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Articles

Establishing Higher-Value Corporate-Bank Relationships

  • By Joerg Wiemer
  • Published: 7/7/2015
Basel III will further increase banks’ pressure on treasurers. After a capital commitment such as the participation in a syndicated credit, the bank expects commission income from customers, in order to increase the return and profit on the invested capital. Relationship management thus assumes an increasing significance for the bank. A capital commitment is merely an invitation to the party.

The treasurer must consider very carefully with whom he dances, and when, at the following get-together. Then both sides will profit equally from a long-term, stable business relationship.

The capital adequacy provisions of Basel III may at first appear to the banks as an additional burden. For each customer they must reserve an even higher amount of regulatory capital. However, on second glance, this will result in closer and therefore higher-value relationships between the banks and their corporate customers. Both sides will think things over very carefully: who is the best fit for their own business strategy, and who would they like to work with in future?

‘Everything for everyone’ has had its day

In view of the above considerations, sophisticated bank relationship management becomes more important both for the corporate treasurer as well as for banks. For the banks, it is necessary in times of scarce equity capital to focus, based on ROI considerations, on companies with whom they already achieve the best profits through simultaneously high transaction volumes, and therefore high fee-volumes, or on those with whom they can at least expect them. The old “We offer every-thing for everyone” is a business model that has had its day.

To adapt, treasurers must find out which bank is best suited to them and the special requirements they have for their own financial services provider, so that an advantageous relationship results for both sides. Initially, this requires an analysis of strengths and weaknesses, since not every bank can do everything. For example, in payment transactions, regional aspects must be taken into account.

No such thing as too much communication

Open communication and fairness in collaborative work is required for this information exchange. The bank should make transparent to the treasurer what it will earn from the company when each product category is priced in line with the market situation. The treasurer should equally create their own ROI analysis and compare this with the bank’s conclusion. Potential problems in the busi-ness relationship then become visible early on when there is still plenty of time to counteract them.

The treasurer can also, for example, make transparent what fee volumes and what share of wallet the financial services provider can expect in the future if the price and level of service are right. Can the bank count on additional business in transaction processing—currency business, asset man-agement, M&A, investment banking, etc.? It is namely these areas that allow the bank to earn good money with a customer.

Good communication will help the treasurer to determine whether a particular bank should be deemed one of their core banks. Together with the CFO, the treasurer should form such a group of core banks out of the most important ones and disclose the entry requirements for this group as well as the advantages of membership for a bank.

Customer-centric selling

Capital commitment is merely the bank’s admission ticket into the business relationship. If it does not listen carefully to the customer and does not try to understand its business, a capital commit-ment cannot retrieve the situation.

Regular review meetings between treasurer and bank are recommended throughout the course of the relationship. How much the bank values the relationship, how much it earns from the custom-er, etc. are subjects for discussion in these meetings. Communication and soft factors assume great significance in today’s bank relationship management.

In the end, after all of the joint exploration, it should lead to a stable, profitable and trust-based collaboration for both sides. Both sides are then sure: the basis for a stable business relationship with the maximum benefit for all participants is proven.

Joerg Wiemer is co-founder and CEO of TIS, and has more than 17 years of experience in treasury, finance, investor relations, people management and project management.
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