In an ever increasingly competitive financial environment, businesses and corporations are scrambling to obtain a financial facilitator that not only offers appealing interest rates, but goes above and beyond its peers to cover an entire business’ needs.

The corporate banking sector is an area that has come to the fore over the past 18 months, and one that will see increasing levels of attention as South Africa seeks to recover from one of the most devastating economic climates in recent history.

In this sphere, there are numerous analytical disciplines and tools that can be used to benefit a business over that of more ‘traditional financial institutions’ that deal primarily in personal banking needs. Effective risk management is the core function of this sector, with its main purpose being to aid a corporation in minimising overall risks from a financial perspective.

The sector is an essential component of the modern financial world, in that corporations differ greatly from that of an individual – not only in their financial goals, but most certainly in their financial risks undertaken. This is where the fundamental difference lies, and where its importance is underlined.

This niche sector goes above and beyond the basic depositing and lending of capital, in that it effectively delivers extensive industry knowledge, local expertise and dedicated service – all essential components if South African businesses are to thrive and expand within an increasing global financial market.

Perhaps the largest advantage this institution has over that of more traditional facilities, is that it partners with the firm’s other departments in order to provide comprehensive solutions, treasury services and asset management to meet a corporation’s complete financial needs effectively.

If local business is to expand effectively, the financial institution with which it deals on a day-to-day basis is going to have to be made aware of all facets of that company, thereby providing the most thorough and sound financial advice.

Where this institution is being deemed to harbour the most potential, however, is in its ability to finance small and medium enterprises (SMEs).

Developing countries such as South Africa are highly dependent upon SMEs, in that they constitute the backbone of the country’s economy. They not only provide employment, and therefore income opportunities to a large section of the population, but are also at the forefront of technological innovation and export diversification within a highly globalised trading market.

Corporate banking harbours the ability to play a highly significant role in the future of SMEs, ranging from the participation in finance investment funds to the creation of special units for financing of these enterprises – providing massive potential for those companies overlooked by traditional financial facilities.

Commercial banking has several advantages over non-banking financial institutions, as well as non-governmental organisations, in that they have:

• clear regulations that highlight conditions of ownership, financial disclosure, as well as capital adequacy, ensuring prudent risk management;

• well-established and updated internal controls, administrative and accounting systems that ensure accuracy; and

• ownership structures that are primarily dominated by the private sector, encouraging sound governance practices.

Positive news for the South African business sector is that more and more commercial banks have become interested in entering the SME finance market, which has proven to be highly profitable for the institutions themselves. As far as direct loan support to businesses that are in need is concerned, these banks are increasing their involvement as they are increasingly viewing their customers as lucrative business opportunities, and in turn, as a way to attract new customers.

This is seen as a two-way benefit structure which, through the increasing of their client base – and thus diversifying into new areas of business – this relationship will eventually reflect positively on the bank’s portfolio, with SME clients providing a great opportunity for the growth of a bank’s assets and liabilities.

This has provided an entirely new perspective as to how a financial institution can work in harmony with its clients; to not only expand the clients’ business reach but that of the financial institution itself.

This is a great spin on a sector that, over the past 18 months, has been highlighted for all the wrong reasons.

Corporate finance is an essential component within the modern financial world. The idea of a financial institution working with a company is not a novel one, however, it is something that can have a massive impact on the business sector moving forward.

If these relationships have proven successful in first-world economies, the potential of them in a developing economy, which has yet to tap into its full potential, is mind boggling.

While corporate banking is often viewed as being out of reach of the ‘common individual’, one can be certain that its influence further up the business hierarchy is most certainly affecting this everyday demographic.

Adam Currie