Commercial Loan Automation
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BirdsEye Viewcommercial banking opportunities
Loan demand has been slack in most industries and most geographies throughout the country since the pandemic hit. $13T of government stimuli, coupled with PPP and various industries that ground to a halt overnight, contributed to the light loan demand. PPP masked some of the weakness, and forgiveness further contributed to line reduction. As the economy recovered, certain sectors, particularly those hit the hardest, recovered and roared back. Systemic changes in residential patterns also created some commercial opportunities, particularly in CRE. But, as durable goods demand remains unimpressive, so does C&I loan demand, which typically lags durable goods by about a year.
There are many bright spots around the country, from resort areas in Colorado and Massachusetts to cities such as Seattle, which rely on a somewhat closed-circuit economy due to the amazon effect and others like it. Elsewhere, the performance of local economies varies widely.
• Moving relationships from other banks remains the best opportunity for commercial bankers today.
Approaching prospects methodically while bringing the full bank to bear, beyond the narrow product line of commercial lending, are both essential to a successful “poaching” program.
Identify the more vulnerable banks first. Among the most typical reasons underlying current vulnerability are:
o PPP shortfalls
o Recent acquisitions
o Cultural issues that lead to employee exodus
Building a target list of coveted prospects as well as commercial bankers in banks that have been impacted by these situations and then approaching these targets in a methodical, organized and patient manner will yield dividends today and in the future. There are massive workforce shifts occurring as we approach the new normal post-pandemic, and they all offer embedded opportunities to those who are willing to invest in thoughtfully capturing them.
• Introducing “specials”.
“Specials” were always the domain of the retail bank, well outside the typical commercial bank’s wheelhouse. It’s time to ask “why”? “specials” are an effective sales tool/door opener across all industries and customer segments. It’s time to consider the application of this simple tool to drum up commercial demand and help recovering businesses buy the next piece of equipment they need sooner than later.
• Develop market-specific tactics and performance expectations to better reflect market opportunities.
The pandemic shone the light on immense regional differences not only across the country but within individual states and cities. East Washington State is dramatically different from West Washington State, as are neighboring towns in Connecticut and Rhode Island, for example. Constructing footprint-wide marketing plans and calling programs might not be the best approach in today’s geographically fragmented world. Recognizing localized demand surges and industry concentrations is more important than ever. This tool is largely the domain of the regional and community banks, as larger institutions often must employ system-wide policies and tactics. Capitalize upon your competitive advantage and show your marketplace what a local bank who truly understands their needs can do.
• Maintain and tighten credit structure and return expectations discipline in frothy sectors.
Now isn’t the time to loosen covenants, terms and conditions for new loans. Demand is rising in specific sectors, most notably real estate. As too many loan dollars chase too few deals, inevitably terms and pricing deteriorate. Be vigilant to ensure your profitability and risk management models are respected. There is still too much systemic uncertainty to know how the market will evolve post $13T of government spending, coupled with PPP forgiveness which now has finally reached even the $2+ million loans.
• Use your limited dollars CRE loan volume sparingly to optimize your risk-return trade-off
CRE is exploding these days, which makes the segment a relatively easier business to make your loan goals. Unfortunately, this segment also often enjoys excellent pricing and terms. Since you are limited to lending 300%/100% of your capital in total real estate and ADC loans, respectively, it is prudent to lend your CRE dollars extremely prudently so maximize your return on that portfolio. Some projects stand well on their own, but might not offer you the best risk/return tradeoff you’re looking for.
• Continue refining segment focus following shifts in consumer behaviors.
Certain industries suffered mightily during the pandemic, while others have flourished. Now is an excellent time to refine the segmentation of your commercial target markets. As I wrote in the past, terms such as “health care” are too broad to effectively operationalize either expertise and/or target marketing. Refine your segmentation and hone in on the specific sub-industries that benefited from the pandemic crisis.
For example, emergency rooms didn’t do so well during the pandemic, as hospitals were perceived to be unsafe by many. Elective procedures were delayed, as well as life-saving practices, to avoid personal exposure to hospitals.
Alternative health care models stepped into the breach to take care of burgeoning demand, such as urgent care centers, surgery centers and concierge medicine. Those would be excellent segments to go after.
Similarly, following an unprecedented wave of pet adoptions to combat the loneliness the pandemic imposed upon us, veterinarian clinics and pet groomers are proliferating rapidly to meet the surge in demand. Another excellent opportunity.
These are two examples of the approach I suggest you employ to better target your loan growth prospects and build expertise in servicing them. There are many others.
Next year’s loan growth expectations are shrouded in uncertainty. The tactics above, and others like them, should be used to take more control over 2022 loan production, to the extent possible.
The economic picture will continue to clarify with time, but planning for next year’s loan growth cannot wait.