Published by Credit Union Business
While uncertainty continues and financial institutions grapple with credit performance and what to expect in terms of potential losses down the road,finding new opportunities to enhance bottom-line performance while remaining flexible is vital. Many depositories have already tightened where they are willing to lend as changes in delinquency reporting requirements, payment assistance programs and forbearance make quantifying risk difficult and cause institutions to think twice about adding risk to the balance sheet
A Huge Challenge to Overcome
Spreads have been tightening on high quality liquid assets while excess liquidity has remained, making it more difficult for depositories to manage margin. A traditional investment portfolio with tighter spreads and the absence of significant opportunities to streamline expenses or reduce operational costs leaves little room for error. However, there are other levers that financial institutions can push to generate profitability.
One of the strategies depositories have deployed relates to their resources. While shifting resources to a more active and profitable business line like conforming mortgage lending may be easier said than done, it is an example of being nimble and opportunistic as an organization.
Partnerships are another avenue to generate profitability. Tapping into lending partnerships, through participations or even partnering with traditional competitors, such as Fintechs, can bring in a steady stream of higher-yielding assets. However, evaluating the pricing and risk-adjusted returns that come along with different programs is integral to profitability.