Tag: Bank Profitability

How To Manage The Carry Trade in Banking

The absolute level of interest rates is an important factor in bank profitability because of the carry trade in commercial banking. Here, whether banks admit it or not, a material amount of the return is driven off speculation of interest rates and liquidity.

Getting Rid of Paper Statements in Banking

Increasing Bank Productivity

In the quest for greater efficiency, getting rid of paper is low hanging fruit. A typical community bank has done a good job, but they are still generating paper statements for 50% of their accounts or more. The good news is that the percentage of electronic statements has doubled over the past two years so banks are doing a good job at conversion.  The bad news is that some banks are approaching e-statements for 70% of their accounts.

What Machine Learning Taught Us about Our Branches

Branch Models

These days, if you want to make tough branch decisions, use a good college student instead of an experienced banker. We will come back to the college student but, in this post, we pitted experienced bankers against the latest branch models against the latest machine learning applications to see which method was more accurate at predicting branch performance. The answers will not only surprise you but what we learned along the way will help improve your thinking about branching, machine learning and the new paradigm of quantitative banking.

 

3 Best Ways Your Bank Can Prospect For New Loan Business

Prospecting For New Loan Business

The number one reason that banks struggle to grow their commercial business is their relationship managers don’t have enough time. Credit memos, compliance, administration and a whole host of other tasks take up the day leaving very little time to bundle a steady pipeline of profitable accounts. However, next to streamlining your calling officer’s day, the next largest impediment to prospecting is the lack of knowledge.

Example: A Rewards Program For Your Bank

Using Rewards to Drive Bank Profitability

We are here at the ICBA Annual Conference in New Orleans and we have a variety of topics we are trying to research. One such topic is what is the most effective rewards program for driving behavior, as Chase, Wells Fargo and Bank of America are making strong inroads into this area and are set to further expand their offerings.  We dislike any program that rewards on rate, as that teaches customers to be more rate-sensitive. It is far better, in our opinion, to give away services, products or even experiences.

USAA’s Brilliant Move in Scoring Their Customer

Customer Engagement Thru Financial Readiness Score

A couple months ago USAA rolled out their “Financial Readiness Score” and it represents a simple, but brilliant innovation that will have a major impact on customer profitability and engagement. The product taps into the “quantified self” movement, the same concept behind Fitbit and others, and is starting to get common in banking.  While credit scores are common, this “readiness” score is an interactive framework that leads customers down a path in order to get them more prepared for the future while serving to increase profitability for the bank.

Commercial Lending Strategies That Work

Using hedge and swaps in commercial lending

The competition for qualified borrowers is intense, and both pricing and structure are being compromised.  In our dealing with hundreds of banks and thousands of borrowers, we observe strategies and structures that have worked for our customers.  In today’s competitive environment, it is important that bankers keep a close watch of what is working and think creatively to try to maintain structure and price.  We would like to share ten strategies that we and other community banks have effectively deployed to win bus

Your Loan Portfolio’s Private Parts

Quantifying Lending and Credit Risk

Three weeks ago we gave bankers a quick way to translate commercial real estate portfolios into a common rating using simplified methodology (HERE) in order to quickly access their portfolio or a portfolio for purchase. We received many comments from bankers wanting to know more of a detailed approach to accessing credit by loan type and wanting to know how C&I fit into a ratings construct.

Three Reasons Why We Offer Three Loan Choices

Loan structuring

If you’ve ever been to any of our lender training (including our own), you have heard us promote the power of giving every borrower three loan structuring choices. In fact, if you use our free loan proposal generator (HERE), it is set up to promote three loan choices. For example, if we are presenting a refinancing option for a commercial real estate property, we would provide a 7-year floating rate, a 7-year fixed rate and a 10-year fixed rate.

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