CBS News<\/a> cited a Black Knight study that mortgage forbearances jumped from 150,000 to nearly 4 million between March and April. Consumer loans, credit cards, private student loans, and mortgages are all seeing a rapid increase in slow-pays and no-pays.<\/p>\n\n\n\nFor now, banks are focused on doing what\u2019s right by the customer and providing relief as best they can. Lessons were learned through the 2007-08 financial crisis about the value of customer advocacy, but as loan losses increase and tepid new loan bookings reduce interest income, financial institutions will look for aggressive cost-cutting measures to help right-size their income statements.<\/p>\n\n\n\n
For the remainder of 2020, we can expect loan demand to be depressed and any return to normal life will be a challenge. For 2021, cost-cutting will likely be a directive for financial institutions, and expense savings will begin with the two biggest line items on the income statement: salary and benefits, and cost of funds. Both stand to have a major impact on the ability to efficiently gather deposits.<\/p>\n\n\n\n
For the moment, a flight to safety in deposits is padding the production reports. We are seeing a significant increase in liquid deposit products for two reasons: first, customers want safety and flexibility in their deposits; and second, most banks do not have the capacity to open term deposits online. With branches closed or with limited operations, the ability of customers to open a CD at the local branch is a challenge. The liquidity of incoming deposits will make retention challenging as equity markets settle and consumers get back to normal.<\/p>\n\n\n\n
In other words, we expect to see the ease of deposit gathering decline by the end of 2020. For most institutions, deposit gathering is still a branch-centric activity. This is problematic because as consumers have adapted to stay-at-home orders and adopted more technology, there could be less need for physical branches just as banks look to shed expensive branches and staff to cut costs.<\/p>\n\n\n\n
A slimmed-down physical branch network will remove or inhibit a major deposit-growth engine for financial institutions and will likely come at a time when deposit gathering becomes more competitive. We expect the easy deposits\u2014coming in as a result of increased savings rates among high earners (discussed in more detail in a recent blog post from Nomis economist Brian Poi) and from flight-to-safety refugees\u2014to taper off by end of 2020.<\/p>\n\n\n\n
By 2021, we expect to be back to creating targeted deposit offers and running specials (which cause cost of funds to increase). Commercial deposit \u201cexception\u201d pricing will likely make a return after being all but eliminated in the past two months. Next year will be a deposits strategy paradox\u2014grow deposits to meet plan, but reduce cost of funding to meet expense targets. And all of this with a shrinking branch footprint.<\/p>\n\n\n\n
As the saying goes, the best time to prepare for a crisis is when times are good, and the best time to prepare for a competitive deposit environment is while deposits are easy. By reducing deposit costs now, funds can be redeployed to install tools and practices that will put your institution at a competitive advantage while everyone else is catching up.<\/p>\n\n\n\n
<\/p>\n\n\n\n
This article was originally featured on BAI.org<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"Q1 2020 financial results have arrived, and absolutely no surprise\u2014there\u2019s been a significant impact from COVID-19. Net earnings are significantly<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","inline_featured_image":false,"footnotes":""},"categories":[5],"tags":[9,6],"class_list":["post-461","post","type-post","status-publish","format-standard","hentry","category-news","tag-deposits","tag-mortgage"],"acf":[],"_links":{"self":[{"href":"https:\/\/nms-archive.tiltedchair.co\/index.php?rest_route=\/wp\/v2\/posts\/461","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/nms-archive.tiltedchair.co\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nms-archive.tiltedchair.co\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nms-archive.tiltedchair.co\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/nms-archive.tiltedchair.co\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=461"}],"version-history":[{"count":0,"href":"https:\/\/nms-archive.tiltedchair.co\/index.php?rest_route=\/wp\/v2\/posts\/461\/revisions"}],"wp:attachment":[{"href":"https:\/\/nms-archive.tiltedchair.co\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=461"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nms-archive.tiltedchair.co\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=461"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nms-archive.tiltedchair.co\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=461"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}