May 3, 2022

Loan Growth, Fed Rate Hikes, and Focus on Customers Could Boost U.S. Regional Banksin 2022

May 3, 2022 | Banks, Market

By: Ken Chase.

Though continuing Covid concerns, lingering inflation, and potential slowing in GDP growth pose obstacles to the banking sector, there are also several key factors in play that could boost revenue expansion opportunities for U.S. regional banks in 2022 and beyond. According to some analysts, anticipated Federal Reserve interest rate hikes throughout 2022 and 2023, along with improvement in loan growth, may benefit regional banks in the coming months.

Many regional banks can expect to benefit from rate hikes, which directly impact net interest margins and provide expanded opportunities for increased loan revenue. Obviously, increased interest rates and resulting net interest margins only matter when a bank can deploy that capital in scalable loan growth. Fortunately, regional banks are large enough to do just that and nimble enough to seize on opportunities. In that, they often differ from their smaller competitors who lack both scale and sales talent, as well as their larger national and super regional rivals that often react too slowly to leverage these opportunities.

As long as the Federal Reserve’s aggressive rate hikes do not negatively impact loan demand, regional banks should be able to enjoy increased revenues from the expanded loan growth experts are currently forecasting.

Mergers and acquisitions are another area of potential growth and expansion for the nation’s regional banks. Unfortunately, the pace of regulatory approval has remained slow, so regional banks should continue to pursue other strategies to expand their business.

Expansion strategies can and should include focusing on reputation and brand, one area in which regional and smaller banks traditionally surpass their larger competitors. In addition, these banks should redouble their efforts to improve customer experience at every level, including digital banking services. A renewed focus on simpler navigation, online support, and integration with live service staff can be an important step to meeting customers’ needs and expanding brand loyalty.

With loan growth expected to rise in 2022, it will be vital for regional banks to be more data-oriented than ever before. Rather than simply rely on recent budget numbers to determine business and consumer lending strategies for 2022 and beyond, bank analysts can benefit from an even more data-driven approach that works to determine which markets offer the greatest potential for return in the next several years.

The coming year could offer tremendous opportunities for the nation’s regional banks, but they will need to be focused, agile, and ready to respond to any potential economic downside, including a potential recession.

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