Global Corporates Question the Stability of Their Core Banking Teams

79% of executives listed stability and financial performance as top criteria for selecting and keeping core banks, but only 43% are completely confident their banks are operating within their companies’ risk parameters

69% of executives indicate their bank's position and transparency on risk, liquidity and capital, and portfolio concentration are important, but only 27% say their banks are willing to share this information

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 Successful corporate banking: Focus on fundamentals, released today.

Steven Lewis, Lead Global Banking Analyst at Ernst & Young, says: “The lingering after-effects of the 2008 financial crisis and the ongoing challenges in the Eurozone have forced corporations to focus on the stability of their core banking teams. Counterparty risk and exposure from 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.”

This year’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.

Corporates 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.

Niamh Prendergast, Partner in Banking and Capital Markets, Europe, Middle East, India and Africa, at Ernst & Young, says: “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 corporates they work with but the shoe is now on the other foot. In Europe in particular the overwhelming sense from large corporates is that they would like more information about the risk profiles and portfolio concentrations of the banks they work with.”

A move toward European 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 taking a few actions: relying less on senior bank facilities for future funding sources, turning towards European capital markets more frequently and judiciously spreading their business across a core group of SIFIs, 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 context of job cuts and belt tightening, but corporate banking clients overwhelmingly recommend that banks concentrate on the intangible aspects of relationship management over tangible factors like cost, products 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.

According to Steven: “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 has never been more important for banks to demonstrate commitment and attentiveness to its corporate clients. And this holds true throughout good and bad economic cycles.”

Back to basics

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, 56% of 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.

“Bells and whistles are superfluous if a proper investment in building trust is not made,” Steven says. “Corporates expect that top-tier banks come to the table with a certain depth and breadth of products and services. The challenge for banks will be making sure that their local teams are communicating, aligning compensation and rewards to extract the best work and reducing personnel turnover to ensure consistency in service quality and pricing across the globe.”

To further stress the importance of global integration and communication, many corporate clients expect their banks to deliver the services requested directly and not through a partnership network. They cited mixed and challenging experiences in their responses.

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