PROMONTORY INTERFINANCIAL NETWORK SERVICES UPDATE:
What Community Banks Are Doing to Increase Deposits
By H.D. Barkett
Senior Managing Director
In the most recent Bank Executive Business Outlook Survey, 63 percent of survey respondents indicated that deposit competition had increased over the last 12 months. Compared to the survey results from a year ago, that was a jump of almost 25 percentage points, underscoring that deposit competition is on the rise. And banks don’t expect competition to cool down any time soon—77 percent projected it will get tougher in 2018.
The increase in deposit competition begs the question: What strategies are banks putting into place to increase deposits?
We decided to ask banks that very question—here is what we heard from 389 bank CEOs, presidents, and CFOs across the nation. (Respondents could provide more than one answer; 411 responses were tallied in total.)
Offering higher rates was the most popular strategy to increase deposits, accounting for 18% of all responses. Given that the Federal Reserve raised rates 3 times this past year and has begun winding down quantitative easing, many banks believe they must adjust rates in order to remain competitive.
Some banks think a winning strategy is to target a specific type of deposit. For example, 15% of respondents plan to focus their efforts on commercial deposits/Treasury management activities. Banks clearly see this as area of opportunity. Interestingly however, few banks (less than 3%) plan to target retail deposits.
Banks are also interested in client-based approaches that could (but don’t have to accompany) higher rates. Twelve percent of bank respondents indicated that they would focus on improving customer service and on building stronger relationships with depositors. Meanwhile, 10 percent stated that they would increase or improve their marketing and advertising efforts.
One takeaway is that while many bankers generally try to hold off on raising rates as long as possible, some have determined that they can’t really hold off for much longer. Given that many banks plan to adjust rates going forward, we believe it is important for financial institutions that are seeking more core deposits to differentiate themselves from the competition by offering customers additional services and products. Wholesale funding is also an area that offers a number of opportunities for banks.
We hope you find this information helpful. Feel free to email or contact me at (866) 776-6426, x3447 if you have any questions or would like more information.