Meeting the new demands of commercial banking clients.

Author:Day, Richard

Resources have begun to shift toward commercial banking as engines of growth as the business and operational changes needed to comply with new regulatory mandates continue to stabilize.

This is in contrast to recent years when most banks' commercial businesses were in retreat. During the financial crisis, even top-rated borrowers found their banks reluctant to lend. In addition, banks sought new concessions to help mitigate net interest margin compression from a sharply lower rate environment and flat yield curve, as well as to optimize scarce capital. These concessions, such as LIBOR (London Interbank Offering Rate) floors on loans and credit-derivative-linked pricing on revolving credits, further complicated access to capital.

As the financial crisis faded and their own liquidity risk stabilized, banks became more willing to lend, but the prospect of meeting new, higher capital requirements, as well as burdensome new credit risk policies, continued to impede the flow of capital. This reluctance is now giving way to the current abundance of market liquidity. Banks are awash with cheap sources of funding, and the search to deploy these excess funds in higher-yielding earning assets has driven increased competition in the commercial and industrial (C&I) lending space.

This has led to relatively strong C&I lending growth over the last few years, but tighter credit policies have focused this growth among a smaller group of borrowers, leading to margin and profitability compression.

Against this extremely competitive landscape, leading banks are recognizing that growth requires distinguishing themselves in the marketplace, effectively meeting the changing demands of clients and reengineering internal functions to remain competitive.

Changing Client Demands

To successfully grow, commercial banks will need to respond effectively to the changing demands of their clients. Fundamentally, a bank must understand a customer need and then fill that need with the right product at the right price. But those are the table stakes.

Corporate clients increasingly consider other factors in their buying decisions, including the quality of the relationship manager, the onboarding experience and the technical ability to deliver products and services seamlessly using effective, integrated client data management tools.

Winning banks will excel at these aspects of the client experience, as well as continued innovation to align with the growth strategies of their clients.

The quality of the commercial banker, or relationship manager, is a key factor. Rather than a simple sales relationship, clients value a consultative approach. They are giving their business to relationship...

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