Publications & Resources
March/April 2009
Focus: Got Capital?
Strengthening Your Bank’s Bottom Line by Adapting to Difficult Times
By Marc Paine
A distressed economy and tightening credit continue to reduce net interest income and challenge the traditional avenues our industry has relied upon for income and profitability. Consumer uncertainty and distrust with Wall Street and the financial community will certainly hinder attempts to raise core deposits to fund operations. Moreover, many banks that previously relied heavily on noncore deposits for funding, are today, seeking less volatile solutions.
The question then becomes what do banks do during the credit crisis “recovery” period? Simply put, adapt to survive. Our present economic condition suggests that today, sustaining one’s business may be just as important as growing it. Given the current credit crisis, it is critical for banks to reduce their non-core funding dependence by increasing or maintaining core deposits as a means to stabilize their funding. Further, it is equally important that banks seek alternative non-interest income sources to leverage the major erosion of their net interest income revenue stream.
Underlying any successful strategy for recovery in the financial community is the element of trust. Trust and loyalty stabilize revenue streams and expand revenue opportunities. Trust is also catalytic inasmuch as it accelerates cross selling success and prompts customers to make referrals.
Liquidity is a key requirement for trust between the bank and its customers. Depositors must believe that once their money is deposited it will be available on demand. Borrowers need to be confident that the bank’s loan commitments will be honored. Successful institutions will be those that focus on reestablishment of a potent core deposit base, a balanced portfolio of interest and non-interest income streams and procedures for acquiring other forms of emergency borrowing. The challenge for management is to ensure that sufficient liquidity exists to satisfy bank requirements without retaining so much liquidity as to adversely affect long-term earnings.
Now let’s look at solutions and a strategy. First, enhance the deposit culture at your institution. By that, we mean everyone in your institution should understand that you will only be successful when relationships with customers are built on the customer’s belief that your bank is the total solution for their banking needs.
Everyone should understand the dynamics of cross selling personal and business checking accounts to increase deposits. This is an organic process, a reconnection with your customers. Strive for a complete understanding of your customer’s needs and how you can help them achieve their goals with your portfolio of financial products.
Create a comprehensive marketing plan and stick with it. Develop strategies that address front door growth as well as back door retention. This is key to stabilizing core deposit stability. Recognize that checking account related services are the hub of cross selling. Multiple service products that are tied to checking accounts can offer the optimum environment from which to generate consistent low-risk non-interest income.
Visibility is the key to effective marketing. Define yourself as financial services experts and communicate this message to your audience. Beef up your communications efforts that establish your bank as the one-stop service center for today’s savvy consumer. Use all available communications sources – your web site, advertising, direct mail, and electronic communications.
If you have products and services that stand alone or are not clearly understood by your customer, redefine them. Consider bundling them, not only for the benefit of your customer, but to provide greater efficiencies for your financial institution. Banks should offer a full complement of products closely associated with checking. Such a strategy not only improves customer relations but it also strengthens the bank’s position by providing an attractive cross-selling environment for checking related products.
As an extension of your marketing efforts, make a strong commitment to customer service. Invest heavily in employee training. Identify who in your organization is skilled and knowledgeable about checking products and services and appoint them to key customer service positions. Likewise, identify who has sales skills, and give them the opportunity to sell and cross sell products and services.
It is interesting that in order to adapt to today’s economy, we suggest that banks should return to basic financial fundamentals. Maybe it’s today’s “thinking outside of the box.” Does adapting to today’s economy mean a return to financial operations that rely on building core deposits, providing the best-in-class customer service and the management of funding in a balanced, diversified fashion? We certainly hope so.
Marc Paine is
executive vice president at Strunk & Associates, L.P. in Houston. He can be
reached at
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