Focusing on Revenue Growth in a Downturned Market

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Question:

With all the change going on inside our bank during this economy, much attention has been focused on expense reduction and process improvement. How do we focus on revenue growth during all the turmoil?

Answer:

The answer to this question is two-fold. First, you need to have complete confidence in your ability to determine what is profitable or revenue enhancing. As elementary as it sounds, you can address the profitability issue by simply pricing the loan appropriately given the level of risk. Stress testing, to ensure you have a thorough understanding of the potential downside of a loan, also will have a positive impact on your profitability. And, by making sure that your risk assessment policies are uniformly applied throughout your bank, you will significantly reduce the number of unprofitable loans.

Next, take a serious look at your clients to determine who would benefit most from building a stronger relationship with the bank. This may not be the profitable client in compliance with all covenants. This could be the client that is in default of a loan agreement that could dig himself out of current problems with a little help. This client needs good advice and some direction. With a little conversation, coupled with stress testing and "what if" scenarios, you can show the client how positive changes could impact the performance of his business. You'll not only help to turn around the client's business, but you'll also build a strong - and profitable - relationship for years to come.

First published on BankersOnline.com 3/16/09