In this era of low interest rates, financial institutions may find that they are struggling with an under-performing loan book.
Because the profitability of the loan book is based on interest rate spread – and that margin has been eroded – the pressure is on to find new sources of income.
Responses to this situation can include:
- Intensify loan marketing and sales efforts – mindful that the competition will be doing the same
- Look to syndicated deals, to take a slice of larger deals already happening in the market – mindful that risk profile, account complexity, competitive influences, and closure cycles all increase
- Look for greater returns from the non-loan side of the business – things like insurance, services, investments, and other income.
- Cultivate a new loan product-market.
Building a micro-loan portfolio sets an FI apart in competitive markets, by closing the revenue gap, and bringing new, low-risk businesses into the system.
Here’s how it works:
Here’s the modelling:
Is your loan book is down?