Survey Shows High Percentage of Middle Market Businesses are Considering Changing Banking Providers

By Erika Schnitzer, Associate EditorNew York—A bank’s willingness to extend credit is among the top reasons senior financial executives at middle market businesses cite as consideration for changing their banking providers, according to recent surveys of the TNS Commercial Banking Momentum Monitor (CBMM)—a research study of mid-sized companies—and the TNS Bank Advisory Board—an online community of financial decision makers.For this survey, TNS defines middle markets as any business or government entity with annual revenues of $3 million to $2 billion. Finance, insurance and real estate companies represented 12 percent of the survey sample, and construction companies represented 10 percent.Typically, only 4 percent of middle market banking relationships are up for grabs each year, according to Glenn Staada, vice president, program manager for the TNS Commercial Banking Momentum Monitor. Recently, about 20 percent of those surveyed say they are considering changing banking providers. With the economic crisis, “middle market clients are worried about the financial stability of their banks and their willingness to extend credit, which is forcing them to change relationships,” Staada tells MHN. The surveys found that the five most important factors in gauging the commitment of middle market businesses to their banks were their financial stability (39 percent), the willingness of the bank to extend credit (15 percent), the strength of the relationship between the client and the primary contact at the bank (8 percent), the pricing on all products and services (7 percent), and security measures that the bank offers (6 percent).“For the real estate industry, those banks that really form a partnership and work with these companies and extend credit where reasonable will be the banks that will be positioned to succeed and help real estate start freeing up that credit flow,” explains Staada. “Banks are really going to have to walk that fine line between demonstrating resistance on the credit side and showing that they are not going to be engaging in the reckless behavior that got them into this mess, but when it is responsible, banks will extend credit and jumpstart the economy,” he predicts.The survey shows that the real estate industry has been the most likely to have made a change to their debt position or investments as a result of the financial crisis, and they continue to be the industry most often seeking new sources of credit over the past few months. Whereas only 23 percent of respondents said their business has changed their debt position, 39 percent of those in the real estate industry said their business has done so.Respondents said that confidence in their banks and the degree to which the bank can offer customized solutions are important in evaluating new banking providers. “In this new environment, banks are going to have more pressure to come up with new products and services to help new clients,” says Staada, adding that respondents feel their banks need to do a better job understanding their clients’ business needs.Staada adds, “It looks like the top banks in the nation are going to be susceptible to losing shares, and the second tier of banks that were not gambling with sub-prime mortgages and have cleaner balance sheets are positioned well to skim off relationships.”In terms of the future, Staada notes that the real estate executives surveyed were generally less optimistic about the near future than those in other industries. A fourth quarter CBMM business outlook report indicates that, while 51 percent of overall respondents were optimistic and 13 percent were pessimistic regarding their business outlook over the next six months, the real estate services industry was the least hopeful of all those surveyed: 41 percent answered positively while 17 percent responded negatively.