Corporate Banking - An Overview, Products, Sources Of Income

Corporate Banking - An Overview, Products, Sources Of Income

What Is Meant By Corporate Banking?

Corporate banking means the services that banks offer to their corporate clients. Some of the services include the provision of credit, cash management facilities, etc.

Corporate Banking businesses provide banking services to corporate customers. These corporate customers differ from individual (retail) customers in terms of sources of income, the volume of transactions, and the variability in income. Corporate banking services can either be provided by a full-service bank or a stand-alone corporate bank.

Corporate Banking Market Segmentation

Corporate banking operations segment their customers into three broad categories;

1. Medium-Sized Corporations

These firms tend to be largely single sector businesses with operations in one or a small number of national markets and revenue size of up to USD 50 million.

2. Large Corporations

These firms require services more wide-ranging than those of mid-sized corporations, particularly where they have expanded internationally. They are generally defined as those with revenues up to USD 1 billion.

3. Multinational Corporations

These are customers with multi-billion dollar investments and a global reach. They require a wide range of banking services in multiple locations for a large number of legal entities.

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What are the sources of income for Corporate banks?

The primary sources of income for corporate banking businesses are;

1. Interest income

Net interest income (NII) is the difference between a bank's interest income and its interest expense. Interest income is earned on assets such as loans and revolving credit facilities.

2. Fees and Charges

There are fees earned from non-interest income sources such as letters of credit and advisory services.

3. Trading income

Income earned from buying and selling of foreign exchange.

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Corporate Banking Services

This refers to the various services that banks and some none banks provide to corporate banking customers. What Services Do Corporate Banks Offer? The main service categories are; 
  1. Short term finance
  2. Long term finance
  3. Trade finance - funded
  4. Trade finance - unfunded
  5. Accounts receivable finance
  6. Asset-based finance
  7. Investment banking
  8. Risk management
  9. Cash management
  10. Payments, card issuance and processing. 
While the terminology is likely to vary from bank to bank, most banks' product solutions are likely to feature some or all of the above. 

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Characteristics Of Corporate Banking

1. Customer

A bank’s business banking unit usually serves small to middle-sized businesses and large conglomerates.

2. Authority

A company’s corporate banking accounts can only be opened after obtaining consensus from the board of directors of the company. It means that they must authorize by an official vote or a corporate resolution. As well as, the company’s treasurer usually opens corporate accounts.

3. Liability

Since companies are seen as separate legal entities under the law, all contents of corporate accounts are the property of the company and not of the individual board members. This means that there is a certain degree of independence to corporate accounts. It also indicates that the personal creditors of the board of directors are not entitled to the contents of the corporate account of a company.

4. Credit rating

The functioning of the corporate account forms part of the credit history of the company. It affects the valuation and share prices of the company, the interest rates applicable to loans extended to the company, etc.

5. Bankers

Corporate banking requires a degree of expertise in the industry. Thus, corporate bankers are extremely well paid.
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