Published: March 21, 2000
Since the global financial crisis hit, many German corporates have begun to re-evaluate their needs and as a result, their relationships with their financial services providers. In light of views expressed by senior treasury services professionals at a recent roundtable hosted by BNY Mellon in Germany, Dany Eder, the firm’s Vice President for Treasury Services in Frankfurt, discusses the importance of close bank/corporate relationships and the increased focus on stability within this relationship.
Banks ruled the roost until recently. They had become used to a bank-centric financial world in which they dictated the majority of trends and developments. But times have changed and, in the current risk-averse, liquidity-tight environment, it is the needs of the client that are the focal point of bank-corporate relationships. In this environment the new role of the bank is that of a solutions provider, and while this means that banks must continue to offer effective transactional financial solutions, they must do so with the best interest of the client in mind.
This was certainly the view of Ingrid Weißkopf, Product Manager at Commerzbank, who, speaking at BNY Mellon’s recent roundtable in Frankfurt, also believed that banks can and in many cases should, work together to provide corporates with the appropriate services.
“It must be remembered that there are various groups of clients with varying needs,” said Ingrid. “The interests of all these individual clients must be understood and distinguished. While it would be in some way idealistic to expect one bank to be able to concentrate equally on all the various groups, there is a lot of room for expansion in terms of partnerships between the banks. This would allow for an even greater client focus.”
Both the German corporate and banking markets tend to be more sophisticated in terms of their thinking than other developed countries, and most German treasury departments are increasingly becoming a strategic tool for their respective corporations. As a result, treasurers are expected to improve the bottom line for the corporation – as well as find solutions to daily cash and working-capital management issues. Perhaps most importantly, they are also expected to improve internal data control – ensuring that compliance expectations are met and that risks are fully mitigated.
Treasurers are expected to improve the bottom line for the corporation - as well as find solutions to daily cash and working - capital management issues.
In addition, it is becoming increasingly common for treasury departments to have control over procurement functions. This is leading to the existence of two distinct types of treasury operations. One may be viewed as a ‘profit-centre’ treasury, which means it is assessed and managed on the overall profitability of the business (i.e., the end-to-end working capital cycle), and the other is the more traditional ‘cost-centre’ treasury, where the performance drivers are wholly linked to the receivables side of the cycle.
It is the rise of the ‘profit-centre’ treasury model in Germany (and other developed economies), combined with the challenges presented by the ongoing credit constraints, that have fuelled the corporate demand for their banks to provide holistic, integrated solutions to enhance risk and working capital management. If they wish to retain and indeed expand, their corporate business, banks need to step up to the plate in this regard.
Axel Miller, Principal at international management consultancy Oliver Wyman agrees with this view:
“If there is a client demand, the banks must be there and, ideally, a little bit ahead of the client in anticipating future demand,” he says. “I think the crisis has resulted in corporate treasury having a far broader mandate in general within some institutions, and that requires the banks to provide them with a complete platform and a whole suite of products that cover the remits of that changed mandate.”
Yet this may be easier said than done. The Mittelstand mid-caps, which have traditionally been the backbone of the German economy, prefer to work with local banks – valuing their local market knowledge as well as appreciating the understanding and business ethics that are inherent with the local banking model. As a result, Germany has a long-standing tradition of localised banking, the importance of which should not be underestimated. It is, in essence, a different culture – one that is based on proximity, understanding and nachhaltigkeit (sustainability), and not driven by price or revenue. [[[PAGE]]]
This is reflected by the current state of bank-corporate relationships: while those that are founded on revenue gains fall by-and-large by the wayside, those that are flexible and have corporate needs at the core have flourished.
Where domestic banks lead in terms of knowledge and relationships, however, they often fall behind in terms of technology. Proprietary technological investment will be out of the reach of many local banks, especially in the current economic climate. Local banks, therefore, need to find an alternative way to meet customer demand for technological innovation, if they are to continue to leverage their existing capabilities in the local space and remain competitive.
To this end, the emphasis of any solution to this problem must remain on the local. The traditional outsourcing model may, therefore, be immediately discounted because it is cost and product-centric in nature and frequently forces the outsourcing banks to mould to a ‘one-size-fits-all’ system that has global – and not individual market – needs in mind. What is needed is a variation of this model that offers flexibility and which prizes local understanding. The answer to this could be collaborative partnership.
The collaborative partnership banking model is based on local client needs and combines local market knowledge with the processing capabilities of specialist global providers.
The collaborative partnership banking model is based on local client needs and combines local market knowledge with the processing capabilities of specialist global providers. Recent research from BNY Mellon (Integrating treasury solutions in Asia and Europe – a roadmap for success) indicates that the advantages of this model are recognised by banks and corporates alike.
The benefits of a collaborative partnership stem from its focus on the individual core strengths and capabilities of both local and global banks. Local banks have the client relationships, local expertise and insight and risk management capabilities, while the international banks are better positioned to provide the global infrastructure and scaleable product capabilities. By bringing the two together, local banks gain access to high-volume, multi-product processing capabilities with international reach. As a result, they will be able to offer their corporate clients the best of both worlds – local dynamism, understanding and commitment tied into a global range and standard of working capital technology.
Therefore, as we move forward, banks need to see themselves as part of the solution – a link in the chain – rather than the solution itself. Adopting this mentality will allow corporates to benefit from their local banks gaining the ability to provide bespoke and flexible treasury solutions to suit their needs today and in the future. The banks themselves meanwhile, may benefit from an enhanced relationship with their corporate clients, as well as the possible expansion into previously impenetrable sectors.
The views expressed in this article are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.
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