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Financial
Lending Notes
November
6, 2008
Bank
Competition - It's Not What It Used to
Be
The
competitive landscape for community banks
today looks very different from what it
did just a year or two ago.
The
fallout from the sub-prime mortgage collapse
and ensuing credit crisis has claimed
its share of non-bank credit providers,
such as mortgage bankers and specialists,
captive finance companies, and monoline
credit card companies. Many of these lenders
arose because they could take their products
to the secondary market, but the turmoil
in securitization has dried up many of
their funding sources, either putting
them under severe constraints or out of
business entirely.
Repackaging
Consumer Credit
The
good news is that this dynamic environment
may present unique opportunities for community
banks. In many markets, there is demand
for certain types of lending that is not
being met - especially certain kinds of
mortgages, auto loans and home equity
lines of credit. Commercial lenders can
take advantage of this by looking at their
small business borrowers in a different
light.
For
example, many small business owners -
especially of start-up firms and micro-businesses
- use HELOCs and personal credit cards
to fund their businesses. But this type
of lending is being severely curtailed
in some markets. To help meet this need,
consider repackaging consumer credit options
like these into a small business package.
Facing
Threats
In
addition to presenting opportunities, this
changing environment is also posing new
threats to some community banks. In an effort
to deal with their own challenges and grow
market share, some large regional and super-regional
banks are making inroads into smaller banks’
territories, especially on credits of more
than $1 million.
Larger community banks
are also a relatively new form of competition.
Those with multiple branches and ATMs
(including grocery store branches) within
a defined geographic area are able to
offer customers a level of convenience
closer to that offered by big banks. The
real competition today is for deposit
dollars — and the more locations
and convenience a bank offers, the harder
it is to pry their customers away.
To
better compete, some community banks are
expanding their electronic banking and
cash management capabilities. Acquiring
low-cost deposits is a primary but hard-to-achieve
goal, made more difficult when customers
are tied to their existing bank via these
services. Remote Deposit Capture (RDC),
for example, is becoming a much more common
offering from community banks —
in fact, it has almost become a “price
of admission” service for the small
business market.
Working
Together
Of course, there are some
non-banks and credit providers that specialize
in working together with banks to meet
small business borrowers’ needs.
Asset-based lenders and factors are the
best example of this.
Sometimes,
small businesses find that they can no
longer qualify for traditional bank financing,
usually due to rapid growth or other temporary
circumstances that have adversely affected
their balance sheet. Referring customers
like these to a commercial finance company
for accounts receivable financing or an
asset-based loan creates a win-win scenario:
The customer gets the financing necessary
to continue to grow, while your bank likely
retains the deposit relationship and goodwill
with the customer.
In
short, today’s volatile credit environment
presents competitive risks and opportunities
for community banks. Now is the time to
take a fresh look at the landscape and
determine how you will take advantage
of the opportunities — and minimize
the risks.
We
can help you take advantage of potential
new opportunities. Call us today to discuss
the possibilities.
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Compliments
of:
Porter
Keadle Moore, LLP (PKM) is a full
service accounting firm based in
Atlanta, Georgia. PKM offers audit,
tax and systems services to clients
throughout the country. The firm
focuses its efforts on companies
registered with the Securities and
Exchange Commission (SEC), community
banks, the insurance industry, technology
and life sciences companies and
the real estate/construction industry. |
To
discuss this article contact Pat
Tuley, CPA with Porter Keadle Moore,
LLP at ptuley@pkm.com.
Pat
has over 23 years of experience
in public accounting. He has worked
with clients ranging from individuals
to international Fortune 50 companies
in a variety of tax consulting
and compliance areas. He is most
active in the real estate and
banking industries, serving numerous
clients across the Southeast.
Pat has led PKM’s tax practice
since 2003. Prior to joining PKM
he was a partner with KPMG, where
he spent 17 years of his professional
career.
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