There are several challenges facing community banks in Texas, with intense competition within the credit market, meeting regulatory expectations, and retaining expert talent among the major issues.
Credit demand is and has been intense for years. With banks earning next to nothing on federal funds and rates on investment products not much better, competition for loans is a constant struggle. Add that with a customer base that is much more knowledgeable about obtaining credit. The result is that when a bank lands a new loan, chances are that the rate earned has been whittled down considerably. Not only the rate, but other aspects of the credit may have been “compromised”.
Customers are asking for a variety of modifications to their loan applications such as higher loan-to-value ratios (LTVs), longer payout terms, and limited or no liability on related business loans in addition to lower interest rates. The result is the loan has been undertaken with a variety of modifications that places undue pressure on the bank.
Regulators are the bane of the industry. Examiners work toward what is best for the industry, and to accomplish that mission they are constantly evaluating their banks. Those evaluations require feedback, and feedback requires documentation. Assembling that documentation takes time and often takes away from what bank personnel were hired to do.
Retaining Expert Talent
Retaining expert talent is another challenge. Long gone are the times when individuals retire from the banks that first hired them. Now banking is migratory as personnel change banks readily and often. When loan officers leave one bank, the bank has to replace that individual and often have to pay a premium to do so. And the process constantly repeats itself. Now the new officer has to justify his new position and higher salary by booking loans. Recall the first item – intense competition for credit is resulting in lower rates on loans. Lower rates and higher salaries places pressure on a bank’s return on assets (ROA). As a result, managing risk and profitability dominate the spectrum of a bank’s senior management.