Banking relationships need to be managed, just like any other financial risk. If you don't manage it well, you can find yourself in a very uncomfortable situation. A banker is not someone you call when you need him or her, or when you need credit. You need to ensure that your bankers are, and remain, satisfied to maintain the banking relationship, but when the going gets tough. We are entering an era of credit renewal in a context of very high interest rates. It's likely that some companies will be fighting to renew their credit lines. But as always, it's not when you're in trouble that you need to maintain your banking relationship, but at any time, investing your time and energy and sometimes making useful concessions.
A banking relationship is like a good pair of shoes: you must look after them if you want to keep them
We can accept the idea that not finding a banker is a major financial risk. Ask the weapons and defense industries, the gaming industry, the alcohol or cigarette manufacturers, the fossil fuel producers, etc. (the list is long) how easy it is for them to find and keep their bankers. On-boarding by a bank remains random and always complicated. That's why a relationship has to be nurtured over time and requires a great deal of commitment. Far too many treasurers and CFOs take this relationship for granted, do nothing to nurture it, and will be the first to be surprised when their bank abandons them for one reason or another. Maintaining the relationship means devoting time to it, sharing the business fairly (in proportion to the loans granted, for example), exchanging financial information transparently, making sound forecasts for the future, and negotiating rates, margins, and various charges up to a certain point (which is deemed reasonable). Far too many treasurers negotiate down to the last carat, as if it were a matter of life and death. It's true that you're there to protect the interests of the company to which you belong as an employee, but not to the point of damaging the relationship through excessive diligence and ruthless negotiation. We can only recommend moderation and avoid excesses in everything.
Seeking your banker's satisfaction ensures a lasting relationship
We can advise you to keep your banker happy, as he remains a profit-making, commercial institution. It's often assumed that bankers make too much money and swim in profit. If a banker doesn't generate enough income from a customer, he runs the risk of having to let him go. This is also why a good banking policy and strategy is to right-size the number of partners, neither too many nor too few. You must find a kind of happy medium (adapted to your situation and
needs). All too often, I see companies collecting bank accounts and banking partners by the bucketful. “Too much" is not advisable, as it only disperses income and dissatisfies the banks. Regularly reviewing your bank relations policy remains an excellent practice when it comes to corporate cash flow. It also enables us to analyze and measure counterparty risk, which we have recently been reminded of through high-profile bankruptcies or zombies risen from the dead in the land of watchmaking. Innovative solutions exist to measure this satisfaction and consolidate the data to better manage bankers during meetings and file reviews (e.g., CXFacts). Many don't have a clear idea of what they're giving to each other, and don't make the effort to compile data with their colleagues and subsidiaries to detect what's going well and what could be improved. Admittedly, it's not easy (often) to collect this information and compile it to get a complete picture of the relationship. Being prepared before a meeting with your banker can only help the relationship. The banker is willing to listen to problems if they arise, and in this way, we can improve the banking relationship. Going into a meeting with your banker unprepared with a solid file is a waste of time.
There's no magic formula, just pragmatic common sense
There are no miracle recipes, and even fewer solutions that can be applied to everyone. Relationships are often historical, long-lasting, fluctuating because of new needs, personal because we are still men or women, and the intuitu personae aspect is essential in the service provided. There are also subjective elements such as advice, innovation, creativity, quality of response and personalization of services, the relevance of proposals, etc. Not everything is quantifiable, nor should it be. But when it comes to arbitration, it's good to know who the right partners are. Finally, it's important to consider micro-economic factors and the counterparty, as well as its future strategy. It would be foolish to surround yourself only with local bankers in the country from which you are emerging. Common sense remains the treasurer's best adviser. It must consider the legacy of the past, the rigor of the bank relationship policy (if any), the company's own situation, its potential credit needs, its geographical footprint, the type of services and products required, etc.
Banking relationships: a financial risk to be managed like any other
More than ever, we believe that the banking relationship has become a risk to be managed like any other, with tact, efficiency, and moderation. We can take measured risks, accept justified situations, or diversify our partners, as long as we optimize the whole in order to avoid wasting time (managing banks consumes time), inefficiency, extra costs, dissatisfaction and changes in strategy. A bank merger can be fatal, a sudden reversal of strategy, a financial crisis, a change of shareholder, etc. Nothing is simple, nothing is set in stone, and everything needs to be reanalyzed regularly to remain relevant and ensure a lasting relationship. Many treasurers forget or neglect this, and only remember their banker when it comes to renewing credit lines, IPOs, bond issues, cash-pooling reviews, etc. It's not in a storm that you take out property damage insurance or look for a partner to support you. A relationship is established, built up, consolidated, maintained, expanded and nurtured to ensure that it lasts as long as possible. It's a long-term investment. You must earn a banker too. If you adapt your vision of the relationship, you'll enable it to evolve and consolidate. And don't forget that your reputation is built up, and that treasurers or CFOs who are too harsh, too nitpicky, too stingy, too demanding, or too non-transparent will sooner or later pay the price. The market knows who the players are, and we've been pigeonholed. So, let's take care of our image and reputation, which will follow us wherever we go. Let's maximize the company's chances of being supported and followed by its bankers.
François Masquelier, CEO of Simply Treasury, your Treasury Strategy Advisor – Luxembourg – July 2023
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).