Introduction
Fifth Third Bancorp, has performed beyond market expectations in the financial sector. The bank has managed to increase its revenues even though many other financial firms are struggling due to the slump in economic growth. Fifth Third Bancorp is lending out more money to investors after initiating several cost-cutting changes in its operations. The firm has managed to attract more borrowers from the energy sector due to its expansion in the last quarter of 2012.
In the past, the firm focused more on commercial lending but the low demand for loans in the country encouraged it to expand into other areas of the market. The firm has carried out an expansion plan which has seen it extend its lending portfolio to target other corporate firms in the country. The firm also lends to healthcare firms, a shift that has brought it positive returns (Rieker).
Impact of Cost Cutting
Fifth Third Bancorp has increased the amount of money it lends out to borrowers. The firm experienced an increase of 5% on the money it lends out to borrowers. Commercial and industrial loans have risen by 14%, which shows that the decision to focus on new corporate clients by the firm has paid off. However, the firm’s profit has reduced by 2% because of the economic slump being experienced in all key sectors in the country. The firm’s decision to cut costs had a positive impact on its operations because it managed to reduce its expenses by 978 million dollars. The company’s net interest income was reduced by 1% because of poor growth prospects in the financial sector. Fifth Bank is one of the few financial firms in the country which has managed to register a positive increase in net interest income (Rieker).
Financial Sector Slump
Market analysts opine that the firm has attracted clients who left other banks because they were attracted to its services. Most corporate borrowers took loans from the bank to help them strengthen their operations. Financial analysts predict the economy will continue to experience a slump shortly, which will have a big effect on the financial sector. Interest rates are likely to remain low because many business firms are not interested in borrowing loans from lending institutions.
Towards the end of 2012, many business borrowers were not willing to obtain credit from financial institutions (Rieker). More banks are following in the firm’s footsteps and they are implementing a raft of cost-cutting policies to reduce their operational expenses. BB & T Corp. and Key Corp. are some of the few financial firms which have registered positive growth in revenues after implementing cost-cutting measures.
BB&T’s profits were reduced by 44% to 240 million dollars but its revenues grew by 5% to 2.42 billion dollars in the first quarter of 2013. Winston- Salem bank’s expenses rose by 2% in the first quarter compared to the same period last year. However, Key Corp’s first-quarter profit rose by 2% to 204 million dollars in the first quarter compared to last year. Key Corp’s revenues rose by 1.3% to 1 billion dollars. The firm’s operational expenses were reduced by 7.2%, in the fourth quarter of 2012, due to a reduction in human resource expenses. It is estimated that these cost-cutting measures by financial firms will create a positive environment to enable them to increase lending revenues. Analysts argue that cost-cutting measures will impact positively the operations of many financial services firms in the country.
Works Cited
Rieker, Matthias. “Fifth Third Defies Trend, Lends With Loan Growth.” Wall Street Journal. Wall Street Journal , 2013. Web.