Managing the Bank Relationship

1
Managing the Bank Relationship
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Objectives of Relationship Management

• Access to Credit and Other Financial Services.
• Management of Costs and Quality
• Monitoring Risks
• A Partnership Approach

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Services Provided

• Collections
• Payments
• Information
• Credit
• Investments

4
Collections

• Coin currency
• Standard check processing
• Lockbox services
• Electronic collections
• Deposit reporting service

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Payments

• Demand deposit accounts
• Zero balance accounts
• Controlled disbursements
• Payroll
• ACH
• Wire Transfers

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Information

• Balance reporting services
• Account reconciliation
• Electronic delivery systems
• Positive Pay
• Advisory or consulting services

7
Credit

• Shifting from a direct financing role
• Moving toward role of risk-sharing or guarantor

8
Investments

• Repurchase agreements
• CDs
• Commercial paper
• Corporate agency services
• Trends

9
Selection of a Service Provider

• Request for Proposal (RFP)
• Request for Information (RFI)
• Informal

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Examples of Selection Criteria

• Knowledge of Industry
• Quality of Service
• Pricing
• Financial Strength and Stability
• Ability to Customize Services
• Depth

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Issues in Relationship Management

• Creditworthiness - Financial Analysis
• Number of Relationships a business needs
• Within a single financial institution
  Amongst multiple institutions
• Negotiation and Pricing
• Documentation
• Audit and Control
• Performance Measurement Evaluation

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Bank Selcction

• Location
• Price
• Service quality and breadth
• Bank/company fit
• Bank creditworthiness
• Bank specialties

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Financial Institution Compensation

• Fees
• Compensating Balances
• Combination
• Frequency

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Account Analysis

• A Statement of services a financial institution
  provides its customers specifying services
  provided, volumes and charges.
• Analysis come in many formats.
• Settled by cash payment or compensating
  balances.

15
Earnings Credit Calculation

• Earnings Credit
• Collected Balance x (1-Reserve Req.) x
• (Earnings Credit Rate x Days)
• 365

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Collected Balance Required Calculation

• Collected Balance Required
• Monthly Service Charge
• (Earnings Credit Rate x Days/365 )
• x
• (1 - Reserve Req.)

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Banks View Advanatages of Balances

• Effect of increasing deposits for the bank
• Balances can be lent
• Form a cushion in case of loan default

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Corp View Disadvantages of Balances

• ECR is lt investment rate
• Fees are tax deductible
• Fees offer tangible expense that can be
  monitored
• Fees are generally fixed and thus comparable, ECR
  floats

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Optimizing the Banking Network

• Check list
• what is banks compensation rate and how will it
  be paid, fees or balances, etc.?
• if balances, over what time period?
• multiyear agreement available with capped price
• increases?
• compare a proforma account analysis statement

20
Optimizing the Banking Network

• Check list
• who is the customer service rep?
• how will float be computed?
• what performance guarantees are offered?
• penalties for customer overdrafts?

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NonBank Service Providers

• Almost half of all consumer and business loans
  held by nonbank companies
• Third-party vendors of information between banks
  and companies

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Financial System Trends

• Nationwide banking in the US
• Economic unification of Europe
• Both of these will be catalysts for an ongoing
  drift toward concentration and globalization in
  the banking industry.
• Imaging