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PCBB Banc Investment Daily December 21, 2016
Banc Investment Daily
December 21, 2016

Flying Pigs And A Healthy Opportunity

Is the trough half full or half empty? A team of British scientists who studied 36 pigs found pessimistic pigs were much more influenced by their environment when making a decision than optimistic pigs. The optimistic pigs could live in the most basic conditions and were still curious about an unknown substance that suddenly appeared, without external enticement. On the other hand, pessimistic pigs thought it was something "bad tasting" if they lived in primitive conditions and were more encouraged it was something "good tasting," if they were living in deluxe conditions. Bottom line: Mood plays a key role in the pessimistic pigs' new experiences but not so much for their optimistic brethren. Taking a cue from the optimistic pigs, community banks may be seeing more business come from the healthcare sector.
While millennials seem to dominate the headlines and are a major focus of marketers these days, it is baby boomers that may well have the biggest impact on the federal US deficit over the next few decades. Baby boomers are a group of roughly 75mm members, second only to millennials in size. As baby boomers begin moving towards old age, the healthcare industry is bracing for a major increase in overall demand for medical services, as well as a major jump in the need for specialized care. These are great areas of growth for the same businesses that many community banks already serve.
Between the overall size of the baby boomer generation, its combined wealth and its general expectation for a high quality of life, healthcare spending among members of this group is expected to soar well beyond the 17.5% of the GDP that healthcare spending accounted for in 2014. In fact, according to the IMF, the global healthcare sector is expected to experience 6% growth over the next 10Ys. Given this reality, healthcare is one area that could potentially help community banks boost revenues on a long-term basis.
Given healthcare providers and businesses ranging from medical supply companies to hospitals are expected to experience significantly heightened demand, many of these organizations will need loans to expand and meet that demand. Additionally, given the intricate web of service providers and insurers involved in providing healthcare services, payment services is another area of business that community banks can tap to boost the bottom line.
Of course, given the myriad of regulations governing the industry and ongoing changes due to legislation, it goes without saying that community banks should also take the time to develop a firm understanding of the issues unique to the industry. One way to do this is to recruit banking professionals with experience in the sector before diving into healthcare lending perhaps. It is also important to know which businesses within the sector are legitimately poised for long-term growth, and which may have more limited expansion prospects.
Not knowing exactly how the healthcare sector changes will all play out, we suggest keeping in touch with your local healthcare businesses and asking tons of questions. In so doing, you will likely remain optimistic vs. pessimistic and so won't have to wait for pigs to fly to reap the benefits of expanding your lending activities further into healthcare.