Using Active Marketing to Combat High Deposit Ratios

During our monthly analysis of loan to deposit ratios nationwide we looked at the ten highest ratios in each state among banks. To our surprise the average ratio was 109.5%. As we all know, there was a period from 2009 through 2015 where these ratios were at historically low levels. At this point in time that phenomenon has completely reversed itself. As stated above, we now appear to be peaking on the other end of the scale.

In addition to our standard analysis of loan to deposit ratios we consistently monitor response rates to marketing efforts related to driving core deposit rates. While response rates in our estimation are not the key measurement for gauging growth it does measure consumer sentiment to changing financial institutions. Fortunately for those institutions that are actively marketing to grow their core deposits the response rates are at historic levels based on the performance of our clients. There are numerous factors that contribute to this situation.

How to Profit in a Disrupted Market

First, market disruption nationwide by larger institutions has afforded community banks and credit unions an opportunity to take market share. Based on this change, a segment of consumers view this as an opportunity to explore other maybe more convenient banking options. Today we are experiencing one of the largest mergers in banking history with the merger of BB&T and SunTrust. This merger effects markets in thirteen states and will continue to create disruption throughout the next 12 to 18 months. For community institutions in these effected states there will never be a better opportunity to literally steal deposit market share. For those institutions struggling with high loan to deposit ratios, now is the time to address the opportunity for deposit growth.

The second contributor in our estimation to heightened response rates is the growth of online banking. We clearly see that those institutions that have effective and easily navigated online products have outperformed their competitors. The key is the ability to execute a transaction such as opening a checking account online efficiently. The key word here is efficiently. While there are still many institutions that do not have the ability to offer online account openings there are far more that have a less than perfect process. Consumers are now exposed to many aspects of online shopping and they recognize processes that are less than efficient. That explains the number of aborted efforts we see with clients.

The final factor we see in the growth of response rates to marketing related to driving core deposits and checking account is the general lack of competition aggressive institutions are experiencing. It boggles the mind that while we are experiencing one of the largest mergers in banking history most institutions are doing virtually nothing to take advantage of the opportunity. Clients that have taken the initiative are experiencing response rates between 50 and 125% higher than traditional response rate to marketing efforts. Those numbers are so far out of the norm that we have to believe competition for this new source of deposits simply isn’t there in most markets.

The bottom line is this. Loan to deposit ratios are at relative historic levels. That’s the bad news. The good news is there are numerous opportunities to reverse this trend with response rates to marketing efforts at historic levels. The decision each institution needs to make is do they want to take advantage of the opportunity that is presenting itself. Until now, I have seen little proof that’s the case.  

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