Almost half of small and middle market companies in the United States are actively seeking a new bank or would consider changing banks if presented with a compelling offer, according to the results of the latest Greenwich Market Pulse survey of 670 companies.
At the start of 2007, less than one-third of the companies participating in the Greenwich Market Pulse said they were actively seeking a new bank or considering a switch. At the end of 2008, nearly half of the 260 small businesses and 40% of the 410 middle-market companies participating in the survey were looking for or open to finding a new bank.
In past years, companies switched banks mostly due to price or service issues. In the midst of the current crisis in credit markets and the banking sector, however, companies are changing providers primarily due to banks lack of demonstrated commitment to the business, poor communication and uncertainty regarding financial health. Also a source of major concern, of course, are reductions in credit availability or changes in credit terms.
Among middle market companies that changed banks in the past 12 months, a quarter say their original banks could not provide required services and more than 20% say their banks failed to give loans or financing when needed. Almost a quarter of small businesses that switched banks in the past year say their previous bank could have retained their business by improving communication and response or simply by appreciating our business and treating us better.
The risk for banks is that many creditworthy companies are feeling like theyve been mistreated by their banks, and they are voting with their feet, says Greenwich Associates consultant Steve Busby. Companies that are on solid ground see the credit reductions, more stringent terms and higher fees as punishment they are being forced to take for bad decisions made by the banks or less responsible borrowers.
So what can banks do to prevent clients from leaving? Given the turbulent nature of financial markets, banks in strong positions should be able to preserve their existing client bases and add new business customers by offering safety and stability. Banks in weaker positions must be very attentive to client needs and customer service in order to minimize attrition. Based on the results of the latest Greenwich Market Pulse, Greenwich Associates offers the following recommendations for all banks:
Commit to honest, up-front disclosure of the banks financial health.
Show appreciation for loyal, long-term customers.Be willing to offer credit to reliable, trustworthy clients, rather than treating all clients equally.Spend enough time focusing on clients despite all the internal distractions.Focus on communications. Only about half of small business and middle market executives believe their bank is doing a good or excellent job communicating with their company.
The most important messages that business customers want to hear from their banks right now are that the provider is stable and secure, that there will be increased credit available in the future and that the bank is willing to commit to honest, up-front disclosure of the institutions financial position, says Steve Busby, Greenwich Associates consultant.
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