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KPMG Survey Documents Community Bank Transformation Checklist

By Rob Starr, Big4.com Content Manager

KPMG LLP’s annual Community Banking Outlook survey was recently released and noted, among other things, that community banks are walking the tightrope of business growth with escalating costs to comply with new regulations and the need to transform their businesses on either side. This year’s survey “Seeking Strategic Advantage” also highlighted the fact these financial institutions are investing in upgraded core IT platforms to target new customer segments and expanding their social media and mobile platforms. John Depman, National Leader for KPMG’s Regional and Community Banking practice, helped us to understand the significant findings from the research.

“The key takeaway is it’s still a challenging environment for banks, but for the most part they’ve got the issues from the financial crisis under control so I think there’s some optimism

coming through in the answers we’re getting,” he said.

Scenario

We continued our conversation on the one factor that’s all encompassing across every business landscape today, the need to spend more on IT to keep pace. In this scenario, 46% of survey respondents said they were going to increase their IT spend. That compares with 37% for regulatory controls.

Depman explained the reasons behind the difference.

“If you looked at last year’s survey, it talked about mobile banking and people getting involved and it looks like people have done that,” he says. “So now what the banks want to spend money on is a core platform upgrade with real time posting coming in second. There’s

John Depman

John Depman

a lot of discussion on how to use IT to enhance the customer experience and get better data and analytics on them and to let your systems talk to each other.”

Costs

He also pointed to the fact the costs of regulatory compliance is trending up. Almost 80% of the 100 CEOs and other senior executives in the community banking industry polled reported regulatory compliance costs make up anywhere between 5 and 20% of total operating costs.

“There’s a couple of themes here,” Depman says noting regulators are trying to ensure the financial crisis doesn’t happen again by improving the infrastructure, safety and soundness of the system. There’s also a new Consumer Financial Protection Bureau to comply with that’s costing money.

“One of the largest things that people cite as a cost is the Anti-Money Laundering and Bank Secrecy Act whereby the regulators have enlisted the banking system in the War On Terror to ensure that terrorist funds are not coming into this country through our banking system.”

On the other side of the coin, the survey dealt with the forecast drivers of community banks’ revenue growth. The top three from the research were: asset and wealth management (32%), M&A activity (28%) and cross selling services at 28 percent.

“Commercial industrial loans and organic loan growth has been very difficult to come by and the yield curve having stayed flat has been compressing the net interest margin of most of the community banks,” Depman said by way of explaining this new shift.

 

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