The commercial and wholesale banking arena differs fundamentally from conventional retail banking, given the complexity and sophistication of business banking products and offerings in this highly specialised market segment.
In the view of Oscar Grobler, head of commercial products and financial institutions at Absa Corporate Business Bank, banks have often struggled to define how they should segment their business banking offering. Absa’s solution is to demarcate its business and corporate clients into three basic segments: small and medium enterprises; large and corporate organisations (comprising a single segment); and “super corporates”. This segmentation is based on turnover and the nature of the financial products required.
Today, says Grobler, small business is very much the driver of economic growth in the retail arena, but the banking offering to this segment tends to be commoditised and is not unduly complex. “But with large businesses, corporates and super corporates, there is a complexity of product, which calls for customised solutions.”
The group’s banking operations consist of a retail banking component, which accounts for about 7,7-million of Absa’s customers, while the balance is made up of clients in the commercial and corporate banking environment — what Absa refers to as commercial business and corporate banking.
Within this scenario, large and corporate companies are segmented into an offering that embraces the relationship concept, where a banking professional is responsible for looking after a specific number of clients. This is generally undertaken in the form of an industry or sector focus in such diverse areas as manufacturing, agriculture, franchising, telecommunications or natural resources, among others.
Most banks provide a wide range of products and services, from basic transactional products to highly specialised financial solutions, says Grobler. Some niche banking product offerings might place the emphasis on corporate finance, on other forms of specialised finance or even on a particular industrial sector.
But the “Big 4” South African banks invariably provide an A to Z offering in one form or another, typically ranging from a cheque account through to the high-end, complex range of transactions typified by syndications or capital debt offerings, for example.
Absa Bank has two specialist divisions operating in the commercial and wholesale space. Absa Capital deals with the very top end of business groups in the country.
“It takes the relationship to its extreme level of complexity,” Grobler says. “It recognises that when we are dealing with a super corporate, we are providing a service to a company that wants very sophisticated products, a highly skilled individual to handle the transaction and global resources within the bank to accommodate their requirements worldwide.
“Absa Capital takes care of that particular market with debt capital offerings, syndications, a full forex and investment offering, through to international placements and international loans.
“The service offering is very specific, with a strong focus on product execution, given the complexity of the product offering … it’s essentially about building up a personal relationship with a client, reinforced by the ability to execute the transaction successfully.”
“Start-up” and small entrepreneurial businesses on the other hand are segmented initially into the small business category, moving eventually into the medium-sized business arena as they grow and develop. These small business enterprises generally come under the wing of the bank’s retail banking teams, with the notable exception of development finance transactions.
Within the South African banking community, Grobler notes, the focus on entrepreneurial start-ups is generally targeted at two aspects: does the entrepreneur have the wherewithal to succeed and, secondly, does he have the required security or collateral? Lack of such security, especially within the emerging market in South Africa, is a big issue, one which is often covered by means of development finance. This is a complex operation, demanding high levels of expertise, and is dealt with by the bank’s commercial business and corporate banking sector.
Entry levels into the commercial business banking space are roughly defined and designated by turnover — but this is merely an indication of eligibility and is not a criterion that is cast in stone, says Grobler.
Parameters within the banking community are fluid and can vary from institution to institution. In the “small” sector, a turnover of R15-million a year might be regarded as an entry point by Absa, for example, with medium-sized businesses kicking in at between R15-million and R75-million, while organisations above that figure would be positioned in the large, corporate or even super corporate business category.
However, there are variables. For example, should a small business enterprise client reach a turnover of about R7-million and enter the foreign exchange market, that client may well be seeking specialist advice and expertise on how to operate most effectively within this market segment. In such an instance, says Grobler, the bank would probably move the client into the medium space, to better service client needs and to make the customer eligible for a more complex service offering.