Community banks in the heartland have been the hardest hit by liquidity problems, but they are not alone.

Almost 60% of banks nationwide said deposit growth lagged loan demand in 1997, according to an American Bankers Association survey. That figure jumped to 66% at banks in 13 North-Central states.

"For some time now, community bankers here and there have been complaining that deposits are drying out," said Steve Cocheo, executive editor of ABA Banking Journal, which sponsored the survey. "The problem appears to have grown beyond here and there.

Some regions have been hit harder than others, but the deposit problem is hardly an isolated matter."

Even out West, where the fewest number of banks reported a deposit crunch, 40% said liquidity is a problem.

About half of the 615 banks ABA surveyed said they used nondeposit sources to fund loans in 1997.

The most popular nondeposit sources were the Federal Home Loan Bank System and correspondent banks.

Beyond lending, deposit drop-offs could pose other problems for banks. Fees on deposit accounts made up almost 60% of the total noninterest income at banks surveyed.

The survey, whose release was scheduled for Sunday here during the ABA's National Conference for Community Bankers, also showed that insurance products and debit cards are expected to be this year's most widely introduced new services.

About 20% of surveyed banks said they plan to begin offering one or more of these products this year.

Though insurance is hot, auto leasing is not. Only 15% of banks surveyed offer auto leasing, and 8% said they plan to drop the service.

The survey also showed that establishing an Internet presence is a priority for a majority of community banks. About 60% of banks polled either have a Web site in place or plan to add one during 1998. But only 21% of those with a Web site said it produced business the bank would not have obtained otherwise.

The two most popular strategies listed for asset growth were sales training and advertising; each was listed by more than 40% of the banks.

Only 40% said they set targets for efficiency, and 77% of those that did said they fell short.

To improve efficiency, banks would rather increase income than cut costs. More than 60% said they would raise noninterest income to boost efficiency; only 20% said they would cut staff.

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