Corporate Banking/ Commercial Banking/ Business Banking: How they work (Front Office Edition 1)

Many business graduates aspire to land prestigious front office positions in investment banking or sales and trading at financial institutions. However, what remains relatively unknown to both business and non-business graduates is the significant role played by the commercial banking division within banks. In this article, I aim to shed light on commercial banking, its distinct segments, and the promising opportunities it offers to aspiring graduates. This sector not only demands top talents but also provides a healthier work-life balance and attractive remuneration.

(Focus will be on the situation in Hong Kong.)

Commercial Banking in Hong Kong is broadly categorized into three segments: Corporate Banking, Commercial Banking, and Business Banking. Corporate Banking serves various corporations, including listed companies on HKEX, large Chinese corporates, foreign corporates, and major PE or VC funds. Commercial Banking focuses on mid-cap companies, while Business Banking caters to SMEs. Banks classify their business customers based on their annual turnover, leading to the assignment of different relationship managers (RMs) for each tier.

The range of services provided by commercial banks includes but not limited to:

1. Credit facilities and loans (Term loan/ Revolving loan/ Syndication loan/ Green loan/ Club loan…)
2. Trade Finance (Letter of Credit/ Irrevocable Letter of Credit)
3. Receivable Finance
4. Project Finance
5. Cash and Liquidity Management
6. Liability Management
7. FX and forward options

A well-established commercial bank offers comprehensive financing solutions to meet the diverse business needs of its clients. For instance, when a company requires a loan for business expansion, the bank should be adept at offering suitable credit facilities to support the investment. Similarly, in the case of a property conglomerate seeking funds for a new project, a skilled relationship manager would collaborate with the property developer’s CFO to determine the most suitable credit facility for both parties. For significant projects involving substantial loan amounts, an efficient relationship manager would promptly initiate a syndication loan deal, engaging different banks to co-lend the required funds to the property developer.

While some companies maintain surplus cash and do not need credit facilities, relationship managers may suggest cash management or trade finance services instead. For businesses engaged in regular trade transactions, a letter of credit or similar facility proves beneficial in hedging trade risks. Cash management services offered by commercial banks help companies optimize their cash utilization through various financial instruments, ensuring sound liquidity management.

Relationship managers play a pivotal role in the commercial banking landscape, acting as the primary link between the bank and its clients. Hence, competent relationship managers are in high demand, especially those who possess significant connections with various corporations. Such well-networked relationship managers are highly sought after in the job market, as their extensive connections can attract new clients to the bank, thereby boosting revenue.

Consequently, banks actively recruit headhunters or HR professionals to identify the best relationship managers in the market. When sending out job descriptions to human resources consulting companies, they often specify the desired balance of “hunters” and “farmers,” terms unique to Hong Kong. “Hunters” are relationship managers expected to bring in new clients to the bank, while “farmers” are responsible for managing existing client relationships. For business banking, the emphasis is on hiring more “hunters” since there are always new SMEs seeking commercial banking services, whereas for corporate banking, the focus lies in employing more “farmers” due to the limited number of large corporations in Hong Kong. For example, if a Chinese bank aims to expand its client portfolio in its business banking segment, they would likely prefer a relationship manager whose role is 70% hunter and 30% farmer.

The salary of commercial relationship managers remains competitive in Hong Kong’s job market. Typical career progression for relationship managers is as follows:

1. Assistant Relationship Manager
2. Relationship Manager
3. Senior Relationship Manager (Team Head)

However, there is no standard pay scale for relationship managers, and promotion timelines may vary depending on individual factors and performance.

For aspiring graduates keen on entering commercial banking, gaining a thorough understanding of the products offered by commercial banks can serve as a strong starting point in preparing for the competitive job market.

(This article aims to explain commercial banking concisely, and I will also endeavor to provide a Chinese version. My sincere gratitude to my former boss for imparting such invaluable knowledge! Please stay tuned for Edition 2!)