business stuff, Dylan Gallagher

NIM (not short for nimrod) getting squeezed in Canada

There was an article posted today in the Financial Post that was headlined “End-of-the-party feel to BMO results” (see http://business.financialpost.com/2013/05/29/end-of-the-party-feel-to-bmo-results/“) which continued the recent run of articles on the declining or thinning NIM of the major banks in our county. NIM stands for Net Interest Margin or basically the spread that a bank earns between the bank’s cost of money and the interest rate that they earn on lending it out to consumers and businesses.

Being in the business of helping individuals and businesses access debt, I found this article of particular interest as the reasons for shrinking NIM’s as explained by the banks seems to be absent of one major point. Before you venture down the rabbit hole with me on this it is helpful to have a point of reference. Try to think back to your last encounter at a bank branch. Better yet, consider the last phone call you made to the 1-800 customer service lines of any major bank. Got it in your mind? Good, let’s proceed. My personal thoughts on one of the reasons for shrinking NIM’s is that the banks have enabled their products and services to be created and delivered on the basis of them being competitively priced commodities delivered by individuals that are trained to perform a job function with no room for value creation done by building relationships and helping customers make great decisions through education via engaging tools and technology all of which would assist in higher NIM’s.

Most businesses that compete on price tend to be market companies that dominant a marketplace and a serve a specific customer need. They fight to keep their dominance through working hard to provide the best price on products (and services) and cut away anything else that is a distraction. In our banking system we have several banks that all share the market place but are trying to perform (as per the dropping NIM’s) as dominant leaders. This doesn’t make any sense. You are either the lowest provider or you are not. You either have scale or you don’t. There are only so many customers in the market that need (or want) a mortgage. If the banks are all reporting and are disappointed with shrinking NIM’s, doesn’t that confirm they are all conducting business the same way hoping for different results? Wouldn’t this then suggest that improvements should be considered?

I have hope that someone at the banking level seems to be thinking about this. Recently, a new branch for a opened in my neighborhood and our home was visited by a someone at the branch who invited us down for a visit to discuss our finances. Unfortunately I couldn’t resist sharing my opinion about how fruitless that exercise would be but it did catch me off guard and make me think that banks could be capable of delivering value and demonstrate a desire to help customers.

So, shrinking NIM’s are a reality but so it the opportunity to use this “problem” as a catalyst for creating change and value. I have to do this in my business when faced with reality and would think that the banks will have to consider this as well. Be a dominant leader period. Find your customer and then work to serve them like nobody else. Value creation and delivery will be evident in margins and profitability. People pay for value. What do you think?

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