Under The Microscope
FIs Shifting Focus From 'Hot Money' To 'Warm Bodies'
SAN ANSELMO, Calif.-Credit unions and banks are shying away from "hot money," which is easily moved to another institution for higher rate, and placing greater focus on establishing multi-account relationship with consumers.
A new analysis from Market Rates Insight said this shift is evident from the increase in the relative premium paid on relationship products, and from the increase in the number of relationship products offered compared to base products.
In January 2010, the average premium paid on relationship accounts was 10% over the rate of a basic account. By January 2011, the average premium increased to 16%. The increase in the relative premium paid on relationship accounts, compare to basic accounts, is due mostly to the fact that the average rate on basic account decreased during the year, yet the premium paid on relationship accounts did not.
At the same time, MRI said there was an increase in the number of relationship products offered to consumers. In January of 2010, 28% of available deposit products were relationship type. By January of 2011, the percentage of relationship products offered to consumers has increased to 31%.
"The shift in focus provides institutions with two major benefits," said Dan Geller, EVP at Market Rates Insight. "Deposits from relationship accounts are more steady and predictable, and since relationship accounts increases the contact surface with the customer, the potential for non-interest income increases as well."
For info: www.marketratesinsight.com
Delinquent Dollars Up Dramatically In Q4 2010
COSTA MESA, Calif.-Consumers fell behind in the fourth quarter of 2010, according to a new study.
Experian, a global information services company, said its latest Business Benchmark Report found smaller businesses (those with 1 to 99 employees) and large businesses (with 250 to 999 employees) showed the largest increases in percentage of dollars delinquent in Q4, rising by as much as 22.5% and 18.1%, respectively, over Q3 numbers. Additionally, small businesses with 1 to 49 employees showed the most dramatic increases in percentage of dollars considered severely delinquent (accounts 91 or more days past due) in Q4 2010, rising by as much as 25.9% compared with Q3 numbers.
Since the beginning of 2010, however, midsize businesses (with 100 to 249 employees) and very large businesses (with more than 1,000 employees) have seen the greatest improvements in percentage of dollars severely delinquent, decreasing by 17.2% and 18.2%, respectively.
Other findings from the Q4 Business Benchmark Report include:
* The average commercial risk score remained relatively flat (worsening by 1%) in Q4 2010 when compared with the previous quarter, improving slightly (1.3%) since the beginning of 2010.
* Very large businesses (with more than 1,000 employees) showed a 4.6% improvement in their risk scores in Q4 2010, going from 40.1 in Q3 to 41.9 in Q4. These businesses have shown the greatest overall risk score improvement (26.9%) since the beginning of 2010, when the average score was 33.0.
* The national average number of days that businesses paid their bills beyond contracted terms at the end of Q4 2010 was 6.5. The average DBT saw a dramatic increase of 12.5% since the beginning of 2010 but has since stabilized, showing only slight fluctuations quarter over quarter.
* Very large businesses and nonemployer businesses (firms with no paid employees) have shown the greatest increase in DBT since the beginning of 2010, increasing by 23.5% and 13.7%, respectively.
For info: www.experian.com/business-benchmark-report
U.S. FIs Optimistic About Consumer Lending In 2011
MINNEAPOLIS-The majority of U.S. financial institutions expect their consumer lending businesses to grow or remain steady in 2011, according to a new study.
However, they acknowledge a soft economy and increasing regulatory burdens could stand in the way of that growth. That's according to a survey of more than 1,000 banking professionals Wolters Kluwer Financial Services conducted in January.
Seventy-nine percent of respondents to survey anticipated their institution's consumer loan volume would rise or remain the same this year. Only 5% predicted a decline and 16% were not sure. Institutions with more than $250 million in assets were most likely to anticipate an increase in loan volume.
Financial institutions responding to the Wolters Kluwer Financial Services survey cited a soft economy (30%), stricter compliance regulations (24%), reduced loan demand (18%), and increased competition (17%) as the most common barriers to increasing consumer loan volume.
Upcoming regulatory changes tied to the Dodd-Frank Act and mortgage lending requirements topped the list of respondents' compliance concerns. One quarter said Dodd-Frank likely will have the most significant regulatory impact on their operations. Another one quarter said Truth-in-Lending Act (TILA) and Regulation Z changes probably will. And nearly one-fifth said revisions to mortgage disclosures and new originator requirements could.
"It is encouraging to see financial institutions optimistic about their consumer lending businesses in 2011," said Craig Focardi, senior research director for Consumer Lending at TowerGroup, a Corporate Executive Board company. "Job growth will play a large role in the ability of consumer lending markets to recover this year. But so will the amount of regulatory change occurring and the strategies lenders put in place to address it. Financial institutions that are proactive in their efforts will have a definite advantage over those who don't."
"To proactively address rapidly-growing and increasingly-complex regulatory challenges at a time when internal resources are already constrained, it will be essential for financial institutions to find help in the form of a trusted compliance provider with deep and broad expertise," added Lisa Fraga, vice president and general manager, Banking, for Wolters Kluwer Financial Services.
For info: www.wolterskluwerfs.com