Defining corporate or institutional banking can be tricky. This is because it has different definitions depending on how you view it. For instance, if you view corporate banking generally, you will find that there is nothing much different than business banking. It is simply meeting the banking needs of the corporate and institutions.
But, unlike business banking, corporate banks are not involved in small setups. These are larger corporations registered publicly. They are big institutions, have higher turnover, and are far more complex than small banking services.
Most people find it hard to point out the difference between traditional banking vs. corporate banking. This is why we are here today. Because most people are familiar with traditional banking, we will focus here on corporate banking and the products it has to offer.
What Is Corporate Banking?
Corporate banking, also known as institutional banking, is a division of banking services that is responsible for putting together loans for corporate sectors.
Corporate banking usually falls under investment banking. It is often considered a ‘Loss Leader’ for other investment banking products such as mergers and acquisitions, equity, and bonds.
Corporate Banking Products
The basic infrastructure of a corporate bank is similar to that of a commercial bank. However, a corporate bank differs from a commercial bank in its level of operation.
A corporate bank is responsible for dealing with all corporate finances. The difference between loans put together by a corporate bank is that it is much larger than loans given to individual and small businesses.
The two main products of corporate banking are Revolvers and Term Loans
Revolving Credit Facilities
Revolving credit facilities are a boon to businesses. They are loans offered to corporate businesses but can be used like credit cards. With the revolver facility, a certain predetermined limit can be drawn and repaid.
Businesses can use these features whenever they are in need of urgent cash to maintain their business operation. Once the operation is successful, the loan amount can be repaid.
The corporate bank charges a fee on the drawn amount at LIBOR. In addition, a small upfront fee is charged for putting the loan package together. The fee is basically 0.3%of the total amount. And a commitment fee on the undrawn amount.
Term Loans
Term loans are the bread and butter of corporate banking. The loan issued to the corporate business can be drawn entirely. The businesses have to pay interest on the amount they have drawn and must repay the full balance at the end of the term.
Terms loans are mostly used for:
- Sustaining business operation.
- Fund capital expenditures.
- Leverage buyouts.
- Recapitalizations.
- Merger and acquisitions.
Pricing on the term loan is the same as the revolvers — LIBOR + Spread. While both the products offer the same pricing, the loans are more beneficial for corporate businesses because the entire amount can be withdrawn.
What’s The Difference Between Corporate Banking And Private Banking?
On the surface, you might not find any difference. But you will be able to when you enter their database. You will find that corporate banking and private banking have different client databases.
Corporate banking offers credit products for corporations, governments, and other financial institutions. They usually deal with high-net-worth individuals and businesses.
At the same time, while private banks offer credit products, they just offer it alongside tax, estate planning, concierge services, and asset management.
Career Prospects In Corporate Banking
Starting a career in corporate banking provides you with a solid foundation. You will develop your knowledge in different types of markets and industries. In fact, you will be able to hone your technical skills and gain more customer experience.
Within the commercial banking industry, individuals can transfer from corporate banks to other banks relatively easily. However, before becoming a permanent member of any corporate bank, you must complete certain accreditations depending on the area you specialize in.
