Brace for the continuous changes with your banks.
You would agree that your “good” relationship bank MUST have (i) abundant capital to lend to you at a good price; and (ii) a reliable and credit savvy relationship banker looking after your account.
Unfortunately, both MUST-HAVES are under pressure and are not getting any better soon.
You must have heard that Basel III (and soon Basel IV) is putting a lot of economic pressure on how they operate. Indeed, just last year, we saw banks raised some $20bn of new capital. It is likely that another $10-20bn new capital will be required for 2019 and beyond. CBA just announced $1.1bn PERLS issuance. All these are meant to make banks safer in the event of another GFC like occurrence. But this will, if not already, come as a cost to you.
Banks need to maintain more Common Equity Tier 1 capital (ie, equity - costlier capital than wholesale debt or deposit taking), put aside capital for HQLA, higher quality liquid assets like Government & State bond to improve their liquidity, and be more stringent in its lending policy (higher quality collateral & credit rating). Capital charge for every $ they lend out will significantly increase as the tenor goes longer, credit rating goes lower and the security gets lighter. Altogether, this means a harder time ahead of you if you are not an A rated publicly listed company. Whilst the funding base rate is at an all time low, the margins charged by banks will increase.
Not only an impending increase in your financing costs, but highly likely, you will also see a a change of your relationship banker. There has been a high level of personnel changes among the majors.
At ANZ, Shayne Elliott succeeded Mike Smith as the CEO in 2017 and restructured his executive team which includes appointing Mark Whelan to head up Institutional Banking and moving Fred Olsso from New Zealand to head up Commercial and Retail division in Australia.
Lyn Cobley, ex-CBA head of retail products, joined Westpac as head of Institutional Banking in June 2015, has started cost cutting exercise and will see 5-10% fats to be trimmed which is about 100 jobs across the division.
At CBA, Aidan Toevs, Group Chief Risk Officer just announced retirement. Whilst an internal replacement, David Cohen, has succeeded the role, some movements down the chain of command have started.
At NAB, ex-Westpac & ex-ANZ Chief Phil Chronican joined NAB’s board in Feb.
Whilst these are movements at the executive level, there will be rippling effects down the command. There will be exits and there will be new blood coming in.
What does this all mean?
The compounding effect of increasing cost of funds and new division heads mean an imminent need of a very ruthless client segmentation exercise. Yes, again...
Every division heads will want to grab the most profitable and promising clients and pass the less profitable and potentially trouble clients to other divisions. The formula for this segmentation is usually on the share of wallet, existing and potential revenue from the client.
Typical causalities are those companies with a level of borrowing between $15m and $25m, an arguable demarcation line for segmentation. A blessing or a curse – it is often done without consulting you.
In short, if your banking relationship has been rocky, it is going to get a whole lot rockier. And if you just changed banks or have a relatively stable relationship with your bank, it is very likely that will change in the next 6 months.