3 Tactics to Fuel Growth & Decrease Loan-to-Deposit Ratios
Produced by Traci Mottweiler, Director of Growth Strategies | August 15, 2019
Key Contributions Provided by Velocity Solutions
Has your organization seen decreased lending opportunities or have you had to downsize profitable lending programs as a result of your loan-to-deposit ratio?
Have you had to borrow money from the Fed or other funding sources due to lack of deposits? If so, have you seen an impact on your profit margins as a result of the actions you’ve had to take to improve your loan-to-deposit ratio?
If your financial institution is struggling to improve your loan-to-deposit ratio or has needed to take some of these more drastic measures, you are not alone! In fact, most lending institutions today would answer “yes” to at least one of the above questions.
Increasing Loan-to-Deposit Ratios
The financial crisis of 2008 led to a national surge in account openings and deposits, as consumers and businesses alike sought to secure their finances in retail financial institutions. But now, due to multiple rate hikes and a growing economy, many of these account holders are pulling their money out of these traditional accounts in favor of investment alternatives that offer more yield on their money.i
We are only on the front-end of the rising rate environment and have already seen both this and the need for deposits starting to negatively affect lending from both a volume and a profitability standpoint.
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According to a Wall Street Journal article,i from June 2017 to June 2018 more than $30 billion were withdrawn from U.S. bank accounts earning no interest — the first such annual decline reported by the FDIC in more than a decade.ii
Deposit income has taken a big hit as a result of this “defection of funds.” This decrease in deposit funds plus the increase in loaned-out funds resulting from rising loan rates has led to a significant increase in the average loan-to-deposit ratio. According to NCUA and FDIC data pulled from Callahan & Associate’s database, almost 1100 credit unions and over 2000 banks currently have a loan-to-share (loan-to-deposit) ratio of 90% or higher.iii
To combat these market changes and help ensure the future growth and stability of their institution, many banks and credit unions have resorted to scaling back on lending or borrowing from alternative funding sources, which ultimately reduces profitability. These options are far from ideal for either lenders or consumers.
So what can be done to bridge the gap between your loans and deposits in a reliable, consumer-friendly way – even as loan interest rates and deposit competition continue to rise?
Competitive Strategies for Fueling Deposit Growth
Generating deposit growth can be a much more effective method for decreasing your loan-to-deposit ratio, but it is important to consider how you generate deposit growth to differentiate yourself from the increasing number of financial institutions also working to pull in more revenue.
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There are multiple strategies your lending institution can adopt to fuel deposit growth:
1. Stand out from the pack with retail deposit programs
A recent Bank Executive Business Outlook Survey found that offering higher rates was the most popular strategy to increase deposits, but very few of the financial institutions surveyed planned to target retail deposits.iv
Since many of your competitors may be overlooking retail deposits as a means of growth, leveraging these programs – i.e. commercial deposits, CDs, and retail time deposits – could offer you a notable competitive advantage that will help build revenue.
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To get the most out of any retail deposit product, it’s best to enlist strategies that will encourage more sales of these programs, like training frontline staff to negotiate tailored rates and terms with current account holders. Making those sales strategies standard practice will make a big difference in how much you and your consumers benefit from these accounts.
2. Strengthen relationships with a data-driven service approach
Capitalize on the data you already have to personalize the consumer journey across all digital channels and at all touchpoints (web, mobile, email, text, etc.) including account onboarding. Adopting elevated customer service practices will almost certainly lead to strengthened relationships with current and future depositors. Arguably, the most effective tool for consistently delivering top-notch customer service with all consumers, across all digital channels, and at all touchpoints is data.
Data insights can provide a holistic view of your depositors past actions and behaviors, so you can make predictions about their future needs. Arming yourself with this level of information can help you deliver more personalized service interactions and product recommendations that will almost certainly lead to more sales. In fact, personalized marketing & onboarding activities typically increase overall sales by 10% or more.v
Data can also give you information that can be used to send tailored financial education aimed at helping your depositors get the most out of these programs and avoid any potential risks – which can have a positive impact on your entire portfolio.
3. Generate new business with proven marketing strategies
Adopting digitally-optimized solutions can help generate share draft and deposit account activity with new and existing account holders. These solutions include online & mobile financial offerings, digital referral programs, and digital marketing tools.
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Start by offering online and mobile tools that simplify access to your financial services. Such technologies include digital lending, online account opening, banking apps, mobile payments, biometrics, contactless ATMs. Offering these tools is a great way to drive business across all consumer demographics, Millennials and Gen Z in particular.
It is also important to recognize the organic growth potential offered via referrals and product recommendations. According to a recent Nielson study, 83% of consumers trust the recommendations made by friends and family.vi Consider adopting a digital referral program that aims to drive word-of-mouth marketing that is sure to generate new business and build brand awareness.
The bottom line is this: Financial institutions do not need to revert to less desirable practices like pulling back on lending to repair their loan-to-deposit ratio. There are various win-win strategies for financial institutions and consumers alike that can help fuel deposit growth and offset challenges brought on by today’s rising rate environment.
Click here to read the article: It’s Game on in the Battle for Credit Union Deposits.
Allied Solutions not only wants our clients to survive, we want them to thrive. Deposit growth and retention should be a key component to any financial institution’s lending strategies.
Click here to visit our contact page or reach out to your Allied Solutions sales representative to learn about our deposit and loan growth solutions.
About Allied Solutions
Allied Solutions, LLC is one of the largest providers of insurance, lending, and marketing products to financial institutions in the US. Allied Solutions uses technology based products and services customized to meet the needs of 4,000 clients along with a portfolio of innovative products and services from a wide variety of providers. Allied Solutions maintains over 15 regional offices and service centers around the country and is a subsidiary of Securian Financial Group, Inc. Allied Solutions has tools and resources that can help you keep an eye on the potential areas of impact, protect against collateral losses, and stay on top of any new events, bulletins, and regulations as they happen.
About Velocity Solutions
Founded in 1995 and servicing the transaction accounts of over 30 million consumers and business owners, Velocity Solutions has unparalleled expertise in using data to optimize revenue, risk and service for banks and credit unions. Velocity’s solutions use the power of digitization and big data to drive new accounts, generate new non-interest income, responsibly offer overdraft services, digitize consumer and business lending, and manage risk and compliance. Visit their website to learn more: https://myvelocity.com/.
i Ensign, Rachel Louise. “Banks' Golden Deposits Are Heading Out the Door.” The Wall Street Journal, Dow Jones & Company, 22 Oct. 2018, www.wsj.com/articles/banks-golden-deposits-are-heading-out-the-door-1540200600.
ii “The Credit Union Company.” Callahan & Associates, 30 Jan. 2019, www.callahan.com/.
iii Foster, Jeremy. “Increasing Revenue Without Dinging Your Consumers.” Community Rising, 18 Sept. 2018, communityrising.kasasa.com/increasing-revenue/.
iv “What Community Banks Are Doing to Increase Deposits.” Edited by H.D. Barkett, Promontory Interfinancial Network, www.promnetwork.com/research-insights/articles/what-community-banks-are-doing-to-increase-deposits.
v Brown, Brad, et al. “Capturing Value from Your Customer Data.” McKinsey & Company, Mar. 2017, www.mckinsey.com/business-functions/mckinsey-analytics/our-insights/capturing-value-from-your-customer-data.
Content in the blog posts are the opinion and views of the writer, and don't necessarily reflect the opinions or views of Allied Solutions.