By: Michelle Patana
The financial industry as a whole is facing considerable changes to policies and laws that have forced them to rethink their existing banking strategies. However, community banks have felt these effects at a greater level, and a new study reveals how executives of local institutions feel about these changes.
A recent survey of community banking executives conducted by KPMG reveals that many feel the new regulatory requirements are stifling growth and having a negative impact on financial performance. For example, 47 percent of respondents cited new reforms as the single-most dangerous inhibitor of growth in the next 12 months, while 35 percent said the costs of implementing new regulations would have the most negative impact on banks. Another 27 percent said that navigating new reforms would be executives' most pressing concern over the next two years.
"The new regulatory environment in which community banks now operate is a game changer because the cost of building the necessary compliance systems and processes is high," said John Depman, national leader of Regional and Community Banking for KPMG. "As a result, many community banking executives are re-evaluating their business and operating models and growth strategies."
Managing changes to remain profitable
While local institutions believe they will undoubtedly face challenges in trying to manage new regulations, they are optimistic about certain sectors and products that are likely to help them remain competitive. For example, 40 percent said asset and wealth management will be the biggest drivers of bank revenue in the coming years as more Americans seek to build and safeguard their wealth in uncertain economic times. As a result, more local banks are shoring up resources to expand and enhance their current asset management programs.
Another 30 percent of respondents said that cross-selling products will represent the greatest revenue-building opportunities in the future. Because most community banks are able to offer more competitive rates, flexible lending standards and lucrative reward programs that larger banks cannot, the chance to cross-sell a number of products may increase in the coming years.
Finally, 23 percent said business model restructuring will likely increase revenue for local institutions over the next three years. While each bank may take its unique financial position and the communities they serve into account before making changes, many are confident that restructuring operations will have positive implications for their customers.