Video
As banks have focused on cost reduction in recent years, many have failed to consider the full potential of their relationships with corporate customers. Andre Leme, a partner with Bain's Financial Services practice, shares how introducing more data and rigor into corporate customer relationships, and focusing on the profitability of individual clients, can help banks increase their own profitability.
Read the Bain Brief: How Banks Can Turn Around Unprofitable Corporate Clients
Read the transcript below.
ANDRE LEME: In recent years, most banks have been focusing on costs, but they have not realized the full potential of their corporate clients' relationships. Full potential means achieving the full potential of the profitability that those relationships can bring to the bank.
To start doing that, the banks must understand which clients are profitable and which clients are not profitable. The truth is that most of the economic profit inside a corporate bank comes only from 20% of those clients. On the opposite side of the spectrum, you have 30% of the clients below economic profit thresholds. That's huge.
Banks that have succeeded in having a very profitable portfolio, they started by categorizing their clients, considering company size and economic profit. That information created segments that guided the actions that should be taken and must be taken along the banks' relationships.
And those relationships, the client life cycle, it starts with onboarding. And so in the very onboarding, you should have a very good understanding of what should be done to take that client to profitability once the relationship starts. And along the life cycle, along the relationship, pricing each deal or pricing each product offer should consider, should be considered looking beyond that unique decision, understanding historical profit, understanding expected profit and then making a decision that's accretive to their relationship and avoiding those that are dilutive to the relationship.
To help banks doing that, a very basic tool is used when you think about account plans that have been in place for decades. And an account plan is still one of the best tools to control corporate clients' profitability. So having the right data, looking at historical data and planning the future, looking what you should continue to do or you should start doing to make that relationship more profitable is key. So a good account plan with the proper data is key to manage clients' profitability.
It's never an easy job to push clients into profitability. But it's harder to cast those clients loose if they are not profitable enough. So having the right data, an explicit plan in place, is key to inject a little bit of rigor in this process that is a very, very, historically very loose and personal process.
Read the Bain Brief: How Banks Can Turn Around Unprofitable Corporate Clients