In case your sports calendar was full this weekend, you might have missed the 2013 FIDE World Chess Championship. This is the most anticipated chess match in decades and, so far it is been a classic duel giving bankers insight into both strategy and tactics. The Championship pits The Tiger of Madras, Viswanathan Anand against Norway’s Magnus Carlsen.
Banker To Banker
On this Veteran’s Day our love and support goes out to all those Americans that have sacrificed or are sacrificing in order to protect this great land of ours. While many banks have a military, public service or “Hero Account” (which is what we call it here at CenterState), more retail banks should. Not only is it a supportive thing to do, but it is also good business.
While the Twittersphere has been agog about Twitter’s IPO today, we have been staying focused on Tweeting (@CSB4banks) about bank performance (with some banking sarcasm thrown in). It is a new medium for us and we still struggle to think in 140 character strings.
Many banks wait until the last possible period before renewing a loan. Waiting often invites competition, as other banks with loans out to that customer know exactly when other bank’s loans mature (hopefully you are capturing this information as well). To beat this problem, banks are smart to lock in renewals in advanced in order to minimize competition. Not only is a renewing loan likely a better credit risk (you have a payment history for starters), but banks can garner a larger spread making the risk-adjusted return more profitable.
A couple years ago, I wanted to see what the “New JC Penney” looked like so we took a stroll through one at the local mall. While I was intrigued with the concept of doing away with sale prices, wider aisles and easier to read signs, the wife doubted if not having sales would work – “people love sales,” she said.
When it comes to checking accounts, one trend is to charge your customers to use your branch. The idea sounds crazy, but it is a very sane response to a difficult problem. There are a group of banks, most recently BBVA Compass that have introduced checking accounts such as their ClearConnect that has no monthly fee and free online/mobile banking, but comes with a $1 fee for each check processed, $1 fee for in-branch withdrawals and a $4 charge for each deposit completed in the branch after the first per statement cycle.
Yesterday, we covered a set of economic indicators that have proven to be unreliable at predicting the future of rates, credit, loan or deposit growth. The subject is topical as many banks are working through their budget forecasts and instead of just relying on history, many banks seek to increase the accuracy of their predictions by utilizing these indicators. One way to do this is to incorporate forecasts of these economic indicators and then use that as the basis for fine tuning bank budget variables.
Given that it is forecasting time again for next year’s budget, banks often use a variety of economic indicators to help forecast demand for credit, liquidity, and inflation. Often time, we will see many of these indicators in ALCO reports or strategic plans. We have tried a great many indicators and have tracked the effectiveness of each one. Today, we will cover some of the more unreliable ones, while tomorrow we will cover the ones that work.
While most banks understand the important data points when it comes to loans or deposits, most banks still could use help on collecting some of the basic information about their customers. The age of utilizing customer data to get predictive about risk, customer profitability and marketing is just beginning at banks so this is a new field for many. For example, a change in number of employees at your borrower is correlated to both credit risk and profitability.
Three years of kicking the can down the road, striking last minute deals for “Super Committees” and pointing fingers obviously wasn’t enough practice for Congress as our esteemed government is finally shut down. You would think that, when faced with the two options of either cutting down on spending or raising revenues, Congress could have picked one, or at least implemented a combination of the two. Instead, our elected officials (who are still getting paid) decided to go with the age-old strategy of hyperpartisan malfeasance and do nothing.