A Colombian novelist, García Márquez, in one of his writings said: “All human beings have three lives: public, private, and secret’.’ Whatever this means, it is the private element that caught my eye in a suite of a bank. Levels matter oooh! Don’t you love it when you have the work of your hands blessed? I believe you would enjoy being on the list of private banking customers of your bank.
Private Banking relates to exclusive banking services which are offered to a segment of customers based on their level of income, lifestyle, influence or status in society. The categories of customers in this service niche include high net-worth individuals, the rich or affluent, people who occupy high echelons in society like successful entrepreneurs, chiefs, senior judges, managing directors of blue-chip companies, respected reverend ministers, and members of the diplomatic service.
In general, private banking is a valued-added service line that provides sophisticated, innovative products and more personalised customer services. Since customers who fall into this segment of banking are well-to-do and need more privacy for their financial activities, banks have generally created cozy suites for their transactions. Indeed, many accolades have been adopted to qualify the uniqueness of this service delivery channel. Some of the visible ones include prestige, premier, excel and esteem banking.
It is important to note that some of the private banking customers have direct access to centres of power in the banks, and take advantage of it to their benefit. These bonds develop over time and become even stronger than the working relationship between some top management members and their colleagues in the chain of command. At times, they abuse complaints channels and report their personal bankers and line managers to top executives at the least provocation.
Unlike other customers who feel intimidated by banking environments and are unable to enforce their rights when they are infringed upon, private banking customers are very savvy and have personal lawyers with an in-depth understanding of banking rules and regulations. For instance, any form of negligence in returning a cheque drawn by them may lead to litigation. A bank could end up paying for reputational damages.
Sweet tonics of their relationship with a bank
Banking with this segment of customers can bring a lot into the wallet of a bank if the relationship carries on and is managed well for a long time. They serve as a source of big deposits for the banks. These help to stimulate money-creation activities. To have a deep feeling of comfort and convenience, they are willing to pay premium service charges/tariffs for the customised products and services – debit cards (platinum, premium, gold etc.).
As some of them occupy a pride of place in society, their inclusion into this cluster serves as a key that opens doors to win big accounts. For instance, they are on the boards of blue chip companies which have been the bank’s target. They refer these companies to the banks. In the same vein, they use their voice of influence to attract new businesses to the banks – especially when new branches are being opened in their areas of authority as political heads (Ministers, Members of Parliament) or chiefs.
It is a matter of fact that some of them, who have been in business over years against the backdrop of delightful and satisfactory customer experience, turn out to be shareholders. Also, to help increase visibility and deepen brand-awareness, we buy slots in the dailies to identify with them, celebrate their laurels and even their birthdays (60th etc.). Again, as part of responsible corporate citizenship, we join them during festivals to celebrate all together.
Bitter lemon of their relationship with a bank
Some of these successful business owners as our customers move into politics and we put them in an account holding classification called Political Exposed Persons (PEP) for special monitoring. Unfortunately, some of their account transactions are leaked to the public on suspicion of illicit money. This creates negative publicity and tends to breach confidentiality in the relationship with them.
However, it is said “not all that glitters is gold”. Customers in this segment are mostly the ones who implicate banks in thorny problems. We should not gloss over the fact that some customers in this segment have business partners who operate in illegal businesses and gamble in casinos. As a result, they use their connections with them to pass illegal money through their accounts. This is commonplace when they have been able to develop a warmth of relationship and blind trust with many a top executive of any bank.
Any of their illegal activities, especially on the grounds of money laundering, can push any bank to the brink of collapse with regulatory sanctions. It is a known fact that familiarity breeds contempt; some of these customers can also explore weaknesses in any bank and use their offshore accounts as conduits for money laundering. Likewise, their personal bankers – who have over-ambitious sales and deposit targets to achieve – fall into the temptation of breaching ethical standards and allow them to credit their accounts with funds from illegal sources.
Every now and then, our culture and traditions serve as a precursor to the “you dare not ask syndrome” even in relation to the business affairs of some of these prominent persons even if there is a need to seek further clarification on their account’s operations to protect the banks from unwarranted transactions.
Another significant fact is that some of them use their connections and proximity to top decision-makers to access loans which do not follow the due process. Proper documentation, covenants, and conditions precedent to loan facilities are more often than not disregarded; This is rampant when some officials want to be in the good books of other colleagues in the chain of command for underserved promotions or future opportunities.
Interestingly, one can also see that some of the huge toxic loans in the books were given to customers in this segment. The situation is worse when they are multi-banked (have accounts with other banks). In this state of affairs, recovery becomes very daunting.
Walking the path of compliance
It is always the strategic plan of any business to build and maintain brand loyalty with its customers. In a quest to achieve this purpose with private banking customers, you are faced with the temptation to treat them with kid-gloves at the expense of basic tenets of banker-customer relationship. In the light of this, we should not lose sight of the fact that private banking is just like any other segment for customer demographics with the prime intention of meeting their tastes and preferences with a special, personal touch.
At the initial stages of entering into a contractual relationship with them, there is a need for strict adherence to internal policies, banking principles and relevant regulations. These must guide the relationship always, and should be blind without recognising their status or the influence they wield in society. To note, in risk management compliance ensures that the outcome of any decision is as good as the procedures which lead to the end. Compliance is the watchword!
Thanks for reading! Until we meet again, good-bye. God bless!
The Writer is a Chartered Banker