Bankers Shift Focus to Organic Growth to Drive Their Businesses; Asset and Wealth Management Top Revenue Driver over next 3 Years
Regional and community bankers are upbeat about progress they are making to transform their businesses to attract new customer segments, and have made a dramatic “about face” toward investing in organic growth to fuel their future, according to KPMG’s 2016 Regional and Community Banking Industry Outlook Survey.
This year’s report: “A Matter of Momentum” can be found at: https://home.kpmg.com/us/en/home/insights/2016/06/2016-regional-and-community-banking-outlook-survey.html
In a dramatic change from last year, KPMG’s 2016 survey found that community banking leaders are clearly focused on organic growth. In fact, 59 percent of executives said that their primary strategic initiative is investing in organic growth for new product development, creating new pricing strategies and geographic expansion – a massive increase over just 9 percent last year.
“The majority of the regional and community bankers we polled want to grow and they believe they can find more efficiencies in growing organically to provide the services their customers expect from their local bank,” said John Depman, KPMG’s national leader for regional and community banking. “They are homing in on transforming their businesses to implement technology and evolve staff skills to accommodate the banking customers of today and the future.”
Another dramatic change in this year’s survey results concerned executive perception of the role mergers and acquisitions (M&A) will play to drive growth. The portion of executives saying they would “very likely” be a buyer decreased from 23 percent in last year’s survey to eight percent this year. Thirty-two percent said they are “somewhat likely” to be buyers. In addition, the percentage of executives that said they would “somewhat likely” be a seller increased from 7 to 29 percent.
Depman adds, “It is clear that the 40 percent who say they are either “very likely” or “somewhat likely” to be a buyer are looking for a certain type of customer base to bolster their growth plans, and are focused on increased scale to improve efficiency.”
In addition, the continuing drain on banks from regulatory costs could be a reason for increased involvement in M&A. A full 47 percent of those executives polled said their regulatory costs represent between 11 and 20 percent of their total operating costs – up from 33 percent last year.
“The need to absorb these costs over a larger asset base seems to be a driving factor in the interest in M&A that we have seen,” said Depman.
Additional findings from the survey:
Asked what will be the biggest revenue drivers for the next 1-3 years:
• 50 percent chose asset and wealth management
• 42 percent said credit cards
• 30 percent chose commercial and industrial loans
• 30 percent said M&A activity
Revenue growth expectations for 2016 from those polled found:
• 40 percent expect 1-5 percent
• 29 percent predict 6-10 percent
• 13 percent expect 11-20 percent
• 2 percent expect more than 20 percent
Asked what the minimum asset level a community bank must attain to remain independent:
• 50 percent answered $1 billion
• 41 percent said $5 billion
• 8 percent indicated $500 million
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 174,000 professionals, including more than 9,000 partners, in 155 countries.