What’s Keeping Your Borrowers Up at Night?

CFOs are unlikely to lose sleep over the bogeyman or monsters under the bed. But they are worried about economic uncertainty, benefits costs, attracting and retaining qualified employees, and other critical business issues, according to the third quarter 2015 Duke University / CFO Magazine Global Business Outlook survey. Despite these concerns, most CFOs are optimistic about the year ahead.

Top 10 concerns

A borrower’s woes typically become its lender’s woes. The leading concerns U.S. CFOs reported in the latest survey are:

1. Economic uncertainty
2. Cost of benefits
3. Attracting and retaining qualified employees
4. Regulatory requirements
5. Government policy
6. Weak demand for products and services
7. Data security
8. Employee productivity
9. Access to capital
10. Employee morale

Respondents expect their companies’ earnings to grow by only 3% on average. The average expected rate of inflation is only 0.9%. When earnings grow faster than inflation, companies enjoy real earnings growth, which provides them with greater buying power.

The survey also found that full-time employment is expected to grow by about 1.4% in the coming year. Companies expect to increase wages by 3.3% to help lure new talent and retain existing workers. Employment and wage growth will be most noticeable in the technology, service and health care sectors.

Data breaches abound

Data security ranked only seventh on the Top 10 list of CFO concerns. Yet more than 80% of U.S. respondents to the second quarter survey reported at least one serious outside hacking attempt to steal, make public or change important data in the last year. Breach rates were higher among businesses with fewer than 1,000 employees (85%) and European firms (92%).

What steps have your borrowers taken to minimize data breach risks? The most common approach that CFOs reported was installing new software (64% of respondents). In addition, approximately one-third of respondents will train employees about breach prevention, install updated IT hardware or hire a data security firm to review their protocol. Proactive borrowers adopt more than one preventive measure.

U.S. optimism mounts

In the United States, the CFO optimism index — which ranges from zero to 100 and measures confidence in the overall economy — is currently at 60. That’s down from 63 in the second quarter, but it’s the highest optimism rating of all countries surveyed. 

Some global weak spots persist, however, particularly in Asia, Latin America and Africa. Brazil’s CFO optimism index was only 37, the lowest of all the countries that participated in the survey. For borrowers that operate in these regions, watch for signs of financial distress, such as lackluster sales, political turmoil, layoffs or stale accounts.

Looking for more information on our commercial lender services? Contact Paul Atkinson at 404-874-6244 or fill out our form for more information.