FDs look for more rewarding banking relationships

Following a period of deregulation, scandal and consolidation within the banking industry, many companies have been quick to express their intention to switch banks.

In the Financial Director relationship banking survey conducted in March and collecting 580 responses from FDs, CFOs and financial controllers, 14 percent indicated they were likely, or very likely, to change their main relationship bank within the next year. Medium-sized businesses (20-100 employees) were much more likely to switch (21.9 percent) than other businesses. About 10 percent of the largest companies (more than 500 employees) indicated an intention to switch, while larger mid-corporates indicated they were less likely to switch.

However, the nature of larger companies’ defection is more subtle. Rather than dump their financial partners outright, FDs we polled have added more banking relationships and shifted the share of transaction and lending business away from their original relationship bank.

Collateral damage

Our respondents indicated there were many causes of stress in their relationship with their principal bank, but the banks’ increasing demands for collateral, guarantees and security were top of the list. About 53 percent of the companies that said they were ‘very likely’ to switch banks within a year ranked collateral as ‘somewhat important’, and 58 percent of these mentioned credit restrictions.

Changes in bank policies and operations precipitated by the financial crisis were also mentioned as a source of friction. More than 34 percent of Royal Bank of Scotland (RBS) clients, and about 43 percent of the respondents that still identified themselves as HBOS clients, mentioned bank restructuring as a stress factor. Lloyds’ clients were less concerned about the changes at their bank: less than 17 percent mentioned this cause of stress, and the average for all banks was about 26 percent.

One of the most interesting findings was the perception from FDs that the bank does not understand their business: this produced the greatest spread between satisfied and dissatisfied bank clients. Smaller businesses were more likely to voice this concern.

Serial monogamists

Almost a quarter of respondents reported they had changed bank at least once within the past five years, in some cases a result of bank reorganisation. Among the businesses that switched banks, ex-RBS clients were the largest part of this sample, followed by ex-Barclays clients.

The respondents identified three major causes of relationship stress with their previous bank: changes in the bank that were caused by the financial crisis; bank collateral requirements; and service quality. Factors that would affect the whole industry, such as interest rates, were not an important consideration. Almost 39 percent of this group mentioned bank changes as at least ‘somewhat important’, with ex-RBS and ex-Lloyds clients slightly ahead of the average in this category. Ex-Barclays clients were the most likely (53 percent) to mention this factor.

In earlier surveys, one of the most interesting findings was that a clearly identifiable group of businesses that had recently switched main relationship banks appeared more likely to switch again in the near future. These firms were labeled ‘serial monogamists’ because they appeared to bring high expectations to their new bank relationship and were quickly disappointed when it did not live up to expectations.