cash positions and are looking at other investment products such as money market funds (MMFs) and short-term funds to ensure returns on their cash positions.

With the trend of holding excess cash positions expected to continue – after all, cash is king – in Asia, government-driven initiatives seem to discourage the build-up of cash. For example, in July this year, Korea announced a new economic package that imposes a tax on companies’ excess cash to promote home-grown names to invest back to the economy.

With renminbi (RMB) internationalisation, the impact is twofold. Some of the US and European corporations operating in China are expected to release cash into global or regional liquidity management structures, in order to prevent the accumulation of cash in a single country, and encouraging utilisation in other locations where there might be short-term working capital needs. On the flip side, this also allows for Chinese corporations to bring excess cash back to their home country.

Increased Adoption of Cash and Liquidity Management Solutions in Asia

With this backdrop, corporate treasurers are being pressured to improve working capital efficiency and maximise their cash balances. Cash and liquidity management has been rated as
one of the topmost treasury activities by corporates
for the last few years, according to PwC data. Most companies evaluate cash management solutions, bank deposits or MMFs as safer options, though current low yields in money funds increase the attractiveness of bank solutions in comparison.


In addition, Citi has observed many of its globalising Asian clients looking for cash management, and has observed clients choosing liquidity solutions that make their cash work harder for them. For example, they are pooling cash to a centralised location, or moving cash onto a much more efficient platform, and integrating cash movement well into their cash flow forecasting. As examples, companies in Singapore and Hong Kong have also been increasingly looking at regional pools where they use the excess cash to deploy for the requirements of growing markets such as Indonesia, Vietnam and Malaysia.

In conclusion, corporations are expected to continue to accumulate cash positions with different motivating factors, from the need to reserve cash for research and development to tax considerations. More importantly, changes in banking regulations or the interest rate environment will certainly make a difference and allow companies to make choices with this excess cash. Overall, if the economic indicators work favourably and business confidence grows, there will be an opportunity for companies to channel cash to right investments. Until then, cash will indeed continue to be king.


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