The hidden giants of SA’s economy require hands-on assistance

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CIARAN RYAN: Do mid-corporate businesses need a different kind of banking partner? Mid-corporate businesses, those with annual turnover above R750 million, are typically family- or privately-owned and operate below the visibility of public companies listed on the stock exchange.

It’s an area of the economy that probably doesn’t get much love from the banking sector, though this is something Nedbank has set out to change.

Mid-corporate businesses are often complex organisations with multiple priorities, from payroll to supplier agreements and cross-border trade, and often need expansion capital.

Marlon Davids is executive for coverage for the mid-corporate market at Nedbank Business and Commercial Banking, and he joins us now to delve into this.

Hi, Marlon. Thanks very much for your time. We’re talking here about the mid-corporate market.

Now, we’ve done a few interviews with your colleagues on this before, but for those who didn’t listen in, what is the mid-corporate market and why has it become such a focus for banks – and in particular Nedbank?

MARLON DAVIDS: Thank you so much Ciaran, and good to join you. The mid-corporate market is effectively clients, as you mentioned, that have turnovers of between R750 million and the listed space.

So they are typically family-owned very large established businesses, often two or three generations deep.

They have established balance sheets and effectively find themselves between what we term the ‘missing middle’, between the SME market and the listed space.

Some two or three years ago Nedbank employed McKinsey and recognised that there is this group of clients that contribute significantly to the economy but are typically underserved.

Either they’re served in the traditional SME or broader commercial space, or alternatively within the CIB [commercial and investment banking] large corporate space – and that’s not where their needs are typically met.

So when we engaged our clients, the clients said ‘We want a bespoke service that deals with our specific needs’. We found that generally within banking in SA that was not the case.

McKinsey then did their report. They interviewed Nedbank clients as well as clients outside Nedbank, also internationally, and came back and said:  ‘There is a specific requirement that’s needed, that’s not generally served within the SA commercial space or banking space.’

Hence the formation of Nedbank Mid-Corporate. It was actually born from the clients’ needs, Ciaran.

CIARAN RYAN: Okay. That’s quite an interesting bit of research that was done there. What was the outcome? What were these businesses saying that they needed from a bank? I presume we’re talking here about much more than pure transactional banking.

MARLON DAVIDS: Absolutely, Ciaran. If I take a step back, a mid-corporate client tends to have a multitude of needs.

In the day-to-day transactional you’ll have a credit lens. But also some of these businesses are geared for handovers.

So there’s an advisory component that you won’t often find within the commercial banking space. That sits in the domain of CIB.

And what the clients were needing is the ability for a commercial bank to provide that holistic relationship-type banking that’s synonymous with commercial banking, but also the advisory component and ancillary services that you generally find within CIB.

They were needing the spectrum of those services.

But again, one of the clear messages was ‘We want a high-touch, person-to-person, personable relationship that you find traditionally within the commercial space’. So someone that walks the journey, effectively, with these clients that you typically find within a commercial environment.

CIARAN RYAN: Okay. So there’s the day-to-day banking needs. Of course these are growing businesses and often they’re growing quite a bit faster than companies you would find listed on the stock exchange.

We’re talking about two different things there, and even within the credit space you’re going to have different types of credit demands.

So you would have asset finance, you would have maybe day-to-day cash needs, so they would need an overdraft facility and expansion capital. Maybe just talk about that and how this all plugs into the solution that you’re talking about.

MARLON DAVIDS: One-hundred percent. One of the key requirements for a mid-corporate client is that the bank understands their business.

So typically, Ciaran, what you’ll find is that traditionally those clients would have been serviced by a bank and a credit system that looks after clients in a big spectrum.

In the commercial world, you’re looking at anything from R5-10 million, right up to call it a billion-rand turnover. So it’s a wide spectrum.

Within the Nedbank Mid-Corporate space we have a dedicated credit team.

So whether you’re in an industry as niche as manufacturing, or you’re in an industry of secondary agriculture, the fact that we have dedicated credit managers looking only after mid-corp clients enables them to build up expertise within their particular industries.

Once an application gets to a credit manager within Nedbank Mid-Corporate, you’ll find that there’s certain expertise and understanding of that client’s needs and wants.

Within the mid-corporate space in Nedbank there’s a closeness between the relationship team and the credit team.

Often, the credit team joins the frontline or the coverage team out in the fields, seeing the clients. So kicking the tyres if you will.

There’s that close relationship so that when the application is presented to a wider committee within Nedbank, there’s a full understanding and support from your credit team. That alignment is critical because it brings about something that’s also very important to a mid-corp client – and that is speed to market. They need a response quickly.

And once you have a credit function that understands, being in front of the client, you tend to find that the responses are quicker and a lot more positive.

CIARAN RYAN: All right. Now I’m sure this is enabled, to a large extent, by technology, and that the technology has advanced in leaps and bounds. You have AI as well, so you can draw a very data-rich picture of the company that you’re dealing with. Has this sped things up? Explain how that’s changed the relationship with the client.

MARLON DAVIDS: Absolutely. No doubt the data – especially the AI – enables the bank to obtain a lot more information on our clients. Also from an industry perspective, we get to see how other companies within the industry, compares to your client’s information. So data is important, Ciaran.

But often – and again I want to use the example of secondary agriculture – it’s the human touch that’s probably most important.

So the rich data supports a view, but the engagement with the client and the understanding are the most critical.

We, within Nedbank, talk specifically within agriculture, secondary agriculture, about a through-cycle approach, meaning a client could have a particular bad year for whatever reason – and we know that the fuel has gone up in particular – and that affects a lot of the clients in the agriculture space.

But what have they been doing for the last three, four or five years before that?

And what is the outlook for the next three, four or five years?

That comes with having that engagement and walking the journey with the client – and often yourself as the front line, together with credit; being on the farm or being in the client space and understanding and engaging at both director and shareholder level – to understand the level of support that is granted from the shareholders to the business.

So that we as a bank can then make an informed decision, not just based on the data but also the throughput that we get from the particular executives of that business.

CIARAN RYAN: From what you’re saying, it looks very much like what the clients are asking for in this mid-corporate market is that they want the many benefits of technology, the fact that you can get such great analytics from all this data that you’re collecting, particularly on the transactional side. But they don’t want to lose the human touch and the judgement and the counselling and the consultation that goes with that. Is that a fair assessment?

MARLON DAVIDS: Technology, specifically within the mid-corp sector, makes banking quicker, simpler and easier to navigate.

Things like digital onboarding, electronic documentation and better use of data reduce friction. The technology is not just technology for its own sake, but it’s there, as I mentioned, to make banking easier for the client and to free up more time.

But even with the technology, Ciaran, I think even in a digital-banking environment, clients still want access to people who understand their business, know their pressure points and can help them navigate complexity.

So, as I mentioned, even though technology can improve efficiency and responsiveness, it cannot replace trust, context and commercial judgement.

The strongest banking relationships combine digital capability with human expertise and helping businesses to operate with more confidence and make better decisions as they grow.

CIARAN RYAN: Well, I’m sure that’s good news for the clients. They probably would be a little nervous about having to deal with technology or an AI machine all on their own, so they will be happy to hear that they’re not going to have to lose the human touch.

We’re going to leave it there. That was Marlon Davids, who is the executive for coverage at Mid-Corporate at Nedbank Business and Commercial Banking. Thank you very much, Marlon, for your time.

MARLON DAVIDS: Thank you so much, Ciaran. I really enjoyed this issue.

Brought to you by Nedbank Mid-Corporate.

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