Virtually all corporates of any size will have a named ‘ Relationship Management (“RM”)’ banker to oversee the maximisation of the relationship for the bank, ensuring long term relationships with corporates whose business the bank considers desirable but also to identify those that the bank no longer considers ‘core’ to its objectives. However, it’s often overlooked that this is a two way process, there are many important strategic reasons why corporates should be pro-actively talking to banks, not just waiting for the RM to follow up on a reminder in his diary.
Corporates who do not pro-actively manage their bank relationships are neglecting a key element of medium treasury risk strategy, which can impact the liquidity & operational treasury stability of the organisation. Today, corporates face higher risk in their bank relationships; this must be managed as closely as any other treasury risk. A successful manufacturing company will deepen its relationship with key suppliers to mitigate supply chain risk whilst building ties with alternative providers; the bank / corporate relationship is no different.
Bank relationships will always exist, but the results for the corporate vary tremendously depending on how treasurers steer the commonly accepted Relationship Management model to get the most for their company and the best value from time spent talking to banks. Corporate changes such as global expansion or increased M&A activity can completely change the profile of the bank required to serve an evolving organisation; the treasurer needs to be alert to these needs and to be speaking to the ‘right’ banks to match future corporate strategy.
Banks should be considered as a valid Treasury Risk
Today’s corporate environment of market volatility, increased bank regulation and closer bank P&L / balance sheet scrutiny (e.g. Basel III) means that very stable, long term, ‘one-stop shop’ type relationships with banks are
becoming increasingly rare. Corporates are regularly expected to work with multiple banks (& non-banks), particularly where lending needs exceed a certain size, the company operates in multiple countries or characteristics such as ‘leverage’ & the asset profile of the company balance sheet create challenges to maintaining the single bank model.
Banks are not afraid to tell clients if the relationship is not working for them with the ultimate sanction being a bank exit; the treasurer should always be able to provide his CFO and board with an accurate assessment of how positively (or otherwise) the bank views the client relationship.
RM is the key
The RM is normally the lead for everything from complex corporate credit requests to setting up discussions about trade banking, electronic banking or card acquiring, his skill lies in being comfortable in handling customer requests, but his client credibility depends on the knowledge and service provided by the subject experts. To be successful, an RM also needs to be an advocate for the client; a strong communicator working closely with the banks client-facing staff, understanding and explaining clients’ needs in order to provide the best bank products and service.
Ultimately, a bank RM is part of an extended sales management team backed by customer relationship management (CRM) systems and an array of specialist product experts; in his role as ‘trusted advisor’ he hopes that clients who value the strength of this relationship will generate more long-term revenue opportunities for the bank. The reverse is also true and a poor RM or rapid turnover of an RM in a particular bank can have a negative client relationship effect. Part of the role of the treasurer is to make sure that the company is leveraging the benefits of a strong RM and providing loud honest feedback to the bank if the RM experience is unsatisfactory, to protect the best financial interests of the corporate.
The treasurer should always use this knowledge of how the client / RM / bank process works to maximise the value of the bank relationship and to ensure RM accountability for all product and service discussions.
Corporates need banks; no treasurer wants to spend un-necessary time on too many bank relationships, but there is great risk in relying on the single bank model or spending insufficient time talking to other providers, especially as bank economics have become more volatile causing banks to impose new ‘hurdle rates’ on relationships. Other banks (such as RBS) have exited complete segments such as cash management or certain countries (HSBC, Barclays). This is a real treasury risk and having active dialogue with alternative banks can anticipate and mitigate some corporate risk associated with unexpected bank actions. Relationships that took years to build can now disappear in a matter of months due to items out of the corporates control such as policy change.
So what should be done?
As a treasurer and ex-banker, my recommended approach is to be pro-active, by working hard on those existing relationships that are most important to the corporate, whilst seeking out conversations with potential new providers in case of need. Good bankers recognise that a new relationship can take several years before any income is generated, but also know that such a relationship where both sides are happy to build a dialogue is likely to be long term and rewarding if won. Also keep track of those good bankers who may have left the RM role and moved to another bank; if a strong feeling of mutual respect for the relationship existed, it pays to follow up with them in their new role, this may help with accessing new bank providers.
A recent EY survey of the corporate view of bank relationships highlighted statistics such as 76% of corporates placing a high value on relationship stability but only 43% being confident of their banking partners meeting this need.
If the current organisational model is single bank, this risk needs to be addressed and at least one other trusted bank needs to be in the background, possibly as a provider of secondary services to help build a ‘lifeboat’ strategy. There are other very good reasons such as creating pricing tension and benchmarking the service levels of the incumbent. For companies looking to expand internationally, a good strategy is to approach banks that could help in countries that have been identified for the next corporate location, enabling them to demonstrate their competencies in new areas. Development in treasury platforms means that there are many IT solutions which simplify the management of multiple banks and their different platforms, making it easier to break the single bank model.
When a major banking change (such as a re-banking) is planned (or forced by the bank itself), the relationship work that has taken place over several months & year can help identify potential providers, but it should be managed using a formal process such as RFP (“Request for Proposal”), created by the corporate requiring banks to provide formal responses to a series of questions around the individual needs of the corporate, including customer service, products, price, geography, management structure etc. RFP’s are not expected to be needed very often if the bank relationship is working and cost effective, but if needed, it is very important to use the services of experienced treasury advisors who are skilled in running the process, especially in developing the RFP document itself.
Finally, it should be mentioned that a lot of traditional bank services such as certain types of credit (factoring, asset backed lending, supply chain finance) and payments are available from other financial providers, who are either specialist product banks or so called ‘Fintech’ companies; these are serious alternatives for cost conscious, innovative or credit challenged corporates and therefore the concept of the relationship needs to be applied more widely to other players in the industry based on the needs of each individual corporate.
An article appearing in a Thai National newspaper illustrates how quickly alternative providers are breaking into the corporate services space traditionally served by banks in Asia as well as Europe, which has big implications for how relationships will evolve in the future.
As ever these are my personal views based on my experiences in the treasury and banking industry, I hope that this topic will stimulate good responses and debates from those with their own thoughts on the art of bank relationship management. Would bank RM’s reading this blog agree?
Featured image from flickr user 드림포유