Corporate Commercial and SME Banking trends in 2022: Elevating core offerings in future-forward institutions

The COVID crisis has served as a litmus test for corporate banks globally. With economies still in a state of flux, we have seen a rush for incumbents to find alternative revenue streams outside of their traditional offerings. This calls for an aspirational vision, organizational agility, smart investments in talent and technological expertise, and the monetization of new services and value propositions.

Though it may be crucial to revamp business models and extend into alternative revenue streams, corporate banks still need to retain focus on their primary offerings, including around commercial lending and transaction banking.

They cannot let these fall by the wayside, but must ensure that they get their ‘brilliant basics’ done right. This is required to retain relevance and maintain their standing as their clients’ primary financial service provider in today’s increasingly disrupted world. Key areas of focus in 2022 will include:

1.????Reimaging lending and credit risk processes:

COVID-19 highlighted the criticality of lending to keep global economies running, with banks needing to transmit regulatory stimuli and financial relief to under-pressure businesses and individuals.

Commercial lending teams also need to strengthen discipline around credit management and balance lending obligations and preserve self-interests through proactive arrears management and collection. This includes finetuning underwriting procedures, repricing loans, adding credit risk overlays to account for sector idiosyncrasies, downsizing underperforming portfolios, and managing exposures to pivot away from hard-hit markets and client segments.

Also critical is to quickly enhance digital capabilities and productivity tools to manage the influx of credit applications, streamline and automate processes for smaller value loans, and implement updated underwriting decision models and end-user computing tools to support lending decisions. Here, as the banks digitalize their underwriting and monitoring practices, artificial intelligence (AI) applications and analytics-driven data insights becomes extremely valuable.

2.????Upgrading liquidity management capabilities:

Liquidity is one of companies’ most precious assets, yet many struggle with inadequate liquidity management. Banks can lend their corporate clients support through multiple avenues, including by:

• Providing real-time, accurate, consolidated and transparent information into businesses’ global liquidity information;
• Offering self-service capabilities (e.g., to create new structures; monitor positions by region) for companies to better understand and manage their global liquidity positions in real-time; and
• Extending lower cost deployment models such as Treasury-as-a-Service.

Meanwhile, cash management is a core component within liquidity management that ensures an efficient mechanism for collection, disbursement, and investment of monies while maintaining liquidity. With emerging technologies such as blockchain and big data analytics, banks are now better able to offer more advanced cash management for clients to automate their invoicing, payments and associated reconciliation, or connect digitally with suppliers and dealers. ?

We are seeing an uptick in focus on virtual account management platforms that can provide a complete suite of cash and liquidity management offerings on a self-service basis for corporates to manage their payables and receivables with automated reconciliation.

3.????Embedding real-time payments for businesses:

Many real-time payment schemes began in retail banking, but now permeate into the corporate arena. Businesses increasingly expect quicker liquidity and account solutions for enhanced visibility and control of their global funds, and for real-time B2B payment management services.

Corporate banks can offer digital payment services and leverage process innovations like SWIFT Global Payment Initiative to make cross-border corporate payments more friction-free, transparent, traceable and quick. Also valuable is to participate in alliances in their ecosystem, including with incoming competitors, payment system operators and regulators, to co-develop new solutions and offer more streamlined corporate payment services.

4.????Sharpening trade financing offerings:

To counter digital marketplaces and seize the immense revenue potential from addressing a potentially staggering?US$5 trillion trade finance gap made worse by the pandemic, banks must step up and channel capital to the small-medium enterprises (SMEs) segment. Fortunately, these funding challenges can be partly addressed with the help of today’s smart tech, with Open APIs, blockchain, AI and machine learning techniques capable of improving SMEs’ access to more cost-effective trade financing.

Separately, beyond merchandise trade, banks need to also focus on the commercial services component. While the trade in goods continues to dominate, at almost US$5 trillion or 23% of global trade in 2020, services represent the fastest growing sector of the global economy and offers a massive opportunity for global trade banks.

Trade in intellectual property (IP)-related services (such as patents, franchises, trademarks, copyrights, licenses and industrial designs) is a sub-segment that is poised for exponential expansion, so banks need to determine how best to provide financing for the export of such assets. Among others, this can include pegging loans to delivery or specified performance, with payment received based on fulfilment of B2B and B2C contracts (e.g., service level agreements for annual IT maintenance).

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While corporate banks explore alternative revenue opportunities, there is still plenty to be done to get the ‘brilliant basics’ in order. In their quest to accelerate sustainable growth, they cannot afford to neglect the primary lending and transaction banking businesses, but must reboot their propositions and services to maintain their positions as leaders in their field. However, in many cases, a reboot may require a fundamental rethink, as leaders embrace completely new ways of solving their clients’ needs.

With thanks to @Li-May Chew?

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.