Optimizing the profitability of a loan portfolio is one of the most challenging portfolio management tasks. Although diversification can have a positive overall effect on loan portfolios, profitability doesn’t always follow suit. Failure to implement suitable asset allocation strategies is one of the most common factors that negatively affect loan portfolio performance.
To help your financial institution unlock the full growth potential of its loan portfolio, here we summarize three ways community banks and credit unions can achieve their portfolio performance objectives.
Perform an accurate portfolio analysis.
In order to assure profitability, the first thing community banks and credit unions should do is analyze their current loan products and services.
A comprehensive and accurate analysis will enable your financial institution to reevaluate its current product and service offerings, and determine the best performing assets with the largest incremental revenue impact.
Additionally, your bank or credit union will be able to discover the areas of its loan portfolio that need improvement, reengineer operational processes, and identify new pools of qualified potential borrowers—and implicitly unexplored groups of assets it could opt for in order to create a well-diversified, highly performing loan portfolio.
When assessing new lending opportunities, remember to consider the loan products and services available in both the primary and secondary mortgage markets. Enhancing your loan portfolio with a wide variety of loan products, including products that belong to the secondary market like manufactured home loans, can help your community bank or credit union achieve long-term, sustainable growth, while reducing overall portfolio risk.
Opt for new loan programs relevant to your existing and potential borrowers.
Adding several asset classes to your loan portfolio is no longer enough to capture sustainable growth. As there are some important risk attributes associated with the ever-changing lending environment, your credit union or bank should carefully assess all the loan products and services available in the market. Just a fraction of the lending opportunities it might overlook could provide sufficient diversity for steady portfolio profitability.
For instance, your financial institution could opt for a lucrative lending opportunity, such as manufactured home loans, not only to “reach deeper” into the loan pool, improve its loan portfolio and increase its profitability but also to meet the specific needs and situations of many creditworthy borrowers, currently underserved by mainstream lenders.
Compare Product and Service Offerings
Although there are many benefits a borrower can gain by choosing a loan product from a community bank or credit union, many people are still shopping around for the best offers. Therefore, another objective a financial institution should try to achieve in order to improve its loan portfolio is to make its product and service packages as competitive as possible.
In addition to offering interest rates comparable to those of other lenders, a credit union or community bank could shift away from one-size-fits-all financing solutions to a more complex system of varying financing options, interest rates, terms and fee structures.
Creating a properly diversified loan portfolio and maximizing its performance can be a real challenge for a financial institution. However, specific loan programs like the manufactured home loan products we make available at Triad Financial Services can help many financial institutions achieve their financial goals. To find out how our products and services can improve your strategies designed to grow your loan portfolio, please contact us today to discuss your bank’s or credit union’s situation in more detail.