We may be in the lull before the storm. I really like to think optimistically, but looking at the cold hard facts, it seems like things are going better than they should be both for banks and their business banking clients.
A recent article in American Banker puts a finer point on it. “Credit quality, by traditional measures, remains excellent, but underlying concerns have led lenders to review account activity broadly for signs of cash depletion or other unusual behavior that could suggest trouble,” the article notes.
Bank management recognizes that the reprieve provided by stimulus dollars and loan deferrals/modifications won’t last forever. In fact, an August survey conducted by PrecisionLender found that 60 percent of bankers had increased their credit monitoring efforts in order to identify early warning signs that a client was struggling financially. If that survey were to be conducted again today, I’d imagine that number would be even higher.
Delaying the inevitable?
The concern, of course, is that the PPP and loan deferrals have created a mirage. Banks, as well as the government, haven’t actually solved most of the problems faced by business amid the COVID-10 crisis. They have simply kicked the can down the road, hoping the business challenges caused by the pandemic would get better.
But the reality is that these efforts have just delayed what appears to be the inevitable economic pain the pandemic will eventually cause even more businesses. The veil will be lifted when those stimulus funds run out or the 60- or 90-day loan payment deferrals expire with businesses unable to pay.
While bankers are understandably concentrating their efforts on portfolio management right now, they can’t lose sight of the need for new low-risk loans and other fee-based revenue, especially as the stimulus winds down and more and more businesses are forced to default on loans. If credit continues to tighten, bankers will need to look for new solutions to deepen existing relationships, attract new ones, and remain profitable. And Vertical IQ can help.
Helping bankers see opportunities
Vertical IQ can help you deepen existing relationships by expanding the solutions you offer clients. Each Industry Profile includes not only a Bank Product Usage section, highlighting the percentage of businesses within a particular industry that use certain bank products, but also information on Banking Solutions. This helpful chapter highlights key issues unique to that industry and the specific solutions that banks can offer to address those challenges.
For example, looking at Banking Solutions for the trucking industry, you will find that a problem they often face is keeping expenses manageable since fuel costs are highly variable. You’ll see that potential banking products that could solve this issue include ACH services, purchasing cards, lines of credit, and online/mobile banking. You’ll also find several probing questions around this topic that you might want to ask a client within the trucking industry.
Using this information, bankers can have more informed conversations with their clients about the problems they are facing and how the bank can help them overcome those obstacles. And this, of course, can lead to increased trust, added value, deepening of relationships, and increased bank revenue.
Assessing credit risks
As highlighted by the American Banker article, credit quality is top of mind for almost everyone in the banking industry right now. And understandably.
For those on the lending and risk analysis side of the house, Vertical IQ also offers valuable resources to make your job simpler, even during this tumultuous time. Our Credit Underwriting & Risks chapter gets you up to speed quickly on the financial environment for a particular industry. Use the data for structuring deals and making lending decisions, as well as for business development, portfolio management, and more.
This chapter includes our new proprietary Industry Risk Rating, which considers financial risk, industry performance during downturns, barriers to entry, and the industry outlook. It is formulated using artificial intelligence and an advanced algorithm based on key “sub-category” ratings.
In addition to spotlighting top risks for the industry and companies within it, the Credit Underwriting & Risks chapter also includes industry-specific credit underwriting-related questions to consider before lending. Key performance metrics and financial ratios shine a light on the industry’s position within the overall economy.
And don’t overlook how the pandemic is affecting your local economy and businesses within it. Vertical IQ’s Local Economies section provides local employment rates — how hard jobs in the area has been hit and how quickly they are rebounding — which is of course a bellwether for the overall economy in your area and can impact credit decisions.
Helping business owners see the bigger picture
I was talking with a banker this week who mentioned he has found that a lot of business owners have a good grasp on pandemic-related impacts to their personal business, but many are unclear on the impact to their industry as a whole. This puts a spotlight on an opportunity for bankers.
Sharing the Industry Intelligence found on Vertical IQ can inform business owners not only about risks and opportunities to their individual business but also about how others are faring during this unusual time. Print and share the entire Industry Profile or pass along specific chapters to help clients assess the latest status of their industry, as well as their position within it. For example:
- Run your client’s number using our Financial Comparison Toolkit, a custom analytics calculator that enables you to compare your client’s key financial metrics to industry averages. Results can easily be downloaded for further discussion.
- Share the Financial Benchmarks data to help your client see how they stack up in comparison to their competition.
- Print and mail a timely news article about a trend within their niche.
If your client is having trouble seeing the forest for the trees, these crucial industry insights can help them understand the bigger picture and inform their business decisions.
Don’t just survive…thrive!
Portfolio management will always be important, but be sure you are capturing new fee-based revenue as well, especially since credit is uncertain right now. By taking advantage of the Industry Intelligence found on Vertical IQ, banks can make better lending decisions, expand sales of bank products, and provide tailored guidance to help their clients weather this storm.
Let’s get started! Contact us today for more information about Vertical IQ or for a demo!