Garnet Capital Advisors Blog

EXCERPT: With economic uncertainty still lurking and the impact of the recent slash in interest rates, banks need to be more carefully assessing their portfolios. Thinking long-term about growth and asset management is prudent.  

Healthy banks are taking a more long-term stance when it comes to growth and asset management.

With economic uncertainty looming and concerns over the effect of a cut in interest rates, banks should be taking a harder look at their assets to ensure a healthy outlook over the long term.  

Over recent years, the Federal Reserve has been steadily increasing rates, but in its last meeting, it actually cut rates for the first time since the economic debacle over a decade ago.

After inching the rate up to 2.5 percent in December 2018, the Fed said that it would keep it within the 2.25 to 2.5 percent range. After the recent quarter-point cut, the rate is now down to just short of 2.25 percent.

The move comes despite recent economic growth, historically low unemployment rates, and healthy consumer spending. That said, the move to cut rates is likely due to doubt surrounding global growth and low inflation, since both may place the U.S. economy at risk.

At this point, banks and lenders can only estimate what the central bank's next move will be, whether it's to slash rates further, leave them as is, or inch them up once again. Even after their best guess, banks will also have to decide how to react.

Low rates could drive more revenue through mortgage loans and loosen the competition for deposits. On the other hand, however, they could make it more difficult for lenders to profit from interest income.

Whatever the case may be, banks should take a long-term view of revenue growth and asset management. And with the latest announcement from the Federal Reserve, many lenders are in a more uncertain position compared to where they may have been just a few months earlier.  

The Federal Reserve recently cut rates for the first time since the recession over a decade ago. How will this impact banks' revenue?

To remain healthy and competitive, many banks are taking measures to grow their revenue streams. But rather than slashing costs in order to keep profits healthy, savvy banks are on the lookout for the next big that will provide them with the opportunity to grow their revenue and diversify their portfolios.

In fact, healthy banks are those that are always seeking to grow their revenue streams, adding new products, and expanding their customer base. Doing so will allow banks to be more capable of pouncing on an opportunity when it arises without having to worry about how to cover the cost of such investments.

Citizens Financial Group, for instance, is taking a long view of revenue growth by spending on new technology by focusing on an initiative known as Tapping Our Potential that is believed to help boost revenue. And even though expenses for the bank increased 9 percent year over year, the initiative is expected to boost business.

For example, improving point-of-sale payments, enhancing digital offerings for customers in the commercial realm, and even doing a handful of smaller deals with nonbanks every year could help.

This is just one example of a healthy bank that has its sights set on staying healthy, and becoming even more robust. And others should follow suit.

Banks and lenders should take a closer look at their loan portfolios and identify areas of weakness and risk, and replace any associated assets with much more robust ones that can better withstand any turbulence in the economic landscape. And Garnet Capital can help with that.

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