How Can Corporates Optimise Their Banking Relationships?
Over the last 10 years, banks have started to evaluate their strengths and began to develop specialized products in an over-banked market. If we look at the mergers between banks worldwide we can see how tough the banking market has become. To compete in this environment, banks have developed new services and, in order to get the most from their banking relationship, companies should be thinking about the following questions. Do you want to reduce the number of banking relationships? What are your expectations when a bank visits your company? On a bank visit, do you find a subsidiary has a relationship with a bank you didn’t know about it? This article gives you some answers to these questions and also provides an overview about how to organize your banking relationships.
Today a bank delivers you a service like a normal supplier within your company. Banks service their clients with a vast range of services:
This is not a comprehensive list. It just gives you a summary of how your company can choose and start to learn to distinguish among all your treasury centre and local companies’ banking relationships.
Normally your bank’s account manager visits at his request although, when there is a specific need for a certain service, companies do arrange meetings. The banking relationship is usually historic spanning a number of years. Reports are hardly ever written about these meetings or handed from one treasury person to the next. We suggest keeping track of these meetings and also preparing specific questions for the bank. Within a bank, staff movement is more frequent, so if you want to discuss issues that stem back a few years, you should inform your bank relationship manager prior to the meeting – another reason to keep records of these meetings.
In the box below, there is a list of topics you can adapt to your own needs. With a checklist like this tailor-made to you and your company’s needs you will find it easy to come right to the point in discussions with your bank. Also, once you know the bank’s specialised services, it is easier to plan what you can expect from such a visit.
If you ask better questions you will get better answers. Be open and explain how your company works and what you really need from a bank. If the bank representative tries to put you off with a lot of banking terminology, just ask him to explain it to you in a less complicated way. If the answers are getting too technical, take one of your IT experts to the meeting. Try to distinguish whether a certain bank service has been in place for years or if it’s brand new. Is it planned for the future? When is it scheduled to be released? Which other clients can you ask about it, i.e. references?
| Item | Bank 1 | Bank 2 | Bank 3 |
|---|---|---|---|
| Serves… | Group Treasury | Local company 1 | IPO |
| Category | Partner Bank | Regional Bank | Special Bank |
| Internal Contact | Treasurer | Local accountant | CFO |
| Division | |||
| Last Visit | Date of visit | Date of visit | Date of visit |
| 1. Basic Contact Details | |||
| National Account Number | |||
| IBAN | |||
| SWIFT/CHIPS UID | |||
| Currency | |||
| Branch | |||
| Account Manager | |||
| Phone/Fax/E-Mail | |||
| Financing Contact | |||
| E-Banking Contact | |||
| Hotline Support | |||
| 2. Account Charges | |||
| Basic Charge | |||
| Account Statements | |||
| Post Charges | |||
| Cash Pooling Basic Price | |||
| Transaction Price | |||
| 3. Interest Rates | |||
| a. Debit Rate | % | % | % |
| Less than 250,000 | |||
| More than 250,000 | |||
| Rating Example | A+ | Libor +50 | |
| b. Overcharge Costs | |||
| Costs of Amounts Not Taken | |||
| c. Credit Rate | % | % | % |
| 4. Price for National Payments | |||
| a. Incoming Payments | |||
| Manually non STP | |||
| Electronically STP | |||
| Direct Debits | |||
| Checks and Value Date | |||
| b. Outgoing Payments | |||
| Manually non STP | |||
| Electronically STP | |||
| Checks and Value Date | |||
| Urgent Payments | |||
| 5. Price for International Payments | |||
| a. Incoming Payments | |||
| ESU Standard up to €60,000 with IBAN + BIC | |||
| Over €60,000 | |||
| b. Checks | |||
| c. Outgoing Payments | |||
| ESU Standard up to €60,000 with IBAN + BIC | |||
| Over €60,000 | |||
| Repair Fee non STP | |||
| d. Company payments |
Once your expectations are clear and a comprehensive list of all the bank relationships within the company group is up to date, it is time for the CEO and the CFO to turn the group-wide expectations of these relationships into a strategy document (this must be the responsibility of the CEO and CFO). It needs to state how central treasuries and local accountancy should interact with the bank. Such a document must also describe the risks and exposures that are likely to occur. Bank relationships should be put into groups, such as: partner banks, funding banks, banks for national payments, within Europe or world-wide, specialized banks and banks for regional needs. Everyone responsible for a certain banking relationship needs to outline why they want to keep their relationship alive for the future.
After identifying all of your company’s banking relationships, the hard work starts. The list of banks should be published to a closed user group, preferably on the intranet. When you start to ask your co-workers why they maintain a relationship with Bank A there may be a lot of reasons and discussions will be detailed. The question of reducing the number of banking relationships is not easy to answer; certainly it is an ongoing process. New bank relationships will be created when new staff join or special situations arise.
As described above, staff and bank employees need time to report to central treasury about different banking relationships. The collection of data takes time and diligence. For example, looking through 50 to 60 bank accounts could take at least six months to collate the relevant data. Once the data is standardised, you must also check who signs and has the right to execute payments. Make sure this is all aligned with the group-wide and central risk management practices.
Gathering banking relationship data is not easy but an order from the CFO or CEO would help a lot. Someone then needs to be assigned to implement the strategy – someone who has the time, mental capacity and communication skills to do so, and who is widely accepted within the company. Remember the list is not for squeezing banks on prices. With such a list your staff can feel more confident in negotiations with banks. In the long run, the list is a living document that offers access to permanent cost savings as long as it is kept up to date.