Focus on the fundamentals – recommendations for successful corporate banking

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  • Majority of global corporate executives list stability and financial performance as top criteria for selecting and keeping core banking relationships
  • Executives also indicate that their core bank's position and transparency on risk, liquidity and capital, and portfolio concentration are important

Kuala Lumpur, 30 April 2013 – According to EY’s Successful corporate banking: Focus on the fundamentals, more than half of corporate executives surveyed indicate that while they are highly satisfied with the service they get from their core banking partners, they question their banks’ ability to meet expectations on 11 of the 16 key performance criteria surveyed. They are also interested in understanding the banks’ risk profiles as well as the stability of the banks they work with.

This year’s EY’s corporate banking survey contains data from CFOs, treasurers, and senior financial executives from 20 of the largest global corporations across 9 industries and 11 countries.

Steven Lewis, Lead Global Banking Analyst at EY, says: “The lingering after-effects of the Global Financial Crisis and the challenges in the Eurozone have forced corporations to focus on the stability of their core banks. Counterparty risk and exposure from core banks have become heightened concerns for large corporates and as a result, we predict that banks will have to be more transparent about their risk profiles.”

Chan Hooi Lam, Partner, Financial Services , EY, Malaysia says: “While Malaysian banks, as most other Asian banks, were not as hard hit as their European and US counterparts by the Global Financial Crisis, the report offers relevant lessons as to how banks can improve their core offerings and relationships with their corporate clients. Regulatory reforms, including the introduction of Basel III, will add further emphasis to the banks’ reassessment of their business models.”

Transparency of banks’ risk profiles

Nearly half of the corporate executives are confident that their banks are stable and operating securely within their companies’ risk parameters. While over two-thirds think that their banks' position and transparency on risk, liquidity and capital, and portfolio concentration are important, only one-quarter say their banks are willing to share this information.

Hooi Lam comments: “According to the survey, the single largest disparity between client expectation and bank performance has to do with the lack of transparency on key risk parameters. Traditionally, banks evaluate the creditworthiness of the large corporates they work with. However, as more Malaysian companies expand their business beyond borders, it is the corporates that are now questioning the stability and financial performance of their banking partners in keeping up with this growth.”

Banks to compete on relationship management

In the context of competing on service quality, corporate banking clients recommend that banks concentrate on the intangible aspects of relationship management.

Banks also need to invest in understanding their clients better. Leveraging on technology to enable efficient product and service delivery, and ongoing dialogue on their client’s culture and needs allow banks to explore multiple relationships with the corporates and ensure that their offerings are relevant.

Hooi Lam adds: “A key takeaway here is listening. If you truly understand a client’s needs and wants, then you can more consistently deliver a high-quality product or service. It is important for banks to demonstrate commitment and attentiveness to its corporate clients. And this holds true throughout good and bad economic cycles.”

Banks as thinking partners

Corporate executives view their primary group of banks as “thinking partners,” a source of innovative ideas and a provider of fiduciary guidance. While these services are highly regarded, over half (56%) of the respondents say 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 were outdated processes and systems (35%), and bureaucracy and inflexibility (30%) respectively.

“Corporates expect that top tier banks come to the table with a certain depth and breadth of products and services. They look to the banks as ‘thinking partners’ who provide them relevant solutions they can implement across their businesses. The challenge for banks will be making sure their local teams are communicating, aligning compensation and rewards to extract the best work, and reducing personnel turnover to ensure consistency in capacity and service quality whereever they do business,” concludes Hooi Lam.

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Notes to editors

Corporate finance executives were asked to rate on a 1-10 scale (where 10 equals most important and 1 equals not at all important) the degree of importance of 16 performance criteria in the selection of their core banking team. They then were asked to rate on a 1-10 scale (where 10 equals excellent and 1 equals poor) the performance of their primary bank across each of these criteria. The percentages below represent the percentage of ratings eight or higher on selection and on performance.

Overview of bank performance against corporate criteria for selecting and keeping their primary group of banks

Criteria

Degree of importance

Bank performance

Service quality

89%

73%

Product quality

82%

64%

Stability

76%

43%

Transparency

69%

27%

Price competitiveness

69%

60%

Customised offerings

68%

53%

Technology sophistication

65%

55%

Innovation

63%

40%

SIFIs* vs regional players

63%

50%

Presence in key growth markets

62%

53%

Geographic footprint

62%

60%

Depth and breadth of service and product offerings

61%

53%

Industry sector knowledge

53%

53%

Specialty in a specific area

50%

53%

Flexibility of fee structure

44%

47%

Use and delivery of services through third-party relationships

0%

20%

*”SIFI” stands for systematically important financial institutions

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This news release has been issued by EY Advisory Services Sdn. Bhd.