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09 December 2013

Building a Global Corporate Bank: (Part One) Protecting the Core Franchise

As a two-part introduction to this series, we are discussing how banking institutions can best protect their core franchise, whilst driving the international programme. In this first part, Baringa Partners has identified five key considerations that any financial institution should take into account when expanding its global footprint. We will continue to share our experiences and explore in more detail each of the 'Globalisation of a Corporate Bank' themes discussed during the course of the coming year.

Integrating the International Network

The ongoing effects of the financial crisis continue to constrain the efforts of financial institutions to grow in their home markets. However, a number of the UK's major corporate banks are responding to this challenge by strengthening and integrating their international network to build their market share and to protect their core customer base. By building a strong and integrated international franchise, these institutions are seeking to increase their ability to retain and develop their existing customer base

  • by better servicing their increasingly global needs, and
  • extending their reach and brand across a broader base of cash, trade, hedging and wider-financing services.

Protecting the Core Franchise

A significant proportion of large domestic and multi-national corporate business is concentrated in the hands of a few, large global players, with only one UK-domiciled player consistently recognised as a leading provider in their home region.  So, why would a major UK-domiciled corporate bank invest in strengthening its international platform?

  • To protect its home market and core corporate bank:  With both global players and leading regional players (for example in the Nordics) increasingly investing in innovative liquidity, treasury and cash solutions,  banks that continue to struggle with legacy platform issues are likely to see market share dissolve over time as the expectations of both commercial and corporate customers increase
  • To satisfy client demand
  • To innovate and extend the proposition
  • To diversify the organisations' risk profile.

These drivers need to be counterbalanced by the scale of organisational and systemic change. By focusing on growing share of UK-domiciled international corporates, firms can also seek to mitigate any increase in the default risk of targeting new customer segments or customer groups. 

Winning the Customer Base

To win back or grow its corporate customer base, an institution needs to have a clear and differentiated 'go to' proposition with a supporting cost/benefits case.  There are many lessons to be learned from other players when considering what new 'ingredients' and innovation are required to attract new business. Firms seeking to add something new to their customer offering have been focusing on driving innovation in areas such as global cash pooling, extended liquidity services, innovative refinancing and treasury forecasting and modelling. Others have focused on the opportunity to 'put right' the base-level services expected from a leading corporate customer, particularly where other institutions still have work to do, for example in customer on-boarding, on-going account management and core digital services. 

What then, can firms learn from others who have already taken steps to extend and strengthen their corporate banking offerings to new markets? 

We have identified five key considerations:

1.       A Defined  Business Model

What is most important to the organisation? Is it service quality, cost of infrastructure or time to market?  How can the firm 'stress' its business case against the target model,  expected returns and cost of investment while carefully balancing its risk profile?

2.       Effective Mobilisation – overcoming Corporate Inertia

The need to build pace around a strong top-down vision and business case to avoid corporate inertia and make optimum use of investment too – launching in a new market in months not years. 

3.       Meeting Risk and Regulation Requirements

Meeting regulatory expectations both locally and globally while improving how capital resources are allocated across entities, and how product strategy and risk strategy are aligned.

4.       Using Effective Technology

Partnering with technology effectively from the start, to build new capabilities and extend the corporate infrastructure to new reach systems and decommission legacy ones.

5.       Aligning Resources

Aligning a clear people and site strategy from the visible front-line to the back office support and the wider leadership, risk and local management required for local culture and practice.

Overall, financial institutions will need increasingly to look to globalise their footprints in order to stay competitive to both consumers and shareholders, but expanding into new geographies has many associated considerations. Baringa Partners has a strong track record in understanding and dealing in these considerations through a number of successful implementations for our corporate bank clients. 

In part two of this series, we will explore the key considerations in Driving the International Programme. This will then be followed by a number of blogs describing in more detail the considerations and themes when dealing with 'Globalisation of a Corporate Bank..