Some 58% of the 170 Nordic companies surveyed hold more than three quarters of their cash reserves in bank accounts, with overnight deposits being the most popular instrument. These are also the most vulnerable to negative interest rates, as most central banks in the region charge local banks for holding overnight deposits. These banks could easily pass on those costs to their clients. Some banks in Switzerland, which boasts the lowest central bank interest rates in the world, have already started to do so.
Interest rates in Denmark and Sweden are only slightly less low than in Switzerland, so companies in these two countries are at most immediate risk of having to shoulder the burden of negative interest rates. Yet, “Four out of five corporates we surveyed say they expect their cash holdings to stay steady or grow,” says Nordea.
Only 14% of companies surveyed invest in government bonds, and 13% invest some of their liquidity in credit. It’s not that surprising these figures are as low as they are, since most companies only invest in bonds with maturities of less than six months, which typically have lower yields than bank deposits.
But many companies have responded to the record-low interest rates by permitting longer maturities and greater credit risk in investments, according to Nordea. “43% now permit investments with maturity of six months or more,” says its report. However, if companies intend to earn returns from their liquidity reserves, or even prevent future losses, they will have to make more radical changes than those.