Comfortably using one bank for all of your needs is everyone’s dream but will probably remain just that – a dream. Thus, selecting bank partners and managing the subsequent relationships is a critical job for big companies. The relationships are large, complex and can be deeply integrated into the operations of the business. Recently, members of the NeuGroup’s Asia Treasurers’ Peer Group (ATPG) discussed their approaches to bank rationalization and relationship management.
Centralized versus decentralized
Eighty-five percent of members have more than 80% of their banking services provided by their top three banks. This indicates a high level of centralization. One of the key criteria in bank selection is simply the strength and stability of the bank. How much activity is centralized versus decentralized depends on what the activity is. Global strategic functions such as FX are likely to be centralized.
On the other hand, payment execution is more likely to be a decentralized function with more banks. One ATPG member is looking to have more decentralized bank relationships to reward banks that will do challenging credit in hard markets. Another company has more autonomy than most in local markets in order to work with local banks as a filter for additional business. If they do a good job they can be recommended for the revolver.
Swiftly speaking
SWIFT is an enabler but credit is a requirement to do business. What is the value of SWIFT when considering a bank? Members answered that question by asserting that SWIFT affords greater ease and flexibility in on-boarding a new bank. And by virtue of this it is easier to have more banks in your panel. But it was also noted that extending credit is a requirement for most relationships that are substantial.
Autonomy at the regional level to select and experiment with banks to determine if there is new value that can be achieved is a great step forward in the role of regional treasury. New relationships require more oversight early on but if the relationship works out it is worth it. Banks in Asia are hungry for business and with some major global players pulling back, the other banks in the area are sure to try and pick off some new pieces of business. This could present an opportunity to try out one of those new banks.