Insight from our experts

Changing Priorities: Security, Liquidity, Yield

Vivek Ramachandran

Vivek Ramachandran
Quick Facts Name: Vivek Ramachandran
Company: Barclays Commercial Bank
Position: Head of UK Cash & Trade

Vivek Ramachandran, Head of UK Cash & Trade, Barclays Commercial Bank, discusses the current market and helps you to focus on some of the key areas of liquidity management.

I don’t need to tell you that today’s economic times are incredibly challenging and we are in a very different place to where we were 18 months ago. In October 2007 the Bank of England base rate was 5.75%, savers enjoyed higher rates and credit was much more widely available than it is today.

When a number of banks across the globe hit major difficulties (with subsequent failure or quasi-nationalisation) the credit crunch really started to bite. Now we see base rates at the lowest level they have ever been, the economy is in recession and the credit crunch continues to pose challenges to us all.

So what impact has this had on businesses looking to deposit excess cash?

18 months ago the behaviour of many corporates and banks was driven by price, with the traditional cash management principles of SLY (security first, followed by liquidity, and lastly yield) often abandoned. Back then, security just didn't seem important. Today however, businesses are acutely aware of the need to have available working capital to see them through the recession and are returning to this tried and tested cash management model where the questions they now ask are:

  • Is our money safe?
  • Are the instruments and the institutions we use secure – do we understand current credit rating of our chosen financial institution?
  • Can we access funds when our business needs them?

At Barclays Commercial Bank we have seen many businesses reviewing their treasury policies to reflect a change in risk appetite. There has been a noticeable change with security again the number one priority and more and more businesses are depositing money with us with safety and stability at front of mind.

Having said all this, a key message we are giving at the moment is not to over compensate for economic uncertainty by keeping too much liquidity on low yield instant access accounts – planning and forecasting is key, but returns are still important! Businesses can benefit greatly by adopting a balanced portfolio approach.
This involves complementing instant access accounts with fixed term deposits over a range of tenors such as 3 and 6 months to maximise yields without compromising on security. It is sensible to look in more depth at your:

  • Day to day operations
  • Short term surpluses
  • Medium term cyclical investments and
  • Long term strategic investments

This will help you determine the optimal solutions for your business.

Every business is different, and their banking requirements will reflect this diversity. Investment and liquidity deposits should not be considered as "off-the-shelf" products, but rather as a strategic blend of options which vary depending upon specific business and industry needs. Whatever challenges you are currently experiencing, it is important that your banking provider understands what 'Security, Liquidity and Yield' mean to you specifically in relation to your deposits.

To make sure you have a solution to meet your needs, you should be asking:

  • What level of risk are you willing to be exposed to?
  • When will you need access to your cash?

Where to go for more information

This may be the first time you've had to challenge your decisions on surplus funds. Look out for our practical guide to help your decision making.

If you would like to discuss any of these topics further, please contact your local Barclays Commercial Bank Relationship Team or visit www.barclayscommercial.com.