Banks to grow by making acquisitions
ABA survey also indicates rising interest by banks in outsourcing more tasks
March 20th, 2008
Community bankers plan to compete for market share this year by acquiring other institutions, outsourcing traditional functions, and harnessing technology, a new survey by the American Bankers Association says.
More than one in three (37 percent) of the 656 bankers who responded to the survey said their bank plans to acquire another bank within the next five years. Only 7 percent expected their bank to be purchased in that time. Respondents, however, indicated that acquisitions are just part of the competitive mix.
The survey results illustrate community bankers desire to do more than their competitors, to offer products with more customer appeal, to improve business channels, and more, says Steve Cocheo, executive editor of the associations ABA Banking Journal. It is clear that many of the bankers responding intend for their institutions to not only compete, but to win.
The survey shows that many bankers plan to outsource some functions that traditionally were performed by bank staff. Overall, 37 percent of the banks responding currently outsource some functions, and among banks with more than $1 billion in assets, nearly half do so. Topping the list of traditional functions currently outsourced were internal audits (53 percent), loan reviews (49 percent), and compliance audits (46 percent). These were followed by item processing (45 percent), ATM servicing (28 percent), and information-technology management (25 percent).
Its interesting to note that of the top four outsourcing choices, one is item processing, a mechanical function. But the other three are brain workall essential but requiring deep and expensive expertise, Cocheo says.
The majority of respondents outsourced to cut costs and obtain expertiseboth at 60 percentwithout having to create a full-time position. The poll suggests that this practice will grow; of those that dont currently outsource, 24 percent are actively considering outsourcing in the future.
Despite that trend, the survey results indicate that having technology expertise in house remains important. Overall, 56 percent of community banks use their own staff as the chief source of tech expertise, followed by consultants (20 percent), and vendors (12 percent). For banks with assets of more than $1 billion, that figure jumps to 96 percent.
That might explain why respondents ranked IT officers as the second-most difficult position to fill, following business lenders. Compliance officers ranked third in most difficult jobs to fill.
Among other findings from the poll:
The number of community banks that offer remote deposit capture of checks has more than doubled, to 38 percent since last year. Another 25 percent say they plan to offer it this year. Most respondents say the service isnt profitable, but offer it to remain competitive.
More than half of banks surveyed dont offer health-savings accounts to their employees. Still, the number that do offer such accounts has jumped 31 percent in the past year.