Banking relationships in hard times
As the western economies teeter on the edge of recession and credit has become a scarce commodity, the word ‘relationship’ has become popular when discussing banking arrangements. But what a ‘relationship’ means to both sides is never very clear. Is it a means by which the corporate should not squeeze the last pip on its deal and a means of getting something from the bank that others will not get? Or is it just the way that the bank sells more product?
‘A long-term, intimate and relatively open relationship established between a corporation and its banks’ is one definition if you ‘google’ banking relationship. It goes on to explain that banks often supply ‘a range of tailor-made services rather than one-off services’. But is that really what comes to the treasurer’s mind when thinking about banking relationships, particularly in hard times? Surely the question is whether the bank values the relationship and will provide support, not just sell more product.
Like any relationship it depends on your point of view and what you are trying to get out of it. There is often talk about relationships between organisations but in reality this is about the relationships between the individuals representing the organisations and what value they place on the business relationship. Do they care how many years the relationship has been in existence or what business was done in the past and at what price?
So what should corporates expect? Is it still reasonable to expect relationship banks to forgive failings in a company and extend support when other banks would not? How should a corporate expect the bank to act in more difficult economic times? Many companies are finding that their banks are not being as supportive as they want. Others are finding that the personal relationships they have built up over the years are now proving very valuable.
For the banks, relationship banking is an attempt to take the sales teams beyond order taking to a more proactive form of selling. Instead of selling services one at a time, an account officer attempts to gain an understanding of the consumer’s needs and offer services that fulfil those needs. Unfortunately credit is not a product which sits on the shelf. Credit is controlled and approved by credit committees assisted by credit analysts who are not relationship managers. The wise treasurer works with his relationship manager to present his case to the credit team who he rarely if ever sees. By providing relevant information, the treasurer can encourage approval of the facilities required.
In these difficult times many companies are finding out what sort of relationship they have. The ideal is a bank they can relate to, that wants to work with them and provide long-term solutions and support – not just a good time relationship. At the centre of winning relationships there is normally both a dedicated relationship manager who is committed to understanding the customer and a treasurer putting effort into the relationship.
One good example of this is the winner of our Adam Smith Award for bank relationship management and we will be writing more about this next month.
The Adam Smith Awards supplement will be published with the July/August edition of Treasury Today magazine.