Winds of change are blowing across the corporate banking landscape. Find out how you can stay on top of these developments and keep the lights on.
Corporate banking has traditionally been dominated by a few large, global banks while smaller local banks dealt with the correspondent banking business.
However, winds of change are blowing across the corporate banking landscape. Corporate bankers will need to stay on top of these four trends to stay competitive.
The larger incumbents are rationalizing their operations given the weak economic outlook in the developed economies and to comply with Basel III's new bank capital and liquidity rules.
At the same time, strong regional growth has seen the rise of super-regional banks. As their corporate customers from home markets expand overseas, domestic banks are also increasing their regional reach to service their customers more effectively.
Within corporate banking, transaction banking is a rising star in the global financial services industry.
In the wake of market fluctuations, low interest rates, and job cuts in investment banking, transaction banking offers stable revenue growth.
However, structural hurdles impede the true potential of transaction banking.
Transaction banks increasingly need to deal with cross-border transaction regulations and taxes but struggle to deal with different degrees of integration across markets, geography, and revenue flow across branches and departments.
Transaction bankers recognize the need to adjust to the new realities of globalization and the need for end-to-end systems that simplify processes for their customers.
Corporate lending is still vital to economic growth although global credit tightening and current economic headwinds have eroded corporate credit quality and banks' capital levels.
Unfortunately, business growth in corporate lending is hampered by manual processes and home-grown systems that cannot adequately support demands from internal stakeholders, including audit, compliance, sales, and external stakeholders such as clients and regulators.
At the same time, there is a decline in return on equity for corporate lending due to regulatory capital requirements and the low interest rate environment. Banks will need to cut down on operational costs to offset reduced returns and start streamlining operations to achieve automation, straight-through processing, and front-to-back digitalization.
The global nature of banking regulation also means that corporate bankers need to monitor the global network for compliance around capital and credit exposures and mitigate credit risk.
Banks now need to have better visibility of their operations and to understand exposure by industry, currency and country.
Investing in more contemporary technology architecture also offers the opportunity for banks to interoperate with various other core systems in a more seamless manner and reduce credit risk.
The changing profile of the corporate customer has seen an increased demand for highly personalized, omnichannel and real-time solutions from their banks.
Rapid digitalization has led clients to expect their corporate banks to keep up with technology and have more effective processes with shorter turnaround times.
Existing corporate banking infrastructure hampers the real growth potential of the business.
There is currently an over-reliance on manual processes, which slows down data processing and prevents corporate bankers from providing real-time information to their customers.
Even among banks that have invested in technology, most tend to approach it in a piecemeal manner by addressing a specific issue or forcing existing technology from other parts of the bank to serve corporate banking needs. Some even prefer home-grown systems in the belief that these will be a better fit for their bank's needs.
When a corporate bank has 50 different products or services, there is an almost equal number of systems needed to support it.
The outcome is asynchronous intrabank data across different departments and the corporate banking ecosystem.
Corporate banks are thus shackled by inefficient processes, unnecessary costs, poor information flow, long approval periods, sub-optimal capital allocation, and an inability to cope with the fast pace of change happening in the market.
Globalization, market fluctuations and digital disruption have changed today's corporate banking landscape—and there is no turning back.
Banks need to address the corporate banking infrastructure at an enterprise level to extract greater efficiency, increase speed of execution, and allocate capital more efficiently.
Improving the underlying infrastructure will also allow the bank to offer a faster turnaround time in processing requests while becoming more adept in handling the relentless pace of regulatory and business demands.
To facilitate adoption of emerging technology, corporate banks are increasingly adopting an open architecture platform. Going on an open platform with standardized technology allows for quick scalability, greater efficiency, and faster time-to-market.
Banks will be equipped to:
The modern corporate bank should offer a comprehensive digital service, a consistent, coordinated experience across channels, and an integrated client view across the client lifecycle.
To achieve this stage of customer servicing, the commitment to overhaul the corporate banking infrastructure must start now.