Belgian corporates step up the pressure on banks
KPMG and Vlerick Business School conducted a study in Belgium in spring 2014 into the expectations Belgian corporates have of their bank(s). The study by professor André Thibeault and researcher Thomas Matthys shows that the corporates surveyed are satisfied with their banks, but that they are also putting more and more (price) pressure on their banks, and that they play them off against one another. Despite globalisation, corporates want to have a personal relationship with their bank. Banks, for their part, will continue to adopt a strict approach to credit supply in the future.
The study shows that corporates trust and positively evaluate their banks – more specifically, the four major banks. This is in sharp contrast to the loss of consumer trust banks have suffered in recent years among private customers. The corporates have remained loyal to their bank(s): 75% of banking relationships span over ten years. They are also satisfied with the knowledge the banks have of their sector and activities.
But corporates have also become more demanding. They diversify and spread risk by being customers of several banks (34% of corporates are customers with six to ten banks and 65% with six to twenty banks), they assess banks based on credit ratings, demand price transparency and play banks off against one another via tenders in their search for the best conditions. Moreover, there is real price pressure: uncompetitive pricing is given as the second most important factor in ending a banking relationship, after loss of trust.
On the other hand, trust is no longer the most important factor in becoming a customer with a bank. According to this study, this has been replaced by price competitiveness and the willingness to supply credit. The geographical spread of banks and – in particular – local decision centres are also highly valued by corporates: in this globalised world, corporates still appreciate personal relationships. However, this local representation does weigh heavily on the cost structure of the banks, and it is precisely on this point that corporates are becoming more critical. In other words, this is a tricky balancing act for the banks.
In addition, almost half of the corporates surveyed (49%) do not purchase corporate finance products from their bank(s) but rather from other financial players. Despite maintaining good relationships with their banks, corporates feel that they are not proactive and innovative enough. And yet, this is absolutely vital: no fewer than 66% of the corporates surveyed state that they will need new forms of bank financing within five years. For 46% of them, this need will even manifest itself within two years. The diversification of funding models and direct use of capital markets pose a serious challenge to Belgian banks.
Banks, for their part, will continue to adopt a strict approach to credit supply in the future. They have little choice in the matter given the stringent requirements on capital and liquidity imposed on them.
Bart Walterus, head of Management Consulting at KPMG Advisory and coordinator of the study, explains: ‘Banks have to take three major trends into account. To start with, corporates will play the banks off against one other to an ever-greater extent: they will organise more and more tenders for the different types of services in a formalised way. In so doing, corporates aim to be less dependent on their banks, as well as to strengthen their negotiating position with the banks. In addition, corporates also want to maintain a personal relationship with their bank at a regional level, despite the fact that we are living in an increasingly globalised world. Finally, the banks, for their part, will maintain a strict credit policy. They do not have a great deal of choice in the matter, given the regulatory requirements on capital and liquidity. Moreover, this also applies to transparency of information towards their customers. These challenges require banks to be able to adapt more quickly, and that considerable energy and cost are invested in projects to further develop client centricity, digitalisation of services, modelling and reporting. Only those banks who are able to respond well to these three trends will be properly armed to hold their own against the competition and will be ready for the continued consolidation expected in the banking sector.’
Key findings of the study
1/ The relationship with banks: corporates are becoming increasingly demanding but do remain loyal to their banks
Corporates have become more vigilant since the financial crisis of 2008. They want to diversify financially and become less dependent on their bank(s). Although banking relationships are still long-standing, corporates are spreading their portfolio across several banks and play banks off against each other: those who fail to be competitive or provide good service, risk being dropped. That said, corporates do remain loyal to their bank: their collaboration often spans several decades.
- The main criteria for entering into a relationship with a bank are: credit appetite and price competitiveness (29%), trust (23%), stability (14%) and value added to the company (14%)
- Corporates diversify and want to become less dependent on their bank(s). For this reason, they often increase the number of banking relationships. 34% of the corporates surveyed are customers with six to ten banks and 65% with six to twenty banks.
- Corporates want more transparency with regard to the pricing of the banks and are putting banks under price pressure: after trust, uncompetitive pricing is the main reason to end a banking relationship.
- Corporates are reluctant to end banking relationships
2/ Measuring bank performance
Corporates are becoming stricter with their bank(s) but are generally satisfied with the collaboration: the average level of satisfaction is 72%. Although corporates have become stricter, 54% of them have no formal or informal evaluation process for their bank(s).
- Banks have a good insight into management skills and a proper understanding of corporates’ businesses. Corporates are least satisfied with the knowledge the banks have of their sector (64%).
- 54% of the corporates surveyed have no formal or informal evaluation process for their bank(s). Only one in three has a formal procedure. Banks are primarily assessed based on the following four elements: price competitiveness, creditworthiness, financial performance and portfolio review.
3/ Changing need for bank products
66% of the corporates surveyed state that they will need new bank financing products within five years. 70% of them – or 46% of the total number of corporates – indicate that they will even need these products within two years. The diversification of funding models and direct use of capital markets pose a major challenge to Belgian banks.
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