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Mike Verrier, group treasurer of heating and plumbing products distributor Wolseley, recalls sitting on a panel at an Association of Corporate Treasurers conference, just before the financial crash, explaining his company’s relationship-based approach to banking.
“The session and discussions with participants afterwards made me feel distinctly out of touch,” he says. “It was clear that transaction, not relationship, banking was the order of the day.”
Before 2008, banks were focused on big, one-off mandates with upfront fees and little long-term commitment. “Long-term services such as transaction banking products were seen as having low profitability and not being something that created customer loyalty,” says Verrier.
“The view was that corporates would always shop around for the best transaction execution. Many banks did not grasp that ultimately corporates would look at the total cost of the portfolio of banking services that they bought, and expect the pricing to reflect the synergies.”There might have been a time when bankers did not understand – or remember – why transaction services are so important to corporates, but that is no longer the case, asserts Manfred Schmoelz, head of transaction services, Asia Pacific, at Royal Bank of Scotland.
“When the global markets were impacted by the economic downturn six years ago, banks turned to their core banking revenues by necessity, as other revenue streams dried up or disappeared altogether.”
|Mike Verrier, group |
treasurer of Wolseley
Now changing bank regulations – most notably Basle III – require greater capital allocation for traditional commercial banking activities and more focused liquidity management by banks.
“This regulatory framework is leading banks to provide services that are linked to the core operational activities of clients,” says Ernst Ohmayer, co-head, global transaction banking, at UniCredit. “Only by being recognized as a partner can a bank offer and retain the transactional services linked to customers’ day-to-day business life.”
At the same time, transaction banking has become increasingly competitive – not least because a new wave of banks has begun to push transaction banking in search of customer deposits to fund their other banking activities – resulting in shrinking margins worldwide, according to Stefan Bender, head of GTB Europe, Middle East and Africa at Deutsche Bank.
“Hence, client retention, long-term client centricity and relationship orientation have become the major priorities for transaction banks, in addition to the quality of services and the range of products they offer.”
Meanwhile, corporates’ approach to relationship banking has also evolved. As a result of the crisis, corporates increasingly came to value their supply chain, including their banks, according to Marc Carlos, head of global trade and transaction banking at BNP Paribas.
That prompted many companies to turn to supply-chain finance – “a product that reinforces the relationship between a bank and a company” – to support suppliers. In short, corporates became more aware of the potential value banks could deliver and the mutual benefits offered by a deeper relationship.
“Supply-chain finance allows BNP Paribas to eliminate financial intermediaries for a corporate, helping to lower costs and improve efficiency,” says Carlos. “It also improves our knowledge of both the buyer company and its suppliers, which makes it easier for us to meet our compliance obligations.”