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Getting past today’s loan-deposit mismatch

Jun 28, 2021 / Consumer Banking

“Where banks fit in the new world of lending,” the latest BAI Executive Report, identifies emerging opportunities for banks and credit unions as mortgage refinancings lose momentum.


Several rounds of pandemic stimulus over the past year has, among other things, helped create an unusually poor fit between bank deposits and lending activity.

So many people saved such large chunks of their federal checks that the personal savings rate shot up to its highest level ever. The monthly savings rate has averaged 18 percent of disposable income since March 2020, according to data from the Federal Reserve Bank of St. Louis. For comparison’s sake, prior to the pandemic, the savings rate hit low double digits in only three isolated months going back to 1985.

At the same time deposits have climbed to record highs, lending has tumbled to all-time lows in some categories, including home and commercial real estate loans as a percentage of bank assets. Mortgage refinancings have fallen sharply in 2021. The loan-to-deposit ratio for banks was under 60 percent in the first quarter of this year, which helped squeeze net interest margins ever tighter.

A vaccine-propelled economic recovery could start reversing many of these trends, and it could also nudge up interest rates. In this Executive Report, we look at where some lending opportunities may lie in an improving macro environment.

In our lead article, contributing writer Ed Lawler tells us many of those opportunities seem to be slow in developing in 2021. The aforementioned abundance of cash on hand is certainly a factor, and we have yet to see what will counter the steep drop in mortgage refinancings, which drove so much activity over the past few years.

New mortgages stand to fill part of that void, as the pandemic triggered a home-buying frenzy that in short order chewed through already depleted housing inventories. Some corners of commercial real estate may also be fruitful, market watchers tell Lawler.

But for banks and credit unions, there’s also increased competition in the lending space, including from fintechs whose algorithms were successful in delivering Paycheck Protection Program loans, an area where many traditional institutions struggled.

Another product that may have potential during this unusual time is the personal loan. Stephenie Williams from Harland Clarke points out in her article that personal loans have been the fastest-growing part of the consumer debt area, with balances tripling over the past decade.

Fintechs are well-entrenched in the personal loan market, and peer-to-peer lending is also on the rise. But there’s room for banks and credit unions to establish a larger presence, Williams writes—first by better exploiting their data troves to identify likely loan candidates, and then by providing the right customer experience.

The growing ranks of nonbank lenders also include many tech firms, among them the deep-pocketed AAA wreckers: Apple, Alphabet (Google) and Amazon. Given their financial heft and history of upending entire industries, it’s no small wonder that, by one estimate, 80 percent of financial services providers are worried about their future prospects.

Our article from contributing writer Dawn Wotapka says being nervous is a good start—banks and credit unions first need to realize and accept that the disruptors are here to stay and, more to the point, they’re gaining ground. After that comes the battle plan.

Better technology should be at the core of that plan, she writes. “Providing an end-to-end, digital-lending solution should be the top priority for every community bank and credit union,” suggests one of her expert sources. Pursuing profitable customer segments with personalized offers is another must-do.

Here are a few highlights from other articles in this Executive Report:

  • I interview Brad McConnell from Chicago-based lender Allies for Community Business, about how his organization has thrown away the credit-scoring rule book and is going its own way in assessing repayment risk for its small-business clients on the city’s underserved West and South sides.
  • Greg Kanevski from ServiceNow tells us how to use technology to streamline lending and give teams across the enterprise, as well as borrowers, better visibility into the process at every step. The results, he says, are more satisfied customers and greater cost-efficiency.
  • And J.J. Slygh from Total Expert writes about how to improve CX in a way that creates SUPER (yes, it’s an acronym) fans who generate more customers. That deepens banking relationships, including lending, to boost the bottom line.

Terry Badger, CFA, is the managing editor at BAI.

Download “Where banks fit in the new world of lending,” the latest BAI Executive Report.