In the second of a two-part series on cash trends, our liquidity team examines European corporate cash holdings and the increasing appeal of money market funds (MMFs).
Read this article to understand:
- The rise in European corporate cash holdings and the forces driving the growth
- Which industry sectors have seen the biggest increase in cash balances
- Why MMFs are a compelling alternative to bank deposits
The corporate treasury function has evolved from performing transactional tasks such as managing liquidity, ensuring operational efficiency and mitigating financial risks to one where it now plays a significant part in driving value for the company.
In part one of our two-part series on the latest trends in cash management in Europe, we looked at the recent developments in corporate cash balances, analysed the differences in overnight and deposit rates in different countries, and examined the growing strategic importance of MMFs.
In part two of our analysis on the challenges facing European corporation’s treasury functions, we examine why cash holdings have risen and the macroeconomic and sectoral forces driving this growth. We go on to explore how MMFs have become an increasingly attractive tool for liquidity management, offering both yield and capital preservation in a volatile environment.
Navigating complex financial environments
Recent data reveals a notable shift in corporate treasury behaviour. As shown in Figure 1, European corporate cash balances rose by 8.5 per cent, or €122 billion, to approximately €1.56 trillion in 2024. This increase reflected more than just cautious financial planning. It signalled a strategic response to navigate today’s complex macroeconomic landscape.
Figure 1: Total cash held by European corporates (€ billion)
Note: Data excludes financial institutions.
Source: Aviva Investors, Bloombergy. Data as of December 31, 2024.
Several factors are driving this trend. First, stronger profitability driven by resilient consumer demand and cautious capital expenditure, with many firms delaying investments amid economic uncertainty and geopolitical risks.
Growth in cash balances has not been uniform. A closer look at the sectoral breakdown reveals how different industries are managing their balance sheets (see Figure 2).
Figure 2: Sectoral breakdown of corporate cash balances in 2024 (per cent)
Source: Aviva Investors, Bloomberg. Data as of December 31, 2024.
The industrials sector dominates with 33 per cent of total cash balances, reflecting the capital-intensive nature of the industry and the need for operational flexibility. Consumer discretionary follows with 17 per cent, likely driven by firms maintaining buffers amid fluctuating demand. The energy sector holds ten per cent, supported by strong recent cash flows.
In contrast, sectors like communication services (five per cent), and health care (6.5 per cent) hold relatively smaller amounts of cash, highlighting varied liquidity strategies, shaped by sector-specific dynamics and risk profiles.
Figure 3 shows the year-on-year change in corporate cash balances across each sector.
Figure 3: End-year cash balances by industry segment (€ billion)
Note: Data excludes financial institutions.
Source: Aviva Investors, Bloomberg. Data as of December 31, 2024.
The most significant positive cash balance changes occurred in the industrial and information technology sectors.
Europe’s industrial powerhouses, which include Sweden, Denmark, France, Germany, the UK, and Norway are setting the pace with the largest corporate cash balances in these sectors, as shown in Figure 4.
Figure 4: Top five corporate cash balances by country – industrials (€ billion)
Source: Aviva Investors, Bloomberg. Data as of December 31, 2024.
What’s driving this financial resilience?
Nordic corporations benefit from concentrated ownership (encouraging long-term stability and higher cash reserves), digital banking, and strong exports, enabling robust cash positions. Germany’s industrial leaders pair global reach with conservative financial management and strong banking ties, while French state-influenced giants like Airbus and Renault hold significant cash for strategy and risk control.
The information technology sector saw a rise in corporate cash reserves year-on-year with the Netherlands, Germany, France, Finland, and Switzerland leading the way, as shown in Figure 5.
Figure 5: Top five corporate cash balances by country – information technology (€ billion)
Source: Aviva Investors, Bloomberg. Data as of December 31, 2024.
The Netherlands stands out as a key tech hub, attracting global firms and benefiting from efficient financial systems. Germany’s tech companies are blending software with manufacturing, generating solid profits. France is investing heavily in digital innovation, while Finland’s telecom and software firms maintain high cash levels to manage risk. Switzerland, though smaller, has high-margin tech businesses and a stable financial environment that supports strong cash positions.
While bank deposits are a valuable source of liquidity in corporate treasurers’ investment strategies, a concentrated exposure to one or a few banks can be a risk. Credit ratings can help quantify the level of counterparty risk incurred. MMFs can also be rated, with many achieving money market fund ratings of 'AAA'.
A useful tool in the kit
Corporate treasurers increasingly view MMFs as more than just a temporary parking spot for excess cash. They offer daily liquidity, enabling treasurers to meet short-term cash management needs while earning competitive yields. Beyond yield, the funds provide shelter from market volatility, compared to equities or longer-duration bonds, making them a reliable tool for preserving capital.
An additional advantage of MMFs when compared with deposits at one or a handful of banks, is that MMFs place deposits with and invest in money market instruments from many banks (and other issuers, such as governments). This can provide investors with both diversification and operational ease in terms of achieving a desired level of diversification. By using MMFs to manage cash balances, treasurers can optimise returns without sacrificing liquidity or increasing risk, positioning the funds as a core component of effective treasury cash management.
Figure 6 shows the trends into European MMFs over the past three years.
Figure 6: European short-term money market growth, total net assets (€ billion)
Source: Aviva Investors, Bloomberg. Data as of December 31, 2024.
Conclusion
In summary, the rise in European corporate cash holdings underscores a deliberate shift toward resilience and strategic liquidity management within treasury functions. Elevated interest rates and persistent macroeconomic and geopolitical uncertainty have prompted corporations to prioritise flexibility and capital preservation.
As a result, money market funds, offering both competitive yields and stability, have emerged as an important cash management strategy. Sectoral and regional variations highlight how industry dynamics and local market structures shape treasury decisions, but the overarching trend is clear: European corporations are building robust cash buffers to navigate an increasingly complex economic environment.
