April 01, 2005

Flush with optimism about the economy, community banks expect business to improve in 2005. Seventy-five percent of bank executives and audit committee chairmen have a positive outlook regarding the national economy, and 77 percent expect community banks to have a better year in 2005, according to a recent survey by Chicago-based Grant Thornton, a global accounting, tax and business advisory organization. "Community banks feel that the economy is going to operate profitably and see a lot of opportunities out there to make loans and to make money," says John Ziegelbauer, managing partner, Grant Thornton's financial institution practice.

The study, based on 442 completed questionnaires answered by CEOs and senior officers of community banks, points out that improved business conditions may not translate immediately to growth for community banks that first need to get their operations up to speed. Complying with regulations such as Sarbanes-Oxley (SOX) and the Bank Secrecy Act (BSA) is likely to be a focus in the short term, Ziegelbauer relates. "Regulatory compliance is very time consuming and costly," he says.

The heavy cost of compliance has forced community banks to put spending on other technologies on the back burner, suggests Ziegelbauer. For example, "Customer relationship management is something people thought community banks were going to get into," he says. "But bankers are faced with so much compliance that they have limited resources. Their people are being forced to deal with compliance issues like BSA, the PATRIOT Act or SOX" rather than focusing on enhancing service offerings.

According to Ziegelbauer, in 2002, 60 percent of community banks expected to have CRM software by 2005. Of those banks, just 27 percent have actually invested in CRM technology. "Part of it involves being distracted with compliance challenges," he says.

Still, community banks are weighing growth strategies to remain competitive. "A lot of banks are interested in maintaining their presence in the market place," Ziegelbauer says.

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