Banks need relationship reboot
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In the early 1990s, Kenya’s Equity Building Society was close to being wound-up, until its finance director James Mwangi started work on a turnaround strategy.
In the decades since, Equity has grown from having a few thousand customers to about 8 million, and transitioned from building society to bank.
Mr Mwangi went on to become chief executive and, in 2012, was named EY’s global entrepreneur of the year.
An example of this approach can be found just five years ago, when a major consulting firm advised Equity to close 60 branches. Instead, Mr Mwangi opted to change those locations into what he classified as relationship management centres.
Mr Atterton first worked with Equity on a strategy to sharpen its engagement with small and medium enterprise clients.
“The key thing (was) they had at least a million microfinance customers, and that’s typical in Africa,” Mr Atterton said.
“Logic says that, of those million microfinance customers, some of them have to go out and do something quite good, even if that’s only 0.1 per cent.
“(The bank) didn’t have the mechanism for capturing those transformative enterprises, they were losing those better customers.”
That meant the bank was taking the highest profile risk, the microfinance sector, without gaining the biggest reward, he said.
Mr Atterton said a part of the solution was to improve the alert system within the business for picking potentially transformative customers, relying largely on the first-hand expertise of relationship managers.
He worked with the bank to support the execution of that strategy for a further two years, running a training program for executives and managers.
The program was rolled out at other banks, and is now offered in Zambia as an executive diploma in SME relationship management.
Banks in the local market had moved over time to an approach that relied more on hardcore selling and higher customer volumes, he said.
“It struck me that you’ve got this real irony, where the African banks that actually poached a first-world model are now doing it better,” Mr Atterton said.
But he said relationship management was generally quite time-intensive.
“One of the American banks did an exercise a few years ago, and they came to the conclusion that if you want to relationship manage a small or medium-sized customer, the cost benefit was no more than 12 minutes a year,” Mr Atterton said.
“The secret of business banking is actually to be able to go into your portfolio and identify those that can make you money.”
That might only be about 12 or 15 per cent of the portfolio, he said.