AFP® EXECUTIVE GUIDE TO Rethinking Bank Relationships in a Dynamic Environment Underwritten by: 1 AFP EXECUTIVE GUIDE: Rethinking Bank Relationships in a Dynamic Environment AFP® EXECUTIVE GUIDE TO Rethinking Bank Relationships in a Dynamic Environment CONTENTS 1 INTRODUCTION 2 LIQUIDITY ACCESS: BUILDING RELATIONSHIPS 3 RELATIONSHIP EVOLUTION 4 NAVIGATING MARKET VOLATILITY 5 ACCELERATING DIGITAL ADOPTION 6 OPTIMIZING BACK-END PROCESSES 7 LOOKING AHEAD 8 KEY TAKEAWAYS AFP® EXECUTIVE GUIDE TO RETHINKING BANK RELATIONSHIPS IN A DYNAMIC ENVIRONMENT Dear AFP Members and Finance Professionals, CIT is proud to sponsor this AFP Executive Guide exploring the evolution of banking relationships in light of the COVID-19 pandemic. In this guide, you’ll find important insights and takeaways, including: − How the needs of corporate clients are evolving and what they are looking for in a banking partner to help support them now and in the future − The ways in which banks are becoming more strategic, consultative partners as they help corporate leaders react and prepare for the future − How the increased demand for remote capabilities may accelerate the digitization of banking and enhance the services offered − How volatile times can shine a light on back-end processes, inefficiencies and risk controls and create an opportunity for improvement At CIT, we provide treasury and liquidity management and payment services that help optimize working capital for small and midsize businesses. Our goal is to understand your needs and opportunities and provide customized solutions to help you improve your financial operations, generate efficiencies and increase profitability. We’re committed to remaining agile and exploring today’s challenging questions to help provide tomorrow’s solutions. We hope this guide will provide insights to empower your organization to achieve its goals. For more, visit us at cit.com. Best regards, James Gifas Executive Vice President Treasury and Payment Services The views expressed herein are solely those of the authors and do not necessarily represent the views of CIT Group Inc. or its banking subsidiary, CIT Bank, N.A. 3 AFP EXECUTIVE GUIDE: Rethinking Bank Relationships in a Dynamic Environment 1INTRODUCTION With the COVID-19 pandemic, treasury departments have seen the way they work—and even where they work—altered almost overnight, and customer-bank relationships have had to change to meet these fast-evolving needs. In a matter of weeks, entire workforces moved to a remote working model that required companies to initiate new remote back-end processes and adopt new digital platforms. With those changes came shifts in the customer/bank conversations from credit to liquidity. This Executive Guide, underwritten by CIT, explores how the relationships between treasury departments and their banking partners are evolving to help both sides prosper. “When times are bad—and that’s not just COVID-19, but in anything— that’s when relationships are tested,” said Fred Schacknies, CTP, former senior vice president and treasurer for Hilton and a member of AFP’s Board of Directors. “And I will say, as a corporate treasurer, my memory of relationships goes back, in some cases years, to include prior companies and bank relationship managers. And I recall which banks were there to support which companies—and which weren’t.” 1 AFP EXECUTIVE GUIDE: Rethinking Bank Relationships in a Dynamic Environment be the primary driver in bank selection, 73% indicated the credit quality of a bank is also a deciding factor, suggesting they’re prudent when looking at the long term. “Bank deposits saw an increase for the first time in five years, and that’s not a coincidence,” said Jim Kaitz, president and CEO of AFP. “Although we performed this survey in the early days of the pandemic, financial professionals could see the gathering storm. With companies needing more access to liquidity and drawing down on credit facilities, their relationships with their banks will become more important than ever.” Indeed, a recent discussion on the AFP Collaborate practitioner community revealed that banks’ responsiveness and attentiveness can make or break treasury/bank relationships. A treasury professional who wished to remain anonymous explained that they are going through an RFP for their company’s treasury management services. Given the company’s size, the treasury department determined that it needed a top-tier bank to provide technology and services. However, the company’s incumbent bank—a major one with whom the organization has worked with for about 15 years—has been lacking a bit in terms of service. On the other hand, 2 the bank has everything the company needs from a LIQUIDITY technology standpoint. “Their technology has all of the capabilities we need, ACCESS: BUILDING our team knows it well, and they are responsive enough,” RELATIONSHIPS the practitioner said. “But they don’t seem to go the extra mile to make sure we’re always taking advantage of the latest technology offerings or optimizing our fees. Perfect example—as a result of the RFP, they suddenly As the pandemic has unfolded, organizations have found savings of about 10% off our annual fees.” reached out to their banks to help reconfigure business Several other practitioners responded that this is a processes and to access liquidity. As a result, many typical experience with a lot of major banks. And while companies have built trust in their banking partners as some shared positive stories about this particular bank, they rely on them to help establish new approaches for at least one other user agreed that it “typically provides day-to-day operations. the minimum service level and rarely goes the extra According to the 2020 AFP Liquidity Survey, mile.” They added that some of the bank’s employees underwritten by Invesco, 51% of treasury and finance do not appear properly trained and “it is often up to the professionals increased their short-term investments in client/customer to push or lead them.” banks throughout 2019 and into early 2020. This was the Even so, some practitioners recommended considering highest percentage in three years, up from 46% in 2019 the current environment when pursuing the RFP and and 49% in 2018 and a reversal of a downward trend that only switching banks if it is absolutely necessary. “An began in 2015. Although the survey was taken before the RFP during a pandemic will have its own challenges,” impact of the COVID-19 outbreak had set in, this flight to noted one user, who recommended completing a pro/ caution likely reflects concerns that the pandemic poses con/considerations list before moving away from the a critical threat to the global economy. incumbent. Another user noted that, “in an economy like While 93% of respondents to the Liquidity Survey today’s, a partner that won’t get spooked easily seems consider the overall relationship with their banks to very important.” 2 AFP EXECUTIVE GUIDE: Rethinking Bank Relationships in a Dynamic Environment 3RELATIONSHIP EVOLUTION Historically, bank relationships are driven by credit. However, in the COVID-19 environment, much about those relationships has changed, noted Bob McElyea, managing director of sales for CIT’s Treasury and Payment Services business. “Our corporate clients stepped back and started looking at safety and soundness again. They started looking at liquidity and a bank’s ability to help them through,” McElyea said. “We saw and continue to see a rush to liquidity and moving dollars around, placing with the banks that a corporate client feels are the most sound and able to help them.” McElyea believes corporate mindsets around bank relationship management are changing. “I think once that evolves, that’s going to stick,” he said. “At this point — and granted we’re just a few months into this — the conversations that we’ve had with clients are shifting more towards being more strategic and consultative.” Susie Kim, treasurer and vice president of investor relations for ABM Industries, admitted that there hasn’t been “true consistency” among her banking partners as the crisis has unfolded; some have been more attentive than others. “But generally speaking, what I will say is that banks are willing to help and that hasn’t changed,” she said. “Something that has remained very strong is that if I had a question about anything, I do feel like our banks are true partners where they access all of their resources to educate us, provide us with whatever we need, which is a really great quality.” 3 AFP EXECUTIVE GUIDE: Rethinking Bank Relationships in a Dynamic Environment “ Clients wanted to ensure they had enough liquidity to get through the crisis. Initially, it was for a few weeks. But as we’ve all seen, this has gone on further as the “ shutdowns and COVID proliferation just continued.” CREDIT DRAWDOWNS speak. There’s so much we still just very different. What may have Since the effects of the COVID- don’t know about it, so it’s been worked over the last 50 years may 19 crisis became clearer, many about preparing ourselves and not anymore,” she said. companies started drawing down being both reactive and proactive Looking ahead, Kim is hopeful on credit to ensure that they have during an unprecedented time.” that ABM will eventually be able capital for critical functions like She added that in the current to manage its cash “more like payroll, rent and commercial paper environment, it has become a lot historical times” versus taking the programs. According to CFO.com, more rigorous to execute these defensive position that it has over General Motors, Ford, Boeing and transactions. “What I’ve noticed the last few months. Shell each drew down more than has been that it took more time Hilton also drew down on its $12 billion from their revolvers. than originally anticipated,” she credit revolver.