What’s on Bankers’ Minds?
Recently I was one of the instructors at the Advanced Agricultural Bankers School in Spearfish, South Dakota. A week after the Sturgis bike rally found the area to be back to normal and ready for some good old-fashioned schooling.
Bankers were asked, “What are the biggest challenges you face concerning the profitability and sustainability of the bank?”
A number of banks are facing a human resource issues. Many of the experienced agrilenders will retire in five years, which will leave a tremendous void. This will challenge you as producers because the new lenders will frequently have little or no farm or ranch background, or they were trained about the numbers but lack the background in strategic and day-to-day issues.
Many banks were facing competition from other lenders, i.e. input supply dealers and possibly Rabobank and Farm Credit. They indicated the customers are more interest rate-driven due to tight margins.
Some lenders faced the challenge of attracting deposits with low rates. The money is now invested in land for higher rates of return. They also said that it is an incredible shrinking marketplace due to cash flow margins and high land prices.
Banks suggested that government regulation is becoming a bigger burden on time and money as they pursue new profitable loans. One indicated that they have to hire a full time compliance person to handle regulation, which adds to overhead.
The aging customer base was a concern. Challenges with declining rural communities were high on the list from the community bankers. Keeping abreast of technology and change in agriculture while having a wide range of job responsibilities was a challenge.
Side Note A chief bank examiner was asked what was the number one factor in the growth and profit of a bank:
Answer: Strategic plans with a schedule of implementation
Result: Banks that had plans were growing at a 20% rate.
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Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups.
To see Dave Kohl's previous road warrior adventures type Dave Kohl in the Search blank at the top of the page.
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