This thesis provides a discussion of research into the sources of value creation and addition accruing to banks through the use of relationship banking with small business clients. The investigation involves business managers in several banks and accordingly it portrays their perspective. The study addresses four key questions: (i) what does relationship-banking mean to the five major bank brands in New Zealand? (ii) How does the relationship-banking process actually work? (iii) What are the sources of value (i.e. benefits) of relationship banking to these five major bank brands when dealing with small businesses, and, (iv) how do these banks secure the benefits?Prior research into relationship banking and small business has concentrated on the potential benefits to the businesses. The literature contains both normative theorising and empirical work addressing aspects of the relationship and the benefits accruing to the small business. What is not supported by prior research is an understanding of why the banks engage in relationship management processes with small business. The obvious answer is that it is profitable. This in turn begs the questions of returns and risks faced by the banks and how these are managed.The nature of the research questions which are about investigating processes suggests the use of a qualitative research approach. A multiple case study approach points the research method toward conducting interviews with relationship managers, selected using theoretical sampling, from the five main bank brands and across the five metropolitan cities in New Zealand. The big five control 85% of the registered banks’ total assets in New Zealand and dominate the small business market. The primary data collected through interviews are analysed using the thematic analysis method.This research produces a number of key findings which directly address the research questions and go beyond. It is found that the working definition of relationship banking departs from that often quoted in the literature in a number of ways. This supports the contention that banks use relationship banking as an overarching approach, within which other lending technologies may be employed with their small business clients. Sources of value creation and addition stemming from relationship banking for the banks are clearly identified. In addition the processes and mechanisms by which banks operationalise and secure these benefits are revealed. How new relationship banking benefits are identified, creating and adding value to banks are traced through the interviews. The findings around these new benefits have important implications for the current research in regard to comparative studies of the different lending technologies in general and more specifically to the future of relationship banking which is challenged by an increasingly competitive financial markets.From an understanding of how bank relationship managers perceive the dynamics of their roles in creating relationship banking benefits a risk-return taxonomy is formulated. Issues emerging from this formulation/taxonomisation relate (i) practically, illustrating how these taxonomies can benefit banks, such as helping banks identify when to expect each benefit and to develop best practices (e.g. training staff and providing infrastructures), consequently ensuring the maximisation of the scooping up of all possible relationship banking benefits. Thus improving banks’ performance in terms of risk mitigation and increasing return. (ii) Conceptually, the thesis shows how the risk-return taxonomy, for example, can help in defining and positioning relationship banking at the heart of the banks’ decision making in regard to small business.The thesis contributes to the small business finance knowledge base in several ways. There is a clear identification of both the different types and different levels of relationship banking, depending on the criteria used by banks to silo businesses into online, small business, or medium business relationship banking models. The non-uniform, but definite similarities, between banks does indicate the contextual nature of the issues. The banks’ approach to retention is noteworthy and their respective investment into discouraging a small business from changing banks provides an insightful juxtaposition to prior research investigating the benefits and costs of changing banks.The thesis findings offer several opportunities for future research. One such example of a research agenda relating to the different levels of relationship banking discussed above is the modelling of the three different levels of relationship banking. This could utilise, for example, a piecewise type of function which could then be followed by an empirical study to test and measure the accuracy of the model. It would also serve to test the claims made in this thesis regarding the identification of both the different types and the different levels of relationship banking.
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