The American Bankers Association surveyed its members earlier this year about their offerings of home equity loans. The findings below on advertising expenditures have been adapted from the ABA'S study report.
The annual home equity loan advertising expenses per bank ranged from $2,000 for the smallest size group, or cohort, to $325,000 per bank for the largest.
In 1993, the two largest cohorts are planning increases of about 6% to 43%, whereas the two smallest are planning no increases. This suggests the large-portfolio banks are spending much more in advertising than are the smaller-portfolio banks and will continue to increase their market share.
Dramatic Difference
Large banks that promoted home equity loans acquired 2,770 new accounts, versus 479 new accounts by large-portfolio banks that did not promote such loans - a 6-to-1 difference.
A similar difference existed in the other three cohorts, although it was not as dramatic. The second-largest cohort had a 4-to-1 ratio. The third- and fourth-largest cohorts had 2-to-1 ratios.
All cohorts are planning increases in new accounts in 1993. The largest cohort anticipates a 7% increase. The second expects a 25% increase.
Outlays Rising
Most banks are anticipating an increase in lending volume in 1993, and these increases range from 11% for the largest cohort to 20% for the smallest.
The median advertising expense per new account acquired was $100 for the smallest bank cohort and $134 for the largest.
These expenses are up considerably from last year's survey, when they ranged from $41 to $112. This suggests that competition has increased and banks are having to spend more to attract accounts. A primary conclusion of last year's survey was that banks were spending too little on advertising.
Advertising expense continues to be a very small percentage of total revenue when you consider the average account has a five-year term and generates average ROE of 15%. An increase would add proportionally more to total revenue than to cost.
