18 Jun Revealing the intricacies of Australian banking culture
Episode 4 – Know your bank’s business
What is to come?
Robinson Sewell Partners are committed to sharing the educational journey in financial literacy with their audience. We aim to demystify banking, and place all borrowers on a stronger beach head when cementing their funding requirements. Stay tuned for the following 2 mini documentaries to be released every two weeks covering the critical topics of;
Chapter 4: Know Your Bank’s Business
This is the chapter that pulls back the curtain to reveal the mechanisms, behaviours and culture of Australian agribusiness and commercial business banking. Ian discusses the economic, moral and social engagement banks have with their clients which effectively delineates their mandate of engagement.
Banks are corporate organisations and like all corporates, are functioning to make money in a highly competitive and regulated environment.
Watch the video to find out why client loyalty can be expensive (with a caveat) and what strategies are deployed to achieve their means.
Lending to Australian agribusiness and commercial enterprises is governed by the metrics of their banking licence and governed by the Credit Underwriting Standards that formulates the credit policy framework.
Learn what drives front line bank account managers and their economic force of engagement to the client community. And learn what you need to learn to effectively immerse and dovetail your world into theirs for a more effective engagement and enduring relationship.
Welcome (Transcript of video)
Hi, I’m Ian Robinson and welcome to another edition of Robinson Sewell Partners Business Insights.
Today we are going to talk about knowing the Bank’s Business. To date we have covered off on Information Control and Knowing Your Business, but do you know the bank’s business. In this opaque translucent financial world, it would be of fair opinion that you would not. But it is actually in your best interests at least to have a peripheral view of their market positioning from an economic, moral and social viewpoint as well as some undertones to their key motivators and behaviours to assist you in your engagement with the banks.
Financiers are a number of things;
- They are a corporate entity operating under the mandate to make money for their shareholders and to protect shareholder capital.
- They provide financial services in a mature and very regulated industry
- They are run by people, whose very interactive public engagement and policy setting is dictated by the formative science of behavioural economics.
- They operate in a competitive environment and to continually be successful they must manoeuvre strategically within the prevailing economic forces at hand.
- Banks are fully aware, by their very nature of infusing themselves into our daily lives, that they create a platform for public opinion (both positive and adverse) to events which may or may not necessarily be rational. This is their continual PR challenge.
So what do you need to know about banks?
- Banks continually seek double digit returns on revenue / profit. This is achieved through initiatives, innovation and invention that are too numerous to list. Maximising a return for every client interaction is within their best interest via a client margin and cross sell (as much as competitive forces will allow).
- Client loyalty is not rewarded. Banks rely on “stickiness” for client retention and maximising client returns. Do not confuse customer loyalty with two way professional courtesy. They are two very separate behaviours and outcomes.
- A bank’s cost of funds is a critical profit driver. Derived from multiple sources; term deposits, wholesale funds, share issuances etc. Only treasury have full transparency over the bank’s balance sheet and costing structure. How these funds are costed and dispensed internally within the various divisions is only known to the few. In general terms, increasing costs are passed onto clients. Decreasing costs are massaged onto the banks bottom line as increased profit. Once again, as much as competitive forces will allow.
- Banks are policy and process driven. Their mandate to lend to commercial operations is bound by the interpretation of their credit underwriting standards (policy) underpinned by the characteristics of their banking licence. All loans need to be risk profiled on an annual basis and rolled up and reported to APRA. This is to ascertain that the bank’s books risk profile fall within their compliance parameters. Hence banks can be overweight or underweight certain industry codes and will act accordingly.
- Front line managers are driven by targets and Key Performance Indicators. They need to achieve certain benchmarks to be considered for professional development, promotion and / or bonuses. Keep this subtlety in mind.
The engagement experience with banks can be enhanced by understanding their code, their language and their motivators. They provide a pivotal role in any business by providing the liquidity and the financial oxygen for a business to expand, grow (or even just survive). They also provide a pivotal role in the overall health of our economy. Working with them as you would a business partner but communicating with them in their code will provide a runway for improved financial outcomes.
Thank you for listening in. Feel free to make contact with Robinson Sewell Partners to discuss further and I look forward to connecting with you again soon.