It is not just high-profile individuals who face the risk of finding themselves without a bank – it can happen to companies as well, even those that are well rated and well respected can be ‘let go’ as their existing relationship bank reviews its client list.
It makes sense that changing a relationship bank can be a complex and drawn-out process, especially if it is not through choice. Based on conversations with those that have been through this process, here are some steps corporate treasurers can take when they are faced with such a situation.
Many banks are going through de-risking reviews, and could be looking to withdraw from certain sectors and industries, while refocusing on others. And banks may also make decisions based on geopolitical factors, such as sanctions or embargoes imposed on certain countries or entities. If a corporate customer’s activities become subject to such restrictions, the bank may need to terminate the relationship.
In these situations, it pays to have already identified potential alternative banks – having a list of options can help you quickly transition if your current bank terminates the relationship. Better still, strong relationships with a number of banks will have already established a list of options. Such a list will speed up the process of identifying a new banking partner when the business issues a Request for a Proposal, and will make the KYC process easier when a new bank is appointed.
But if your bank has raised concerns about certain aspects of the business or financial operations, address them promptly. Banks are concerned about potential risks, including fraud, money laundering, and regulatory violations. Having strong internal controls and risk mitigation strategies in place can help alleviate these concerns.
Businesses can be surprised at just how broad and deep their relationship is with one financial institution – in different regions, different subsidiaries and across international borders. The current bank could be providing a number of different services and financing arrangements. Payments and collection services, revolving credit facilities, debt – all need to be reviewed. Now is a good time to understand just how integrated the bank is within the business.
A full mapping exercise will reveal all the services that are provided by the bank to the client – cross-reference this map with the bank, often it can something the other side was not aware of.
Of course, the business might maintain more than one banking relationship, so it is also an opportunity to understand the services each bank provides, and where their strengths lie.
Although complex and not necessarily something that had been planned, switching banks can provide the opportunity to review how the business carries out certain processes. The way these processes are carried out may have been right at the time they were introduced, but time moves on.
Also, different banks have different ways of doing things – there will be opportunities to find efficiencies and avoid duplications of processes.
How compatible are your existing systems with any new providers? Not all systems work with all banks – although such gaps may be decreasing in the age of open banking and APIs, it will be important to review your own systems and ensure they will work with any new banking provider.
The process of switching bank can take some time, so in the meantime, it is important that both sides maintain clear, open communications during the process. Cooperation is vital to avoiding any negative impacts of the switch.
Suppliers and customers will need to be informed of the impending change to the payment details. So, working with the new bank and existing stakeholders to transfer existing accounts, transactions, and recurring payments will minimise disruption.
Remember that the specifics of any change in banking relationships will depend on the company’s size, industry, financial situation, and the complexity of existing banking operations. It’s essential to create a customised plan that addresses the company's unique needs and challenges.
Philip Smith is editor of The Treasurer