Credit Unions Still a Concern, But Study Shows Bankers Worried About Other Competitive Threats
CHICAGO -- Bankers are still worried about credit union competition, but that's not their biggest threat.
In October 2006, Grant Thornton mailed questionnaires to a national sample of 4,709 CEOs and senior officers of banks and savings institutions with assets in excess of $100 million. A total of 355 completed questionnaires.
According to Grant Thornton's 14th Annual Survey of Bank Executives released Feb. 26, two-thirds of all banks (66%) continue to express concern about competition from credit unions, a level that has remained fairly consistent over the past several years.
Still, fewer bankers this year than last year express concern about the number of customers they are losing to credit unions. While 57% expressed concern about the outflow of retail customers to credit unions last year, only half (50%) express concern this year. Only one-fourth (26%) of bankers expressed concern about losing their commercial clients to credit unions, compared with 40% who voiced that concern last year. Instead, bankers seem more interested in competing with credit unions on a level playing field: approximately half (48%), including 62% of mutual savings bank executives, say that the barriers against credit union conversions to bank charters are too stringent.
Community banks are, as they have been since 2002, the most frequently cited source of competition, with 77% of all bankers naming them as a competitor that causes them concern. This year, however, nearly seven in 10 bankers (68%) say they are concerned about competition from regional or mega-banks. Four in five (80%) large banks cite these mega-banks as a concern, compared with only 62% of the smaller banks.
One in three bankers (34%) say Internet banks are competitors of concern, a significant increase from the 8% who cited them as a concern in 2003. Four in 10 (39%) bankers are concerned about competition from brokerage firms, and one-quarter (25%) say competition from insurance companies worries them. Seven in 10 (70%) of all bankers, including three-fourths (76%) of small banks and 81% of rural banks, say the entry of Wal-Mart into the financial services business would be a threat to their banks' business.
A decline in personal and commercial loan demand coupled with a slowed housing market and high energy prices has left some bankers feeling cautious about the nation's economy going forward this year.
According to the Grant Thornton survey, more than four out of 10 bankers (43%) feel uncertain about prospects for the national economy in 2007 and more than a third (38%) are on the fence about the country moving in the right direction. As for the 2007 outlook for banking, two in five (40%) are optimistic, while an equal number (38%) express indecision and one in five (21%) express pessimism.
Meanwhile, bankers this year report that commercial clients make up more than one-third (37%) of their aggregate client bases on average; this base is even higher (42%) on average among the bankers who express optimism about the state of the economy and the banking industry. More than nine in 10 bankers (94%) believe that attracting new business customers is essential to their continued success, and recent industry figures seem to bear this out. The FDIC reported in November 2006 that commercial loan growth had exceeded consumer loan growth for four consecutive quarters. More than four bankers in 10 (44%) saw increased demand for commercial loans in 2006. However, this is down from the 52% who saw increased demand in 2005. That said, one-fourth of bankers (26%) report a decrease in commercial loan demand in 2006, compared with only 14% who said they saw a decrease in 2005. --firstname.lastname@example.org