Going to see your bank manager has traditionally not been a concept that people want to dwell on. Coming out of the past couple of years, the relationship between a company and its banks has been tested to the extreme in the financial crisis and now need review.
Over the past couple of years, banks espoused their skills in forging a durable client relationship have mostly been shown to have failed abysmally. The period of easy banking where there was an easy lending approach to many companies seized up when companies most needed them. With hindsight, neither approach was clever or helpful if you consider a bank relationship to be about helping create sustainable returns. It wasn’t helpful and so now more FDs have become sceptical of what relationship banking is all about.
Over the past three decades or so, there has been a proliferation of banks, lenders and alternative sources of capital to such an extent that there was greater source of supply than demand, says Steve Pateman, head of UK corporate and commercial banking at Santander’s corporate banking business. As such, the relationship between an organisation and their banking syndicates became transactional, as opposed to banking employees taking the time to develop proper relationships. This, Pateman thinks, affected the entire market – from large companies all the way down the food chain.
There has been a feeling among FDs that the only engagement from banks was when they were able to sell something – perhaps not surprising, but not very comfortable for the end user. It was a sales-based approach as opposed to developing a strategic relationship, Pateman adds.
Margaret Ewing, partner in Deloitte’s CFO practice and a former CFO herself, says that CFOs used to deal with a range of banks prior to the crisis. She believes it was taking advantage of the low interest rates and the availability of credit. Banking relationships were not seen as important as they are today. It was seen as “a commodity” rather than a necessity.
Retention over acquisition
A survey by research outfit KDB of 1,000 FDs across the UK found that during the recession, UK banks weighted their activities towards customer retention rather than acquisition.
While this contradicts what FDs are feeling – that they were not the focus – what it also suggests is that while they were focusing on client retention, they were going about it the wrong way. Now that we are emerging from the grip of the crisis, FDs can look forward to a more balanced approach from their banks as the survey reveals they are now shifting to a more even balance between touting for new customers and seeking to retain existing ones.
FDs do not want sympathy from their banks. But lenders should now be paying more attention to understanding what the company they are lending to will do with those funds. Many businesses feel there has been a complete lack of understanding in the financial furore.
“My biggest frustration was that having built a relationship with one person in a bank, I was then palmed off onto a ‘deal team’ when I actually needed the services of the bank,” says Katherine Lee, former FD at YouGov and founder of investor relations company Bendon Lee.
“Bankers are only interested in the other services that they can promote and it is really difficult to negotiate with them as they know how much cash you have.”
The key to ensuring a strategic relationship develops and can be sustained will be through FDs not diversifying their banking syndicates too much as they will feel like they are playing a bit part. There will be greater understanding from a company’s banks if there is a smaller group of them that properly understand the needs and requirements of the business.
By building a proper relationship with a core few banks and realising that both FDs’ organisations and banks have to get something from the relationship will ensure that FDs prosper when it comes to banking relationships in the future.