ABA Survey Shows Community Bank Strategies for Success
Source:
American Bankers Association
Washington, D.C.
www.aba.bj.com
Community bankers plan to compete for market share in 2008 by acquiring another institution, oursourcing traditional banking functions, and harnessing technology, according to an American Bankers Association survey released at the recent ABA National Conference for Community Bankers held in Orlando, FL.
“The survey results illustrate community bankers’ desire to do more than their competitors, to offer products with more customer appeal, to improve business channels and more,” said Steve Cochee, executive editor of the ABA Banking Journal, which sponsored the survey along with the ABA America’s Community Bankers Council. He said, “It is clear that many of the bankers responding intend for their institutions to not only to compete, but to win.”
More than one-in-three (37%) of the 656 bankers responding to the survey plan to acquire another bank in the next five years. Only seven percent expect to be purchased in that time. But, respondents indicated that acquisition decisions are just part of a competitive mix.
According to the 12th annual ABA Community Bank Competitiveness Survey, many banks hope to steer their banks to success by outsourcing some functions that were traditionally performed in-house by bank staff.
Overall, more than one-third (37%) of the banks responding currently outsource some functions, and among banks over $1 billion, nearly half (49%) do so. Topping the list of traditional functions currently outsourced are internal audit (53%), loan review (49%), and compliance audit (46%). These functions are followed by item processing (45%), ATM servicing (28%), and IT management (25%).
Cochee noted that of the top four outsourced functions, only item processing is a mechanical function, while the other three are “brain work” requiring deep and expensive expertise.
The majority of survey respondents outsourced to cut costs and obtain expertise - both at 60% - without having to create a full-time position. This”practice is expected to grow. Of those banks that do not currently outsource, 24% are actively considering outsourcing in the future.
In spite of the trend toward more outsourcing, the survey results indicate that having technology expertise in-house not only remains important, but actually increases with growth. Overall, 56% of community banks use their own staff as the chief source of tech expertise, followed by consultants (20%) and vendors (12%). For banks over $1 billion, that figure jumps to 96%.
According to the survey, this may explain why respondents ranked IT officer (49%) as the second most difficult position to fill, with business lenders (50%) at the top. Compliance officer (47%) rounded out the top three “hard to find” officers.
Other key findings in the survey:
• On remote deposit capture of checks: 38% of community banks offer RDC and another 25% plan to offer the service in the coming year. Most respondents say that RDC is unprofitable, while 71% use it to retain business customers.
• On health savings accounts: More than half of the banks surveyed do not offer HSAs, but 43% do offer them and the number is growing.
• On examinations: Bankers report a shift in focus of exam teams from BSA (35%) to commercial real estate lending issues (39%). Enterprise risk management continued to be a focus, even at the smallest community banks. Bankers said examiners’ main expectations were to have a written program (66%), risk rating system (54%), risk training (13%), and risk committee (11%)’.
