July 2010

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Gaining the Edge in a Tight Market

By Rick Spitler

Lending was an unstoppable profit engine just a few short years ago, with surging demand in all asset categories, both commercial and retail. It was an unfettered environment where banks saw opportunity in every market, risk tier and price point.

As the industry moves beyond the subsequent market collapse, however, banks are wrestling with fundamental questions about growth strategy. While the easy answer is more careful execution of traditional mass market product initiatives, realistically, now is the time to retool for a changed economy and competitive environment.

The current economic recovery, if it can be called one, promises to be a drawn out affair, quite unlike other market rebounds that saw steady increases in employment, borrowing and spending. For the next few years, most loan categories at best will grow only modestly from current recession-battered levels.

In this rugged terrain, winning banks will be the ones that gain market share at the expense of other competitors. There simply won’t be enough underwrite-able demand to support the overall industry distribution and sales capacity built up over the last decade.

Instead of pushing individual products, the competitive emphasis will tilt to cultivating fuller customer relationships — doing the most to expand and retain established household and business relationships; and anchoring and engaging new customers more thoroughly and effectively.

Part of this trend is a major redirection of marketing priorities. In a low-volume market where new customers will be in short supply, revenue generation will be much more dependent on sales to established customers. There will be a major push to build multi-faceted credit relationships with customers who are already with the bank.