Business life is constantly changing and the treasury-banker relationship continues to evolve – this article takes a look at current issues from a corporate perspective.
A relationship bank is typically one that has lent money to a company either bilaterally or as part of a syndicate and/or is the company’s main bank provider.
Subjects discussed between banks and corporates have typically been hot topics of the day and ongoing projects. However, one theme has been fairly constant: banks need to seek ways to maximise the relationship, generally through ancillary business. The relationship is important from a corporate’s point of view also. If the treasury-bank relationship is less than solid, then there is the risk that the bank will be less of a resource when the corporate needs it.
There are various approaches to managing the relationship with banks, in relation to allocating ancillary business. For instance, one treasury I worked in allocated FX business as a percentage that matched the bank’s overall share of group facilities – the theory being that, say, 11% of lending warranted around 11% of all FX business. In practice, of course, it isn’t always possible to allocate business in this way, as not all banks will be suited to all types of FX business. Nevertheless, the general principle held and formed part of a monthly ‘share of wallet’ treasury report.
Ancillary business takes many forms and includes FX, interest rate and commodity hedging, card acquiring, transactional banking business, supply chain finance and advisory work on refinancing options, for instance.
Bankers and treasury departments can interact across many different areas and, increasingly, more and more of those interactions take place electronically. The balance between face-to-face meetings, telephone calls and emails, for instance, has shifted over time.
Taking FX business as an example, many corporates now trade most of their FX business via online multibank trading platforms, making it possible to obtain multiple quotes simultaneously. This ensures the client gets the best possible price at the time of trading. Periodic treasury reports show which providers are quoting favourably which aren’t, providing a good level of visibility on trends. Some banks would prefer corporates to return to telephone trading to secure more business, but this practice is now surely only suitable for larger or market-sensitive trades as opposed to run-of-the-mill hedging.
Any corporate will have multiple calls on its business, so it is important that banks pitch for the right areas rather than all potentially available ones.
Card acquiring is one fast-evolving area, due to the ever-increasing number of card transactions. A reliable and experienced partner is important, but tariffs vary wildly from one provider to another, so more consideration needs to be given here. Some corporates will have only one card-acquiring partner, which is an approach that might leave them vulnerable from a cybersecurity point of view. One treasury I worked at routed all card traffic onto a different provider at weekends due to software maintenance, which caused reliability issues. Imagine if it wasn’t maintenance but a cyber attack that had stopped all card payments.
The phrase ‘catch-up meeting’ is all too common and often translates as meetings with no real substance to the agenda other than the bank’s desire for more ancillary business. Banks should bear in mind that a proper agenda is more likely to result in a favourable response in terms of getting to meet with any non-treasury personnel they may wish to meet in addition to their treasury contacts. While it is great for treasurers to get out of the office and meet banks, unless that time is productive for both parties, then future requests may be met with scepticism.
An agreed number of meetings for the year will help banks meet their requirements for a set number of interactions, which will be more beneficial to both parties and more favourably received. Any ad-hoc meetings can then be scheduled in and around these when there are real and active issues to discuss.
Accommodating banks’ needs for a set number of interactions is a sound principle, but treasurers do need to work with their relationship managers to ensure time is well spent so that the encounters are a win for both parties.
It is important for corporates to keep banks informed as far as possible of business activity or any changes to strategy that might impact on banking arrangements and relationships, so that any press articles do not cause alarm. However, the reverse is also true. Bank relationship managers should keep their treasury contacts updated on any developments at the bank, including any external rating changes; a bank downgrade is an issue that should be communicated and not ignored. Similarly, they should keep corporates advised on business strategy so that the corporate can flex ancillary business to suit any adjustments to the bank’s business model.
Appropriate products and solutions – treasurers seek supportive banks that take an active interest in the corporate and do not attempt to force sector solutions onto them. Banks that provide appropriate solutions that reflect actual needs and that are explainable to non-treasury specialists are valued.
A structured approach to projects – a sound and structured approach to project management that enables treasurers to report back on their status and progress and anticipates potential obstacles, particularly ones that might cause delays or other issues.
Collaboration – a willingness to share best practice and expertise drawn from wider experience.
Proactive communication – to ensure treasurers aren’t left unaware of outstanding issues.
An agile response – to meet the needs and requirements that might arise from market shocks, new projects or changing business conditions.
Remember: a corporate will deal with more than one bank and so comparison is inevitable. Banks are very necessary partners for treasurers, and it is important that both sides take a proactive stance on building the relationship. Banks can be a great asset with their myriad of resources and, given technological advances, the bank-treasurer relationship is likely to evolve further. The handling of ancillary business, in particular, may well benefit from a fresh approach as we bear down on the 2020s.
Daniel Allison is an AMCT-qualified treasury professional with more than 20 years’ experience, predominantly in the retail and leisure sectors