What is business and corporate banking?

It should be no surprise to hear that the biggest users of banking services are companies. They need an enormous number of different services from their banks.

• They need to borrow money to set up or expand their businesses.
• They need to be able to take payments from their customers in the form of cash, cheques, cards and electronic payments.
• They need to pay their staff.
• They need to pay suppliers.
• They need insurance policies.
• They need to manage their cash balances and make a return on them.
• If they export, they need foreign exchange.
• Larger exporters will often want to protect themselves against currency shifts, so they buy currency futures.
• Perhaps most important of all for some companies, they need to manage cash flow and create a whole range of sub-businesses — for handling processes such as leasing plant, equipment and cars, for instance — so that the parent firm doesn’t have to buy everything with hard-earned cash.
• They may also need upfront cash when they win a big order. Banks can help through services such as invoice factoring, when the bank pays the company straight away for each invoice it issues — even if the customer actually takes 60 days to pay.

Banks earn big fees from all these services, although in turn they take on big risks. Even well-known retail banks such as Lloyds TSB and Royal Bank of Scotland make as much money serving business clients as they do serving 10 million individual customers like us.

Most banks categorise their business and corporate banking services according to the size of the client, which often determines the complexity of the services that are required. Most banks have two or three such categories:

• Business banking — deals with small businesses that have between one and, say, 250 employees. For some banks this means businesses that have a turnover of between zero and £5 million, although in some cases the upper limit can be as low as £1 million or as high as £20 million.
• Mid-tier banking — this usually deals with companies with a turnover of £5 million to £50 million (again, the upper limit can vary from £20 million to £200 million). These larger firms, usually employing hundreds of people, require more complex services and management.
• Corporate banking — these services tend to be available to companies with turnover above the upper limit that the individual bank places on the mid-tier. These are generally firms that employ thousands to tens of thousands of staff.

In the UK, these markets are dominated by the big five banks:

• Royal Bank of Scotland/NatWest;
• HSBC;
• Barclays;
• Lloyds TSB;
• HBOS (mainly through Bank of Scotland).

A few other banks such as Alliance and Leicester and Cooperative Bank offer services to small businesses, while at the other end of the scale overseas banks such as CitiBank and Deutsche Bank compete for big corporate business. Very large companies generally use several banks, both domestic and overseas.

Business banking v. mid-tier v. corporate

Some banks organise these three operations into one business unit. However, many manage business banking via the retail bank. This is because the big banks have perhaps millions of small business customers, and the best way of keeping contact with them is through branch networks. Business bankers are found in large branches and regional centres. Mid-tier corporate bankers are usually only found in corporate centres, while the major corporate clients are usually managed from the head office and the City.

Business banking

Business bankers spend most of their time talking to the owners of companies. Company owners want a personal relationship with their bank and are mainly looking for payments services and loans. For 'micro businesses' — those millions of one-person companies — the services used are little different from those you would find with a retail current account. Companies with 10 to 100 staff will have more requirements for funding property or equipment, but the contact is often still with the owner.

With all of these relationships there is always the opportunity to help a client to develop their business, and once in a while someone will do really well. This is good for the business banking unit, but also for the rest of the bank, since the business owner will often have their personal accounts with the same bank.

Increasingly, banks want their business bankers to be advisers to their clients, so this is a hands-on job. Also, strong ties exist with the wealth-management and private banking units, since they too are keen to sell their services to rich entrepreneurs. See Wealth Manager

Mid-tier banking

With mid-tier clients, the banking relationship is usually set up by the owner but managed by an accounts and finance team. Funding and cash flow are often important for companies of this size, so working with them on these issues is a key part of the banker’s role. To pay the wages, for example, companies need to know that there is sufficient money in the bank. The bank in turn is more than willing to provide the cash for such purposes if it is needed — assuming, of course, that the risk is not too high. Banks want their customers to do well — after all, that’s how they make their money. But at the same time they must also protect their shareholders, so analysing and understanding the risks involved in lending is critical.

Corporate banking

Corporate bankers manage relationships with big firms, where managing cash and risk is crucial. The key figure in such relationships on the client side is the finance director (often called by the American term 'chief financial officer', or CFO).

Banks provide electronic banking services to the CFO’s treasury office. This department manages the money and ensures not only that there is sufficient to pay the bills but that all cash balances are invested properly. It has direct links to all the firm’s banks, and can piggyback the bank in trading foreign exchange and in investing cash on the wholesale markets. The treasury office will also work with the bank to manage risk, for example by buying futures and options to protect against currency movements or interest-rate changes.

Companies of this size also often require large-scale, long-term financing. Here, corporate banking starts to overlap with investment banking. For instance, when a company wants to build a new $1 billion production plant or research facility, it can either borrow the finance from its corporate bankers, or raise it on the markets via an investment bank. Here the two worlds collide, and banks and investment banks compete for business.

So is there a role for you?

Yes, there are jobs at all levels — from those in operational back offices, where the payments are processed and the references checked, to jobs that will see you presenting to your client’s board on the biggest deal of your life. In addition, there are many support jobs in compliance and credit-checking. Even dealing-room traders rely on the business and corporate banking business for their jobs.

Key opportunities are outlined in our career profiles section:

Business Banker

Corporate Finance (this is an area that crosses over with investment banking)

Operations and Administration

Credit Risk Officer

Compliance Officer