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Six weeks into 2023 and there are signs of opportunities and challenges ahead for Kansas banks. While deals are happening at the corporate level and providing banks with plenty of lending opportunities, they have slowed and margins are tightening.
On the flip side, loan portfolios are still very clean across the board.
Beyond transactions, restructurings, workouts and foreclosures are slowly on the rise, which may be a sign the tides are turning the wrong way.
One thing is for certain: it will be difficult for banks to make money in the foreseeable future.
Kansas banks have a tough road ahead in 2023 with several factors affecting their operations, competitiveness and profit margins. Here are four key challenges:
Rising Interest Rates: With most loans currently on the books at lower rates, the cost of funds for deposits and bank borrowings are squeezing profit margins. Banks must now find alternative ways to generate revenue, and those options are limited in this economy.
Asset Quality/Heightened Regulatory Scrutiny: Are we in a recession? Is it coming? The "experts" cannot make up their minds. Regardless, examiners are moving forward as if recession is upon us. Asset quality remains high overall; however, with the increased scrutiny, credits that passed with flying colors 12 months ago are now being attacked. Banks need to be prepared for this reality and enhance documentation as retail, hospitality and agricultural loans will get a harder look than they did over the last few years.
Competition from Fintech and Digital Banks: The continued rise of fintech and digital banks (through technology and ease of use) is impacting traditional banks' market share. Competition for both deposits and retail loans is fierce. To stand out from the competition, Kansas banks need to focus on traditional, service-orientated banking that sets them apart while at the same time embracing the digital transformation and offering innovative services.
Retaining Talent: Attracting and retaining talent with the requisite skills and experience is always difficult. Today those challenges are amplified by full employment, a shortage of skilled employees and inflationary pressure. Plus, skilled bankers are routinely lured away to competing banks for substantial increases in compensation—sometimes for salaries 20 to 40 percent above their current compensation. Running lean is becoming harder and harder.
How Kennedy Berkley Can Help
Kennedy Berkley represents many Kansas banks, and our lawyers serve as bank directors, which provides us with an in-depth view of the current banking climate. Whether your institution is looking for counsel on how to generate revenue, enhance compliance programs, innovate service offerings or attract talent, we can help you navigate this challenging time.
To discuss any of the promises or pitfalls facing Kansas banks this year, please contact Jim Angell at jangell@kenberk.com or (785) 833-5018.