With rates normalizing, the small business (SB) segment has proven to be one of the last bastions of stable low-cost deposits. SBs were the most sensitive to the covid/stimulus-driven deposit surge, and combined with the impact of inflation and rate increases, the result has now been larger runoffs of deposits across the industry.
Relative to consumer and commercial segments, SB deposits still have a very high DDA concentration (~2/3rd), but the shift to higher rate CDs and Savings and its impact on segment P&Ls have been material. And because of growing competition, SB acquisition rates continue to be much higher than portfolio rates (see chart).
As a near-term response, product and pricing strategies need to mitigate cost increases while managing balance acquisition and retention. Based on data from the Curinos Small Business Deposit Analyzer and our perspectives from working across the industry, these could include CD renewal, back book repricing leveraging price elasticity, promos/product options, and selective rate exceptions. Through it all, banks need to reinvest in growth of higher quality relationships and deposits – leveraging rates based on the strength of those relationships.
Portfolio and Acquisition Rates | Small Business Deposits | Traditional Banks
Despite acquisition rates pulling back with the down cycle, portfolio rates will
likely stay elevated, putting significant pressure on SB segment profitability.
Source: Small Business Deposit Analyzer
