Cash surplus spurs companies to rethink strategy

Cash surplus spurs companies to rethink strategy:

Money isn’t everything but it’s certainly a comfort for companies that fought the GFC and won. Illustration: Sam Bennett

How the worm has turned. Not so long ago, in the trough of the financial crisis, companies were crying out for credit. Now banks are faced with low demand for borrowings, at least from the low-risk companies they would like to lend to, anyway.

In September, NAB’s business confidence survey shows, 68 per cent of respondents said they did not need credit, just down from the record high of 69 per cent in April this year. Data from the Australian Prudential Regulation Authority also suggests low growth in business lending – around 2.5 per cent.

In fact, Australian companies are sitting on a mountain of cash. Australian non-financial private companies held $394.6 billion in cash and deposits at the end of June, according to Australian Bureau of Statistics financial accounts data. That’s 45.4 per cent of their financial assets and, says CommSec chief economist Craig James, it’s well above the long-term average of 38.9 per cent.

The headlines, combined with a labour market described by the Reserve Bank this month as soft, suggest that Australian companies have accumulated so much ready money at least partly because they’re generating notable savings by reducing staff, and not rehiring

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