Clearwater Corporate Finance: Debt advisory – value in your overall banking relationship

Clearwater Corporate Finance:  Debt advisory – value in your overall banking relationship
BANKS talk about ‘share of wallet’ when they assess the value of a business’ relationship to the bank but there is value in relationship banking to the business as well.

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Mark Taylor, Debt Advisory Partner, Clearwater Corporate Finance

 

THE introduction of new regulations, including the Basel II and III accords, has changed corporate banking.

In the wake of the 2008 economic crisis, the regulations are designed to strengthen bank capital requirements by increasing liquidity and decreasing leverage.

Under these rules certain facilities require more capital to be held as a buffer against losses, whilst others require relatively low levels of capital to be held.

Facilities such as loans typically require more capital to be held than ancillary products, for instance transactional banking and treasury products. Banks are therefore keen to increase their share of the customers ‘wallet’ by providing bank accounts, money transfer facilities and hedging foreign currency and interest rate risks, along with term loans and overdrafts.

This strengthens the value of the relationship, but can also be used to offset the capital cost of the loans with transaction and processing income.

UK banks have faced criticism over mis-selling and an apparent reluctance to lend to businesses. Most banks, however, want to build supportive relationships with customers that are mutually beneficial.

The desire to improve relationships and boost returns for a bank can also lead to benefits for companies as well. The relationship manager is a key stakeholder in a business; able to add value through introductions to professionals and potential clients, along with financial support.

Businesses should expect a proactive relationship manager, but also seek out more than financial support from their bank.

Successful relationship directors are typically well connected with a deep understanding of their customer’s business, and many are happy to arrange introductions between clients and contacts. These introductions can be through networking events, seminars and workshops.

Many banks are also embracing technology and social media; for example online business communities allowing you to network, share information, bid for work or offer services.

The ‘added value’ piece is increasingly important for banks to differentiate themselves from their competition. If a relationship director can bring additional value, clients will recognise them as a trusted advisor.

This can be further strengthened if the bank operates sector specialists for your industry and can offer important insight through colleagues in international markets.

A strong relationship with a bank could permit the funding of loans that are not profitable in isolation or from a short-term perspective.

Likewise, this can lead to support during financial stress, especially if a track record has been established.

Although there has been evidence of banks being unsupportive over recent years, there is no detrimental effect in having a good relationship with the bank manager.

Often seen simply as finance providers, there are many other benefits a proactive, challenging relationship director can add to a business. Taking full advantage of these could give you that competitive edge.

Clearwater is an award winning mid-market corporate finance advisory firm with a market leading research and origination capacity. Our debt advisory team is made up of experienced corporate bankers with a wealth of knowledge of the debt and capital markets.