In recent quarters, most U.S. banks have been reported double-digit commercial loan growth, and most bank executives claim that commercial lending will continue to be a key driver of overall loan growth in the coming quarters. With so many banks targeting commercial loan growth, competition has increased, which is leading to declines in commercial loan yields.
To differentiate from their competitors and capture strong commercial loan growth opportunities, banks are increasingly targeting specific industry sectors. Presentations by leading regional banks at this month’s Barclays Global Financial Services Conference highlighted this trend:
- Comerica is enjoying very strong growth in targeting two industry sectors: energy (loans up 68% y/y in 2Q12) and technology and life sciences (+36%).
- Fifth Third’s deployment of a national healthcare team has led to a 40% y/y rise in outstandings. Specialized products include the RevLink solutions platform, which supports healthcare organizations in streamlining collections and managing costs, as well as improving liquidity and working capital. Over the past year, RevLink accounts have risen 30%.
- Regions has five specialized lending groups headquartered in different cities throughout its footprint: energy in Houston, healthcare in Nashville, technology/defense in Charlotte, and both transportation and restaurant in Atlanta.
- Like Regions, Associated Bank has an energy (oil and gas) group based in Houston.
Banks looking to pursue a vertical marketing approach need to develop a comprehensive understanding these industries in order to identify which industries to target, and how to do so. The following are some key questions that banks need to answer in this regard:
- How many firms from specific industries are in the bank’s footprint?
- What is the projected industry growth rate?
- Are firms clustered in specific geographies?
- What are current and projected levels of profitability?
- Do these firms have unique financial needs?
- What is the current level of competitive intensity? Do other banks have dedicated resources to target this vertical?
- What is the customer decision-making process?
- Does the bank have sufficient in-house expertise to effectively target and serve this vertical?