Perhaps one of the most effective techniques that a bank can adopt to protect against accounts erosion and to strengthen the bank-customer relationship is assuming an advisory role rather than merely acting as a traditional banker. This entails the account relationship m manager providing technical and financial advice. As we’ve discussed earlier, lending is a core service and constitutes the base from which to build a profitable, sustainable customer relationship. In addition, acting as a business consultant is an effective means to increase cross-selling of products and secure a higher portion of the client’s total business. This is because advisory services offer value to clients well beyond d the lending transaction and allow the bank to compete on the basis of knowledge, not price, against the global financial giants.
In banking, knowledge of the product and local market has proven to be the most effective means to overcome the competitive advantages of scale, automation and financial wealth of the global banks. This explains why banks such as HSBC constantly seek to build up their knowledge of local markets and show the customers that they possess that knowledge.
Getting it Done
These days, it is practically impossible to rely just on the individual skills of the account relationship executives (credit facilities managers) to ensure that the bank’s credit portfolio is in a healthy position. In order to be able to compete in the challenging environment of 2008, banks must adopt modern methods in running their corporate credit operations, especially for those banks that deal with a larger clientele base. Banks must concentrate on optimizing their current credit portfolios through improved loan portfolio analytics, ,adopting more stringent approval criteria, monitoring controlling exceptions and the like. It is absolutely vital for banks to at least generate on a daily basis following types of exception reports to manage the performance of the credit portfolio effectively:
1. List of total clients
2. Outstanding loans
3. Interest, fees and charges generated on daily and monthly basis per customer
4. Good, bad and doubtful accounts.
More complex lines of business, such as land development construction and income property lending, constitute higher risks and require additional, specialized reports to ensure adequate analysis. These reports are essential tools aimed at helping top management to analyze outstanding situations, undertake protective measures for anticipated future hindrances and adjust a bank’s relationship approval criteria as appropriate furthermore banks must not only manage for internal value; abstractly managing for maximum profitability could turn out to be a short –sighted strategy. Maintaining a balance between preserving relations with stable, reputable firms and taking into account their profitability results in a healthy credit portfolio that generates higher returns for the bank in the long run. Conversely over charging existing customer to maximize profitability can cause account attrition and eventually, financial losses that can be hard to recoup. Banks ought to focus on attracting the accounts of those firms that have been established for longer periods and have clean reputations in trade: these merchants are often more influential in the markets than even the largest publicly listed corporates.
Additionally, banks must focus on providing their customers with more value added services. Creating new ways to add customer values should be a regular per suit. Periodic value- innovation brain storming sessions can be very fruitful if combined with gathering new ideas and input from employees in different departments and of different ranks, rather than totally depending on the banks executives and top management people. Front-liners often observe customers’ preferences and have good ideas about customers’ needs and how best to fulfill them. Banks must also improve communication and training . in our region, this could turn to be the most challenging pursuit in 2008, especially in technical areas such as trade finance. Its our convection that a successful training program is one that always focuses in the most relevant issues, and this can be achieved only through a continuous and unbiased interaction with the market place.
Finally, banks also develop and awareness of the interdependence of their separate but operationally integrated departments. Various units must perform in harmony and operate together in order to effectively achieve new growth profit and audit strategic imperatives.
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