A Détente in Banking Relations

A new survey shows the strain between bankers and treasurers easing.
Vincent RyanNovember 9, 2011

Treasurers are happier with their banks than they have been in the past two years, but they are still actively managing their stable of banks by cutting and adding the number of financial institutions they deal with. That was the finding of the Association for Financial Professionals’s Treasury Benchmarking Program Survey, released this week.

About 73% of finance executives at 720 U.S. companies say they are “satisfied” or “highly satisfied” with the ability of their banks to support their company’s business objectives. Indeed, finance execs say, the aspect of a bank relationship they value the highest is an understanding of their organization’s business and operations.

Credit seems to also have become less contentious. Most treasury departments indicate they have sufficient credit facilities in place, at least in terms of the length of those agreements. Four out of five companies in the survey have a credit facility — more precisely, 85% of companies with annual revenue of more than $1 billion and 73% of those with revenue of less than $1 billion.

The tenor of those credit facilities varies. About 25% of companies have a 364-day credit facility, 28% have a three-year instrument, and nearly a third has a five-year deal. Banks are willing to go out longer for large companies — 43% of respondents with $1 billion or more in revenue have credit facilities of five years, compared with only 21% of companies with less than $1 billion in revenue. But a majority of companies of all size say their current facility’s tenor suits them: when it comes time to renew, 68% say they would seek the current tenor, while 28% would try to extend it.

Despite the relaxation of previous tension with banks, companies continue to actively manage their bank groups. (It’s no wonder: the average company has 5 banks participating in its credit facility, but nearly half of organizations with more than $5 billion in revenue have 13 or more banks participating.) Two out of five finance organizations either increased or decreased their number of banking relationships during the six months through April 2011, the AFP survey found. About 13% cut the number of banks they deal with, and 59% of those say it was for reasons of economies of scale — the desire to lower the cost of maintaining ties with a bank.

More organizations (25%), however, actually increased their number of banking relationships, and most (46%) did so to get access to credit. Concerns about counterparty risk were a distant second.

The bone of contention many finance departments have with their banks continues to be fees. In a separate AFP survey released this week, 62% of companies say they gauge the success of a treasury group based on how successful they are at reducing banking expenses. So it’s no surprise that treasurers complain about the opaqueness of the banking fees they pay. About 39% of respondents to the benchmarking survey say they are dissatisfied with the accuracy and transparency of bank fees, and 38% question the value received for those bank fees.

Whether treasury departments take the time to share this concern with their bank-relationship managers is another question. One-quarter of finance execs meet with their bankers regularly, but only once a quarter. An almost equal number meet with their bank only every six months. The greatest number — 33% — keep meetings on an “as-needed” basis.