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KPMG Survey: Community Banking Execs See Regulatory Requirements Stifling Growth, Driving M&A Activity
Wealth Management Expected to be Revenue Driver, Cyberattacks Not Seen as a Major Concern, Capital Needed to Meet Requirements, Troubled Mortgages Remain a Problem
By: PR Newswire
Nov. 5, 2012 01:00 PM
NEW YORK, Nov. 5, 2012 /PRNewswire/ -- Community banking executives say new regulatory requirements are stifling growth, negatively impacting financial performance, and driving mergers and acquisitions (M&A) activity, according to a recent survey by KPMG LLP, the U.S. audit, tax, and advisory firm.
In the 2012 KPMG Community Banking Outlook Survey, 47 percent of respondents identified regulatory and legislative pressures as the most significant barrier to growth over the next year, while 35 percent said regulatory compliance costs were having the greatest negative impact on financial performance. Additionally, 27 percent said that bank management's top initiative in the next two years will be navigating significant changes in the regulatory environment.
"The new regulatory environment in which community banks now operate is a game changer because the cost of building the necessary compliance systems and processes is high," said John Depman, national leader of Regional and Community Banking for KPMG. "As a result, many community banking executives are re-evaluating their business and operating models and growth strategies."
M&A, Wealth Management Keys to Growth
"The significant interest in acquisitions is not a surprise because it's one of the options community banks have to stay competitive and grow," said Depman. "A successfully executed deal can provide access to new geographic markets, technology, and products and also generate scale to help absorb regulatory compliance costs."
Community bank executives identified asset and wealth management (40 percent), cross-selling services (30 percent), and business model restructuring (23 percent) as the areas they believe will be the biggest drivers of their bank's revenue growth in the next one to three years.
Thirty-one percent of community banking leaders said the customer segment that presents the greatest growth opportunity for their bank was consumers -- ages 50 to 65 -- nearing retirement.
"With an aging population, community bank executives are bolstering their asset and wealth management capabilities as customers nearing retirement need these services," said Depman. "These customers also are more likely to visit the branch and meet with a banker to discuss their portfolio management and investment options."
IT Investment a Focus, but Cyberattacks Not a Major Concern
Mobile banking and payments (26 percent) and cloud technology (23 percent) were identified as the most important IT-related projects for community banks in the next year.
"Mobile banking is clearly a channel in which community banks are investing, as its utilization by consumers continues to become more mainstream," said Depman. "Community banks also are examining cloud technology as a means to increase efficiency and reduce IT costs."
Fifty-one percent of community banking leaders said they were slightly concerned or not concerned at all that their bank may be vulnerable to a cyberattack, while 14 percent were extremely concerned and 33 percent were moderately concerned.
"Recent cyberattacks were highly publicized, but the majority of community banking executives report they are not overly concerned about this threat," said Depman. "Banks of all sizes should ensure their security systems and various processes are regularly updated to guard against this threat, which presents significant financial and reputational risks."
Impact of New Capital Requirements
"Many community banks have strong balance sheets and adequate capital, but many others will need to raise capital so those who are late to the game may find the cost of capital much higher," said Depman.
Troubled Mortgages, Revenue, and Headcount
According to the KPMG survey, community banks are anticipating some headcount gains in the year ahead, with 55 percent adding to their payrolls, 18 percent decreasing jobs, and 27 percent expecting no changes to their workforce.
"Based on our interactions with clients, we're seeing community banks hiring more senior regulatory and compliance personnel as the time and expenditures dedicated to this area continue to escalate, while others are adding mortgage origination and wealth management talent to capitalize on growth opportunities they anticipate in these areas," said Depman.
The KPMG Community Banking Outlook Survey
About KPMG LLP
Contact: Ichiro Kawasaki
SOURCE KPMG LLP
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