When I started my career in banking many years ago in India working for a multinational bank, community-style, branch banking was very much in vogue and the established business model. Those were the days of the empowered branch manager who had direct control over his branch service delivery, revenues, client servicing and problem solving.
This system worked, and very well at that. The manager and his relationship managers knew their clients intimately. And sometimes their families as well.
Bankers were truly plugged into their communities. The tellers — “messengers” or “sepoys” (the bank still thought it was the era of the Raj) — clerks and officers knew their counterparts as well. There were, as a result, numerous fingers on the pulse of the market.
Disgruntled finance managers, employees etc of clients often spilt the beans on malpractices, tipping banks off. Competitors, buyers and sellers confided in bankers about deteriorating credits, of owners whose market credit rating had dropped or risen, of profligate spenders, of sharp or shady practices and so on.
The system of “early warning signals” so very relevant to the SME space was finely tuned and worked wonderfully.
I remember one such case where an annoyed finance manager told me that the managing director of a company (my client) had used the proceeds of a rights public issue of shares to pay off relatives to purchase their shares and settle debts! This invaluable information was used appropriately to get our money back and show the door to the client.
The essence of this wonderful model of banking was information. If we fast-forward to today, what does SME banking look like? The concept of branch banking has more or less disappeared, save at a couple of banks.
The branch manager stands emasculated, a figurehead with no real authority and mainly to serve as an administrative head and as a punching bag for complainants. All banks have gone “functional” which means each business (credit cards, business loans, SME, auto loans, etc) have different heads).
The lending market has been segmented into SME, emerging corporates, mid-market, commercial banking, large corporates and so on.
Banks have become an agglomeration of silos. Earlier, the branch sold everything required by the customer. Now, each of these businesses “cross-sells” products. Cross selling has replaced relationship management and bespoke banking.
Customer needs have fallen by the wayside. It will be argued that this is more sophisticated, that the market has increased in size and sophistication and that economies of scale drive all decisions. This is not wholly correct.
A more sensible delivery model with the provision of solutions at the core of the offering, rather than “product pushing” is not impossible. There are some banks that follow the community-banking concept very successfully.
One name, for instance, that comes to mind is Habib Bank AG Zurich which inspires tremendous loyalty for its personalised service, that harks back to a bygone era.
Community banking is still relevant and thriving — witness the regional community banks in the US. Some of these are larger than the biggest banks in the Middle East. The UAE is a small, largely trading based economy with the ropes of integrity, reputation and standing binding a fragile market together.
In the absence of bankruptcy laws or an established credit bureau and a largely expatriate population, this form of banking is what this economy needs. Clients desperately cry out for personalised service — both retail and corporate borrowers.
More importantly, the nature of the market calls for more “involved banking”. One is not advocating a return to branch or old-fashioned banking, but a return to a model that enables and empowers bankers to be closer to their clients than they currently are.
We work with dozens of SMEs helping them raise bank financing and evolving a financing strategy and there are some common unmet demands voiced repeatedly. Firstly, there is a need for good quality relationship managers — experienced, well trained and informed.
Managers, who can work with SMEs, advise them on best practices, understand their businesses well and support them in times of trouble. In another comparison to the bygone era, managers who were knowledgeable and understood business could convince superiors to support companies in troubled times and help them emerge from the same.
A bank that used to do that well is HSBC. An ignorant relationship manager can hardly make a good case for his client.
Second, relationship managers need to be accessible (at many banks in the UAE, this is an issue) and be a constant for a while. Too often do we hear bitter complaints about frequent manager or account transfers, resulting in shallow relationships and even shallower knowledge.
Third, managers are left with too little time to spend in the “market”. If banks were to do a time-use study, the results will surely astound. Some reworking of the process or outsourcing of activities to firms such as ours will take some of the load off.
Last but not the least, is that senior level contact with clients has been lost. Very often, a client knows only his relationship manager. This is not only dangerous but unhealthy as well.
Every senior manager has a multiple-role mandate: business developer, risk manager and ombudsman. More ears to the ground, more fingers on the collective pulse makes for better risk management.
The UAE SME lending market is a simple, small and manageable one. It is a giant bazaar in many respects. Lenders will do well to bear this in mind and evolve a model that does not over-complicate.
The writer is the Managing Director of Vianta Advisors DMCC (www.viantaadvisors.com).
