Global Corporations Question the Stability of Their Partner Banks
►A vast majority (89%) of corporate executives voted service quality as the most important criterion for selecting and continuing their core banking relationships.
►76% of respondents listed stability and financial performance as top criteria for selecting and keeping core banks
►69% of executives indicated the pricing and 44% cited the flexibility of fee structures as very important
Despite 63% of corporate executives stating that they are highly satisfied with the service they get from their core banking partners, corporate customers are questioning banks’ ability to meet expectations on 11 of 16 key performance criteria. They are also increasingly interested in the stability of the banks they work with and understanding their risk profiles according to Ernst & Young’s report Successful corporate banking: Focus on fundamentals, released today. The survey’s results are based on responses from CFOs, treasurers, and senior financial executives from 20 of the largest global corporations across 9 industries and 11 countries.
Corporations want to understand banks’ risk profiles but lack key information
Less than half of respondents (43%) are confident that their banks are stable and operating securely within their companies’ risk parameters. While 69% think their bank's position and transparency on risk, liquidity and capital, and portfolio concentration are important, only 27% say their banks are willing to share this information
“The single biggest disparity between client expectation and bank performance is around the lack of transparency on key risk parameters. For years banks have been evaluating the credit worthiness of the large corporations they work with but now the roles have switched. In Europe in particular the overwhelming sense from large corporations is that they would like more information about the risk profiles and portfolio concentrations of the banks they work with.” says Niamh Prendergast, Partner in Banking and Capital Markets, Ernst & Young EMEIA.
A move toward capital markets
While 63% of corporate executives said that the more rigorous financial services regulations environment has not to date seriously affected their relationships with banks, there was a pervasive concern that change could be forced upon them as banks assess profitability of certain business lines.
In response, corporate clients are turning towards capital markets more frequently and judiciously spreading their business across a core group of institutions including systematically important banks, large banks that are not systemically important and strong regional players. As evidence, 70% of corporate clients interviewed use more than five banks.
The art of relationship management
It may seem counterintuitive in the current context of cost cutting, but corporate banking clients overwhelmingly recommend that banks concentrate on the intangible aspects of relationship management over tangible factors like cost and technologies to improve their service delivery. In fact, a vast majority (89%) of respondents voted service quality as the most important criterion for selecting and continuing their core banking relationships.
”The fact that 89% of executives indicated service quality as important for selecting and continuing their core banking relationships and only 69% of them indicated price should good news for the banking industry, since the competition on service quality has typically a lower impact on profitability than competition on price. Corporate banking is by definition a relationships business; it is about developing relationship and trust. The quality of such services is measured in terms of availability, approachability, commitment, professionalism, knowledge of the client business, ability customize offerings, etc.” says Gelu Gherghescu, Partner Assurance & Advisory at Ernst & Young Romania.
A large part of respondents (56%) says that the greatest challenge in working with banks is the lack of consistency and quality of services across geographies. The second and third significant challenges mentioned were outdated processes and systems (35%) and bureaucracy and inflexibility (30%) respectively.
”However, not only corporations are reconsidering their relationship with banks. The regulatory reform, especially capital and liquidity requirements, is pushing the banks to reassess their business strategy in order to better adapt to the new context. There are surveys confirming that the largest banking groups are reconsidering their client portfolios by assessing risks and profitability by business lines and regions. This involves also looking at their relationship with corporate and even individual clients in order to decide on what relationships to continue and in what way.” added Gelu Gherghescu.
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