Relationship Banking Research Articles

The moderating role of high- and low-involvement product types on customer loyalty and satisfaction in banking: an Australian perspective

PurposeThe study aims to develop a holistic model identifying the constructs that impact customer loyalty in retail banking and introduce product type as a moderating variable to the model.Design/methodology/approachA conceptual model of customer loyalty is introduced and empirically tested with 416 valid samples obtained from Australian retail banking customers. The data were analysed using partial least squares structural equation modelling and multigroup analysis.FindingsThis study confirms the moderating effect of high- and low-involvement products on the relationship between customer loyalty and satisfaction, trust, service quality, commitment and perceived value. Surprisingly, the effect of satisfaction on loyalty was much stronger with low-involvement product types and the effect of commitment on loyalty was much stronger with customers who utilise high-involvement products.Research limitations/implicationsThe study uses a sample population in Australia who utilise one of the top four banks and investigates three product types. Further research could expand the product selection and include customers who use credit unions and other banks not in the top four categories.Originality/valueThis study is the first to confirm the moderating effect product type has on the customer loyalty relationship in retail banking in regard to high- and low-involvement product categories. The research provides a deeper understanding of the factors that influence customer loyalty and identifies which types of products influences customer loyalty the most. Additionally, this study highlights the importance of understanding the different needs and priorities of customers using different product types in order to effectively influence their loyalty.

Impact of Bank Liquidity and Macroeconomic Determinants on Profitability of Commercial Banks in Bangladesh

This paper aims at investigating the relationship between profitability and liquidity of the State-Owned Commercial Banks of Bangladesh. An important motive of this study is to provide valuable insights into how liquidity influences profitability. There are various research papers on liquidity exposure and the profitability relationship of banks in Bangladesh. But those researches are separately conducted for conventional or Islamic banks or there is a comparative analysis of both banks. But there is little research on the state-owned banking industry. During the Pandemic the banking industry of Bangladesh was affected severely in respect of liquidity risk and it also affected its profitability. There is no recent paper focused on this study. So, this study will try to identify the significant factors that affect the liquidity of a bank and its profitability. In this regard, 10 years’ data from Annual Report of the State-Owned Commercial Banks and macroeconomic data from Bangladesh Bank website and several journals have been collected from 2012-2021. This study primarily aims at exploring the liquidity-profitability relationship using econometric model. Loan to Deposit ratio is used measuring liquidity of a bank. Other control variables Loan Loss Provision to Total Asset (LLPTA) for credit risk, Equity to Total Asset (EQTA) for capital efficiency, Operational expense to Total Asset (OPEXTA) for operational efficiency, Total Asset (TA) for Bank size, Non-performing Loan (NPL) for asset quality, Gross Domestic Product (GDP) for economy size, Inflation (INF) for consumer price index, Interest Rate (INT) for opportunity cost, and the Unemployment rate for measuring labor force. The major finding of this study show that there is a significant positive relationship between liquidity risk and profitability. Among bank-specific variables credit risk, capital efficiency, and bank size have a significant relationship with Profitability which also supports the theory. Macroeconomic variables like interest rate, inflation rate, and GDP have a significant relationship with profitability which also supports the theory. Here BDBL and BASIC should have maintained the liquidity standard mentioned by Bangladesh Bank and BIS to mitigate their liquidity crisis. This study also shows that there is no severe effect of the COVID pandemic on the State-Owned Commercial Banks of Bangladesh. The findings of this study will provide valuable insights for banks and regulators to make informed decisions regarding risk management, liquidity decision, capital allocation, and strategic planning.

Revisiting brand performance metrics and its impact on customer loyalty in Indian banking sector: role of relational quality and duration

PurposeThe purpose of this study is to revisit brand performance metrics (BPMs) (brand affinity, brand content and knowledge, brand image, brand ethics and brand value) and evaluate the moderated mediation effect of relationship quality (mediator) and relationship duration (moderator) in brand performance and customer loyalty relationship in an Indian banking context.Design/methodology/approachThe research model was tested in the Indian banking sector. The primary data was collected from the 1,000 account holders of five Indian public and private banks. The data was analysed and validated using exploratory factor analysis and confirmatory factor analysis. Structural equation modelling and the Hayes process were used for testing the hypotheses.FindingsThe study results established BPMs as a four-dimensional structure comprising brand affinity, brand content and knowledge, brand image, brand ethics and brand value. The BPMs significantly positively impact relational quality (RQ) and customer loyalty. Further results also prove the existence of moderated mediation effect on BPMs and customer loyalty link and portray that the impact of BPMs on customer loyalty is mediated by the RQ and influenced by relationship duration.Research limitations/implicationsThe study is confined to the Indian banking sector. It did not examine the dimension-wise impact of brand performance indicators on RQ and customer loyalty. Future research is required to explore their influence in banking and other sectors.Practical implicationsThe study findings suggest that to enhance brand performance, banks need to follow excellence in every conduct, take immediate actions against inappropriate behaviour, consistently update their relevant and valuable contents (news, videos, white papers, e-books, case studies, FAQ’s, photos, etc.) on their websites and also introduce loyalty schemes to reimburse customers’ interests with some substantial benefits such as rebates, discounts, annual gifts and extraordinary or additional services. These strategies can pave the way for enhancing long-term quality relationships between customers and their service providers and increasing customer loyalty.Originality/valueTo the best of the authors’ knowledge, the study is a maiden attempt to assess the effect of BPMs on customer loyalty in the presence of RQ and at the value of relationship duration/length. Besides, the study results also prove the existence of moderated mediation effect and portray that the impact of customer equity and relational benefits on customer loyalty is influenced by relationship duration and mediated by RQ.

Do Credit Supply Shocks Affect Employment in Middle-Income Countries?

This paper studies the effect of bank credit supply shocks on formal employment in Mexico using a proprietary dataset containing information on all loans extended to firms by commercial banks during 2010–2015. We find large impacts on the formal employment of small and medium firms: a positive credit shock of 1 standard deviation increases yearly employment by 1.4 percentage points. The shares of uncollateralized credit and credit received by family firms, younger firms, and firms with no previous bank relationships also increase, suggesting that credit shocks may play a more prominent role for employment creation in credit-constrained settings. (JEL D22, G21, G32, J23, L25, M51, O16)

Bank ownership and firm performance

AbstractDoes a bank's ownership matter for the performance of a firm to which it is connected, especially in the event of a crisis? I study this question through the effect of the 2008–9 crisis on Indian manufacturing firms to provide evidence on a new channel that can matter significantly for a firm's performance—bank ownership. I find that firms connected to private (domestic and foreign) banks earned around 10% and 25% less from sales and exports, respectively, during the crisis, as compared to firms having banking relationships with public‐sector banks. This happened as private banks were affected differentially in terms of credit supply from the Central Bank and withdrawal of deposits. Firms connected to private banks also laid off more workers, and imported fewer capital goods. Finally, these effects are significant across the size distribution of the firms (except the smallest firms), for firms producing intermediates, and about 40% less for firms that belong to a business group.

Does relationship lending matter in an emerging market?

ABSTRACT Based on a unique database (data on 2529 bank-firm relationships of 403 firms from 2012 to 2018) provided by the Central Bank of Tunisia, this article analyses the impact of the intensity and duration of bank-firm relationship on loan quality. By estimating a panel ordered probit model, the results show that the intensity of the lending relationship has a positive (negative) impact on high (medium or low) quality loans. In addition, the duration of the bank-firm relationship increases the probability of low-quality loans. We also find that the impact of relationship lending on loan quality differs according to the level of profitability of the firm. Low and non-performing firms tend to have longer and closer bank relationship, whereas it is the opposite for performing firms. Our results suggest that in an emerging market concentrated around a few banks, longer and closer banking relationships are mainly in favour of low and non-performing firms, reflecting adverse selection and strong moral hazard.

Does Geographical Proximity Matter in Small Business Lending? Evidence from Changes in Main Bank Relationships*

AbstractWe examine the causal link between the geographical distance between firms and their main bank and the termination of main bank relationships, using the exogenous change in firm–main bank distances brought about by bank branch consolidations in Japan. Our findings are threefold. First, an increase in lending distance increases the likelihood that firms switch their main bank. Second, the average lending distance for firms that switched to a new main bank decreased after the switch. Third, the lending distance of new firm–main bank relationships after the switch had a positive impact on the probability of default of small firms.

An Econometric Analysis on the Relationship of Banks' Savings Deposits and Savings Participation Funds with Selected Macroeconomic and Financial Indicators

Bu araştırmada, Türkiye’de bankaların tasarruf mevduatları ve tasarruf katılım fonları hesaplarının seçili makroekonomik ve finansal faktörler ile ilişkisi incelenmiştir. Johansen eşbütünleşme testi bulgularına göre her iki modelde seriler arasında uzun dönemli ilişki tespit edilmiştir. Uzun dönem VECM bulgularında, döviz kuru, enflasyon ve altın fiyatlarının bağımlı değişkenler üzerinde pozitif ve istatistiki açıdan anlamlı etkilerinin olduğu tespit edilmiştir. Döviz kuru, enflasyon ve altın fiyatlarının, tasarruf katılım fonlarını daha fazla etkilediği görülmüştür. BİST-100 endeksi ile bağımlı değişkenler arasında istatistiki açıdan anlamsız ve negatif bir ilişki tespit edilmiştir. Faiz oranı ile sadece tasarruf mevduatları arasında istatistiksel açıdan anlamlı ve pozitif bir ilişki söz konusudur. Son olarak seriler arasındaki nedensellik ilişkileri Toda-Yamamoto testi ile sınanmıştır.

Bank connections, corporate social responsibility and low-carbon innovation

This paper discusses the relationship between bank connections and low-carbon innovation. It is empirically found that the existence of bank connections is expected to decrease the corporate low-carbon innovation level by 0.0369 standard deviations. The results hold after a series of robustness tests, including the introduction of the propensity score matching method. In addition, this paper discusses the role of corporate social responsibility (CSR) and finds that CSR promotion can significantly mitigate the negative impact of bank connections on corporate low-carbon innovation. Furthermore, this paper explores the reasons why enterprises construct bank connections from the environmental perspective and finds that both strict environmental regulation and a low level of green credit development may contribute to enterprises’ construction of bank connections. These findings reveal for the first time the environmental costs of corporate banking relationships and form policy recommendations on how to reduce adverse effects.

Using REIT Follow-on Equity Offerings to Pay down Credit Line Balances: Bank Certification or Monitored Financial Flexibility?

Using hand collected data from offering prospectuses and other corporate filings, we examine the market response to real estate investment trust (REIT) follow-on stock offerings’ stated uses of proceeds. We also track REIT banking relationships over time. Consistent with the idea of bank certification, we show that markets react relatively favorably to REIT equity offers where issuers have lending relationships with affiliates of the underwriters. However, we also find that reactions are most favorable where REIT issuers intend to repay their bank’s line of credit, regardless of the bank’s affiliation with the underwriters. This pattern is particularly strong among smaller firms with lower institutional ownership. We posit that credit line repayments preserve benefits of bank monitoring while enhancing financial flexibility. Further examination reveals that this monitored financial flexibility is the dominant effect.

What drives small and medium enterprises to establish and terminate banking relationships?

PurposeThis paper investigates the factors crucial for small and medium enterprises (SMEs) in establishing business relationships with banks in Pakistan.Design/methodology/approachTo investigate how SMEs select banking relationships using criteria, such as decision factors, decision-makers, and decision processes, a comprehensive literature review was used to classify SMEs' decision factors for bank selection. A survey questionnaire was distributed to 200 SMEs, randomly selected from the Small and Medium Enterprise Development Authority database in Pakistan. Probit/Tobit model is estimated to explain the behavior of SMEs.FindingsThe results reveal that SMEs consider a bank's Reputation, Price, and Location essential while establishing bank relationships. SMEs tend to terminate relationships with banks when the Price and Location of the bank are considered essential factors in the relationship with the banks. Price and Location are necessary for SMEs to reduce banking relationships. The SMEs also tend to reduce if they get attractive offers, or the SMEs are recommended to make a banking relationship. This study also provides intuitions for bank policymakers to design policies to retain SME customers and attract new business relationships.Practical implicationsThe research emphasizes the importance of competitive and transparent pricing strategies in designing products for SMEs. Banks must prioritize their Reputation and credibility to attract and retain relationships with SMEs.Originality/valueThe study attempts to provide evidence on the SME-Bank relationship focusing on the factors that are crucial for SMEs to decide while establishing business relationships with banks. Also, most of the related literature focuses on developed countries; this research adds to the literature on SMEs' behavior, particularly in a developing country's context.

THE IMPACT OF BANKING RELATIONSHIP ON FIRM PERFORMANCE: EVIDENCE FROM HO CHI MINH STOCK EXCHANGE, VIETNAM

This study aimed to investigate how close banking relationships affect Vietnamese public listed firms’ financial performance based on the empirical evidence of 172 companies listed on Ho Chi Minh City Stock Exchange in the period 2017 – 2019. Regression models, including Pooled Ordinary Least Square (OLS), Fix Effects Model (FEM) and Random Effects Model (REM) were explored to test the proposed hypotheses. The results indicated that banking relationships have advantages that outweigh disadvantages, which brings a positive impact on firm performance. These results suggested that firms should pay attention to the quality of the banking relationships instead of seeking for negotiation power and diversity in sources of funds.

Modelling the trident SME-bank relationship

Relationship banking (RB) with SMEs has been approached as a one-size-fits-all where no differences exist between micro, small, and medium businesses. Nevertheless, recent research has clearly identified three distinct levels of RB depending on variables such as the size and complexity of the business and the amount of borrowing. In this study, we create an original model of this fundamental trident, presented as a system of postulates and inferences in mathematical terms, to capture the structure and dynamics of the three RB levels from the supply/bank side. The model systematically shows the existence of and describes the three RB levels. Further, it highlights how each of these levels is dependent on the determinant variables and how a comparison between the three levels is possible based on the per-capita contribution of each of the determinant variables, in turn, to the per-capita RB service production. Our model provides an analytical framework that can assist banks and researchers to rigorously assess and study each level separately or in comparison to the others. It is also beneficial as it can be used to calculate the optimal allocation of the bank's limited resources among the three levels of RB and to achieve maximum value creation for all stakeholders.

Does managerial bank relationship network matter corporate resilience? Evidence from the COVID-19 crisis

This study examines the effect of managerial bank relationship networks on corporate resilience to the COVID-19 crisis. We find that managerial bank relationship network helps firms experience fewer losses and recover more quickly during the COVID-19 crisis. We document that managerial bank relationship networks help firms build corporate resilience by facilitating financing accessibility. Further analysis shows that its positive effect is more significant if managers have state-owned bank work experience or have a higher bank hierarchy. Furtherly, the positive effect of the managerial bank relationship network is primarily found in firms with less government support and low marketization regions. These findings provide new insights on enhancing corporate resilience and prompting the bailout policies implementation by stimulating the positive role of managerial bank relationship network.

Enduring lending relationships and european firms default

This paper investigates the link between close banking relationships and European manufacturing firms’ defaults. Based on binary outcomes (i.e., Logit, Probit, Complementary log-log) and discrete-time models, the empirical analysis reveals that enduring lending relationships present benefits in reducing firms’ temporary and permanent defaults. This evidence suggests that, in a framework of limited credit access that may compromise firms’ survival, relationship lending might represent an effective tool for overcoming asymmetric information problems, helping firms relax credit constraints, encouraging greater discipline in their managers, and preventing failure.

Bank competition and the design of syndicated loans

AbstractWe study the effect of bank competition on the design of syndicate loans. We find that competition in the lead lender's market plays a significant role in determining the terms of the syndicate loans. Specifically, higher concentration leads to higher yield spreads, larger issues, shorter maturities, greater contract intensity, and more collateral requirements, but with a greater likelihood of performance pricing. We also find the prior banking relationships, anti‐takeover provisions and whether the lead bank is a national, regional, or state bank influence the designs of these loans.

The number of bank relationships and bank lending to informationally opaque SMEs

This paper examines how the number of bank relationships affects bank lending to informationally opaque firms using a unique firm-level dataset of 996 small and medium-sized enterprises (SMEs). We find that an increase in the number of bank relationships can increase bank lending to informationally opaque SMEs. We also find that this increase is prominently observed in long-term loans. Furthermore, these loans can gradually increase with the number of bank relationships. These findings suggest that such a number can serve as a quality sign of informationally opaque SMEs and increase bank lending to them.

Banking Market Consolidation and Tax Planning Intermediation: Evidence from Client Firm Tax Haven Operations

ABSTRACT This study examines the effect of banking market consolidations via mergers and acquisitions (M&As) on the role of banks in intermediating corporate tax planning through offshore tax haven operations. We find that bank clients significantly increase their tax haven operations after their banks are merged with others. In addition, such an increase is greater when a commercial bank merges with an investment bank and when the clients have greater tax planning opportunities. We also employ network analyses to show that the propensity for a client to expand its operations into a new tax haven country increases significantly when its relationship bank enters into this country through an M&A. Collectively, our findings reveal that bank M&As enhance banks’ tax intermediation capability.

Demand trade-off between PLSs and markups in the presence of a conventional banking relationship: The case of Moroccan companies

Theoretical explanations based on information asymmetry constitute the dominant paradigm of the near disappearance of PLSs (profit and loss sharing). This assumption implicitly implies a hypothesis on the power of contractual choice exclusively monopolized by Islamic banks. The theoretical positioning in this study to explain the arbitrage between PLSs and markups is based on a lack of demand. In this sense, this paper attempts to verify the demand trade-off of Moroccan companies between PLSs and markups. A logistic regression was used to establish several findings. The evidence suggests that past banking relationships with conventional banks and debt maturity both favor the commercialization of markups. On the other hand, financial quality of firms has no direct impact on the choice between PLSs and markups. This assertion implies that it is incorrect to assume that sole entrepreneurs undertaking high-risk projects choose to be funded by PLSs. Combining that with the fact that companies that agree to be funded by PLSs agree to share profits, private information and decision-making power, it can be said that PLSs can have a good chance of thriving in Morocco if Islamic banks provide a favorable climate for their marketing.

A journey towards human-centric and AI-augmented marketing?

We are in the midst, or perhaps even the beginning, of transforming how banking relationships are being built and developed over time. At Handelsbanken, we took the first steps in digitisation in the 1960s. We were early to introduce Internet banking to customers in the 1990s and have, like the financial market at large, focused on digitalisation in recent decades. The activities that could previously only be done at a branch are becoming more and more accessible via digital channels, processes are being automated, yet there is still more to be done. This paper will demonstrate how a 150-year-old bank, which closed its marketing function in the 1970s and has essentially grown mainly through word of mouth, might approach using AI in marketing. In the discussion, the paper draws on previous experiences of introducing AI in other domains within the bank, performed by the Digitalisation and Innovation team in collaboration with other parts of the organisation. As always, the introduction of new technology, including in marketing and sales, starts with business principles, data, ethics, company purpose and values, rather than with the technology itself. It is still early days for the bank when it comes to AI in marketing, and until there is such a thing as attentive algorithms, humans will be very much involved in the process — especially if the aim is to continue being human-centric in our approach, where the outcome of an activity is beneficial for customers, the bank and society at large. And the meaning of ‘customer-centric’ needs to be defined as making the system work with the customer at the centre: cross-channel, relevant, timely and based on in-depth customer understanding. The paper will show that the rationale for closing the bank’s marketing function back in the 1970s might not be so different from the rationale to do things differently today.