Growing loan revenue is one of the top goals of every financial institution. It’s particularly important right now, as climbing interest rates and increased scrutiny make new loans less attractive to customers. As competition to sell loans intensifies, banks must find new ways to reach existing customers in order to be successful – and to avoid having another bank take them away.
The problem: Poaching customers isn’t enough
FIS conducted a study of community bank executives earlier this year, asking what they considered to be the top issues they face. Respondents overwhelmingly listed growing lending revenue as important or very important. In fact, with a 96% response rate, it was the No. 1 concern. While the importance of loan growth shouldn’t come as a surprise, the way many financial institutions are addressing it might.
Rather than focus on organic loan growth and find ways to meet additional needs of current customers, many banks are trying to compete against each other and poach customers. This is shortsighted, however, as it prevents banks from adding potential new revenue streams, avoids building new and deeper relationships with high-quality customers, and leaves banks more susceptible to client-poaching from competitors with newer or more enticing offers.
In order to remain successful and grow lending revenue, banks must keep their customers in house by ensuring that all of their customers’ needs are met.
The solution: Be the financial institution your customers want (and need)
The key to loan growth and margin income improvements is making your bank the best option for your customers. To do that, you must understand market potential, provide superior product packages and deliver timely, high-quality service, including accelerated credit decisions and faster funding of approved loans.
Many bankers already know their banks need to improve in these areas, but making changes to all of their efforts at the same time seems too daunting to accomplish. Fortunately, breaking it into simple steps can alleviate the pressure. Here’s how:
Re-evaluate customers, markets and fair share potential – Combine your existing market intelligence with available third-party data and insights on market potential to determine how to best serve prime customers. Compare the profitability of your existing relationships, particularly single-service customers, to see if there are additional avenues for growth. And evaluate new markets for loan production offices.
Reconsider product offerings and relationship packages – Look for areas where you can enhance non-credit products and service offerings in order to increase your perceived value to customers. Also consider new lines of business or credit products that may expand your offerings to them.
Re-engineer business processes – It is vital that you accelerate the credit cycle for customers. Leverage your technology relationships to streamline processes and eliminate low-value work. With the appropriate tools and procedures in place, you can strengthen customer relationships, improve pricing and reduce delivery costs – thus increasing profitability.
Re-evaluate and redeploy personnel against redefined targets – With new opportunities available, it’s important that you review the skills of your sales staff; Match their aptitudes to areas of opportunity and offer professional development in areas where you want staff to grow. Also consider re-assigning your staff to locations or places of greatest need.
Restructure management reporting and incentive systems – To ensure continued growth and success, you must have accurate reporting that demonstrates the effectiveness of your changes. Also, make sure your goals and incentives align with the new objectives so you don’t slip into old patterns.
The first step
Your bank probably already possesses much of the data necessary to begin driving organic loan growth. To make a successful change, you must begin using it properly.