Deloitte Belgian CFO Survey - Q3 2009
This quarter’s survey asked CFOs for their views on whether the recession and the credit crunch would cause lasting changes to the way in which corporate structure their balance sheet. 65% of CFOs believe the change is indeed likely to be permanent. The corporate sector seems to enter into an era of lower gearing and greater financial conservatism. The downturn will permantly change balance sheets, with corporates running higher levels of cash or liquid reserves and relying more on equity and corporate bonds finance and less on bank borrowing.
These changes are already starting to make themselves felt. Bank borrowing remains the least attractive form of finance. Equity has gained attractiveness. While the economic outlook has somewhat improved, CFOs remain cautious. 83% think now is not a good time to take risk onto their balance sheets and debt remains out of flavour.
The challenge ahead for the CFO is to ensure liquidity. Secure banking relationships are essential and corporates likely need more of them as before. Counterparty risk might not have been an important factor in the past: it is a big factor now, and it will require continued attention CFO attention going forward.
CFOs expect elevated levels of financial market volatility to persist, and expect to continue to face significantly tighter lending terms from banks. On the positive side, only a small minority of CFOs expects to continue to face reduced availability to credit in the long run.
A majority of CFOs believe the recession will result in a long term change in the way which corporations structure their balance sheets. CFOs report the degree of financial risk on their balance sheets fell in the third quarter for the first time in the year. 83% thinks is not a good time to take risk onto their balance sheet.
CFOs report the degree of financial risk on their balance sheets fell in the third quarter for the first time in the year. 83% thinks is not a good time to take risk onto their balance sheet.
The stabilisation of financial markets has helped reducing financial risk. In addition, measures taken by companies themselves, such as reducing debt levels and increasing liquidity, contributed to lowering the level of financial risk.
Bank debt remains out of favour, although significantly less than in the first and second quarter. Equity has gained attractiveness as a means of financing and becomes even overall attractive.
Though Belgian survey data is too limited to draw further conclusions, Deloitte UK survey data suggests that the disruption in the banking system has fundamentally changed UK CFOs preferences for financing their business. In the UK, bank borrowing has gone from being the most attractive to the least attractive form of finance over 2 years. Wholesale financial markets rather than banks, are now seen as offering corporates the most attractive sources of alternative sources of external finance through equity and corporate bond markets.
Filling the gap created by the collapse of bank lending would require a far greater increase in corporate bond and equity issuance than has been seen so far.