Citizens Financial Group (NYSE: CFG), with $ 187 billion in assets, has seen excellent growth, with the stock rising more than 49% in 2021. Like much of the banking industry, the Rhode Island-based lender has benefited from the economic recovery after a year 2020 difficult. While Citizens is a standard regional bank in many ways, its strategy and track record is different from its peers. This makes it an interesting game in a crowded industry.
More exposure to the consumer
Since the Great Recession, many banks have focused less on consumer credit and more on commercial lending. If you look at any of Citizens’ peers, their loan portfolios are more focused on the commercial sector than the consumer market. Citizens, on the other hand, have focused much more on consumer loans. At the end of the third quarter, the bank had more than $ 65 billion in consumer loans compared to nearly $ 58 billion in commercial loans. This mix will likely be closer to a 50-50 split once commercial loans rebound. Even then, Citizen’s loan portfolio will lean more toward consumer lending than its peers.
This benefited the bank in the third quarter, as consumer loans rose 3% while trade balances fell 2% from the previous quarter. Strong contributions came from residential mortgages, which rose 5% as interest rates remained low, and auto loans, which rose 6% in the quarter.
Its “other personal” loan category, which includes unsecured personal lines of credit and Citizens Pay, a buy-now, pay-back product, continued to decline. But that’s because the bank is intentionally depleting its portfolio of unsecured personal lines of credit. Management said Citizens Pay loan balances were actually up 40% year over year. Once unsecured lines of credit stop declining, expect this company to make a solid contribution to the growth of Citizens’ consumer portfolio.
The composition of the citizens’ balance sheet is useful at this time. As many banks that rely more on commercial loans struggle for loan growth, consumer loans to citizens bear the burden. Meanwhile, the bank has the potential for more growth when commercial borrowing rebounds and interest rates rise. Management expects total loan growth of 3% for the fourth quarter.
A good strategic plan
Citizens have had this mix of consumer loans since its split from the Royal Bank of Scotland, now NatWest Group PLC-ADR (NYSE: NWG), at the end of 2015. But in recent years, management has developed a much better strategic plan for its consumer banking operations and is working on the development of a national consumer bank.
That effort started with its high-yield online savings account, called Citizens Access, a national digital platform. As of 2018, Citizens Access has accumulated approximately $ 5 billion in deposits across all 50 states. The bank will migrate these customers to a new cloud-based platform that will bring checking accounts to Citizens Access; chequing accounts generate less expensive deposits than savings accounts. Then, once the bank has finalized its current acquisition of 80 of the HSBC (NYSE: HSBC) In the United States, it could add up to 400,000 new customers to Citizens Access, a significant customer expansion.
Once Citizens Access is migrated to the new platform, the bank will focus on rolling out all of its consumer products, including mortgages, automotive, student loans, Citizens Pay and wealth management, in many areas. best digital formats. Next, I suspect management will think about how to integrate these loan products into Citizens Access and sell them to their national digital customer base.
Execution is the key
Execution will be the key for the national bank of digital consumers. Citizens need to create an easy-to-use digital platform and experience that encourages customers to buy multiple financial products, making them more profitable for the bank. To do this, citizens need to seamlessly combine digital chequing and savings accounts with consumer credit and wealth management products. The bank has the opportunity to create a powerful engine of growth that will allow it to continue to stand out from its peers.
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