Business banking has many features. Corporate banking is a part of it. This service is only offered for the corporate. It provides cash, credit, net banking, and related services. The other name for it is “institutional banking.” Universal banks are the leading corporate banks currently working in the market. Read on to learn more about it.
What is corporate banking?
It is one of the many branches of banks. Their main work is to give loans to firms in the finance, public, and private sectors. It falls under the branch of investment banking. The working model of such banks is the same as regular banks. Services like net banking, credit, and managing finances are also provided. The only difference is that ordinary banks give loans to small firms and individuals, while corporate banks offer services to big firms.
Services offered by corporate banking
- Treasury Service: Usually, firms manage the working capital. So they use treasury services. These MNCs help in the exchange of money. It has great value for firms.
- Credit: Clients get credit-related products, like loans, etc. Here, normal banks get the largest share of profits from credit services. Because lending to corporate clients has a risk factor attached to it. Thus, the interest rate is higher than others.
- Fixed asset requirement financing: Various firms invest money in the market. Such as an IT company that produces heavy machines and is in the transportation sector. They need fixed assets to function. Corporate banks provide loans per the firm’s needs. They also help with lease agreements for buying machines, etc.
- Commercial Services: Corporate banking offers many services. These include knowing the actual asset, portfolio management, etc. They help you learn about leverage with an equity and debt plan. You get a few more things, like underwriters for IPOs (initial public offerings), managing assets, etc.
- Employer Service: These banks offer various facilities as employer services. This includes selecting plans after one retires, health care plans, helping with payroll, etc.
Corporate Banking’s Characteristics
- Clientele: Their main clients are firms that are small to mid-size and also large giants of the market.
- Liability: Every company under the law is considered a single legal entity. Hence, a corporate account’s assets are the firm’s property and not those of any single board member. This gives little help to corporate accounts. Also, no one from the board of directors can use this money for their reasons as it is the firm’s asset.
- Authority: Only after the board permits opening the firm’s corporate banking account can it be done. The treasurer of the firm is the one who opens the tab. He can do that only after a formal notice or if it has been decided by official voting.
- Bankers: Corporate banks need a team of experts who are the best in their field. That is the reason that they offer good money to them.
- Credit rating: The corporate account is part of the company’s credit history. This affects the interest rate for the loans extended to the firm, the firm’s share prices, and its market value.
Corporate Banking Trends
In a growing market, firms tend to lean on bank loans. It’s the cheapest way to finance a business. Unlike regular banks, corporate banks sometimes give out loans by merging with other lenders to reduce the exposure of a single party. The size of the corporate banking client is directly related to how easily they get credit solutions. This means the larger the firm’s size, the easier it is to get into corporate banking credit solutions.
In mature markets, the firms tend to have a termed-out debt. Short-term debts are made into long-term debts without taking on any extra debt.
Corporate banking vs. private banking
They mainly differ because both banks have different types of clients. The private bank provides loans to high-net-worth and very high-net-worth individuals. Private banks provide credit services, including estate planning, asset management, concierge service, and tax preparation. There are very few commonalities between private banks and corporate banks. There are times when corporate bankers tend to cross-sell their banking services to the senior manager of a critical client.
Corporate banking vs. investment banking
Investment banking is also another name for corporate banking. Several points exist between the two that are the same, and they are sometimes seen working as a part of the broader capital market. Recuring relationship management is the main focus for corporate banks. But then, investment banks are more about finding new ideas and providing corporate finance advisory services.
The difference between corporate banking and debt capital market (DCM)
Debt capital market and corporate banking Both bodies have credit.
Finally, a corporate bank is a financial institution that provides a variety of services to businesses. It offers credit, treasury services, net banking, employer, commercial, and many more. It has certain features. They are clients, liabilities, credit rating authorities, and a few others. It falls under the category of investment banking. It needs to work side by side with many other bodies of banking.
If you need help with finances, you can always take the help of experts such as Piramal Finance to guide you through your personal finance woes.