The Science of Bank Growth
Why is growth now a mandate verses a nice to have?
If you’re not growing..
Most bankers understand the math. If you aren’t continually generating new loans your bank is in perpetual decline.
Why is that? It’s the nature of lending. A bank makes a loan for a fixed period of time, and a loan portfolio is a collection of these fixed time period instruments. As time passes loans are paid off and if they aren’t replaced a bank’s loan portfolio starts to shrink.
Where things become difficult is when loans are maturing and rolling off the portfolio faster than a bank can replace them. This could be a result of a significant refinancing activity at a past vintage, or due to a historically productive lending team. If lenders aren’t replacing maturing loans faster than they’re rolling off the bank will show a shrinking loan portfolio.
So what can be done?
The easy solution: Buy growth outright
The easiest way to grow a bank is to buy another bank in an adjacent market. Now you might think “buying a bank isn’t easy” and it isn’t, but it’s a well trod, but expensive path.
When a bank has trouble growing organically with internal resources purchasing branches or growth via an outright acquisition is seen as the easiest path.
The growth is quick. A bank bolts on a portfolio of new loans, new deposits, and new relationships. But that’s also where the problems start.
When purchasing a bank there are integration issues, and if they aren’t solved employees of the acquired bank will leave.
Competitor banks see the turmoil of an integration as a time to solicit away new lending relationships. Even though you purchased a loan book your competitors are hard at work trying to chip away at it before you solve your integration issues.
Not as easy: Hire growth
Another common way to grow is to hire an outstanding lending team that will bring their book of business with them.
In some ways lenders are like professional athletes. When a lender is hired they bring their skills, relationships and knowledge of certain industry verticals with them.
A bank can hire growth by hiring away star lenders from competitor banks.
The problem with this approach is that if a star lender is willing to leave one bank for a better offer it will only be a matter of time before someone makes them an offer that’s better than what you can provide.
The growth from hiring star lenders will be transient and most will leave when that star leaves in a few years.
The formerly impossible: Prospect and grow organically
The hardest thing to do in banking is organically generate new lending relationships. Tell a banker they need to acquire brand new relationships from out in the wild and they’ll have a deer in the headlights look. A few can do this, but for most it’s difficult.
Why is it difficult? It’s not the lender’s fault, it’s a systematic problem. How do you determine who needs money? How do you get in front of them? How do you warm up that relationships?
Because of this most banks avoid outright prospecting directly to potential clients. It’s just too hard, and that’s understandable.
The easiest route to growth: Discover it!
In our view the easiest way to grow is to do the hard thing, prospect and interact directly with potential customers.
What we do at CompleteBankData is allow you to discover, qualify and contact potential customers directly allowing your bank to own the lending relationship.
The easiest way to grow is to evaluate a market, either one you wish to expand into, or one where you would like to grow, and dig into the data to find new relationships.
How do we do this? Let’s walk through a few tangible examples.
Imagine you’re tasked with growing commercial lending to industrial companies. With CompleteBankData you can search for all industrial companies in a given geographic area that fit a certain revenue profile. From there you can view their financing picture, do they own their property outright? Maybe they have it financed with a competitor. Do they have an inventory line of credit?
From this initial list you can pull contact information for a decision maker and now you have a call list to work from. No one hired, no bank purchased, pure organic growth.
You might argue that prospecting directly and convincing customers to refinance their existing obligations is difficult. Maybe you need something actionable now. We can help with that as well.
You’d use our tool to identify customers that fit your ideal borrower profile that have a property loan in your sweet spot that is maturing. You can pull decision maker contact information and help them navigate that maturity.
Growth doesn’t need to be difficult
Growing a bank shouldn’t be difficult, but it is because finding information on prospective buyers is hard and time consuming. We change this by putting tools into your hands allowing you to grow without purchasing another bank, or having to hire away star loan officers. Your bank can grow today with its existing team and the right tools.