Corporate banking accounts for roughly half of banking revenues globally, a pool that should grow by 7-8% annually through 2020. It’s a space that banks hoping to drive shareholder value cannot ignore. Disruptive trends such as tighter regulation, shifting client needs, the digital revolution, disintermediation, and the increasing globalization of corporate clients are driving significant change. Market leadership will require a rigorous portfolio strategy, a finely tuned business model, and first-rate IT and operations.
Several actions are needed to be a winning corporate bank in 2020:
It can be tough to deliver on all four fronts at the same time, but banks that get it right can create significant shareholder value. Innovation will be a key to gaining and maintaining competitive advantage in every market. BCG’s Corporate Banking Performance Benchmarking highlights best practices in corporate banking from leading institutions around the globe.
In the movie Moneyball, an American major-league baseball coach transforms the way his team trades players, replacing the judgment of experienced “scouts” with statistical analyses of players’ performance. Indeed, from sports to advertising to law enforcement, we are seeing a shift from gut feel to statistical science. Price setting is no exception.
Yet the commercial lending business has been behind the curveball, so to speak. Loan prices are still largely the result of negotiation between business clients and the bank’s relationship managers, who hesitate to change their behavior in ways that can seemingly undervalue their discretion and experience. Unfortunately, their traditional approach causes inconsistency and forgone revenue.
How should banks go about moving to best practice in commercial loan pricing? The first step is to diagnose where prices and practices are falling short — and where the biggest opportunities lie. The next step is to design a new, statistical pricing model that includes target setting on both rates and fees, well-defined discounting rules based on the true price sensitivity of clients, strict governance, and incentives aligned with price realization. The reward can be a home run: a 7% to 10% rise in commercial lending revenues.
Winning in Today's Corporate Banking Environment