Post-Pandemic Growth Series [PART 1]: Tips to Protect and Grow Your Loan Portfolio Beyond the Pandemic
View Part 2 here: 3 Considerations as Things Return to 'Normal'
View Part 3 here: 3 Risk Mitigation Strategies for Financial Institutions
It is hard for anyone to know the comprehensive impact COVID-19 will have on the financial marketplace, especially since the pandemic itself is still happening. While the long-term impact of this crisis is still TBD, its short-term impact is becoming much clearer.
COVID-19 Impact
COVID-19 has had a direct impact on lending, specifically with auto and consumer loans. Indirect lending, new auto loans, and credit card usage have all seen a significant dip in light of the current crisis, especially for financial institutions in high-risk and low-income areas. The drop in face-to-face interactions, significant increase in financial strain, debt and unemployment, and regulatory shifts have all played a major role in these changes.
Additionally, many financial institutions have made loan adjustments to support the needs of their community and borrowers. Many of these changes, however, have opened up new areas of risk. These new, COVID-19 specific adjustments include:
- Offering loan payment relief program offers to borrowers, such as temporary loan forbearance and skipped payment options.
- Making modifications to collateral risk management strategies, including holds on lender-placed insurance, repossession holds, and total loss program modifications.
- Offering Payment Protection Program (PPP) loans to support small businesses in the community.
Financial institutions are predicting significant increases in charge-offs, delinquencies and defaults, once loan relief programs and temporary forbearances expire. Many credit unions and economists expect losses to increase by as much as 25-50% by the end of 2020.[1]
These risks are real, and they aren’t too far off, but there are many actions your financial institution can take to mitigate these challenges and continue to protect and strengthen your loan portfolio.
Loan Protection Strategies
Consider what modifications you want to make to your collateral risk strategies to help protect against the coming increase in loss ratios. These strategic adjustments should address collateral protection and recovery practices, expanded loss reserves, and borrower support initiatives.
Download our White Paper: “The Changing State of Risk & Recovery” for risk and recovery insights and advice.
If you provide any temporary loan relief to borrowers, communicate about how and when these programs are set to expire. Start sending out messages to impacted accountholders well ahead of these cut-off dates, so they have time to prepare and ask questions. Take this opportunity to let your accountholders know about other programs that can support their financial needs. Many consumers are looking for financial safety nets like GAP, MBP, job loss protection, involuntary unemployment insurance, credit protection, or depreciation protection to protect their loans and finances from future risks. Offering loan refinancing options is also a great way to help your accountholders reduce their burden, while presenting the potential to attract new loan opportunities.
If you have any PPP loans on the books, take some time now to strategize on communication and next steps. There has been a lot of conflicting information on the pay-off and financial implications for these small business loans, and your borrowers will look to you for answers. Doing your part to proactively address questions and needs surrounding these loans, can support a strong, long-lasting relationship with your small business accounts.
Before taking any action, it’s helpful to identify your largest areas of risk. Analyzing your portfolio in this way will help you determine which risk management strategies will have the highest impact on loss protection right off the bat.
Loan Growth Strategies
With loan losses on the horizon, it is important to take the time now to figure out your plans to build new loan revenue into your portfolio. Proactively uncovering new growth opportunities with new and existing loans will enable you to generate new revenue and offset the coming risks.
Evaluate your current mortgages and auto loans to uncover potential growth opportunities. As mentioned above, offering loan protection solutions like Job Loss Protection can be an easy opportunity to drive non-interest income while supporting borrowers. Rewarding current accountholders in good standing with exclusive offers can also bolster relationships and add low-risk loans to your portfolio. Such offers may include low down payments and locked interest rates on a new or refinanced home loan.
It’s important as ever to build and market attractive loan options to get out in front of the competition and continue attracting new borrowers. Loan rate adjustment solutions, member assistance loans, and loans with flexible payment structures, like short-terms loans, take-back loans, and balloon note financing programs are all great programs to offer risk-conscious consumers looking to take on a new loan. Consider financial needs and digital accessibility when onboarding and marketing these new programs; even better if you can target offers that align with consumers’ stage in the loan cycle (i.e. offering young 30-somethings with home loan offers or young 20-somethings with student loan refinancing solutions ).
Continuing to grow, protect, and evolve your financial institution can feel daunting as we all continue to face the certainties and uncertainties COVID-19 brought about. Taking the time now to assess your loan and account strategy will help ensure your institution, accountholders, and communities remain protected and supported, which in turn will lead to sustained growth throughout and beyond the pandemic.
Allied continues to work with our partners to offer COVID-19 related solutions for our clients. Contact us to hear more about these new services: alliedsolutions.net/contact-us
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