It’s old news that banks are operating with fewer avenues for growth than in years past, and it’s no surprise that bankers are scrambling for new ways to make up for this lost growth. In doing so, however, bankers need a smart and focused strategy to make the most out of the opportunities available. In a recent report, “Top 10 Ways Banks Can Grow in 2012,” Grant Thornton LLP comes up with a priority list for growth in the current financial environment.
1. Focus Strategic Plan on Growth
Strategic plans should not be viewed as simply a regulatory requirement, but as a valuable instrument in the assessment, and often continual reassessment, of goals. Grant Thornton writes, “Now that many companies are shifting from survival mode to seizing opportunities in an improving economy, banks should develop and modify their 2012 strategic plans with a renewed focus on growth objectives.” This includes examining whether you are properly incentivizing your growth goals with employees, taking a new look at where you should and shouldn’t be cutting expenditures in your marketing, and rethinking previous decisions about which products are most relevant to today’s market.
2. Examine an Acquisition
While there are many current roadblocks to a successful M&A transaction, ranging from new regulations to uncertainty about future pricing, M&A is still considered a popular avenue for growth. Before incorporating an acquisition into the growth plan, however, banks need to consider post-acquisition issues.
Aside from preparing for the complex accounting and financial aspects of an acquisition, directors need to be prepared for potential cultural conflicts. “Communication and leadership are probably the most important prerequisites for a successful integration. It’s critical that there be transparent communication between the acquirer and the acquired entity, so that important cultural issues, such the composition of the combined institution’s senior leadership team, are handled in a timely manner,” says Grant Thornton.
3. Implement Smart Tax Strategies and Structures
Banks need to ensure their tax strategies are taking advantage of all new federal benefits, as well as being up-to-date with state and local rules that cover their operating area. “Incentive credits that apply to banks should be implemented in all applicable jurisdictions. Federal benefits from credits (e.g. new market tax credits, energy credits, low-income housing tax credits) and bonus depreciation should be analyzed,” says Grant Thornton.
4. Develop New Service Offerings
Banks should consider adding new services to their existing line-up, as well as maximizing the potential of the services they already have. In terms of maximizing current potential, bankers should increase cross-selling to their established clients and determine which services need a renewed focus after being pushed aside during the downturn.
For new areas of growth, bankers should consider teaming up with other entities that can help them expand services such as brokerage and financial planning. At the same time, they should consider participating in quality loans that are recently becoming available through other institutions trying to increase capital ratios.
5. Make Technology Work for You and Your Customers
Putting money into new technology expenditures may be hard to stomach for banks during a downturn, but it also may be necessary if their competitors are making those same investments. Grant Thornton suggests supplying tablets or iPads to your field staff which can be used to personalize customer marketing materials and complete loan applications remotely. Grant Thornton also recommends considering a switch to cloud computing services—after first evaluating the inherent risks—if you haven’t already. “Cloud computing offers a number of distinct advantages over its predecessors, including a more efficient and cost effective use of internal resources, greater speed to deployment, lower operating and capital costs, and higher performance,” says the report.
6. Send the Right Message with Social Media
Larger financial institutions, and even many smaller ones, are interacting with their customers in new and creative ways across a wide spectrum of social media platforms. Whether it is to bolster public image or to spread information about new products and services, social media offers an inexpensive way to communicate directly with clients.
“Social media provides the opportunity for banks to demonstrate their commitment to corporate social responsibility and help regain confidence from their customers and the public after being largely maligned during the recession,” says Grant Thornton.
Banks should be cautious, however, as such open communication is a two-way street, and it can be difficult to control negative feedback. In addition, social media provides an avenue for both fraud and privacy breaches, and this risk should be examined as part of any social media plan.
7. Ready Your Bank for Risk
All banks prepare for risk, but banks should take the extra step of incorporating an enterprise risk management (ERM) approach that fits each organization’s individual needs and objectives. “(ERM) is an approach to assessing and addressing the full risk profile of the bank, including strategic risks such as operational, financial, regulatory, credit and market risks. The assessment process allows all parties to fully understand the impact of major new initiatives across the bank, and enables clear, strategic decision-making,” says Grant Thornton.
8. Understand Regulations
Keeping up and complying with new regulations can be a difficult task given the recent influx of rules stemming from the Dodd-Frank Act and the formation of the Consumer Financial Protection Bureau, but no bank wants to find themselves in noncompliance. Fortunately, as long as the bank’s overall risk management approach is sound and the most potentially costly regulations are given special attention (i.e. the Fair Lending Act, the Unfair or Deceptive Acts or Practices program, and the Bank Secrecy Act) then banks can still see growth while staying compliant.
9. Plan for the Worst-Case Scenario: Stress Testing
While recently made mandatory for some of the nation’s top banks, stress testing can be a valuable tool to any bank wanting to fully understand potential risks and prepare its growth plans accordingly. “Continual stress testing should be relevant to the bank’s specific portfolios, balance sheet and customer base. Stress testing should cover: asset concentration and credit quality; contagion risk, such as exposure to European debt; and capital structure and availability,” says Grant Thornton. By understanding possible future risks and building contingency plans, banks can more confidently and strategically take advantage of growth opportunities.
10. Build a Stronger Foundation for Mortgage Lending
Despite potential roadblocks stemming from recent mortgage reform, banks should still consider growing mortgage banking efforts in areas where there is still a large or expanding market.
“The recent improvement in housing starts and sales of existing homes indicate that there is still a large market for home mortgages. If properly managed, a new or expanded mortgage banking effort could be very profitable,” says the report.
Aside from home mortgages, banks should also take a look at new growth sectors in commercial real estate such as apartments, which look promising due to a high number of rental customers and a relatively low number of new apartments being built in the past few years.
The full article can be accessed on Grant Thornton’s web site.