Lending & Credit Risk

Restoring Banking Optimism

Kylee Wooten

September 19, 2019

Read Time: 0 min

Lending + Credit Risk | 5 minute read

Key Takeaways

Optimism has declined amidst concerns over decelerated loan growth, an uncertain economy, and higher interest rates.
To overcome decelerated loan growth, some FIs are turning to fintech.
FIs can leverage technology to make more informed loan decisions to grow their lending portfolio – especially important during uncertain economic conditions.

Why is banking optimism on the decline?

Banking optimism hit a five-year high in 2017 among c-level executives at financial institutions, but this year, optimism took a sharp dip amidst concerns over decelerated loan growth, an uncertain economy, and higher interest rates, according to survey results by Cornerstone Advisors. Competition for deposits is high, but financial institutions are becoming savvier in finding ways to break through these banking slumps.

It wasn’t long ago that financial institutions were wary about the impact fintech would have on their traditional branches; however, fintech partnerships have become an integral part of many institutions’ success and growth. As financial institutions begin drawing up plans and goals for 2020, it’s important to consider the ways that fintech partnerships can help renew optimism and break through banking plateaus.

Top growth priorities for financial institutions, according to the same Cornerstone Advisors survey, include growing commercial loans, expanding their digital presence among online and mobile channels, and growing consumer deposits. And banks are privy to the fact that fintech can help in these areas. When it comes to determining the areas that banks and credit unions plan to focus their fintech efforts, an overwhelming 93 percent of bankers reported that a lending and credit product focus was important for their collaboration, and 96 percent reported digital account opening was at the top of their list.

So how, exactly are financial institutions leveraging fintech to solve these priorities and restore optimism? Let’s take a look.

Overcoming decelerated loan growth

If a financial institution is feeling anxious over decelerated loan growth, it may be time to consider partnering with a fintech that can enable it to streamline its lending process and automate repetitive, manual tasks. Traditional loan origination processes can be long and frustrating, as it often entails large spreadsheets, data to be re-entered numerous times, and constant document collection. To get an edge on loan growth, financial institutions should consider turning to automation to create a scalable origination and loan management process. Additionally, lending automation enables lending and credit professionals to free up time to focus on revenue-generating and customer-facing activities, rather than spending it on duplicative data entry and tracking down documentation.

Infographic of lending and credit automation - before and after

Download infographic, "Lending and Credit Automation: Before and After"

For smaller community financial institutions, it can be especially difficult to compete on fast turnaround times when relying on traditional processes. Automating the life of the loan expedites each part of the lending process, from pipeline development and assigning risk ratings, to loan pricing and credit memos. Loans that could take five or six days with legacy systems can now turnaround loans within 24 hours by leveraging technology, freeing up lenders' time to nurture existing customer relationships and seek out new ones.

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Boost banking optimism – even in the face of economic uncertainty

Another key concern leaving bankers feeling more pessimistic is a possible recession or potential economic slowdown in the near future. While financial institutions are not immune to economic headwinds that may occur, there are many more resources and technologies available to mitigate lending risks, protect their institution, and boost optimism.

Not only does technology help financial institutions compete on speed, but it can also be leveraged for more accurate, profitable loans. Manually spreading financials and assigning a risk rating to each application based on a scale developed by the institution can lead to inaccurate, inconsistent, and subjective decisioning. Pricing loans based on risk can take extensive amounts of time, as various members from the institution, from the treasury department to the pricing committee, must weigh in on the pricing decisions. Today’s technology helps to take a lot of the guesswork out of credit risk and loan decisioning to give financial institutions confidence in making sound, profitable loans.

For example, some technology automatically generates a risk rating based off of the borrower’s financial information and the financial institution’s loan rating system to reduce subjectivity and enhance defensibility. Based off of the risk of the borrower and the costs of administering the loan, financial institutions can automatically generate accurate pricing. Making loans based on “gut feel” and competitor rates is extremely risky. By partnering with a fintech to leverage lending and credit automation, financial institutions can make more informed loan decisions to grow their lending portfolio – no matter the economic conditions.

Banking changed significantly in recent years with the influx of new technologies and rising fintech, and it will continue to do so. If your financial institution is also feeling pressure from decelerated loan growth or uncertainty regarding a possible economic downturn, it may be time to consider the ways that technology can be leveraged to give your institution the boost it needs to accomplish its goals.