Banks Increasingly Concerned About Retaining Deposits

While almost all bankers (96%) identify retaining deposits as critical to their bank's success, only half (51%) feel comfortable or confident about their ability to do so. This is a significant drop in confidence levels from the previous year, when two-thirds (66%) reported they were confident in their bank's ability to retain deposits.

"Bankers face a wide spectrum of businesses that are fighting for these deposits," said John Ziegelbauer, Grant Thornton's national managing partner of the financial institutions practice. "Other banks, credit unions, brokerage firms, mutual fund companies and Internet banks are all looking to capture the same depositor dollars. Despite their concern about retaining core deposits, few bankers plan to change their tactics for funding growth," said Ziegelbauer.

Although more than nine in ten (95%) bankers agree that attracting new business customers is a key success factor, a much smaller percentage feel confident in their ability to do so. Just over half (52%) say they are confident in their ability to attract commercial customers in 2006, while 61% felt that way last year.

"A look at the products and services bankers plan to offer within the next three years shows more interest in variations on, and new delivery systems for, traditional banking services than in major expansions into new lines of business. New services reflect the changing demographics of bank customers and banks' are adopting new strategies for retaining core deposits," said Ziegelbauer. "The first baby boomers will turn 65 in 2011, and by 2030, one in five Americans is expected to be 65 or older. Add the trend toward increased equity ownership, and it's hardly surprising that more than half of the bankers expect to offer brokerage services (61%) and half will offer mutual funds (50%) in the next three years."

Grant Thornton's Annual Survey of Bank Executives is the oldest continuous independent study of its kind in the banking industry. In October 2005, Grant Thornton mailed questionnaires to a national sample of 4,584 chief executive officers and senior officers of banks and savings institutions with assets in excess of $100 million. A total of 334 completed questionnaires were returned for a response rate of 7.3 percent, yielding a margin of error of +/- 5.4 percent. More than two-thirds (69%) of the respondents report assets of less than $500 million, with 31 percent reporting assets greater than $500 million. The executives defined the community they primarily serve as suburban (42%), rural (40%) and/or urban (18%). Almost one-third (31%) are publicly held, 54 percent are private corporations, and 15 percent have mutual charters.