Point of contact: thomas.matthys@vlerick.com (+32 9 210 92 16)

Corporate expectations towards

banks in Belgium

Prof. Dr. André Thibeault

Thomas Matthys

Edward Rogiers

Vlerick Centre for Financial Services

2 June 2014

CONTENTS

The KPMG – Vlerick Prime Foundation Partnership ................................................................... 1

Acknowledgement ............................................................................................................... 2

Executive Summary ............................................................................................................ 4

Introduction ....................................................................................................................... 6

Chapter 1: Methodology and Sample ..................................................................................... 7

Chapter 2: Characteristics of Bank Relationships ..................................................................... 8

Relationship Criteria ......................................................................................................... 8

Multiple banks ............................................................................................................... 10

Main banks in Belgium .................................................................................................... 11

Ending the relationship with a main bank .......................................................................... 12

Changing product needs .................................................................................................. 13

Chapter 3: Evaluating Bank Performance ............................................................................. 15

Understanding your customer .......................................................................................... 15

Interpersonal characteristics ............................................................................................ 16

Stability ........................................................................................................................ 18

Presence and transparency .............................................................................................. 18

Flexibility and innovativeness .......................................................................................... 19

Internal methods used .................................................................................................... 20

Chapter 4: Product Needs .................................................................................................. 22

Recommendations for banks ............................................................................................... 24

References ....................................................................................................................... 25

Appendix ......................................................................................................................... 26

Appendix 1: Companies surveyed ..................................................................................... 26

1

THE KPMG – VLERICK PRIME FOUNDATION PARTNERSHIP

This survey on corporates’ expectations of Belgian banks is part of a 3-year project conducted in

the format of a Prime Foundation Partnership between KPMG and the Vlerick Centre for Financial

Services.

The research content of the Prime Foundation Partnership is as follows:

- Year 1: A Scorecard for Bank Performance: the Belgian Banking industry

Helicopter View – International Scorecard. What is the performance (from many different

angles) of the participants in the banking sector in Belgium, and how do they rank under

these dimensions? We evaluated the Belgian financial sector from a historical performance

perspective.

- Year 2: The future of the Belgian banking industry: the executives’ point of

view

Bank survey – The success factors for the future in the Belgian Banking Industry. How will

different business models drive performance? What differentiates these banks? We

surveyed Belgian bank executives about their future expectations of the Belgian banking

landscape. One trend we identified was the banks’ increased attention to customer

experience (e.g. customer intimacy and customer centricity).

- Year 3: Corporate expectations towards banks in Belgium

Corporate survey – In light of the outcome of the second phase of the Prime Foundation

Partnership, we surveyed the perceptions of Belgian corporates. We captured their views

of the performance of Belgian banks against clearly defined criteria, such as customer

experience, innovations and product offering.

2

ACKNOWLEDGEMENT This research project would not have been possible without the support of the following people.

The authors would like to extend warm thanks to KPMG for providing financial resources and

access to their network – and especially to Bart Walterus, Partner Management Consulting / KPMG

Advisory, who has provided managerial support and helpful professional advice throughout the

writing of the report. Furthermore, the authors would like to thank Stijn Broekx, Erik Clinck, Koen

De Loose, Olivier Macq, Paul Op de Beeck, Klaas van Raalte, Vincent Piron, and Ingrid Stoffels for

their valuable feedback on a number of occasions throughout the duration of the partnership.

At Vlerick Business School, Prof. Dr. Deva Rangarajan provided valuable comments on the survey

design.

At the Vlerick Centre for Financial Services, we wish to express our sincere appreciation to

Maureen O’Hare, Vlerick’s Corporate Development Manager. Maureen played a major role in the

discussions leading to the Prime Foundation Partnership with KPMG, and she has been coordinating

this project with a very dedicated and professional approach.

The authors,

Prof. Dr. André E. Thibeault

Thomas Matthys

Edward Rogiers

3

4

EXECUTIVE SUMMARY The goal of this study is to present an overview of the relationship between corporations and

banks in Belgium: the view of corporates with regard to their banks, as well as a reaction to these

views by the 4 big Belgian banks. We surveyed the CFOs, treasurers or other financial managers of

35 companies in Belgium, 10 of which are part of the Bel-20 Index. For the largest banks’

reactions, we interviewed each bank’s head of corporate banking.

The dimensions considered are:

1) The drivers to starting a new banking relationship, and overall bank relationship

characteristics.

2) The most important criteria that corporates use to evaluate their banks.

3) The scores corporates give their banking team with regard to key performance criteria,

such as transparency, knowledge of the corporate’s industry, price competitiveness, and

presence.

4) The most important banking products in today’s environment, as identified by the

corporates that buy them.

Survey respondents note that a condition for a bank to be considered a main bank is its

participation in the revolving credit facility. When making the decision to add a main bank,

corporates look primarily at price competitiveness, credit appetite and trust. It appears that, in the

last three years, ‘trust’ has been surpassed by ‘price setting’ and ‘willingness to lend money’ as the

most important factors for engaging in a new bank relationship. After the initial panic of the

financial crisis, corporates have focused more on getting favourable rates for financial solutions.

On the other hand, the loss of trust is the main event that would trigger a corporate to terminate

the relationship, followed by the absence of competitive pricing.

Interestingly, 46% of the corporates indicate that their product needs will change during the

coming two years. However, this does not necessarily mean that corporates will suddenly require

brand-new products. As corporates evolve and become more international, it is only natural that

they sometimes look for existing solutions that better fit their needs. In response, banks are

preparing to be much closer to their clients by developing digital banking for corporates – and this

trend is now kicking in.

Overall, the survey participants are satisfied with the performance of their Belgian main banks,

with 75% of the corporates awarding a 7 or higher on a 10-point scale, where 10 equals an

excellent performance. Yet, they award lower scores for performance relative to several specific

dimensions. Transparency and presence (local and global) are two factors on which banks tend not

to score high. Lower scores are also recorded for innovativeness of the banking team – although

we should also emphasise that most of the corporates do not expect a bank to come up with

innovative solutions on its own.

5

In their current bank relationships, corporates are missing two elements: price competitiveness

and presence (both global and local). Both elements can be accounted for by the low growth,

highly regulated environment banks are operating in. Finally, international finance solutions are

the most important products for the corporates today – which is surely due to the open nature of

Belgium’s economy.

6

INTRODUCTION

Complementary to our second research report on the Belgian banking industry (November 2013),

which is an account of the views of C-level executives of 15 Belgian banks, this report focuses on

the relationships between corporations and banks in Belgium. In the previous report, CEOs and

CFOs of financial institutions pointed out the importance of customer relationships as a competitive

edge in a world where customers are digitally empowered.

Following the panic of the initial financial crisis, national regulatory reforms to prevent collapses,

and public anger, the image of financial institutions as beacons of stability and reliability has

dissipated. In addition, market volatility, credit downgrades, and unsettling issues – such as the

London Whale – continue to draw attention to counterparty risk in banking contracts. 30% of the

corporate executives surveyed for this study indicate that price competitiveness and sustained

access to funding are the most important criteria in selecting a main bank, while banking

executives last year agreed that the uncertain macroeconomic climate and new liquidity and

capital regulations will put pressure on the cost and availability of corporate credit. Reconciling

these pressures with the corporate criteria will be a challenging exercise for banks in the years to

come. Banks now confirm that, in the past three years, the focus in the corporate-bank

relationship has shifted from a pure trust relationship to a relationship where corporations are

increasingly looking for competitively priced services.

Some corporations have become more demanding in managing their bank relationships, increasing

the number of relationships to become less dependent on one or two main banks (28%) or to

reduce bank bargaining power (23%). Similarly, banks are more conscious of their portfolio

composition in terms of counterparty credit-worthiness, geographical diversification and types of

products offered. Some of the banks interviewed in this study highlight the renewed focus on

domestic markets in the corporate banking segment in recent years.

In the post-crisis environment, both corporations and banks are attempting to optimise

organisational alignment and financial performance, a challenge in which the banks are very

conscious of pricing policies as well as their overall approach to the relationship.

7

CHAPTER 1: METHODOLOGY AND SAMPLE

From March through May 2014, we surveyed executives of Belgian corporations about various

aspects of their Belgian bank relationships, including: the establishment of such a relationship, the

evaluation criteria used, the most popular services purchased, and an overall performance

evaluation of their current bank relationships.

We used the ‘Qualtrics’ tool1 to build and edit our online survey to the specifics of our research.

Through this interface, we distributed the survey to the corporate executives by generating a

personalised link for each participant.

Once the corporate results were processed, we confronted the most popular main banks with a

preview of the results. We then followed a semi-structured interview approach to collect their

responses, which are blended into this report.

Vlerick Business School and KPMG surveyed CFOs, Treasurers and other financial executives from

35 Belgian companies across 10 different industry sectors. Almost 90% of the 35 corporates have

a turnover greater than €250 million. A complete list of the companies that participated can be

found in Appendix 1. The most popular main banks among the corporate sample are Belfius Bank,

BNP Paribas Fortis, ING Bank and KBC Bank.

Chart 1: Sample - industry sectors Chart 2: Sample – size (turnover)

1 Qualtrics: Online Survey Software - http://www.qualtrics.com/

17%

3%

11%

3%

11% 6%

23%

11%

6%

9%

ChemicalsConsumer goodsEnergyHealth careIndustrial manufacturingPharmaceuticalsPublic sectorRetailTechnology - Media - TelecomTransportation - Logistics

3% 9%

14%

74%

< €50 mio

€50 mio - €250 mio

€250 mio - €500 mio

> €500 mio

8

CHAPTER 2: CHARACTERISTICS OF BANK RELATIONSHIPS

Relationship Criteria

The after-effects of the 2008 financial crisis made corporations more vigilant in their relations with,

and exposure to, banks. Similarly, financial institutions are making balanced decisions on where to

increase or decrease credit appetite, with a view towards upcoming regulatory changes.

Simultaneously, banks are restructuring their business models, and corporations are trying to

optimise financing solutions, in a low-growth macroeconomic environment. As the financial crisis

negatively affected seemingly stable companies, banks are now more inclined to do business with

corporations that survived the storm without impeding future growth prospects.

Previous studies have shown bank relationships to be beneficial for both the borrowing companies

and lending counterparties. We define a banking relationship as a connection between a financial

institution and a corporation in which the financial institution supplies either multiple financial

products or services, or an indispensable product or service, to the corporation. For example,

survey respondents noted that a condition for being considered a main bank is a bank’s

participation in the revolving credit facility. Over time, main banks benefit from an informational

advantage: as most of the information remains useable in the future, they can decrease

monitoring costs. The banks tend to transfer a part of these lower costs to their relationship

borrowers, resulting in favourable conditions for both parties.

The survey respondents were asked what the most important criteria for establishing a banking

relationship are, and how they measure these criteria. Credit appetite and price competitiveness

are the two most important criteria (30%) for adding a main bank, and these criteria are gauged

via requests for proposals, which give the firm comprehensive information about the bank’s

offering. Not surprisingly, trust (23%) is needed to engage in a new bank relationship, a criterion

firms assess through face-to-face meetings and previous encounters with the bank. Corporate

bankers confirm that corporations are indeed focusing more and more on attractive pricing,

whereas, three years ago, stability and trust were the main criteria for establishing a bank

relationship.

Chart 3: Criteria for establishing a new banking relationship

18%

30%

7%

9%

23%

14%

Stability

Credit appetite and price competitiveness

Presence

Size of product portfolio

Trust

Value added to the company

Which criteria?

9

In addition, some corporations (14%) analyse – through a combination of face-to-face talks and

requests for proposal – the value a potential main bank can add to the company. Global and local

presence (7%) and size of the product portfolio (9%) are additional criteria in the decision to add a

main bank to the portfolio.

Table 1: How corporates measure relationship criteria

The corporate bankers we interviewed confirm the importance of face-to-face contact in building a

personal trust relationship – as one banker put it: “For the largest corporates in the portfolio, our

senior account executive will have an open discussion with the client’s executives.” In addition,

most confirm that price competitiveness and credit appetite are becoming increasingly important

to their customers, although they find it striking that trust seems less important than the price

aspect, because trust is one of the fundamentals of banking itself. However, another banker

explains that, during the recent financial crisis, trust was never an issue in corporate banking, and

so it’s not surprising to see it surpassed by price competitiveness. The bank’s presence also plays

a role, and some bankers comment that they are wrongfully viewed as no longer being

international. It is true that, due to liquidity issues and in an attempt to reduce risk-weighted

assets, the focus has naturally shifted towards domestic markets. However, they note that they

have kept working with their core clients abroad, despite a diminished focus on their so-called

‘core’ markets.

Criterion Measured mainly by

Value added to the company Requests for proposal

Cost-benefit analysis: strategic rationale and

operational necessity

Trust Face-to-face contact

Credit rating and financial statements

ISDA contract

Size of the product portfolio Requests for proposal

Presence Geographical coverage

Only Belgian or Dutch banks with a Belgian

branch

Credit appetite & price

competitiveness

Requests for proposal

Face-to-face contact

Financial stability Face-to-face contact

Credit rating

Market share

10

Multiple banks

We asked the survey participants to list the number of

banks – not necessarily main banks – they work with at

the moment. The number of banks they reported varies

from a single bank to over 20 banks, with most

companies falling in the 6-10 bracket (34%). Only one

firm uses 1 bank, while a large majority use more than 6

financial institutions.

The key driver for the decision to work with multiple

banks is the conviction that distributing business over a

variety of banks is a way to diversify and decrease

dependency on one or two banks. In general, firms also

call for tenders to make banks compete heavily with each

other to attract new business – thereby reducing any one

bank’s bargaining power. One corporate executive noted:

“We ask for several prices for the same financial product

and then take the cheapest. That’s a principal rule in our

company”; and “We try to increase competition among

banks in order to receive a higher level of service.” These

practices are driving down margins in parts of the

corporate segment, and banks with margin targets,

instead of volume targets, are more reluctant to enter into

this type of bidding contest. Another justification for using

multiple banks is that firms also need access to wide,

international networks, and they look for strong, local

partners abroad.

Chart 5: Reasons corporations work with multiple banks

28%

23%

11%

23%

15%

Diversification

Geographic spread

Size of the credit amount needed

Competitive aspect

Enhanced product choice

Reasons to work with multiple banks

3%

26%

34%

31%

6%

Number of banks

corporates buy services from

1 2-5 6-10 11-20 21-30

“Engaging in multiple bank

relationships increases the

probability that at least one

informed lender will be able

to refinance the project, thus

reducing the likelihood of

early liquidation” (Detragiache,

Garella, & Guiso, 2000)

Chart 4: Total number of banks corporates buy services from

11

11%

9%

26% 54%

Number of main banks

in Belgium

1 2 3 At least 4

It is interesting to note that the bankers in our panel are somewhat doubtful that corporates play

banks against each other in the search for cheaper financing solutions. They are convinced that

companies – especially the large ones – value the relationship enough not to set up ‘bidding wars’.

Main banks in Belgium

Next, we asked corporates how many main banks they

have in Belgium. In our survey, for practical reasons, we

limited the possible number of main banks to 4, as we

proceed by asking in-depth quality and performance

related questions for each of these banks. It is striking,

however, that more than half of the surveyed corporates

have at least 4 main banks in Belgium.

Although the stability of the 4 largest banks in Belgium –

Belfius, BNP Paribas Fortis, ING and KBC – was impacted

substantially by the financial crisis, these banks are

considered to be the main banks in Belgium 94% of the

time.

The duration of bank-corporate relationships confirms the

fact that the majority of the surveyed companies

maintained their close banking relationships with the Big 4

banks in Belgium throughout the financial crisis: over 75%

of the relationships have been on-going for more than 10

years now.

The reason for this, according to some of the corporate

bankers we interviewed, is that foreign banks in Belgium

are not perceived as being trustworthy. The strength of the

Belgian banks comes from their presence (close to the

client) and their ready access to the Belgian decision

centre. Foreign banks cannot play a niche approach in

corporate banking, because the 4 largest banks in Belgium

can offer everything the large corporates need. To

conclude, one banker points out that: “…foreign banks are

not perceived as real threats in terms of investment

banking by the Big 4 banks – and that’s why large

corporates keep choosing the major 4. Small investment

banks are the real threats in investment banking.”

32%

34%

34%

Reluctance towards

changing banks

Not reluctant

Neutral

Reluctant

Chart 7: Corporate reluctance towards changing banks

Chart 6: Number of main banks in Belgium

12

Altogether, the 35 surveyed companies listed 113 main banks in Belgium. Belfius, BNP Paribas,

ING, and KBC are mentioned most often, while 5 other banks (ABN Amro, Bpost Bank,

Commerzbank, Deutsche Bank and Royal Bank of Scotland) are mentioned as well. Since our

sample is made mainly of the Big 4 banks, we will not go into detail about the performance of the

other banks that are mentioned.

Ending the relationship with a main bank

The benefits corporates receive from a solid, long-standing bank relation incline them to be

somewhat reluctant to terminate the partnership. One-third of the survey respondents admit to

being ‘reluctant’ to remove a main bank.

The single largest trigger to ending a relationship is the absence of the driver to starting one:

trust. Corporates that lose trust in a financial institution would immediately terminate the

relationship. Banks that cannot keep up the service quality (19%) or that cannot offer products at

competitive pricing (21%) also risk losing their corporate relationships. These 3 factors combined

account for 66% of the reasons why corporations decide to no longer work with a main bank;

other reasons include a lack of transparency, poor capital or liquidity positions, and decreasing risk

appetite.

24%

48%

18%

10%

Duration of relationship to

date (years)

1-10

11-20

21-30

More than

30

Chart 8: Bank relationships – main banks in Belgium

Chart 9: Bank relationships - duration

28%

27%

22%

17%

Banks cited as main bank in

Belgium

ING

BNP Paribas Fortis

KBC

Belfius

Commerzbank

RBS

ABN Amro

Bpost Bank

Deutsche Bank

13

Chart 10: Factors that would lead to ending a banking relationship

Changing product needs

Twenty-three out of the 35 corporate executives surveyed expect their product needs to change

over the next 5 years. Of those who predict a change in needs, 70% even indicate that they will

need new financing solutions within the next 2 years. Survey respondents feel that the banks’

credit appetite has reduced in recent years – and, as they expect no improvement in the short

term, they are looking for alternative financing solutions. In addition, they expect the regulatory

requirements being imposed on the banking industry to exert upward pressure on the costs of

products and services.

When confronted with these results, the banks were surprised to find that 46% of the surveyed

corporates expect their bank product needs to change within the next 2 years. They claim that, if

this is truly the case, no bank in Belgium will be prepared. Further, they stress that the dialogue

between a bank and its corporate should be carefully nurtured over the next few years to continue

to meet the changing needs and to keep client satisfaction at a high level.

28%

46%

17%

3% 6%

The corporates' best estimates of the period of time

over which bank product needs will change

Don't know Two years

Five years More than 5 years

No changes expected

Chart 11: Changing bank product needs

7%

21%

9%

26%

7%

11%

19%

Liquidity issues

Cost out of the market

Decreased credit appetite

Trust gone

Credit rating significant downgrade

Lack of transparency

Deteriorating service quality

What factor, or combination of factors, would lead you to

end a banking relationship?

14

In general, corporate bankers are not surprised with these results, as they already see a lot of

evolution in their clients’ needs today. But this does not necessarily mean that corporates will

require brand-new, innovative products all at once. As corporates evolve and become more

international, it is only natural that they sometimes look for existing solutions that better fit their

needs. In response, banks are preparing to be much closer to their clients by developing digital

banking for corporates – and this trend is now kicking in. “The future” – as one of the banker

interviews pointed out – “is about bringing more convenience to clients through channels.” While

this is something that is already being deployed for retail banking, it is novel for corporate

banking.

15

CHAPTER 3: EVALUATING BANK PERFORMANCE

Overall, the survey participants are satisfied with the performance of their Belgian main banks.

Most firms (75%) rated their banks at 7 or higher on a 10-point scale, where 10 equals an

excellent performance. The average score for all banks is 72%, with a narrow range in individual

bank scores (70% - 74%). Bankers are pleased with these overall scores and suggested that the

small divergence in individual scores might stem from a difference in international presence. One

banker noted: “There is a clear correlation here between international presence and the bank’s

overall score. Not necessarily a causal effect, but there is a link between the two.”

While the overall score is satisfying, performance against some important selection criteria is

weaker. Survey participants were asked to assess their main banks on 5 aspects of the bank

relationship:

Understanding your customer

The first component of bank evaluation relates to the bank’s understanding of the skills of the

firm’s management team and its financing needs, adequate insight into the firm’s operations and,

finally, a good view on the industry conditions and market.

Overall, corporates rate their main banks ‘good’ to ‘very good’ when it comes to understanding

their business. A large majority (73%) deem their bank’s understanding of their management’s

skills and insight into the firm’s operations to be ‘good’ to ‘very good’, while only about 8% think

that their bank is (very) poor in understanding these facets of the firm.

Of these criteria, firms are least satisfied with the bank’s knowledge of their industry (64%), which

can be explained by a breakdown of our sample. Only 37% of the corporations with turnover less

than €500 million regard their main banks as having at least a ‘good’ understanding of industry

conditions, while for corporations with turnover larger than €500 million the satisfaction rate is

situated at 72%. The industry distribution across both samples is not significantly different,

meaning that the degree of industry regulation or the complexity of industry dynamics cannot

explain the difference in satisfaction rates. In trying to explain this finding, one banker we

interviewed noted that larger firms know exactly what they need, and so they rely less on their

banks to bring knowledge to the relationship.

Bank’s understanding of

the firm’s activities

Interpersonal characteristics

Financial stability

Presence and transparency

Flexibility and innovativeness

16

Chart 12: Rating a bank’s understanding of the corporation

Interpersonal characteristics

The motivation to use ‘soft’ evaluation criteria for banks is grounded in empirical findings that

widespread mistrust in financial institutions has been a serious constraint on policymakers in

deploying expansionary macroeconomic policies in an attempt to curb negative growth figures.

Furthermore, the banking industry naturally requires high levels of trust related to security and

confidence in financial institutions. The corporations in our sample indicated ‘trust’ and the

‘stability of the bank’ as important criteria for selecting a main bank, giving rise to uncover

different aspects of trust.

The survey participants value their main bank’s personal and relational skills. In 3 out of 4 cases

(on average), the firms agree with our statements related to trust and customer experience, with

very low disagreement with the statements (1%). Notwithstanding overall good performance,

some corporates commented that banks meet with them to make a sales pitch, promoting

products the firm is not interested in. According to them, it would be more fruitful if these banks

thought along with the firm’s management in order to propose products that are valuable for the

firm.

0% 20% 40% 60% 80% 100%

your industry conditions

your market

your operations

your financing needs

the skills of your management team

How well does your bank understand...

Very poor Poor Average Good Very good

Chart 13: Soft criteria evaluation of the main bank relationship

We trust this bank

Our bank is sincere with us

We genuinely enjoy our relationship

with our bank

We believe the information that the

bank provides us

Our bank is genuinely concerned that

our business succeeds

To what extent do you agree with the following theses?

Strongly disagree Disagree Neutral Agree Strongly agree

17

In the survey, we find that, when people discuss banking, they talk about people, partnerships,

and stability. By providing trustworthy information and being concerned about the success of their

corporate client’s business, banks build trust, showing that the conventional attitudes in business

relations remain important in post-crisis banking relationships, while firms use financial stability

measures in a more systematic way as well.

When we break down the sample, we find that for 2 statements there is a large gap in the

satisfaction rates between corporates with turnover above €500 million and those with turnover

below that amount. Larger corporates agree in 81% of the cases that their bank is genuinely

concerned that their business succeeds, while the agreement rate for smaller corporates is only

64%. Similarly, larger corporates have a higher agreement rate (73%) than smaller ones (54%)

relating to price competitiveness.

Building and maintaining trust requires time and devotion by both parties, as indicated by the

frequency of bank visits to corporate clients: in 3 out of 4 cases, they meet between once a month

and once every 6 months. When we asked the survey participants to indicate the frequency of

visits for each individual main bank, there were no appreciable differences between Belfius, BNPPF,

ING and KBC.

Chart 14: Frequency of bank visits to corporate clients

12%

75%

9%

4%

Frequency of bank visits to corporate

clients

At least once a month

Between once a month

and once every six

monthsOnce a year

Less than once a year

18

Stability

The survey respondents indicated that financial stability is an important criterion in the bank

relationship. We broke down ‘financial stability’ into 3 building blocks – an adequate capital buffer,

an adequate liquidity buffer, and a proper risk management function – and asked the survey

participants to indicate the importance of each element by dividing 10 points over the 3 indicators.

In addition, the corporate respondents were asked to give their view on their main bank’s

performance relative to these building blocks. While there is large variance in the individual

results, on average no indicator is deemed to be substantially more important than another.

Next, we asked the participants to consider the performance of their main bank relative to these

criteria on a 10-point scale, which yielded very similar – yet only average – results for the 4 main

banks we are discussing.

Average Belfius BNPPF ING KBC

Sufficient Capital Buffer 63% 57% 67% 64% 62%

Sufficient Liquidity Buffer 63% 58% 67% 64% 62%

Proper Risk Management Function 62% 61% 63% 62% 60%

Table 2: Perceived average and individual bank performance on 3 financial stability measures

Instead of monitoring these indicators individually, firms use credit ratings as an aggregate, and

more straightforward, measure of bank stability, citing a credit downgrade as an issue that could

undermine the relationship (see page 12). Few firms make use of credit default swap spreads as a

proxy for the overall riskiness of a bank.

Presence and transparency

The largest gap between importance rating and actual performance – 11 percentage points –

involves the presence of the main bank. Presence relates to the scope of the bank’s network and

its physical proximity to the firm. Two of the main banks under study strongly undershoot the

importance firms attach to this criterion. Firms require main banks to have a more global presence

on the one hand, while indicating that a local decision centre is something they would like to see

developed in the future for those banks that do not already have a Belgian decision centre.

By enlarging their presence, banks enable firms to broaden their network through the banks as

well as receive global support in a globalised world, making it less complicated to enter new

markets – characteristics that corporate executives regard as assets in today’s environment.

Conversely, local decision centres help banks to be more flexible and pragmatic in their

relationship and product offerings to corporates.

19

Importance Performance

Belfius BNPPF ING KBC

Transparency 77% 70% 68% 70% 67%

Presence 65% 35% 70% 64% 48%

Table 3: Importance and performance of transparency and presence

The corporate respondents allocate a 77% importance score to transparency, while the banks

assign an average of 69% to this criterion. In the survey, we define transparency as the bank’s

openness in sharing information about its risk position and price quotations.

Some respondents feel that ‘transparency on pricing’ is inadequate, although this seems to be an

important element of the banking relationship. Four corporate executives even point out that

transparency of the pricing model is one of the essential elements missing in the bank relationship

(cf. infra). Transparency about regulatory implications and the bank’s risk position is remarkably

higher: 71% of the respondents are satisfied with the information banks share relating to the

impact of Basel III implementation on their product offerings and future compliance with the

regulation.

In their reaction, banks without an international presence point out that this does not mean they

don’t follow their clients abroad – they do, and offer full services abroad. What they don’t do is

take in an international group coming to Belgium with only 5% activities in Belgium – this is not

their core business, these banks want to collect Belgian deposits for the Belgian economy.

Flexibility and innovativeness

As indicated previously, the corporates’ needs are changing in today’s fast-paced environment: in

fact, 46% of firms are convinced that their bank product needs will change during the next two

years. How do they feel the banks are dealing with these trends?

The respondents tend to agree least with statements relating to the innovativeness and proactivity

of the banking teams (40%). However, some respondents indicate that having innovative financial

products is not a priority for them – they prefer that their way of doing business and using

financial services remains stable. Others state that the required degree of innovativeness and

proactivity really depends on the type of product. Being flexible is an important element for the

firm, as it shows how committed a bank is to the relationship. Aside from the banks’ ability and

willingness to customise products to their specific needs, corporates add that flexibility in the

pricing of products is a point that needs improvement. While scoring low on innovativeness and

proactivity, banks seem to be well prepared to meet changing needs (68% agreement) and to

20

offer appropriate solutions (63% agreement). One corporate CFO commented that “informing your

bank about your situation and service needs is vital to maintaining a good relationship, because it

allows the bank to come up with suitable solutions” – and these results show that banks are

indeed well equipped to identify the right product when the need arises.

Chart 15: Performance relative to flexibility and innovativeness

Internal methods used

One in 3 firms uses a formal procedure to evaluate banks on a regular basis. The most important

component in formal evaluation procedures is price competitiveness as measured by launching

requests for proposals.

0% 20% 40% 60% 80% 100%

… comes with appropriate solutions

… is prepared to meet our changing needs

… is flexible in customizing products to our

needs

… is knowledgeable about evolutions in our

industry

… is proactive in identifying changes in our

business

… provides innovative solutions

Our bank...

Strongly disagree Disagree Neutral Agree Strongly agree

Components of the formal evaluation procedure

Price competitiveness

Creditworthiness

Portfolio review

Financial performance

21

Corporations with an informal evaluation procedure (43%) tend to give regular feedback to their

main banks on services provided, expecting them to respond proactively to rising issues. Indeed,

face-to-face discussion is still the most important element of an informal evaluation procedure,

which once again stresses the personal trust relationship. As one respondent commented: “Beyond

measuring the consistency between credit provided and share of wallet, we sit down with the bank

and talk about specific services and what service quality the bank can deliver.” Finally, 54% of

firms have neither a formal nor an informal main bank evaluation procedure.

Following these evaluation procedures, the question remains whether there is a benefit missing in

the current main bank relationship. Twenty-six per cent of the respondents say there is: pointing

primarily to the need for better presence – global and local – and price competitiveness. Earlier we

noted that price competitiveness is one of the triggers to ending a banking relationship, leading us

to believe that 3 corporations could be having frictions with their current main bank. Transparency

around price quotations appears to be a benefit that is frequently missing in the relationship.

Corporates want to have a clear view on how much they will be paying, exactly which services

they will be paying for, and the different elements that constitute the pricing structure.

16%

28%

8%

32%

16%

Is there a benefit missing?

Shared values

Presence

Size product

portfolio

Price

competitiveness

Transparency

Chart 16: Benefits missing from current

main bank relationships

22

CHAPTER 4: PRODUCT NEEDS

As we’ve said, corporates’ product needs are changing rapidly. What banking products are

currently the most important for Belgian banks’ largest corporate clients, and how satisfied are the

corporates with the various products?

We grouped an extensive set of banking products into 5 different categories: “Transaction and

treasury”, “Saving and investing”, “Short-term financing”, “Long-term financing” and “Corporate

finance”. The surveyed executives were asked to list the 5 most important products for their

company within each category, and rank them on a 1 to 5 scale, with 1 being the most important

product. In Table 4, we list the 5 most important banking products per category.

Transaction and treasury

Saving and investing

1 Cash pooling (22%) 1 Time deposit (23%)

2 Bank guarantee (16%) 2 Savings account (22%)

3 International money transfer (16%) 3 Short-term money market fund (19%)

4 Commercial paper (11%) 4 Structured product (10%)

5 Cross border account service (9%) 5 Bond fund (8%)

Short-term financing

Long-term financing

1 Short-term loan (32%) 1 Rollover credit (35%)

2 Overdraft (28%) 2 Investment loan (21%)

3 International credit facility (25%) 3 Private placement (20%)

4 Operational leasing of IT equipment (8%) 4 Operational leasing - cars (12%)

5 Buyer credit (7%) 5 Real-estate leasing (8%)

Corporate finance

1 Debt capital (50%)

2 M&A (22%)

3 Employee benefits (19%)

4 Mezzanine finance (6%)

5 IPO (3%)

Table 4: Most important banking products by category

23

For each of the product categories, we identified the overall importance and performance against

key performance criteria such as product quality, price attractiveness and price flexibility. We were

also able to get an overall view on the performance of the relationship banks included in our

sample for each of the banking product categories.

All of our calculations are based on the data provided by the companies that purchase the actual

products. It is noteworthy that 49% of our sample indicate that they do not purchase any

corporate finance products from their relationship banks. As other financial intermediaries are

increasingly changing their business models towards specialising in one big product category, we

observe that large corporates choose not to buy these products from their main banks but from

specialised firms that offer a personalised corporate finance solution.

Table 5: The importance and performance of the 5 banking product categories

For companies based in an open economy like Belgium’s, it makes sense that cash pooling and

other international services are the most important products for them. Activity in corporate finance

solutions is at an all-time low, while debt capital markets remain crucial, both public and private.

Finally, operational leasing of IT equipment is an interesting product, as it is not always provided

by banks, but more often by specialised companies.

Impo

rtan

ce

Perf

orm

ance

Impo

rtan

ce

Perf

orm

ance

Impo

rtan

ce

Perf

orm

ance

Impo

rtan

ce

Perf

orm

ance

Impo

rtan

ce

Perf

orm

ance

Transaction and Treasury 85% 75% 88% 75% 86% 72% 74% 67% 55% 62%

Saving and investing 74% 69% 74% 68% 79% 67% 64% 60% 44% 51%

Short-term finance 75% 68% 75% 66% 78% 65% 64% 59% 46% 51%

Long-term finance 80% 73% 81% 73% 83% 71% 69% 64% 50% 58%

Corporate finance 68% 65% 71% 66% 69% 64% 59% 62% 51% 59%

Product quality Service qualityPrice

attractivenessPrice flexibility

Sophisticated

technology

24

RECOMMENDATIONS FOR BANKS

Based on the results of our survey, we can conclude that, overall, the larger Belgian corporates are

satisfied with the performance of their main banks in Belgium. As client needs are changing in a

fast-moving macroeconomic environment, the essentials for successful corporate banking in the

near future – as identified by the customers – are the following:

- Despite increased attention to price competitiveness, trust is still crucial in the relationship. In

this respect, corporates take the face-to-face contact with their bank into account, and so

banks should pay close attention to interpersonal contacts. Losing the trust of your corporate

client will likely end the professional relationship.

- To establish a healthy relationship, a bank’s contact person for a particular company should

remain the same over a number of years. When there is high turnover in the account

management function, fundamental information can easily be lost.

- Knowledge of the industry in which your client is active is important for banks to provide

tailor-made solutions.

- A bank’s geographical spread is often a decisive determinant for corporates in deciding

whether to start a new banking relationship.

- Know your client and bring fewer – but more elaborate and personal – solutions to the table.

- Go the extra mile for your client in terms of pricing, as large corporates often work with

multiple banks to promote price competition. Not being able to compete on price is a trigger

to ending the relationship.

25

REFERENCES Detragiache, E., Garella, P., & Guiso, L. (2000). Multiple versus Single Banking Relationships:

Theory and Evidence. The Journal of Finance, Vol.55(3), 1133-1161.

Thibeault, A., & Matthys, T. (2013). The Future of the Belgian Banking Industry: the Executives'

Point of View. Vlerick Business School.

Thibeault, A., Defrancq, C., & Vantieghem, J. (2012). A Scorecard for Bank Performance: the

Belgian Banking Industry. Vlerick Business School.

26

APPENDIX

Appendix 1: Companies surveyed

Company

Henri Essers en Zonen - Internationaal Transport NV

Omega Pharma NV

Brantano, Macintosh Retail Group NV

Agfa-Gevaert NV

Etex Group NV

vzw Emmaüs

Communauté française de Belgique

Barco NV

UCB NV

Bpost NV

Ores SCRL

Total Belgium NV

Bayer Antwerpen NV

Stad Gent

KU Leuven

Borealis Polymers NV

Soudal NV

ActoGeniX NV

Standaard Boekhandel NV

Umicore NV

BASF Belgium Coordination Center Comm.V. & BASF Antwerpen NV

Katoen Natie Bulk Terminals NV

Colruyt Group NV

Université de Liège

Delhaize Group NV

Eandis CVBA

Université Catholique de Louvain

Vrije Universiteit Brussel

Fluxys NV

De Watergroep CVBA

Solvay NV

Tessenderlo Chemie NV

Bekaert NV

Barry Callebaut Belgium NV

Telenet NV

27

Appendix 2: Questionnaire

28

29

30

31

32

33

34

35

36

37

38

39

Appendix 3: Themes covered in the banking interviews

1. Relationship characteristics

a. Criteria used to establish a banking relationship

b. Number of banks corporates have in their portfolio

c. Reason for corporates to work with multiple banks

d. Breakdown of the main banks in Belgium

e. Length of the relationship

f. Changing product needs

g. Missing benefits

h. Ending the banking relationship

2. Performance evaluation

a. Understanding of the company and its environment

b. Interpersonal characteristics

c. Innovativeness and proactivity

d. Transparency and presence

e. Overall performance

3. Most important products in the following categories

a. Transaction and Treasury

b. Saving and Investing

c. Short-term finance

d. Long-term finance

e. Corporate finance