Community Banking’s Encouraging Economic Outlook

How community-based financial institutions are positively positioned for reinvesting into their banks, brands and branches

As the economy continues its post-COVID recovery, community banks are in a stronger financial position than they might have expected at the start of 2021. “The outlook for community bank returns is far more favorable now than even a few months ago as credit costs should be significantly lower than previously expected,” according to S&P’s Community Banking Report. “Few banks have reported material increases in problem loans through the first quarter as efforts to soften the economic blow of COVID-19 kept many borrowers afloat.” Now, funds once tied up in credit reserves paired with quarterly income rising 21% year-over-year means that banks have more resources for reinvestments.

Source: S&P Global, May 2021

While community banking’s overall lending was somewhat sluggish in the second half of 2020 as consumers held tight to their money, S&P reports that loans are expected to grow 3% in 2021 as consumer and business economic activity resumes a more normal – and even accelerated – pace. “More community bankers are upbeat about the upcoming year’s prospects for loan demand than at any point since 2017, as the U.S. economy recovers from the COVID-19 pandemic,” according to American Banker’s reporting on a recent survey of CEOs. A 21-point rise in positive sentiment about lending – from 47% in 2020 to 68% – among CEOs indicates a belief that “demand for new loans will improve over the next 12 months.”

Source: American Banker, May 2021

While community institutions continue to face competition from outside the industry, the most recent economic news means that community banks and credit unions have the requisite liquidity to invest in needed CX improvements – from the physical branch through to remote delivery in the form of ITMs and digital and mobile banking. Responding to “demand for new products that are user-friendly, mobile-first and targeted to specific needs” is community banking’s charge and challenge, according to Forbes Council author, Arcady Lapiro, CEO & Founder Agora Services. “The good news for community banks and credit unions is they have the capability to offer the same user experience that challenger banks do… by partner[ing] with fintechs to acquire the needed mobile user experience.”