Place-based entrepreneurs and their competitiveness: a relational perspective on small regional banks

Figures & data

Table 1. Size of the small regional banks in Germany (data from 2018).

Sparkassen		Genossenschaftsbanken
Number of banks with total employees below 249	Number of banks with balance sheet total below 45 mio EUR	Number of banks with balance sheet total below 45 mio EUR
109 of 385 (28.3%)	384 of 385 (99.7%)	872 of 873 (99.8%)

Source: Deutscher Sparkassen- und Giroverband e.V. (2019); Bundesverband der Deutschen Volks- und Raiffeisenbanken (2019).

Table 2. Structure of the German banking market (data from 2017, n.i. data not indicated).

	No. of banks	No. of branches	Average no. of branches per bank type	Balance sheet total (mio. EUR)	Average balance sheet total (mio. EUR) per bank type	Credit loans to non-banks (mio. EUR)	Savings deposits by non-banks (mio. EUR)^a	Equity capital (mio. EUR)	Equity-to-asset ratio (in %)	Return on equity (in %)	Earnings before taxes (mio. EUR)
Large private banks	4	6,820	1,705	1,692,660	423,165	484,262	61,618	96,493	5.70	2.88	2,779
Other commercial banks	165	2,024	12	1,030,045	6,243	664,044	39,518	63,314	6.15	5.28	3,343
Branches of foreign banks	115	160	1	406,913	3,538	88,525	n.i.	n.i.	n.i.	n.i.	289
Landesbanken	8	364	46	861,292	107,662	459,775	n.i.	51,027	5.92	1.85	944
Sparkassen	390	9,818	25	1,199,516	3,076	951,150	290,253	104,995	8.75	9.39	9,859
Mutual savings cooperative banks	918	9,442	10	890,108	970	666,881	185,793	71,895	8.08	10.13	7,283
Mortgage banks	13	38	3	228,653	17,589	185,549	n.i.	8,871	3.88	5.49	487
Building and loan associations	20	29	1	229,179	11,459	166,671	n.i.	10,795	4.71	9.18	991
Special purpose banks	20	1,385	69	1,244,021	62,201	389,633	n.i.	n.i.	n.i.	n.i.	1,464
Total	1,823	30,126	–	7,782,387	–	4,056,490	590,331	489,091	–	–	27,438
Average	–	–	17	–	4,269	2,225	324	268	5.90	5.61	15

^a Other banks: 13,149 mio. EUR. Source: Deutsche Bundesbank, Zeitreihen, data from 2017. Equity capital, equity-to-asset ratio and equity return: own calculation with data from 2017.

Figure 1. Market shares of German regional banks in corporate lending (2012–2017). Source: Finanzberichte Sparkassen-Finanzverbund 2013-2018. Deutscher Sparkassenund Giroverband e.V., Berlin.

Figure 2. Sponsoring activities by German public-sector saving banks (Sparkassen) in 2017 and 1.000 EUR. Source: Deutscher Sparkassen- und Giroverband e.V., Bericht an die Gesellschaft 2017.

Table 3. Coding guideline for the grounded theory research process.

Coding level 1	Coding level 2	Coding level 3
Endogenous factors for the SME-regional bank relationship
	Characteristics of the inter-firm business relationship
		Housebank relationship with local companies, notably SMEs
		Business contacts of banks to local companies, notably SMEs
		Business contacts of banks to local policy-makers
		Business contacts of banks to local associations and clubs
	Business activities of the regional bank
		Information provision for customers
		Provision with cash
		Business networking services
		Business services for the international expansion of companies
		Business services for future financial planning (incl. succession planning)
	Proximities in the inter-firm business relationship
		Physical (spatial) proximity
		Social proximity
		Cognitive proximity
	Corporate engagement of regional banks
		Sponsoring and donations
		Vocational training, training
		Employer services
		Tax payments
		Regional support in crises
		Regional public procurement
	Structural characteristics of regional banks
		Organizational form, formal characteristics of the business organization
		Business model compared to large commercial banks
		Regional market area
		Bank size
		Branch closure policies
		Mergers and fusions as policy
		Regulatory environment for the business organization
Exogenous factors for the SME-regional bank relationship
	ECB policies of low interest rates
	Regulatory requirements (nationally, European Union)
	Digitization
	Globalization and competition

Table 4. Interview design with regional banks (group i).

Regional bank	Regional bank type	Position of interviewee	Month/year
A	Sparkasse Bavaria	Head of corporate banking	December 2015
B	Genossenschaftsbank Bavaria	Managing director	January 2016
C	Genossenschaftsbank Bavaria	Head of corporate banking	July 2016
D	Sparkasse Bavaria	Managing director	August 2016
E	Sparkasse Baden Württemberg	Head of branches	August 2016
F	Genossenschaftsbank Bavaria	Head of corporate banking	December 2016
G	Regional government development bank Bavaria	Head of branches	December 2016

Table 5. Interview design with external stakeholders (groups ii and iii).

External stakeholder	Type of external stakeholder	Position of interviewee	Month/year
H	Association of Bavarian Sparkassen	Head of corporate banking	July 2016
I	Association of Bavarian banks	Head of association	December 2015
J	German Association of Banks	Head of association	January 2016
K	Association of Sparkassen in Baden Württemberg	Communications officer	September 2016
L	Regional industry association Bavaria	Head of association	January 2017

Table A1. Key aspects related to small regional banks as place-based entrepreneurs according to the literature and based on the coding and empirical analysis.

Concept in the literature used for the analysis	Key aspects explored for the analysis	Manifestations of the key aspects identified in the analysis	Original quotations by key interviewees
Housebank relationship and relationship banking	Trust and personal relationships	Smallness of the market area, limited business opportunities and closed business community enables personalized relationships	“The regional principle limits our market area to this region.” (Regional bank A) “We are a regional bank that has to focus on the regional market, which is different from large banks.” (Regional bank C) “What business opportunities do we have in this small market?” (Regional bank C)
		Closed business community necessitates market penetration and intensification of customer relationships	“Well, this is actually a strength of regional banks. We have a completely different relationship to our customers than banks in an anonymous large city. Because here in this region, you often know each other since your childhood, and you usually have intensive relationships to people. And these relationships matter for example, if a business partner faces difficulties.” (Regional bank D)
		Conditions of a regional market require commitment to personal relationships	“Since our market area covers this region, we know our customers well. We know what the company produces, which markets it serves and what the company’s activities in the region are. Because of this, there is a special connection.” (Regional bank A) “All companies basically have the same bank consultant.” (Regional bank D)
		Individual, non-standardized business with companies	“Private banking is a highly standardized business. But not the B2B sector, it is the opposite – a highly individualized business, and the personal relationship is paramount!” (Regional bank B)
		Customer loyalty based on trust	“We simply have customers who are extremely loyal and have a high trust in our bank.” (Regional bank D) “We experience that the banking business lives on trust. And one wins trust by knowing the persons who sit in front of you.” (Regional bank D)
	Decision-making based on long-term relationships	Relationship perseveres throughout the company’s lifetime	“The very trustful personal relationship between bank consultant and owner-manager is being built up over years and decades. This is the recipe for success – we accompany the company from their start-up phase to their succession planning.” (Regional bank A)
		Individual risk assessment by considering the specific company context in every situation	“Large banks have a standardized risk management, but we have an individual risk management. That means we look at every individual company, independent of their industry.” (Regional bank B) “Because we give loans to companies, we enable companies to grow, invest and start a business. Every of these functions resides with us in the course of time.” (Regional bank C) “We are a bank that always keeps the umbrella a bit longer open or does not use a management of risks by industry, which is the standard approach of large banks. Large banks say that they do not service certain industries anymore. We use a different approach because we know most the companies and are able to assess the risk in different ways.” (Regional bank D)
		Decision-making related to relationship management	“The bank consultant needs to engage with managing the relationship with the company, that is, the owner-manager. That is what makes us different to large banks.” (Regional bank B)
	Informational advantages on the part of the regional bank	Generation of informational advantages based on company visits of bank consultants	“As bank consultant, I drive out to the company, look at the facilities. This is important for the companies, but also for us, because you gain a lot of information when you visit a company. It is our plausibility test.” (Regional bank B)
		Generation of informational advantages based on regional networks	“As a rule, we are engaged in an intensive networking with local business partners, for example, industry associations and chambers of commerce. We also have the municipalities as partners in these networks.” (Regional bank D)
		Generation of informational advantages based on acquisition of tacit knowledge	“As bank consultant, I drive out to the company, look at the facilities. This is important for the companies, but also for us, because you gain a lot of information when you visit a company. It is our plausibility test.” (Regional bank B) “As a rule, we are engaged in an intensive networking with local business partners, for example, industry associations and chambers of commerce. We also have the municipalities as partners in these networks.” (Regional bank D) “I believe that our credit business differs largely from that of large banks, we have a regional business and know all persons in the companies. This allows us to assess the situation of the company in a very profound way.” (Regional bank D) “If you serve the complete national market like large banks, it is much more difficult to assess regional-specific situations. This is where we have big advantages. And the customers, of course, know this. It simplifies our business.” (Regional bank E) “We are just here in the region, and we know the needs of the companies. We know the situation of the company because we are in the relationship with the company. It makes things much easier.” (Regional bank E)
	Stability and resilience of the relationship	Symbiotic business relationship	“We want to give something back to the customer. This is because of the trust we get from the customer because we have really long-term customer relationships.” (Regional bank C)
		Stability and resilience based on diversification	“Of course, this works with diversification of our portfolio.” (Regional bank C) “We value the customer relationship. We are deeply connected with the customers in our market area.” (Regional bank E) “There is a certain stability and reliability as well as resilience in the relationship that grows over time and pays off in difficult times.” (External stakeholder J)
Proximity	Physical proximity: being within reach	Creation of trust in the relationship and the feeling of being within reach for the customer	“When it comes to communication and closeness to the company, then trust is the alpha and omega.” (Regional bank E) “The customer values that we are flexible and drive out to them.” (Regional bank A) “Notably for investment decisions that we need to take, it proved wise and important that the company is located in the region and not far away because the proximity matters a lot here.” (Regional bank A) “Geographical proximity is important that the bank consultant and the owner-manager can personally talk when it comes to a loan decision.” (External stakeholder L)
		Ability of real-time analysis and non-standardized consultancy	“You have only a few companies that you can evaluate and assess with a standardized approach. Our customers come to us and say: ‘I want to talk with someone’, and, here, we cannot adopt a standardized approach but need to react and decide swiftly.” (Regional bank C) “We have the ability to understand the vitae of the company, and this is not going to change in the future.” (Regional bank B) “Because of this, the closeness to the customers will be important for the future. We have a long-term customer-consultant relationship that has been growing over a long time. It contains trust, and the consultant knows the customer over a long time and he knows the background of the company.” (Regional bank D)
	Social proximity: being present in the head	“Feeling” of closeness	“Well, with small companies, physical proximity between customer and consultant matters. I want to extend this to the personal relationship between the bank, the consultant, and the decision-maker in the company. This is a good relationship and it is based on the “felt” closeness. For investment decisions, this is extremely important.” (Regional bank G) “The personal, individual and trustful contact over the years binds the company and the bank together. The company will remember that their challenges were met by us in a holistic way and with success.” (Regional bank A)
		Presence in the head	“And another effect is – what I call – the presence in the head, which is the fact that the bank consultant and the decision-maker in the company know that they can just give themselves a call when they want to talk about something.” (Regional bank G)
	Cognitive proximity: being able to communicate	Ability to communicate effectively	“It is of utmost importance to communicate with the owner-manager.” (Regional bank B) “The bank consultant and the decision-maker in the company know that they can just give themselves a call when they want to talk about something.” (Regional bank G) “It is important that bank and company have an open communication about financial issues over the years.” (External stakeholder J)
	Changing inter-relationship of physical, social and cognitive proximity (dynamic proximity relations): physical proximity is decreasing in importance.	Changing environment (market, digitization, regulation) implies reduction of the importance of physical proximity	“The low interest rates and the ECB policies, which reduce the profit of regional banks, and digitization as well as the rising demands of their customers, are the main reasons why regional banks thin their network of subsidiaries in the regions.” (External stakeholder I) “Digitization implies a huge cost pressure on regional banks, which leads to the typical consequences such as closing of subsidiaries, staff laid off and others.” (External stakeholder K) “A huge challenge in our region will be that we cannot keep a subsidiary for each village with full service. This is not feasible with regard to costs.” (Regional bank C) “Companies will not find their consultant around the corner as it was before, but geographical proximity stays important, though.” (External stakeholder K) “I know that the intensity of the long-term relationship between bank and initial owner-manager is decreasing with the younger generation.” (External stakeholder H) “Another challenge is digitization. With digital paths to reach a bank, you can get out easily of an established bank relationship as a customer. Then it is only about the business if you, as the owner of a company, want it that way.” (External stakeholder H) “Regulation has made the personal relationship more technical than it was 20 or 30 years ago. Companies have to undergo complex checks now. It also leads to changes in the relationship, of course. Regional banks can keep up the personal relationship in a technical, digital system, but have to accept higher costs. However, your situation in a rural area might be less competitive, too?” (External stakeholder J)
		Reduced physical proximity, but same or higher levels of social-cognitive proximities	“There is no negative impact on the relationship with companies as customers. Because our bank consultants go to the companies, it has always been like this and we’ll continue with it.” (Regional bank A) “The very intensive relationship between the bank consultant and the company is the basis for everything. It is vital for notably SMEs. SMEs cannot constantly switch banks but need a stable and reliable basis with their bank consultant. It is ‘people’s business’ ”. (External stakeholder I) “If you as owner-manager want to get a loan of about 100,000 EUR, it does not matter whether you drive 5 or 50 kilometres to your bank consultant.” (External stakeholder I) “Proximity stays important in the digital world, too. Banks want to keep it and keep in touch via the internet, that is, apps, for example, with their customers. Where you get a direct contact to your own bank consultant.” (External stakeholder K) “There is a change in generation, and I think the younger an entrepreneur is, the more digital services he or she will use. Then you have geographical proximity to your bank but without the personal contact.” (External stakeholder L)
	Changing inter-relationship of physical, social and cognitive proximity (dynamic proximity relations): social and cognitive proximity increasing in importance	Avoidance of “becoming alienated” from the customer	“The personal proximity is what we will focus in the future because we just believe that it is our core competitive advantage over those offering anonymous services on the internet” (Regional bank D) “We believe that the internet is not going to replace the personal consulting with customers.” (Regional bank D) “The companies noticed themselves that large banks have a higher fluctuation, and their consultant is replaced every six months. He or she is never visiting the company personally. Balance sheets are sent by mail. Companies do not like this. They want someone they can talk to and communicates the decision personally. This is our big advantage.” (Regional bank F) “When we are having our regular meetings with companies, for example, discussion of balance sheets and ratings, we try to discuss other topics that might be important for the customer. We try to arouse needs and establish ground for more intensive talks. Succession planning, risk insurance, energy-efficient investments are topics of that kind.” (Regional bank A) “There is a danger of a breach in the long-term relationship with digitization and the changing behaviour of the younger generation. But the Sparkassen try to cope with it by building up a relationship to the younger generation in the company management at an early point in time. It works well for them.” (External stakeholder H) “I heard from small craft firms that nothing changes for them with the regional banks withdrawing from specific areas such as small villages. It is the relationship that matters more in these cases than their reduced services in the company’s village.” (External stakeholder H) “If there is a new bank consultant, this person will be introduced well to the company customers. As a rule, a change in bank consultant does not risk an established, grown relationship.” (External stakeholder I)
Regional engagement	Regional operations of banks beyond the provision of financial services	Managing company succession	“We also offer our customers the management of their company succession.” (Regional bank B)
		Business start-ups and entrepreneurship	“Our bank has been financed a centre for business start-ups.” (Regional bank E)
		Market expansion and internationalization	“We accompany the companies to their international markets, for example, China. We join the mayor of the municipality or the business development responsible when they plan such travels. These are the synergies provided in the local network.” (Regional bank E)
		Regional identity	“For Sparkassen, it is very important that they see themselves as part of the region and engage for the region as a part of it. All employees do this, from the CEO level down to the individual bank consultant. Many employees work in social projects and represent the bank through this work in the region.” (External stakeholder K) “This regional anchoring will not stop because of digitization, but I guess this will be the same in about 20 years.” (External stakeholder K)
	Relational networks of banks with multiple stakeholders in the regional economy	Regional risk assessment based on the generation of regional-specific knowledge about industries through business networking, for example, the companies’ creditworthiness	“’Give me the list of your debitors, what companies are on this list?’ I asked. And I said to the company: ‘Take care, these companies here are not creditworthy – I know them.’ ” (Regional bank B)
		Network-based co-operation with municipalities, for example, through project work	“With regard to municipalities, we co-operate with them in projects, when it is about strengthening the attractiveness of the region.” (Regional bank E) “We co-operate with municipalities when we develop industry zones. We also finance these zones by financing the municipalities. This is the network.” (Regional bank E) “For a Sparkasse, it is part of our professional understanding that we understand ourselves as part of this region. Then it is our mission to engage for the region whenever possible.” (External stakeholder K)
		Interaction of Genossenschaftsbanken with various stakeholders in a regional network	“Based on the business model of Genossenschaftsbanken, money is re-invested in the region. Our members own the bank and they benefit when our business is profitable through dividends and boni.” (External stakeholder H)

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