It wouldn’t be easy to predict what might happen in the state’s banking sector in 2021 without first looking back.
“2020 has certainly been a tough environment,” said George Gleason, chairman and chief executive officer of Bank OZK in Little Rock, the state’s largest bank. “I don’t know if I would rate it more difficult [year] in my 41 year career. But it has been a difficult year.
The COVID-19 pandemic presented serious challenges for banks in 2020. As the economic effects of the health crisis spread, retail banks found themselves faced with broad priorities that required a specific line of action for the moment – think about paycheck protection program loans – while rethinking strategies for the future.
“I’m optimistic 2021 will be more routine than 2020,” said Jon Harrell, president and CEO of Generations Bank at Rogers and chairman of the Arkansas Bankers Association. “But the impact of 2020 will continue into next year. Community banks continue to work with clients to get their PPP loans canceled and there are still important areas of our markets like hospitality and retail that we will continue to work with until things get right. stabilize.
According to the latest data from the Federal Deposit Insurance Corp. (FDIC), Arkansas’ 86 federally insured lenders reported cumulative net income of $ 999 million in the third quarter of 2020, down 18% from a year ago. Banks increased their combined assets to $ 131.14 billion, up 17% year-over-year. Deposits reached $ 105.82 billion.
Brad Crain is President and CEO of Arvest Benton County, the largest of the company’s 14 locally managed markets in Arkansas, Kansas, Missouri and Oklahoma. He said that while the impact of COVID-19 on the banking sector is not yet fully understood, it will not be as significant as the 2008 financial crisis.
“Much of the outlook for 2021 will depend on any upcoming government stimulus and relief measures and how long it will take for the consumer to fully rebound,” Crain said. “Most importantly, I believe that banks will continue to be reliable stabilizers for our communities and customers – both consumers and business – and for the economy in general.
“We are here, more than ever, to provide the products and services our customers need.”
The three banking executives agree that products and services in 2021 will continue to focus on technological improvements. When the pandemic arrived, most banks entered a crisis mode of building or expanding digital capabilities that allowed customers to conduct banking business without stepping into a physical branch. Capitalizing on the newly formed customer habits in 2020 will be a priority.
“The technology and ease of use of banking products will continue to be critical to the future of the industry,” said Harrell. “It will also affect what the future bank branch will look like.”
Gleason said Bank OZK has been committed to developing its technological know-how for several years. A group of around 50 software engineers, code writers, and application builders known as OZK Labs are based in St. Petersburg, Florida.
“Banks that have significant technology products and services will thrive, and banks that have mid to inferior technology products to serve their customers will be challenged to keep pace,” said Gleason. “Customer demands for technological solutions are increasing every day.”
Crain said some industry analysts say digital channel adoption has been brought forward 5 to 10 years due to the COVID-19 pandemic.
“The digitization of banking services has accelerated over the past year, and I expect this to continue,” Crain said. “Customer satisfaction in the face of increasing digitization must be at the heart of the concerns. How banks will create blended service models that combine both digital and in-person to improve customer satisfaction is critical.
“Before COVID-19, withdrawing and depositing cash were the main activities of branches. As digital payments become the norm, we expect the branch to become a place for meaningful discussions about the financial well-being of customers. Banks that have invested in robust digital channels are likely to experience solid growth and a more stable customer base if they can balance that with a high quality customer experience by being their customers’ financial advisors in the branch experience. “
Gleason described a bank’s relationship with customers as symbiotic – what’s good for customers is good for the bank, and vice versa. He said the better prospect for the two in 2021 was the favorable prospect of widespread distribution of the COVID-19 vaccine.
“It will ultimately put this COVID-19 pandemic behind us,” he said. “It’s going to be good for our customers and the economy, and it’s going to be good for the banks.”
Harrell said the low interest rate environment would lower banks’ net interest margins, which is of concern. This puts pressure on banks to look for ways to increase non-interest income.
“The surge in the residential real estate market has been one of the positives in the low interest rate environment,” he said. “Assuming demand remains strong, home sales and refinancing are a good source of non-interest income for banks.”
Working from home will continue to impact many businesses, including banks. Harrell said it appears productivity hasn’t suffered, while the potential cost savings from lower overheads puzzled many organizations. Crain said from an operations perspective, he expects banks, like other industries, to continue to adapt to employees working remotely and emphasizing flexible workplace models.