Executive Summary: To survive in an increasingly competitive and regulation-intense world, community banks and their bankers’ activities need to change significantly.
Let’s look into the near future and consider how a top performing community banker will serve local businesses.
The banker’s day.
The banker begins his business day at home by accessing his emails. He checks to see if there are any messages from his team leader and reviews any overdrafts that exceed the approval authority of his administrative assistant.
Rather than heading into the office, he drives to the first of several customer and prospect appointments. He now spends more than 50 percent of a typical week with customers. He relies on his strong administrative/operations support group to handles day-to-day requests and multiple administrative/compliance issues.
The purpose of the customer appointments is at least twofold. First, the meeting is part of his regular assessment of the company’s operating performance and compliance with loan requirements. Given concentration limits, regulatory concerns, and market opportunities, his bank has now shifted its lending emphasis to an increased focus on working capital loans versus its traditional focus on commercial real estate transactions. Many of these loans require increased monitoring of the borrower’s receivables and inventory. The bank’s risk management group requires quarterly credit reviews of these loans (usually one-two pages in length) in part to ensure that the borrower remains in compliance with all covenants.
Second, the banker uses this meeting to assess opportunities to sell additional products and services. Prior to the meeting, he has reviewed company and owner financials and earlier call memos, and has several ideas to discuss with the owner. The banker has attended extensive product training, passed internal certification requirements, and knows the bank’s capabilities in cash management, employee banking, private banking, and other areas.
Another factor driving the relationship (rather than only a lending) focus is the yearly account plan that bankers prepare for top clients and prospects under the guidance of the team leader. This annual plan begins by summarizing all current business with the customer as well as any banking business now captured by competitors. Based upon his knowledge of the customer’s needs and the bank strengths, he then determines which products/services the bank should concentrate on selling to that customer over the next 12 months. He and his colleagues all now operate with clear sales priorities.
Perhaps for the first time in his career, this banker truly represents the entire bank when he meets with customers and prospects. This new approach has been encouraged by multiple factors: the continued and consistent “push” made by senior management to destroy all silos, the role of the team leader, and, probably most important, the new compensation program that captures and provides incentive payments based upon product sales and referrals across the entire bank. For example, rather than trying to hold onto larger or specialized industry clients, he now refers them to the appropriate group within the bank; he refers the smallest loans to the branch manager.
Strong economic motivation exists to increase the revenues that he helps to generate even if the transaction goes to another area. While the banker’s base compensation has not increased in recent years, his overall compensation has grown significantly as a result of incentive payments.
Leaving the meeting, he uses his PC to complete a brief call report that is immediately emailed to the client’s credit file and to the team leader for review and comment.
The role of the Team Leader.
As a result of the economic downturn, in recent years the Team Leader, like her direct reports, had spent most of her time managing activities related to improving portfolio quality, compliance related requests, and other administrative issues. But, no more. Now, her role has transitioned to sales leader and coach, and her activities are critical to the bank’s shift to a relationship sales culture and to improving the quality and effectiveness of the business bankers.
The role of senior management.
Senior management knows that, ultimately, success in business banking depends upon consistent and rigorous execution. In addition, businesses want to be sure that their banks are committed to working with them in good times and bad. Senior management’s demonstrated commitment is one reason that this community bank continues to fend off competition from bigger banks.
The support infrastructure.
While the banker is happy in his new role, there were some bumps along the way. Although he oversees the write-up of credit proposals and signs his recommendations, he no longer has credit authority. However, the bank’s risk management group has communicated its lending philosophy to bankers, so that transparency is high and few surprises occur. Further, the bank has streamlined its loan processing area to reduce activities that slow the approval process.
The banker has also had to learn to hand over tasks to an administrative assistant (AA) whom he shares with two other bankers. Initially, he thought it was easier to do these administrative tasks himself. Fortunately, the bank formed a strong AA group that is knowledgeable and can speak directly with customers. In addition, bank management required team leaders to ensure that the bankers transitioned as much activity as possible to AAs to free up time for customer contact. Furthermore, the compensation program noted above supported the change to a sales culture.
Concluding thought.
If your bank views the above as science fiction, we think you need to consider whether your current approach to an increasingly challenging environment (challenges from regulators, bank and non-bank competitors, investors, and a more informed customer base) will allow your institution to grow and generate satisfactory returns. Of course, the above blueprint needs to be customized to the needs and capabilities of individual banks. However, changes such as those suggested here can enhance rather than harm existing customer relationships.