Avoid Paralysis in a Changing Market
Written by: Bill Dolan, CMB, AMP
For the past 15 years, they were the days of milk and honey – easy deposits and relatively low loan risk. Today however, being in a period of rising interest rates and financial pressures (although realistically, and historically, a 6.00%-7.00% rate is by no means dreadful to say the least), Community Banks must rethink their deposit and loan strategies with an intense focus on unprecedented deposit movement and outflows. The questions you need to ask yourself are:
How do you intend on bringing these deposits back?
Can you identify your customers’ needs?
Are you focusing your strategic efforts around meeting those needs?
In a recent article published by the American Banker a survey was conducted by them, in conjunction with Arizent at the Director level, identifying just where banks were allocating their resources to adjust to the current loan and deposit landscape. The following reflects their focus:
Increasing number of deposit amounts within existing footprint.
Ensuring all new loans were high-quality.
Increase deposits outside footprint through digital banking.
Increase emphasis on deposit accounts from non-retail customers.
Increase average-balance per deposit account.
Offer new high-yield savings products to attract deposits.
Explore inorganic growth opportunities.
Increase revenues from non-interest sources of income.
Offload riskier loans.
Borrow cash to cover increases in loan-to-deposit ratio.
You can see that with such a variety of responses, many institutions had differing views on the nature of the current rate environment. Some banks are looking at this as a short-term blip on their radar and are content in making small-scale tactical moves. Others however, view this as a fundamental cycle shift that may cause them to look for more durable solutions to last longer-term.
Adjusting lending and deposit products will only take them just so far. Focusing on loan quality and increasing marketing to attract more deposits may be advantageous at the margins but banks would benefit by going deeper such as leveraging technology and platforms to expand their footprint using digital products and services that would effectively capture deposits as well as other attractive loan products and services to their customers.
It is those forward-thinking banks who are utilizing this time to reposition their operations at a more central level so that they are prepared to drive growth when volumes eventually (and they will) pick back up. Foundational enhancements to your platforms and workflow assessments to streamline processes across technology can have a direct impact on revenue optimization as well as customer expansion, that support these operations.
Banks need to take a step back and match their strategic efforts with their customers’ needs. To avoid being caught off-guard, a plan must be created for your customers’ needs, both now and for the future.
With the current slowdown in loan volume, THIS IS THE TIME to gather the data to identify just where the gaps between what your customers want and what you can sustainably deliver with your current operations. You cannot be all things to all customers, you must be able to home in on meeting their needs to retain or attract deposits and borrowers maintaining dominance of their banking relationship.
You have quite a few options at your disposal. Are you prioritizing your investments in digital and tech as an avenue to increase your bank’s customer base and boost performance? Are you ready to take those steps? Do you and your executive team know how to drive bank strategies through automation and digitization?
For banks that do not take a step back and consider their strategic needs, you risk roaming aimlessly instead of seizing the opportunity to become proactive with your capability to drive growth. Yes, the environment we are presently in is challenging, but by no means insurmountable. If you are not gathering and analyzing data to highlight your customer needs, you will become reactionary to changing market conditions long after your competitors have adapted. By streamlining your operations and workflows NOW, with a focus on your customer needs, you have the time and the ability to smooth out any instability that may have been created by fluctuating loan volume.
Looking to make a change – to make a real positive change that will impact your institution and your customers’ needs through leading and lending? We at Spillane Consulting Associates, Inc. encourage you to reach out to arrange a “Growth Strategy Call” a free, 30-minute discussion with anyone or all of our Chief Strategy Consultants who can offer to analyze your lending performance and operational efficiency and help you build your brand and address your strategic business plan and budget.
Call Bill Dolan, Director at (617) 694-2617 to arrange a private video conference call with SCA’s strategic consultants or email Bill at: Wdolan@scapartnering.com. Visit www.scapartnering.com to learn more of SCA’s services in the areas of Technology, Compliance, Asset Sales & Purchases, Servicing, Due Diligence, Outsourcing, Staffing and Training. Why Wait? Do It Today!
