Take care of your banking relations to better resist any future crisis.

It's always a good idea for treasurers to look after their banking relationships, especially in times of financial crisis. But management doesn't take place in times of stress, but over time and when the sea is calm... All treasurers should be advised to size their credit lines appropriately, distribute their side-business properly and fairly among their bankers, avoid over-banking and facilitate KYC management. And yet, due to a lack of management, maintenance, a change in banker strategy, or a simple lack of follow-up, many suddenly become over-banked (i.e. risk of debanking) or lose a valuable partner... Over-banking and its opposite must be avoided. How to optimize it is a crucial and vital issue for any company.  

Optimization of banking relationships

It seems crucial today to properly size one's (committed) credit lines without unnecessary exaggeration. Many companies have no or insufficient committed lines. The first mission is to determine precisely, without unnecessary exaggeration, the size of its credit facilities to face any crisis. From this credit structure one will be able to build solid ad hoc banking relationships from which it will be necessary to get the best and to offer in return "side business" in the right proportion. Remember that you should never promise what you cannot deliver, and therefore do not overcommit yourself at the risk of disillusionment. The art will consist in sharing a cake that cannot be extended in equal parts. By ensuring sufficient credit lines, with a safety margin, we prepare for the storm in calm weather. 

It is also necessary to digitalize and automate the banking relationship, starting with secure connectivity. This is the basis for a solid relationship and a significant decrease in operational and fraud risks. Automation remains virtuous and allows to reduce costs. It is necessary to be agnostic towards the banks, to put them under pressure, but to remain loyal to them to obtain their support in the worst moments. It is also advisable to think about co-creating with your bankers to be part of the changes, creating your own future. It is possible for those who are proactive to get developments from their bankers, associated with APIs or other fintech’s. 

Perhaps the most important supplier

The banker is perhaps the most important supplier to the company. It should be considered as a partner, more than just a simple supplier.  Think of him as a partner to be respected, accept that he earns his living and don't look for the last carat in terms of fees or margins. Instead, seek to maximize your relationship over time. The maintenance of good relationships will solidify this vital partnering.

The worst is never certain...

A bank is no longer a credit institution that cannot fail. Since the GFC of 2008 and more recently, we have seen and understood that bank failures were not illusions. Bank failure can happen despite the measures taken by the ECB for systemic banks and despite the Basel rules. It cannot be assumed that a bank will never fail. The distribution of business is virtuous in terms of sustainability and risk mitigation. Banks remain fragile. By reducing bank partners and bank accounts, you can reduce costs. When reviewing the number of bankers, statistics and "best practices" often seem to show that there are too many. Adjusting the number of bankers can reduce costs and increase efficiency. We can see that many treasurers are reviewing their banking relationships to reduce them as much as possible. Every account has a cost. We are talking USD 5,000 per account per year. KYC is becoming so horrendous that banks are refusing to open accounts for existing customers, even good ones. One should be parsimonious and only open an account when necessary. Also, more banks mean more connectivity, more paperwork, more documents to exchange, fees to pay, meetings to organize or sometimes to endure. It is an exercise to be regularly done and redone.

Clear and defined bank relationship strategy

The banking strategy must also be clear and defined in a policy. The "best practice" would be to limit the total scope to 10 to 12 banks for multinational companies. Although the less the better (up to a certain minimum limit/floor). There are certainly no rules in this area and the rule is to limit them as much as possible by selecting them carefully. The rule is to calculate how to optimize the number of banks, without exaggerating, to satisfy all of them in "side business". Most often, the debt and the number of banks financing it are the determination criteria considered to size the group of key banks. This analysis must be done rigorously to optimize the performance of its banking partners, because it is the guarantee of loyalty and sustainability.

A banking relationship is like a good engine, it must be maintained and cared for to preserve it. Never thinking about satisfying your banker in terms of return and profitability is a mistake often made. Of course, we all want to pay less. On the other hand, we all want a long-lasting and durable relationship. It is therefore necessary to maintain it skillfully. There is a real movement now to refocus on the key players and a core group of bankers to avoid any loss and friction. Having an additional banker is certainly perceived as a security or additional source of financing, but it has a cost. It is necessary to precisely and fairly size the group of banks to avoid overloading it, at the risk of making it heavy, inert and time-consuming. The choice may appear to be a difficult one, but necessary and based on objective criteria of competences and expertise. The banking relationship must be seriously managed. At a time when counterparty risks are reminding us, at a time when time and resources are sorely lacking, we must be efficient. 

François Masquelier, CEO of Simply Treasury

Disclaimer: This article was prepared by François Masquelier in his personal capacity. The opinion expressed in this article are the author’s own and do not necessarily reflect the view of the European Association of Corporate Treasurers (i.e., EACT).