Overcoming the loan-deposit mismatch of today


“Where banks integrate into the new world of credit”, BAI’s latest executive report identifies emerging opportunities for banks and credit unions as mortgage refinancing loses momentum.

Several rounds of pandemic stimulus over the past year have, among other things, helped create an unusually low match between bank deposits and lending activity.

So many people have saved up such large chunks of their federal checks that the personal savings rate has hit an all-time high. The monthly savings rate has averaged 18% of disposable income since March 2020, according to data from the Federal Reserve Bank of St. Louis. For comparison, before the pandemic, the savings rate hit a low double-digit rate in just three isolated months dating back to 1985.

At the same time, deposits reached record levels, lending fell to historically low levels in some categories, including residential and commercial real estate loans as a percentage of bank assets. Mortgage refinancings fell sharply in 2021. Banks’ loan-to-deposit ratio was below 60% in the first quarter of this year, which helped to tighten net interest margins.

A vaccine-propelled economic recovery could start to reverse many of these trends and could push up interest rates as well. In this executive report, we examine where some lending opportunities might lie in an improving macroeconomic environment.

In our lead article, contributing writer Ed Lawler tells us that many of these opportunities appear to grow slowly in 2021. The aforementioned abundance of cash available is certainly a factor, and we have yet to see what will thwart it. the sharp drop in mortgage loans. refinancing, which has been the source of so much activity in recent years.

New mortgages are expected to fill some of that void, as the pandemic has sparked a home-buying frenzy that has quickly eaten away at already depleted home stocks. Some corners of commercial real estate can also be successful, market watchers tell Lawler.

But for banks and credit unions, there is also increased competition in the lending space, including from fintechs whose algorithms have been successful in delivering Paycheck Protection Program loans, a an area in which many traditional institutions have struggled.

Another product that may have potential during this unusual time is the personal loan. Stephenie Williams of Harland Clarke points out in her article that personal loans have been the fastest growing part of the consumer debt arena, with balances tripling over the past decade.

Fintechs are well established in the personal loan market, and peer-to-peer lending is also on the rise. But there is room for banks and credit unions to establish a larger presence, Williams writes, first by better leveraging their data treasure to identify potential loan candidates, and then delivering the right customer experience. .

The growing ranks of non-bank lenders also include many tech companies, one of which is the AAA wreckers with deep pockets: Apple, Alphabet (Google) and Amazon. Given their financial weight and their history of disrupting entire industries, it’s no wonder that, according to one estimate, 80% of financial service providers are worried about their future prospects.

Our article by writer Dawn Wotapka says that being nervous is a good start – banks and credit unions must first understand and accept that disruptors are here to stay and, more specifically, they are gaining traction. Then comes the battle plan.

Better technology should be at the heart of this plan, she writes. “Providing an end-to-end digital lending solution should be the top priority of every community bank and credit union,” suggests one of its expert sources. Seeking profitable customer segments with personalized offers is another imperative.

Here are some highlights from other articles in this executive report:

  • I interview Brad McConnell of Chicago-based lender Allies for Community Business, about how his organization threw away the credit scoring rulebook and is going his own way in assessing repayment risk for his small business clients in the underserved west and south of the city. sides.
  • Greg Kanevski of ServiceNow explains how to use technology to streamline lending and give business teams, as well as borrowers, better visibility into the process every step of the way. The results, he says, are happier customers and better profitability.
  • And Total Expert’s JJ Slygh writes about how to improve CX in a way that creates SUPER fans (yes, that’s an acronym) that generates more customers. This deepens banking relationships, including lending, to increase results.

Terry Badger, CFA, is the editor-in-chief of BAI.

Download “Where banks integrate into the new world of credit”, BAI’s latest executive report.


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