Basel III is forcing banks to take a closer look at the risks they are taking on with their choice of clients, and how much they earn on those relationships. Nowhere is this happening more is in Europe, according to a Greenwich Associates report.
“The contraction of corporate banking groups [in Europe] has accelerated in the post-crisis era,” Greenwich says in its report titled “European Companies Turn to Foreign Banks.”
“The establishment of Basel III capital rules and other new regulations has caused many European and global banks to abandon past strategies aimed at capturing market share and revenues in favor of maximizing profitability. As part of that shift, they have become much more deliberate in segmenting their clients, pushing resources toward those offering the greatest profit potential while cutting back resource allocations or even severing relationships with smaller and less lucrative accounts.”
Of course this relationship goes both ways, with corporates possessing the ability to be stingy on their end. And in many cases if they can’t get the attention they need (i.e., credit) they will seek it elsewhere. Also, many companies use the current environment as a way to clean up or rationalize banking partners, and, as Greenwich notes, “reduce the number of providers overall in order to concentrate their business—and increase their importance as clients—with their remaining banks.”
Meanwhile some larger European corporates are just choosing new partners outside of Europe. Greenwich says that in some cases, “large European companies are turning to a new resource—foreign banks specializing in specific international markets.” For banks, this attitude also reflects the growing importance of the ability to provide comprehensive global transaction banking services. Companies are always on the hunt for new markets and more often than not, those new markets lack sophisticated bank offerings.
The topic of bank relationships is a big topic in the NeuGroup universe and one consensus takeaway is that treasuries should have a good relationship gauge to measure how things are going with the bank. There is no more room for ad hoc reviews and subjective approximations; scorecards are increasingly the go-to methodology to quantify bank performance more granularly. Thus a robust analysis of the treasury wallet allows a closer look at the breakdown of the business you have to allocate in return.