Credit relationships are now a crucial factor for clients deciding on a bank to which to award their interest rate and foreign exchange business. US-based consultancy firm Greenwich Associates says that almost two-thirds of FX users and three-quarters of those using interest rate derivatives do business only with banks that lend money.
The Greenwich survey indicates that 23% of companies using FX and 20% using interest-rate derivatives say they require a minimum lending commitment from banks that want to be among the top three dealers in these products. Of the companies that stipulate a credit requirement, they demand that dealers must provide between 12% and 15% of their total credit needs to qualify for one of these top dealer spots.
"For dealers, credit demands dictate that foreign exchange and interest-rate derivatives trading will remain a two-tiered game," says Robert Statius-Muller, a consultant specializing in FX and derivatives at Greenwich Associates. "For universal banks outside the biggest four or five, it is extremely difficult to achieve more than 20% or 25% market penetration in interest rate derivatives or 30% to 35% penetration in foreign exchange, no matter the quality of the service they provide, due to the strength of the lending relationships of top-tier banks."