Managerial implications of relationship banking


Competitive pressures as well as the search for fee based incomes, mainly derived from cross-selling, have forced financial institutions to re-define their marketing strategies. Relationship banking has been perceived as a solution to these changes. The concept of relationship banking is based on the premise that "keeping a client is more desirable than attracting new business". This approach to bank-customer exchanges is particulary relevant to commercial ( sector) segments. Yet in reality the management of relationships is far from being a success, as stated by Day (1985)..."the business association with bankers euphemistically refer to relationship is prompted by financial lust not customer trust." On the basis of interactions with over 200 commercial bankers we trained through the Institute of Canadian Bankers, this paper identifies the major problems raised by the implementation of an effective relationship approach. From this critical analysis, the paper points out the need to view relationship banking as a major corporate issue, not as the sole responsibility of front line people (account managers). More precisely effective relationship banking entails: 1. A re-definition of profit centers 2. A new balance between responsibilities and authority, 3. Revised human resources policies as far as account managers are concerned, 4. Performance appraisal based on relational criteria as well as profit. The conclusion is that within the banking industry, as far as bank-customers relationships are concerned, marketing and strategic issues are merging.

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