Financial SurvivalStrategies in a Loss Making or Declining Profits Environment
What do shareholders The onlylook at? thing that matters
Banking Trends• The number of banks in the $1 billion-to-$10 billion range hasnt changed much over the last two decades, but their share of the assets has dwindled, to 11% in 2010 from 36% in 1990.• The industry is now dominated by banks with more than $10 billion in assets.• By number they make up just 2% of the industry, or 107 companies, but they control 78% of the assets, up from just 33% in 1990.
Trends• The number of banks with $100 million to $1 billion in assets did grow over the past 20 years, accounting for 57% of the industry at year end 2010.• Their share of industry assets was whittled to 9.7% in 2010 from 22% in 1990.
Trends• In 1990, banks with less than $100 million in assets made up 70% of the industry by number and held 9.1% of its assets.• By 2000, these banks accounted for 55% of the industry by number and held just 3.5% of its assets.• By 2010, it was down to 34% of the industry and just over 1% of its assets.
Caribbean Banks’ Profile• Retail and Corporate focused• Some are government owned/run/subsidized• Markets in which they operate is small• Simple products and services• Adequate technology• Competition from larger international banks• Exposed to local and international regulatory regimes
What we see• Fee income is getting killed and difficult to secure• Weak loan demand and low rates are crushing interest income• Compliance costs are climbing• Regulators are demanding ever higher capital levels• Low interest rates relieve some pressure on operating revenue.• Rising interest rates can cause disaster on operating revenues
Operating Revenue• Its net interest income + non-interest income;• It shows how much banks are making on loans, products and services before deducting noninterest expenses and loan-loss provisions.• Operating revenues are directly related to the customer base• Today the operating revenue number will continue to decline and decline until the bank becomes irrelevant or simply sells
FDIC Chairman• "Were at a tipping point. There is a limit to how far reductions in loan-loss provisions can boost industry earnings," FDIC Chairman Sheila Bair said when she unveiled the industrys first-quarter results. "At some point, if banks are to continue to increase their profitability, they will have to grow their revenues."
What can we do to survive• Banks have to sell more to more people.• They have to figure out which: • customers, • products, • business lines, • employees • branchesmake money and focus capital, training, technology those areas
Leverage what you have• Revamp your branches to make them more product centric• View the branch as the distribution focal point.• Train branch managers to identify different types of business customer needs and upgrade the skill sets of branch personnel to enable them to feel confident when talking to business owners.
Leverage what you have• Augment branch-based expertise with dedicated small business credit specialists and, where appropriate, business development officers out in the marketplace who work closely with branch managers.• Empower branches with information about the businesses in their local market and invest to position branch managers in leadership positions with local chambers of commerce and influential business organizations
Add value to your customers We are the best at what we do
Work with your customers• Non Performing Assets kills your balance sheet• Work with your best customers to make sure they survive – they will never forget it• Refinance customers that are in a viable business environment• Convert non performing to performing by sharing the lower cost of funds and possibly longer terms
Consider more credit• Small businesses have long been considered underserved (or perhaps, more appropriately, ignored) by much of the banking industry• Consider the potentially pent-up demand for credit among small businesses. During the recession, banks dramatically curtailed the extension of credit to small business owners.• According to a January 21, 2010 Bloomberg Businessweek report, banks originated $73 billion in loans to small businesses in 2009, a 47% decline from 2007.
Cross Sell• Use the credit process to identify cross-sell/up- sell opportunities.• A lot of great information about business finances and operating results are shared with banks as part of the credit underwriting process.• Few banks, however, really leverage this wealth of information to advise their business clients on strategies to improve the health of their businesses.
Cross Sell• Loan officers can develop recommendations for strategies, products and partners (such as trust and wealth management) that enable customers to improve business performance and manage life cycle events.• Tools can be developed that use data captured in the credit process to help loan officers provide advice, analyses, checklists to help customers fund growth, better manage cash flow, lower financing costs, plan for succession, and identify personal wealth management needs
Leverage technology• Provide robust online information and transaction capabilities.• Online banking platforms should minimize the time spent performing basic banking transactions and enable business owners conduct a variety of more sophisticated transactions, access detailed account histories, manage payments and move funds across accounts and to other financial providers.
Leverage technology• Recent surveys show that small business customers are increasing their rate of online banking logins and decreasing the number of visits to their local branches.• Provide mobile banking opportunities.• Leverage the mobile network and the fact that more people have mobile devices than PCs• Find ways to increase Straight Through Processing – less branch time and investigations
Product variety• If you have reached out to every market possible, you may need to change what you sell.• One small business growth strategy is to simply modify what you already have.• Keep the existing services/product, but create a new style by adding something else.• The simple fact of the matter may be that you need more products – develop or copy what is already successful in other markets
Also consider• Avoiding regulatory pitfalls – Don’t ignore Compliance, AML • A regulatory fine may be the end• Improving image from outside • Rebrand and be relevant to customers• Be open for business 24x7 if possible • Convenience and customer centric business wins
Sometimes bigger is better• Your growth strategy may be too tough to complete by yourself.• By joining forces with another company, or finding new partners, you can gain the additional help you needed to push on to the next stage – try co branding and co selling• The simple fact of the matter may be the only way to survive is to merge with others to increase scale and gain market.
Sometimes bigger is better• Merge – Consolidate and realize cost savings – Increase scale of operations – Increase market penetration and product diversity – Invest in better technologies and simplify platforms and maintenance costs – Diversify your businesses lines and geographies – Work under a stronger brand – Broaden talent pool
Sometimes bigger is better• Margaret Irvine Weir, president, NexTier Bank: ―We’ve acquired a few insurance agencies, and we’re always looking to add more in that line, and we always have feelers out for wealth management.‖• Charlotte Zuschlag, president and CEO, ESB Bank ―We’ve acquired (small banks) since 1994, and we’re hoping to do some more deals. And we’d look at branches anyone was selling in our area. If, for example, PNC were to get rid of some National City branches or some of their own, we’d love an opportunity (to buy).‖
Sometimes bigger is better• Todd Brice, president and CEO, S&T Bancorp: ―We would certainly have an interest in partnering up with the right institution if the opportunity should arise. Historically, we like contingent markets. You’ll see some people buying in Florida, but we’re not going to do that.‖• Richard Spencer, president and CEO, Fidelity Bancorp Inc. ―We’re not actively looking, but if the right opportunity came up, we’ll look at it. We’re expecting organic growth over the next couple of years.‖
Sometimes bigger is better• William Wagner, president and CEO, Northwest Bancshares Inc.: ―If we don’t find (bank) acquisition properties, there are still opportunities for us to grow through di novo branching. We have a history of acquiring other lines of business — insurance, trust and investment management — and we’re always open to growing them.‖
To Summarize• Improve existing products and get new ones• Focus on service and build customer partnerships• Know your competition well• Leverage the Branch as a product centric distribution point• Target small business lending and mine credit data• Work with customers to ensure they survive too -- -- reduce NPA
To Summarize• Cross Sell, Cross Sell, Cross Sell• Rebrand and be relevant to customers• Extended operating hours 24x7 if possible• Leverage Technology – mobile banking• Make sure Compliance and AML are up to Snuff• Merge and or Acquire – To survive – To access other markets – To gain business line diversity