Corporate Banking

What Is Corporate Banking?

Corporate banking is a division of banking that provides financial services to corporations, institutions, and governments. While it can be part of a larger investment banking division, it is distinct in its focus on corporate clients. 

They offer a range of products and services designed to assist corporations, including securing funding, establishing credit, providing loans, managing cash, and offering advisory services.

They also cater to a diverse range of businesses, including small and medium-sized local enterprises and publicly traded companies with significant market value.

Certain corporate banks are standalone, but many are divisions within an investment bank. They bring new customers to investment banks. Many banks will take low or negative profits from their corporate banking division to bring in clients for the investment bank.

Investment banks use corporate banks to attract these midsized companies. They hope that having a good experience with the company's corporate bank will entice the company to return when it needs investment banking services.

While corporate banks may not be as profit-intensive as some other divisions, they are generally expected to be financially viable due to their role in attracting clients for the bank's overall success.

So, while the work is rarely in the headlines, corporate banks are an important part of the success of investment banks.  

Services of a Corporate Bank 

Corporate banks provide various services to corporate customers. These include

1. Revolving Loan Facilities: A form of credit allows the borrower to withdraw and repay flexibly. There is no term on revolving loans, and the borrower is given many freedoms. Revolving loans offer flexibility for borrowers to withdraw and repay funds as needed, often used to cover operating costs like payroll and rent. These loans come with a line of credit, and repayment must occur within a specified time to avoid accruing interest.
2. Term Loans: A term loan provides a borrower with a sum of cash, typically with a fixed interest rate and a defined repayment schedule based on agreed-upon terms.
3. Bridge Finance: Bridge finance, a form of temporary financing, is designed to cover short-term costs, often utilized before an initial public offering (IPO) to fund related expenses. These loans typically have terms of under one year and may incur relatively high interest rates. 
4. Letters of Credit: A letter of credit prepared by corporate banks serves as a guarantee that a seller will receive payment from a buyer. Essential for certain trade transactions, these letters help parties assess each other's creditworthiness. Corporate banks typically charge a small fee for issuing letters of credit.
5. Cash Management: Cash management involves the collection and effective management of cash flows within a company. As a critical component of financial stability, changes in cash flows are utilized to create the cash flow statement, providing insights into a company's liquidity and financial health.

Corporate Banking Roles

It can be a lucrative and rewarding career. Here are the different career roles:

1. Analyst: Analysts, typically chosen from top universities, undergo challenging and time-consuming work. Work-life balance may vary among analysts and is influenced by individual experiences and team dynamics.
2. Associate: Associates, often hired from experienced analyst roles or top MBA programs, serve as team leaders. They guide, supervise, and review the work of analysts, with responsibilities including communication with senior bankers and presentation of completed work.
3. Vice President: Vice Presidents (VP), often promoted from experienced associate roles within the firm, oversee a team of associates and analysts. While technical skills remain important, the role emphasizes strong client relations. VPs are responsible for leading their group of junior bankers and cultivating client relationships.
4. Director: Top Vice Presidents are often promoted to the director position, where they oversee multiple departments. Directors play a crucial role in bringing new business to the company by identifying and securing new clients.
5. Managing Director: As the leader of the corporate banking division, the managing director holds diverse responsibilities, including maintaining client relationships and spearheading efforts to attract new business. Achieving the role of managing director is challenging, with only a small percentage of analysts progressing to this position.

Becoming a Corporate Banker

Becoming a corporate banker is a challenging task. Corporate bankers are either hired through direct hiring or lateral hiring. Let's understand both below:

1. Direct hiring 

Common for analysts and associates being hired by corporate banks. Corporate banking analysts are usually hired shortly after they complete a bachelor's degree. 

Analysts are chosen based on a combination of factors, such as the ranking of their business school, technical skills, GPA, and relevant internship experience. The selection process involves comprehensively evaluating these criteria to ensure a well-rounded candidate.

A similar process is used by banks when hiring associates. 

Candidates for corporate roles are expected to possess strong technical knowledge, including proficiency in areas such as credit analysis and cash flow management. Behavioral skills crucial for success aligning with the collaborative culture of the firm include:

• Effective communication
• Teamwork
• Adaptability

2. Lateral Hiring 

You're the best option if you are still seeking an analyst position. Or decided to enter corporate banking at a later stage. Then, obtaining your Master of Business Administration (MBA) is your best opportunity. 

Associates are often recruited from top MBA programs, and corporate banks may also consider candidates with work experience in related fields. This can include experience in other banking roles or credit agency positions, emphasizing the value of diverse expertise in lateral hiring. 

Besides having great work experience or a degree from a highly-ranked business school, networking is critical. Many jobs in the industry are obtained through networking. 

Building connections within the industry is crucial for career advancement.

Networking with professionals, especially alumni from your school working in the corporate banking sector, offers valuable insights and increases your chances of securing a role. Engaging in informational interviews and industry events is an effective way to expand your network.

Corporate Banking vs. Commercial Banking vs. Investment Banking

Let us understand the main distinction between corporate, commercial, and investment banks. Let's take a look at the table below:

Corporate Banks Clients

A corporate bank is a financial institution offering specialized banking services. The three primary types of clients are:

1. Public Corporation

If shares of a corporation are available for purchase by the public, it is a publicly traded company. Public companies rely on corporate banks primarily for lending services. Many companies need short-term credit financing and will use corporate banks to get credit. 

2. Private Corporation

Private corporations' shares are not publicly traded. This means they are exempt from securities laws. However, this implies a need for increased transparency regarding the company's financials.

Larger corporations may require insight into the creditworthiness of private corporations, and corporate banks play a role in providing this clarification through comprehensive credit assessments. 

So, smaller companies will use corporate banks to verify their creditworthiness to larger corporations. Private companies also use corporate banks for short and long-term credit funding. 

3. Governments

Governments face challenges in managing complex financial operations.

Corporate banks play a pivotal role in assisting governments by managing cash inflows and outflows, ensuring efficient fund utilization, and providing oversight for government financial transactions.  

Researched and Authored by Liam

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Asset-Based Loans
• Bank’s Business Segments
• Commercial Loan Agreement
• Credit Analysis Ratios
• Loan Covenant