As margins continue to get tighter, competition is going to get tougher, and you can’t do a thing to change them. To succeed in a low-margin market you must focus on increasing non-interest income in a way that adds value to the experience as seen by your primary asset: your customers.

Recognize the signs.
The winds of change are blowing in today’s marketplace and will affect your continued growth. There is very little asset and liability pricing elasticity to draw on, which could lead to a negative impact on earnings and capital levels. It is an unfortunate reality that liabilities will reprice more quickly than asset yields when interest rates change, making your bank liability sensitive and reducing your net interest margin.

We know that the rate of loan growth will slow during periods of rising interest rates, increasing levels of consumer debt, and higher oil prices. This will also have a negative impact on the origination of home mortgages and home equity lines of credit, biting into your origination fee income as well as your interest income.

You should expect higher interest rates to cause consumers to spend less and start to save more, leading to increased competition for deposit accounts. Now is a good time to begin a careful analysis of your rates and the benefits you offer your customers as competition for these deposit increases across the financial industry.

Ways to improve your bottom line.
The focus should turn to finding new noninterest income streams to compensate for opposing market influences. Consider conducting an audit of every service you offer that generates fees. If your bank is without the internal resources to conduct such an audit, look at engaging a third-party consultant to perform an evaluation of current programs and fees.

A third-party provider should also conduct a review of your policies, test the consumer friendliness of your programs, and evaluate key performance indicators. With their insight you will then be in a better position to see what measures you should take to positively impact your bottom line. A consistently proven method of margin enhancement is increasing operational fees. Consider the following: