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Revolutionising Relationship Banking
What do you see as some of the most considerable changes in the relationship between banks and corporates over the past year?
What has been clear to me is that banks – and corporates – are finally recognising the value of relationship banking as opposed to banks simply being suppliers of banking products. For Transaction Banking within Standard Chartered, the move from product selling to a relationship focus started in late 2006, so we are in many ways further ahead than other banks in this cultural evolution. Even before the crisis, we knew that we could deliver a better service and higher levels of customer satisfaction if we worked in close partnership with our clients across their financial activities rather than looking at products as silos. A holistic approach to working capital is critical to a relationship banking model, looking at all the cash flow drivers in the business and delivering solutions to accelerate and strengthen the financial supply chain. However, it takes time, education, a cultural shift and a change to the way that executives are incentivised to make a relationship banking model work, and not all banks have yet equipped themselves to achieve this.
What prompted this decision, bearing in mind that the economy was in a strong position?
We recognised that relationship banking was the right model whatever the economic situation. We looked back to Black Monday in 1987, the Asian crisis in 1997 and the loss of market confidence following the Enron scandal. Although these events differed from the most recent crisis, they all created issues for corporates seeking to raise funding and capital, with liquidity becoming scarcer and more expensive. Working capital was gaining more attention, with a number of studies illustrating the billions of dollars of ‘trapped’ cash within organisations. We needed to help our clients to unlock their internal source of funding, reduce working capital requirements and find new ways of accessing liquidity when required, rather than always being at the mercy of the markets.
In 2006 however, most banks weren’t ready to talk about working capital: they were focused on products and services, rather than being equipped to discuss how to strengthen a client’s relationships with their buyers and suppliers. At Standard Chartered, we embarked on a business transformation to reposition our business in relation to our clients, which required internal organisational changes, training on how to manage client engagements and education on the priorities, concerns and objectives of a CFO and treasurer. We needed to understand clearly what working capital meant to a corporate treasurer, and deliver solutions accordingly. We first piloted our new scheme in late 2006 and early 2007, which included moving away from recognition of sales people based only on sales to a customer in their own market, and instead recognised sales success across both regions and product lines, which inspired a significant change in behaviour and a focus on what clients needed to manage their business. This was supported by methodical processes of evaluating client needs and potential solutions, scorecards and thought leadership for our clients.
What has the outcome of this transformation been?
By the time the crisis struck in 2008, the relationship banking model and central focus on working capital was already well-established in our business and we had already seen considerable success in both market share and client satisfaction. For example, in the Banking Sentiment Index conducted by East & Partners of the top 1,000 companies in Asia (including both Asian and foreign companies) identifying their primary and secondary banking partners, Standard Chartered moved from 28.5% market share in 2008 to 31% in 2009, the largest increase in the study, together with being the highest rated in customer satisfaction terms. Furthermore, we have won close to 50 major awards in 2009 across regions and across products.
While these are the outward manifestations of the success that Standard Chartered’s new approach to client relationships has had, more important is the experience of individual clients and how their business has benefited. We have a structured approach to measuring, analysing and providing solutions to clients’ working capital challenges, which creates direct and tangible value to the business. For example, we have built a working capital analyser tool which calculates working capital ratios and benchmarks these against those of other companies within the region or industry, including both publicly listed and privately held companies. We can then provide simulations on the value to the company that could be created by flexing the metrics that contribute to the company’s working capital requirement. Finally, we can look at specific ways of achieving these improvements, such as supplier or buyer financing, or enhancing the collection process. This approach means that conversations with clients are all about creating value rather than selling products.
Isn’t this what we are seeing from other banks?
Absolutely: other banks are now trying to implement a relationship banking approach, but having already undergone this transformation, we know that it takes two to three years to achieve, and requires substantial mindset change to cut across both geographies and products. The investment requirement should also not be underestimated, particularly in the need to educate staff in one region about others. For example, a company in China may be looking to expand in Africa, so the banking team needs to be equipped to provide the right support.