In light of this, some banks are tightening their lending standards to safeguard capital. However, the lessons learned from the 2008 recession emphasize that even in challenging economic conditions, banks should not cease their lending efforts. This holds especially true for the forthcoming recession, which is expected to differ significantly from the previous one due to factors like increased cash supply, rising inflation and interest rates, a robust labor market, and wage inflation. Reevaluating pricing strategies is pivotal for banks to continue lending effectively.
Data-Driven Accurate Pricing
1. A clean data environment is the cornerstone of accurate pricing strategies, enabled by modern technology to unify, standardize, and curate diverse data sources.
2. By creating a comprehensive view of customers’ banking relationships, banks can discern primary and secondary customer relationships and determine ways to deepen these relationships.
3. Advanced intelligence provides insights into liquidity, risk, capital consumption, and revenue generation, aiding banks in identifying the most profitable clients and shaping strategies for optimizing existing relationships.
4. Enhanced visibility empowers banks to uncover opportunities to offer improved products and services, while making incremental enhancements to boost shareholder returns.
Deposit Strategy Alignment
1. Banks must reevaluate their deposit strategy, considering that interest rates on deposits have been stagnant for an extended period.
2. The strategy begins with identifying customers with deposits exceeding their monthly spending, a task only achievable with a clean data environment.
3. The deposit strategy should align with asset and liability strategies, leading to a disciplined deposit pricing process.
4. Educating internal teams to comprehend, implement, and communicate these changes to clients is essential for executing the deposit strategy effectively.
Effective Loan Pricing
1. Pricing loans appropriately is key, considering the evolving economic landscape. Banks must ensure that the returns outweigh the associated risks.
2. Loans and lines of credit should be priced to cover liquidity, capital, and risk costs to deliver shareholder value.
3. By maintaining an acquisition-focused lending approach while pricing loans accurately, banks can continue supporting their communities during a recession and generate valuable revenue.
As the possibility of a recession looms, it is imperative for banks to prioritize pricing strategies. They should invest in building a clean data environment or leverage modern technologies to achieve this. Such a data environment, enriched with advanced intelligence for relationship profitability and pricing, equips banks to proactively navigate the impending challenges. Banks that master the art of pricing relationships, loans, and deposits effectively can remain resilient during a recession, providing value to clients and shareholders alike.
