Trust-based relationship banking, and SME financing in the UK

Information is an essential factor in financial markets and financial transactions, generally divides into hard information and soft information. These information play important role in lending activities of commercial banks especially. Relationship banking is a lending technology in SMEs financing, mainly focus on the lending relationship between banks and SMEs, reflecting how banks establish long-term, sustainable relationship with SMEs to obtain soft information. As the special characteristics of soft information, literatures on soft information in banking are very few. Therefore, this paper reviews and analyzes soft information and relationship banking in related foreign financial literatures comprehensively and systematically, provides useful references to in-depth researches on soft information and relationship banking in SMEs financing.

Purpose This study aims to investigate the reality of relationship banking (RB) in the small and medium enterprise (SME) context, specifically how banks organize activities, define SMEs and manage the SME–banking relationship. Design/methodology/approach Using qualitative methods, this study uses a case study approach, conducting in-depth interviews with relationship managers from major New Zealand banks. The data are analyzed using thematic analysis with a process- and mechanism-oriented lens. Findings The study identifies bank criteria for defining SMEs, considering factors such as business complexity, owner/manager ethnicity and business lending. Banks divide their activities into personal and business banking, with the latter further classified as micro-, small- and medium-sized businesses based on borrowing amounts. Three types of RB emerge, namely, micro-business (online/many-to-many) relationship model (RM), small-business RM (one-to-many) and medium-sized business (one-to-one) RM. This study presents a taxonomy of business banking relationship management models that capture the structure and dynamics of the three RB levels. Research limitations/implications Interviews may introduce biases or limited perspectives. Findings specific to New Zealand may not universally apply. Future research could explore different regions and assess the impact of these RB models on SMEs’ financial outcomes and satisfaction with banking services. Practical implications Findings assist banks in organizing activities and managing SME relationships. Taxonomy aids in categorizing companies and determining appropriate management models. Consequently, tailored services can be provided based on SME needs, offering customized financial packages. Social implications RB models prioritizing ethnicity consideration and personalized services contribute to enhanced financial inclusion for SMEs, thereby fostering broader socioeconomic growth and development, partly through the provision of tailored financial packages. Additionally, relationship managers specializing in specific industries can offer valuable insights and assistance to SMEs, fostering mutual trust and collaboration. Originality/value To the best of the author’s knowledge, this is the first study to hypothesize, investigate, identify and provide evidence for three RB levels in SMEs. The presented taxonomy contributes to the literature on the SME–bank relationship by providing a structured framework for effective SME relationship management. Insights can help banks develop strategies and practices for serving SMEs, ultimately contributing to their growth and success.

This article investigates how banks build competitive advantage through relationship banking. Using a grounded theory approach, 29 interviews were conducted with relationship managers and corporate banking directors in 21 case banks from 2004 to 2008. Grounded theory models were developed to illustrate the value creation process in relationship banking. It was found that long-term bank–corporate relationships were established through trust-based personal communications. In the case, banks customer information and knowledge advantages were created. Risk-adjusted returns on assets were used to measure customer relationship performance, and relationship managers were rewarded accordingly. The interviewees thought that bank performance could be improved by managing customer credit risk and identifying cross-selling opportunities. This study starts to open up the ‘black box’ of how banks create shareholder value through relationship banking, provides a picture of relationship banking as a social phenomenon, and supplies some theoretical and managerial implications. The article also links the literature relevant to relationship banking from different disciplines. This is a new way of looking at the relationship banking phenomenon and relevant literature in an integrated manner.

In this research, the impact of three organizational justice perception of employees on their trust in manager and organization is examined. The effect of trust toward manager and organization on organizational satisfaction is analyzed. In order to collect data, questionarries were sent to 131 employees who work at administrative units of Abant Izzet Baysal University. Following findings are reached by analyzing of 109 returned questionarries. In order to collect data, distributive justice measuring organizational justice perception, instruments of procedural and interactional justice, trust in manager and organization and organizational satisfaction instruments were used. Among three justice perceptions, finding demonstrate that interactional justice perception is more effective in terms of trust in manager and organization than others. However, trust in organization rather than trust in manager is more effective on the organizational satisfaction.

This paper shows that the global financial and economic crisis has jeopardized the viability of relationship banking in Spain, and threatens to undercut this key element in the national structure of productive financial intermediation. The capacity of the Spanish banking system to provide relationship-banking services, which was threatened even before the crisis, is now compromised by four mutually-reinforcing forces: a tendency for credit flows to be higher in central regions and lower in peripheral ones; the shift of liquidity to central regions in financialcrisis periods; the asymmetric protection offered to the large financial intermediaries that are least proficient at (or interested in) spatially-distributed relationship banking; and the forced recapitalization of Spanish banks, which selects against small and outlying banks and requires increased minimum operating scale. These four forces constitute a quadruple ratchet effect, reinforcing the centralization of credit flows while reducing relationship-banking intermediation capacities in peripheral regions and lower-income areas.

This paper analyzes the relationship between banks and SMEs in the continental European bank-based system. We find that SMEs with longer bank relationships have enhanced access to loans, but at the same time they bear a higher cost for their debt. We also find that firms maintaining two bank relationships get the cheapest debt, which establishes a limit for the degree of concentration of bank relationships. Our results also show that the existence of trust between firm and bank improves access to financing and reduces the borrowing costs, whereas it increases the likelihood that guarantees will have to be provided. As a consequence, it seems that a relationship based on trust is a better strategy to improve SMEs’ access to finance than the establishment of longer or more concentrated relationships.

<p>This paper identifies strategic concepts and practical techniques in relationship-banking andexploreshow customer value was improved and how relationship-bankingperformancewas measured and linked to relationship managers’ compensation. Grounded theory was adopted to collect and analyse data. 25 interviews have been conducted with relationship managers and corporate banking directors in 11 case banks and case banks’ quantitative data was used to support the propositions. It was found that customer relationship was seen as a valuable asset. Relationship Orientation and Customer Focus were evaluated by undertaking internal surveys and relationship management objectives were formulated and actions were proposed to improve Customer Value to the case banks. In the case banks Customer Information was collected through multiple customer touch points and integrated and analyzed.Customer Knowledge wasaccumulated and sustainable Competitive Advantages were built.Customer Perception and Customer Loyalty were measured externally.Customer Value and Risk Adjusted Return on Asset (RAROA) wereemployed to measure relationship banking performance and reward relationship managers accordingly. The interviewees perceived that relationship-banking performance could be improved in this dynamic learning process. </p>

<p>This paper identifies strategic concepts and practical techniques in relationship-banking andexploreshow customer value was improved and how relationship-bankingperformancewas measured and linked to relationship managers’ compensation. Grounded theory was adopted to collect and analyse data. 25 interviews have been conducted with relationship managers and corporate banking directors in 11 case banks and case banks’ quantitative data was used to support the propositions. It was found that customer relationship was seen as a valuable asset. Relationship Orientation and Customer Focus were evaluated by undertaking internal surveys and relationship management objectives were formulated and actions were proposed to improve Customer Value to the case banks. In the case banks Customer Information was collected through multiple customer touch points and integrated and analyzed.Customer Knowledge wasaccumulated and sustainable Competitive Advantages were built.Customer Perception and Customer Loyalty were measured externally.Customer Value and Risk Adjusted Return on Asset (RAROA) wereemployed to measure relationship banking performance and reward relationship managers accordingly. The interviewees perceived that relationship-banking performance could be improved in this dynamic learning process. </p>

Trust is widely regarded as an important ingredient of organizational effectiveness. Although there is accumulating empirical evidence supporting the important role of trust in organizational contexts, there is limited empirical evidence that focuses on the nature, determinants and influence of trust in senior management. This is particularly true in the public-sector environment. In this paper, based on a review of the literature, we propose a model that identifies key antecedents and consequences of trust in public-sector senior management. We used data collected from two public-sector organizations to identify levels of trust and correlates of trust in senior management. We also conducted a series of regression analyses to identify more clearly the extent to which each of the antecedents influenced trust in senior management and the extent to which trust in senior management influenced each of the consequences. The results suggest that effective organizational communication, procedural justice, organizational support and satisfaction with job security predict trust in public-sector senior management. The results also show that trust in senior management influences affective commitment, continuance commitment, cynicism towards change and turnover intention. Evidence was presented which suggests that trust partially, rather than fully, mediates the relationships between the antecedents of trust and the consequences of trust. In general terms, the findings will prove helpful to human resource practitioners interested in diagnosing and managing trust in public-sector organizations.

The political economy of relationship banking

This study tries to identify the impact of recent economic turmoil including the COVID‐19 pandemic and global financial crisis on a corporation's banking relationships. Using a wide range of unique data from 2008 to 2020 in the Korean loan market, this study compares the two crises periods to the ordinary periods. It is found that the effects of firm‐specific factors on banking relationships are strengthened (for loan amount) or weakened (for corporate size and credit rating) during the two crises. However, for the industrial sector a firm belongs to, the interaction effects of the crises show opposite signs.

Banking relationships are key factors that influence the financing decisions of real estate investment trusts (REITs) which are mandated to hold highly specific assets. Using a comprehensive data set of loan facilities by REITs across different markets, this paper empirically tests the effect of REIT-bank relationships on credit costs and other non-price credit terms. We find that REITs with past banking relationships enjoy favorable loan terms that include lower loan rates, higher loan amount, and a less stringent collateral requirement. These favorable terms were kept by relationship banks during the global financial crisis from 2007 to 2009.

Banking Relationships and Lending Decisions of REITs

By providing liquidity Hausbanks can support business clients to overcome the social shutdown and hence cushion the economic impacts of the COVID‐19 pandemic. Germany's regional banks demonstrated such ability in the financial crisis of 2008/09 when, in contrast to large banks, they extended lending. Revisiting research on the global financial crisis and relationship banking, this note presents hints on the soundness and lending ability of retail banks, discussing their influence in the virus‐related economic turmoil. Banks appear better prepared to resist the crisis than in 2008. Still, the (looming) turmoil of the real economy at large tends to stress all banks and regional banks in particular, owing, among other reasons, to their leading position in business lending. The crisis represents a chance for Hausbanks to prove their commitment to business clients and provides a possibility for researchers to analyse the performance of different types of banks.

Relationship banking, with surviving banks, has a positive value during a systemic financial crisis. For many viable small and medium-size businesses in the Republic of Korea, relationship banking reduced liquidity constraints and thus diminished the probability of unwarranted bankruptcy during the country's financial crisis of 1997-98