MANY OF THE DISCUSSIONS ON transactions, balance sheet and liquidity, and risk involve the use of banking products and relationships. It can be said that the bank and the product and service capability and offerings differentiate two identically staffed and structured treasuries. Indeed, the same bank and service team can provide diametrically opposite service levels to different corporate clients. In this context, a discussion around managing the banking and service relationship, evaluating the bank’s performance, and picking the right banks with a long-term relationship in mind is important and the aim of this chapter.
Banks have evolved over time to streamline their organisation to maximise customer impact. A typical commercial bank is comprised of various functions, as shown in Figure 28.1.
Business-wise, commercial banks have a corporate and investment (or wholesale) arm, a consumer division that caters to individual banking needs, and a private banking division that caters to high-net-worth individuals.
The key support functions are:
Multinational banks that are listed as banking corporations in their home country can have their entities overseas in different structures, such as subsidiary (locally incorporated and hence treated as a local firm), branch (using the same legal vehicle of the parent bank), or representative or liaison office (only for purposes of liaison and business building, but not offering any banking products or services to onshore entities).
Offshore banks or branches are legally present in tax-friendly countries or financial hubs, where simple and efficient banking and tax rules or availability of capital and investment products and opportunities and liquidity make it convenient for firms to have their accounts and transactions resident with these banks or branches.
If we zoom into the corporate and investment bank structure (as shown in Figure 28.2), we find the businesses split into relationship management and products. The relationship manager (or RM) for each client has the final responsibility for the account and covers all aspects of products, services, structuring, solutions, and issues for that client.
Since specific specialist expertise is required for many of the banking products and services in a complicated and turbulent environment, the product teams were created with responsibilities for their respective products and to work with the RM to deliver solutions for the client. The key product groups are:
We delve into the touch points for a corporate in the next part of this chapter. For interested readers, we also provide a figure depicting the sample organisation of a consumer bank business in Figure 28.3.
Table 28.1 lists some of the key banking services and products for a corporate Treasury and their likely touch points for both the firm and the bank. For reasons of consistency, we have assumed a reasonably centralised Treasury (including shared service centre activities) and a global bank with multicountry presence.
Many of the products and services have been covered earlier in the book.
The interface with banks for banking solutions and services for transaction services is further articulated in Figure 28.4. The emphasis is on the transactions management function of corporate Treasury with some areas of balance sheet and liquidity management (such as supply chain finance and cash concentration and pooling).
The interface with banks for banking solutions and services for capital markets and investment banking and corporate finance is provided in Figure 28.5. The emphasis is on the balance sheet and liquidity management and risk management functions of corporate Treasury.
We went through the request for proposal (RFP) process for a system service provider when moving to a new system. Why do we need to do the same with banks? There could be different reasons for doing so.
Figure 28.6 shows a self-explanatory figure of a typical bank review process.
The selection team here is more Treasury focussed, with representatives from the supply chain side (if supply chain finance is a criterion), technology (for linkages and information security), and financial control (for linkages with accounts payable/accounts receivable and bank accounting entries) usually participating. Also, a business manager and the chief operating officer could be a part of the committee.
The needs analysis is important since it also puts into perspective the revised requirements in terms of the market and banking sector developments. Criteria are ranked or rated in terms of importance and weightage. Table 28.2 shows a typical set of criteria with weights for bank selection. Weights can vary depending on the requirements of the firm. The Excel sheet provided on the accompanying website (www.wiley.com/go/treasuryhandbook) gives a template that the reader can amend to suit company requirements.
Factor | Weightage |
Technology | |
Depth and breadth of platform | 2 |
Connectivity and coverage | 2 |
Information security | 2 |
Contingency planning | 2 |
Total Weightage | 8 |
Integration & Implementation | |
Experience level and ownership | 2 |
Degree of documentation | 2 |
History on similar implementations | 2 |
Total Weightage | 6 |
Outsourcing | |
Turnaround | 1 |
Cost | 1 |
Flexibility | 1 |
Total Weightage | 3 |
Supply Chain Finance | |
Continuity of platform | 1 |
Understanding of supply chain | 1 |
Criteria for supplier/customer financing | 1 |
Total Weightage | 3 |
Coverage | |
Regulations and laws | 2 |
Regulator relationships | 2 |
Track record of approvals | 2 |
Depth of country presence | 2 |
Cross-country coordination | 2 |
Central point of contact | 2 |
Branch network | 2 |
Corr bank & vendor network | 2 |
World-wide presence | 2 |
Total Weightage | 18 |
Products & Services | |
Account structure | 2 |
EB: Information, access, infosec | 2 |
Payments | 2 |
Collections | 2 |
Cheque facilities: PAP, FCY | 2 |
Capital markets services | 2 |
Credit facility | 2 |
Trade services | 2 |
Others | 2 |
Total Weightage | 18 |
Pricing and Execution | |
Pricing | 3 |
Value | 3 |
Timings and cut-off | 3 |
Availability schedules | 2 |
Service quality | 3 |
Back ups arrangement | 2 |
Services disaster recovery | 2 |
Innovation | 1 |
Total Weightage | 19 |
Bank Performance & Relationship Management | |
Relationship team | 4 |
Contacts & escalation matrix | 2 |
Documentation requirements | 2 |
Process requirements | 4 |
Systems requirements | 2 |
Implementation schedules | 2 |
Awards | 2 |
References | 2 |
Profitability | 1 |
Language capability | 2 |
Ownership | 2 |
Total Weightage | 25 |
TOTAL SCORE: | 100 |
Current relationship banks and market leaders are factored in for the request for information (RFI) part of the process, with strengths and weaknesses of each being an input into short-listing for the RFI itself.
The inputs from the banks on the RFI serve two purposes: They help to hone the final RFP document and provide enough information to short-list the banks for the RFP process. It is usually a good practice to call all existing banks unless there has been a serious issue with one.
Some of the decision points and degree of relevance across multi-country and single-country operations are given in Table 28.3.
Criterion | Multi-Country Operation | Localised Operation |
Coverage—international | High | Low |
Coverage—in-country (includes correspondents) | High | High |
Clearing centres | Medium | High |
Access channels | High | Low |
Technology and integration (including EB) | High | Medium |
Turnarounds and cutoff times | Medium | High |
Value-added service | High | Low |
The RFP stage comes next. Preparation of the RFP document is a challenging but interesting project. The RFP contents should include:
The coverage must be the scope of products and services required by the firm. Potential areas (those envisioned in the future) must also be covered, and functionalities in support, such as technology and information security, must be addressed. Next we list sample product/service inclusions in an RFP:
Table 28.1 shows a typical suite of products and services.
The evaluation or selection process then comes into play, when each bank parades its wares and presents to the committee on its capabilities. Some of the aspects to remember are:
Once the banking implementation has been done, it is important to benchmark and continuously review the bank’s performance. Service reviews every quarter and senior management reviews annually are important. For this, feedback must be taken across every point of contact, and feedback has to be honest, with the aim of ensuring seamless delivery that the banking partner has to promise and deliver.
We next go through a case study of a corporate that was evaluating banking partners for an RFP.
The banking partner remains the most critical of the external agencies with which Treasury interfaces. The banking industry, even as it transforms itself, is aligning itself more and more to be a solution-centric, advisory, long-term service partner to the multinational organisation, which makes the selection of banks even more important to the financial success of the firm around the world.