It’s not every day you hear the head of a banking division claim that they would turn down new business from juicy multinational clients, but this is precisely the direction being taken by Standard Chartered. The bank is committed to servicing its existing MNC clients, but when it comes to winning new business, the target market is clearly the middle and small to mid-size enterprise segments, said Karen Fawcett, Standard Chartered’s senior managing director and group head of transaction banking, wholesale banking division.
This might be seen as a bold approach for the bank, but the rationale behind the strategy is simple, said Fawcett. Standard Chartered would rather leverage its balance sheet for existing clients than for new and unfamiliar ones. “We already have many relationships with big MNCs and we want to focus our resources on deepening our current relationships,” she explained. “We did this consciously to firstly ensure we would only bank the clients we knew very well to minimise risk, and to ensure we offered them the best possible support through challenging times.”
Broadly speaking, Fawcett sees two main challenges facing banks: liquidity and ‘subsidiarisation’. As she sees it, the majority of the world’s liquidity is with local banks, which leaves the industry in a somewhat polarised situation. Either a bank is local and can enjoy substantial liquidity derived from its strong home business, or it is one of the very few global liquidity managers able to sweep liquidity to home markets in the US and Europe.
The rest find themselves unhappily stuck somewhere in between, though not Standard Chartered according to Fawcett. “I think there are many banks which are getting stuck in the middle; they are not deep in local markets and they are not global enough to be a global liquidity provider. Our strategy is to dig deeper into local markets so we gather local bank liquidity,” she added. This is thanks in large part to Standard Chartered’s unusual position as both strong local bank and strong international player, which enables it to consolidate liquidity from across regions.
Many of the region’s banks have strengthened their liquidity, capital ratios and financial discipline thanks to the Asian financial crisis of 1997/98. Fawcett also acknowledges their traditionally strong positions in domestic markets where they have extensive branch networks, liberal mortgage polices and lower lending costs. However, she sees potential in banking the growing number of middle and SME businesses that are moving across borders. “Local banks that do not have a presence in multiple markets will find it increasingly difficult to serve [these customers] to the full extent of their needs,” she said.
Additionally, the trend by local regulators to encourage ‘subsidiarisation’ over the last 10 years has resulted in many Asian banks building their operations around a set of strong local subsidiaries often with separate systems. This can make life tricky for local banks as they follow their clients across borders and into more complex cross-border transactions. “To compound the challenges, we saw that during the global financial crisis regulators have started to ring fence liquidity to prevent it leaving the market,” said Fawcett. “So not only do you have to have a local subsidiary, but it has also become difficult to move assets and liabilities across borders.”