Profitability is the degree to which an activity yields profit or financial gain. While this concept is simple to understand, in reviewing a bank’s financial statements where profitability can be easily measured for past performance, bankers often don’t measure the profitability of a loan at inception and certainly not with the same level of certainty.
“Squirrel!” was a common refrain at meetings when some staff members saw the next shiny technology object that we just had to have – usually because a large bank was rolling it out. Saying “squirrel” became code for “let’s stay focused.” The real problem was that many suggested projects were actually worthy of attention and investment. Further, we had no framework for evaluating innovation and deciding how many projects to tackle in a given year and in what sequence.
Credit is always changing and we watch a variety of markers such as corporate bond credit spreads, vacancy rates, net effective rents and many others in order to help us understand credit. Three of those important credit metrics are the probability of default (POD) by industry, the rate of change of that POD and the volatility of credit of each industry. We just got fourth-quarter forward-looking, through cycle probabilities of default in driven by PayNet and have run our analytics.
How many times have you seen this – you present a proposal to one of your bank’s potential customers and you go back and forth on a particular term or set of terms. For loans, the discussion is often over amount, rate, term, amortization or guarantees. For deposits, it is often over fees, services or rates. More than 60% of the cases that we have observed, the seasoned business development officer bargains when they should be negotiating. Worse yet, they don’t even know the difference, and as a result, they lack a major tool in relationship development.
No doubt you are sick of hearing how “big data” will change bank marketing. As we have said before, it is all about “small data” and how to leverage simple sources of data to boost the bank’s brand and products. The question that most banks have is where do you get this data? Below is a breakdown of common sources of data that can boost your digital marketing efforts. Oddly, missing is credit file information, but we will tackle that another day. In this article, we highlight where and how to leverage some key sources of data that matters.
Last month we, along with CS Consulting Group and the Banking Exchange, asked bankers to complete the survey on their current challenges and what tactics they are employing to overcome those challenges. An overwhelming 79% of bankers expressed a need to find new strategies, lines of business, methods, or a transformation of their business model, to better compete going forward. While banking faces many challenges, the survey results show that bankers have a clear view of the future and a plan for how to get there.
In two previous articles on the utilization of scale when it comes to lending, we analyzed certain variables on all commercial mortgages originated in 2017 by all bank lenders. We looked at (HERE) the relationship between the size of a commercial loan and the loan’s profitability.
Years ago we discovered that most bank customers don’t specifically need a physical branch they just want the comfort of knowing they CAN go to a branch. The difference is subtle but important for banks looking to evolve their channel delivery. Over the past eight months, we have learned from focus groups and experiments that what customers want above all else, is a private banker.
In a recent blog (HERE), we reviewed and analyzed commercial mortgage loans originated in 2017, and we identified some strategies that community banks could deploy immediately in 2018 to increase their return on assets (ROA).
Let’s pick up where we left off in Part 2. In that post, we covered interest deductibility, provided a prioritized list of industries of where banks can make their largest impact based on profitability, and looked at how to advise companies with international operations. In this article, we wrap up the series by looking at how the new Tax Cut and Jobs Act of 2017 (TCJA) impacts net operating losses, tax impairments and different types of financing.
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