CORPORATE deposits in SA are now more than R530bn as companies too timid to invest owing to economic uncertainty continue hoarding cash and putting it into low-yielding instruments, says Sean Segar, head of product for cash solutions at Nedgroup Investments.
In addition, the need to have readily available cash to pounce on acquisitions and to service debts has been blamed for rising nonfinancial corporate deposits, which have grown from more than R520bn at the beginning of the year to nearly R534bn in March, from R469bn a year ago.
Absa deputy CEO Louis von Zeuner said yesterday: "If growth over the remaining part of the year is the same as year-on-year growth to end April, corporate deposits will reach about R560bn by year-end."
Michael Jordaan, CEO of First National Bank, said last week this was the time to spend in preparation for an eventual economic boom. Economists predict growth for this year of between 1,7% and 2,4%.
Mr Jordaan said he believed companies would rue the decision not to invest for growth when the economy turns around.
Retailers, food and industrial companies are some of those holding healthy cash balances with little, or in some cases no debt, bankers say.
Manufacturers, on the other hand, claim they would want to invest for growth, but fret about lack of government incentives to improve their competitiveness.
Professional services firm Deloitte recently warned that lack of investment and a worsening skills shortage threatened the competitiveness of manufacturers.
Mr Segar attributed the high deposits to a lack of confidence to commit to major capital projects, and a perceived need to strengthen balance sheets in uncertain times while the economic recovery wavers.
Many companies also still had memories of how bank credit froze during the last financial crisis, and would rather hold onto cash they can readily access when opportunities arose, he said.
But the latest statistics show a reduced appetite for corporate borrowing, with corporate credit growth falling from 11,9% in March to 7,5% in April, representing a 2,3% month-on-month drop in credit extension to business - the largest in more than a year, said Peter Attard Montalto, a contributing analyst at research company Nomura.
Mr Montalto said this showed that the cash hoarding by, and risk aversion of, companies was "increasing once again" and posed a downside risk to growth in gross domestic product.
Mr Segar said with interest rates so low, fortress balance sheets or surplus cash on balance sheets had created a "significant" drag on earnings and returns in equity.
"For many corporate treasurers the memories of how suddenly banks froze access to funding following the 2008 financial crisis remain fresh.
"Part of these high cash balances exist because corporates want to be in a position to fund internally should banks again tighten up on lending."
As a result, Mr Segar said, corporates had large cash deposits, the bulk of which were with banks. "Many of these deposits sit in call accounts which offer immediate access to funds. However there is a price for immediate access and this comes in the form of lower interest rates." While it was understandable that companies had adopted an overly conservative balance sheet in the face of market uncertainty, there were potential returns that their cash pile could generate.
"Even if times dictate higher cash balances on corporate balance sheets it is crucial that this is put to work as best as possible," he said.