The year ahead will bring a host of unknowns – including legislative and regulatory intervention, the resiliency of credit quality, and an unclear economic trajectory. A murky outlook will make it challenging for banks to determine a strategic course of action without hesitation.
“Uncertainty is our biggest challenge,” Jim Reinets, president and CEO of Insbank in Nashville, Tenn., told me during a break at the American Bankers Association Annual Conference earlier this week. “There’s no stable ground to plant your feet and push off.” A recent survey by the Conference of State Bank Supervisors (CSBS) found that 89% of community bankers view net interest margins as an extremely important or significant risk, followed by the cost of funds (87%), core deposit growth (84%), and regulation (81%).
With these issues at the forefront, how can banks prepare for uncertainty and a slow-growth environment? Here are a few considerations as we make our way through the final quarter of 2023 and head into 2024.
Check on clients. If you’re dealing with uncertainty, so are your customers. Increase outreach. Understanding their challenges could help you prepare for potential credit issues and allow you to fine-tune products, services, and delivery channels.
“Our focus now and into the future is identifying where there’s [customer] weakness and where financial understanding isn’t as strong as it should be or could be,” Julieann Thurlow, CEO of Reading Cooperative Bank in Massachusetts, and the new ABA chair, told me.
Engage with regulators. There’s a lot of discussion about new revenue streams, including Banking-as-a-Service, BNPL, and digital assets. But those areas also draw intense scrutiny from regulators. Talk to your examiners to get their feedback before swinging for the fences.
Take incremental steps with technology. Tech is a divisive topic. Roughly 60% of bankers surveyed by the CSBS said the costs of implementing or maintaining new technology is an impediment to innovation. Nevertheless, bold bankers should work on a fintech blueprint to take some momentum into the new year.
Apply learnings to the new year. Many lessons can be learned from 2023. “I think banks had taken deposits and deposit insurance for granted” prior to high-profile bank failures last spring, Skip Hageboeck, CEO of City Holding in West Virginia, said at a recent conference. “And the impact of social media is clear for all of us.” Introspection will shape strategy and messaging.
Think and act with the long term in mind. There’s growing talk of banks making tough short-term decisions to improve long-term performance. That could mean repositioning a securities portfolio. It could involve scaling back or sunsetting a business line. Growth will be challenging, so the goal for 2024 may be improving investor returns.
The Bottom Line
While none of these considerations stand out as revelations, combining these ideas can lay the foundation for meaningful change heading into 2024. Conversations with customers, directors, examiners, and your peers can help you overcome blind spots and receive some clarity on strategic direction. The road ahead will present some potholes, so remain flexible, agile, and responsive to your customers’ and your institution’s needs.
