Recently-published data from the Federal Reserve indicates that U.S. banks’ C&I loan portfolios continued to grow strongly on a year-on-year (y/y) basis in 4Q12. This industry-wide view is supported by C&I loan data that appeared in quarterly financial results from individual banks. However, these quarterly financials also indicated a continued decline in commercial loan yield, indicating that the commercial loan market is becoming increasingly competitive.
So, how can banks continue to differentiate themselves from their competitors and continue to grow commercial loans, while maintaining margins? One strategy being pursued by an increasing number of banks is vertical industry targeting.
Several banks already following this strategy reported strong growth in industry-specific commercial loan portfolios in 2012:
- Comerica grew average commercial loans 17% year-on-year in 4Q12, but enjoyed well above-average loan growth rates in energy (+46%), environmental services (+31%). and tech and life sciences (+24%).
- TD Bank’s included data on gross loans by industry sector in its 4Q12 financials,which highlighted very strong y/y growth growth in health and social services (+30%), professional and other services (+25%), and government/public sector (+21%).
A number of other banks launched targeted industry initiatives in 4Q12:
- Fifth Third launched an energy lending unit in October 2012, and reported that energy accounted for 12% of new C&I loan production in 4Q12.
- Associated Bank introduced a Healthcare Industry Banking group in November 2012
- Also in November 2012, Huntington Bank launched energy lending and agribusiness initiatives. In reporting 4Q12 financials, Huntington pointed to strength in its manufacturing, healthcare and energy sectors
If your bank is thinking about pursuing a vertical industry strategy, the following are some important considerations:
- Size the number and composition of firms in the targeted industry within the bank’s footprint.
- Conduct primary research to understand market characteristics, financial needs and purchase decision-making dynamics.
- Deploy a dedicated team to develop and implement targeted industry initiatives.
- Create a communications plan, including developing a presence in key industry media (offline and offline trade publications, social media, events) as well as incorporating industry messaging into key bank channels, such as branch and Internet (it is notable that, of the 20 banks with the largest C&I loan portfolios, 15 have industry-specific sections on their websites).
- Develop partnerships with national and local industry associations.