Market share shifts downunder
In positioning their banking relationships, CFOs, Treasurers and Boards have historically viewed their primary banking relationship as existing with the bank to which they had greatest debt exposure. This, during much of the 90's changed to be the banker delivering Corporate Advisory support - the bringer of deals and equity. The circle continues to turn further and is inexorably reverting to the corporate's core Transaction Banker (TB). Just as the banks are continuously looking to build value and margin into their relationships, the corporate is chasing something unique that differentiates a bank from its competitors in ways which connect with that corporate's needs.
This is causing significant account churn in the market as banks present new relationship propositions, win business off competitors and look to deepen their existing customer engagements. In Transaction Banking, the often maltreated poor cousin within a full service bank, the barriers to change can be substantial - we see this in the lag times for example between deteriorating Customer Satisfaction performance and falling market share for a particular service provider - anywhere from 9 to12 months.
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Big differences exist between these primary relationship positions and secondary Transaction Banking relationships (38.0% of Top 500 corporates have more than one Transaction Banker), with substantially improved penetration at this level being achieved by other than the Big 4 domestic banks. Indeed this level of secondary TB engagement is growing smartly (a significant 6.7% over the past 6 months) and is one of the key routes into a new corporate account for service providers. Although a relatively closed TB marketplace with 85.3% of primary relationships still held by the Big 4, substantial account change is occurring both within the Big 4 and corporates moving in whole or part across to the internationals.
This is not the situation in the Top 500 corporate banking (Equity, Debt, Treasury and Advisory) markets where primary relationship share, although still dominated by the Big 4 (52.0% - a relative drop of 2.1% over the previous 6 months), is considerably more distributed and penetrated by the international investment banks and niche players. Both these latter groups have traditionally employed a "Trojan Horse" strategy in building business - use a product area where real expertise can be demonstrated to start a relationship and look to lever further product business from this. The approach has been only partly successful as CFOs and Treasurers have become more astute and aggressive at the same time in how they have looked to engage banks. The result, however, has been an extremely competitive landscape where real value, relative to other global markets, is being delivered to the customer.
Some key conclusions are clear...
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Corporates are increasing the engagement of all products from their bankers; the only product lines experiencing a reduction in use over the past 6 months are Government Bonds, Corporate Bonds, Short Term FX Debt and Project Financing.
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The market is increasing its use of secondary bank relationships in most product areas - a real measure of just how competitive this environment is becoming; the exceptions where secondary banker engagement is falling are, interestingly, in Corporate Advisory, M&A and Capital Structuring which are very relationship driven and Domestic e-Banking and Payments Processing where the transaction infrastructure often necessitates single service provider arrangements.
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Both these trends are accompanied by small but consistent increases in the share of business being secured by the primary banker in each product line. Exceptions here are Trade Finance, Project Financing, Spot FX, Equity Raising and Domestic e-Banking.
East & Partners Pty Ltd
Australian Corporate Banking Markets - Account Penetration Service
June 2002