Author: Clarke Farmer, CFarmer@ProfitStars.com
My family recently vacationed in the mountains. The highlight of the trip was our hike to the summit of Wheeler Peak near Taos, NM. As you know, a stroll up to 13,161 feet can become quite dangerous in July if one lingers too long to enjoy the view. It didn’t seem to matter how prepared we were for the hazards of the journey, I still couldn’t get my wife and kids down that mountain fast enough when the afternoon storms started brewing. Furthermore, I’m not sure why I subjected my poor body to the aches and pains that followed the next day. Wouldn’t it be nice if lenders could simply “head down the mountain” when things get dangerous or painful with a lending relationship?
After a few conversations with lenders I’ve met in my travels, I am curious to know more about what causes “pain” for lenders in this post-recession era. How have those concerns changed in recent years?
What I have so far seems consistent with most time-honored industry issues, elementary to those lenders that have been around for a while. Below is a very brief summary of a few items gathered over coffee. Please consider chiming in to add your commentary.
Credit losses rank at the top of my client’s concerns. This usually occurs when the business becomes less profitable, undercapitalized or shrinks. The causes seem consistent over time:
- Changes in the industry
- Changes in the local market or economy
- Something specific to the borrower such as poor or ineffective management
Losing a new client opportunity to competition ranks high as well. With the strong liquidity of recent years, many institutions are hungry for new loan business. A lender whose compensation plan is influenced by portfolio loan growth doesn’t want to lose any good business to the other guys. The challenges remain historically consistent here. How do we maintain credit standards while haggling over the rates, terms and products?
Losing a good current customer to the competition can be personally painful for the lender. All of the variables affecting new relationships apply, in addition to the customer’s banking experience. If the personal relationships are solid, what caused the customer to make the business decision to leave? Was it…
- Rate, terms or product?
- A customer service issue?
- An organizational/reputational issue with the institution?
How does today’s regulatory environment impact all of the above? The most senior bank executives I visited believe this has a significant ripple effect. Consider just a few of the negative effects caused by enhanced regulatory pressures:
- Dilutes staffing – placing more administrative responsibly on customer-facing bank employees; may reduce quality of customer service
- Limits ability to offer product variety
- Limits ability to offer broader range of terms or structure
So, what have I missed? I’m thinking about additional variables such as client-facing technology, mobile applications, non-bank competition or organizational culture.
As readers of this blog, what would you add to the discussion from your perspective?