Author Archives: mronan

Growth top of the agenda in banks’ upcoming quarterly financials

Since the onset of the financial crisis in the second half of 2008, much of the coverage of banks’ quarterly financials has focused on the quality of their loan books. With key credit quality metrics starting to come under control, banks have reported profitability growth in recent quarters, with much of the profitability coming from lower provisions for loan losses.  With credit quality metrics starting to return to normalized levels, the focus of attention is now starting to shift towards revenue generation (both net interest income and noninterest income).

Net interest income of course is dependent on loan growth, as well as the net interest margin.  For many banks, the net interest margin has risen in recent quarters, as the deposit mix has shifted to non-interest and low-interest deposits.  However, banks now also need to show evidence that of growth in their loan portfolios.   Leading bank card issuers have indicated that credit card outstandings will grow in 2011.  In recent quarters, banks have reported significant growth in small business loan originations (although overall small business loan portfolios continue to shrink).   And banks are indicating growth in other lending categories, such as auto lending.  So, for 1Q11 financials, industry experts will be looking closely at banks’ loan portfolio details to find evidence of loan growth.  They will also be listening closely to bank executive statements on the prospects for loan growth for the remainder of 2011.

Industry observes will also be looking at noninterest revenue closely, focusing on overall revenue growth, composition of noninterest revenue and statements by bank executives on their plans to accelerate noninterest revenue growth in the coming quarters.

Internet is now Bank of America’s largest credit card account production channel

Bank of America’s Full Year 2010 Investor Factbook revealed some interesting trends in various channel’s share of credit card account production

  • eCommerce channel accounted for 36% of the bank’s credit card account production in 2010, up significantly from 15% in 2008
  • Bank branch network share fell from 25% to 21% (note that Bank of America was at the forefront in the mid 2000’s in driving credit card sales through branches)
  • Direct mail share rose from 20% to 21%, stemming steady declines in its share of account production in recent years

The findings underscore the growing importance of the Internet as a sales channel.  However, what the Bank of America data does not reflect is the fact that consumers now tend to use multiple channels before making an acquisition.  For example, a consumer could receive a credit card offer in the mail, but submit their application via the Internet.  Therefore, bank credit card issuers need to ensure that these key channels (Internet, branch and DM) are all in synch to optimize sales effectiveness.

Banks offers students no-fee checking and other benefits in order to develop long-term relationships

In recent weeks, there has been a good deal of coverage in business media on how banks plan to make up for the loss of debit interchange income, assuming the Durbin Amendment is passed. Much of the discussion has centered on rolling back on debit rewards, eliminating free checking, and increasing ATM fees.

However, it appears that these changes will not apply to student checking accounts.  For example, TD Bank recently introduced a new range of six checking accounts, only one of which–TD Student Checking–does not carry a monthly fee.  A perusal of leading bank websites shows that most offer a dedicated student account with no monthly fee and no minimum balance requirement.   The checking account is the most important product in building a relationship with customers, so expect no-fee student checking to continue.

In addition, banks will seek to build on the checking account relationships with:

  • Student banking bundles
  • Student credit cards
  • Special offers and benefits, such as no fees for using other banks’ ATMs, discounts on fee-based products, higher rates on saving accounts, or lower APRs on lending products
  • Range of virtual service options (Internet banking, mobile banking, social media)
  • Financial advice and planning tools

The combination of these products and services is designed to ensure retention of the customer relationship during that crucial period when students graduate and move on to a new life stage.