Optimizing capital: Challenges and opportunities for banks and credit unions
The following is an excerpt from the Sageworks whitepaper “Optimizing Capital: Challenges and Opportunities for Financial Institutions”.
Serving customers and helping them achieve their financial goals are often identified by bank and credit union executives as their organizations’ top objectives. Whether it is Wells Fargo (with $1.6 trillion in assets and thousands of employees) or tiny Oakwood State Bank in Texas (with $6.5 million and two employees), financial institutions understand the importance of customer and community service.
At the same time, top executives and managers at banks and credit unions know that customers cannot be served well if the financial institution is struggling to survive. As a result, growing profitably and mitigating risk are also core objectives at virtually every bank and credit union, regardless of size.
The challenge is that in order to meet these goals, institutions have to overcome an assortment of internal and external pressures that threaten growth and security. Some pressures are amplified by institutional processes and systems; others can disproportionately dominate executives’ time and attention. Identifying and acknowledging these pressures is critical to discovering solutions that help address larger goals of optimizing capital deployment, managing risk more effectively and fueling profitable growth – achievements that put the bank or credit union in the best position to serve customers.
Top management will be familiar with many of the internal challenges. They may include:
1. Competing and conflicting interests: growth vs. risk
2. Disconnected processes, departments and technology
3. Little transparency into portfolio health over time
4. Lots of data, few actionable insights.
Financial institutions also face a range of challenges arising from issues that are external to the bank or credit union, including:
2. Changing regulatory and accounting landscape
3. Competitive pressures, especially for commercial and industrial (C&I or MBL) loans.