Relationship Banking in Commercial Banking

Commercial banking is fundamentally different from retail banking in several ways. One of the main differences between the two types of banking is the relationship management approach. The commercial banking system relies heavily on relationship management.

Each and every corporate customer of a commercial bank has a dedicated relationship manager. This is possible because of the scale of business that corporate clients provide to their banks. Banks have tried to replicate the relationship management approach in retail banking as well. However, the approach does not work as well since the required scale is not present in retail banking.

In this article, we will have a closer look at what relationship management is and how it is strategically used by banks in commercial banking.

What is Relationship Management?

Relationship management is a consultative selling approach followed by commercial banks across the world. As a part of this approach, commercial banks do not directly try selling their products and services. Instead, the first seek to understand the business of their client and understand the process gaps. Once this understanding has been achieved, the bank’s products and services are positioned as solutions to solve the problems being faced by the corporations. Since the products and services offered by commercial banks can be customized to a large extent, the role of a relationship manager becomes very important.

How Relationship Management Works

Relationship management has many aspects when it comes to commercial banking. Some of the most well-known aspects have been mentioned below:

• Understanding Client’s Business: The first step in relationship-based banking includes understanding the business of the client. The relationship officer is expected to closely interact with the important people in the client’s organization to understand the pain points that they face while interacting with the bank. The relationship officer is expected to closely study any business operation which interfaces with the bank.

• Understanding Bank’s Products: The relationship manager is also expected to be well versed in the range of different products which are offered by the bank to corporations. The bank must be aware of various types of credit products, transaction processing products as well as foreign exchange management-related products which the bank has to offer.

• Cross Selling: Relationship management is so successful in commercial banking because the approach relies heavily on cross-selling. The task of a relationship manager is to continuously increase the scope of work that the bank performs for the client. A good relationship manager is able to expand the banking relationship and help generate more revenue for the overall business.

• Procedural Expertise: The procedures followed by banks can be quite lengthy and complicated. It is the job of the relationship manager to be well versed with such procedures. These relationship managers act as the single point of contact for the client firm. They must be resourceful enough to ensure that the client faces minimal bottlenecks and are able to avail of all the benefits within the shortest possible time frame.

• Risk Management: Relationship management is not only about increasing sales. It is about increasing the size of the relationship in a sustainable manner. This is the reason that relationship managers are also expected to keep an eye on the exposure that the bank has to their clients.

  Relationship managers are expected to call out any inappropriate risk policies being followed by the client. Sometimes relationship managers are also expected to keep an eye on their client’s financial policies. If these policies seem extremely risky, they are expected to ask the bank to reduce their exposure as well. Hence, it is important for the relationship manager to be aware of how to assess risk and the steps that can be taken to reduce the risk.

• Client’s Representative Within the Bank: The relationship manager is expected to work as a representative of the client within the bank’s premises. It is the relationship manager who is expected to convince the underwriting department at the bank to give loans to their clients. They are also expected to ensure that their clients get charged the appropriate amount of fees given the scale of business that they provide to the bank.

• Regulatory Compliance: The relationship manager must also be aware of the regulatory rules which impact the business of their clients. The relationship officer must be aware of the quantum of credit that they can provide to their clients and the circumstances in which this can be done. If the commercial bank is not able to meet the funding needs of their clients, then the relationship manager must help arrange the funding from a syndicate of banks.

• Reviews and Renewals: The relationship manager acts as the single point of contact for reviews and renewals. The commercial bank does not need a separate set of people to get permission from the client. Instead, the relationship manager is aware of the relevant people at the client’s site as well as their needs and expectations. As a result, relationship banking makes this process easier for both the commercial bank as well as the corporate house.

In short, commercial banking is highly dependent upon the relationship management-based system. In order to provide personalized services to a high-value clients, banks have to ensure that a dedicated representative is catering to their different needs.