Optimizing capital: Challenges and opportunities for banks and credit unions

January 28, 2016
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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.

Internal challenges

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.

External challenges

Financial institutions also face a range of challenges arising from issues that 
are external to the bank or credit union, including:
1.  Interest rate environment
2.  Changing regulatory and accounting landscape
3.  Competitive pressures, especially for commercial and industrial (C&I or MBL) loans.

While each of these internal and external pressures comes with distinct challenges, when combined, they create an even bigger impact: increasing pressure on capital. “Capital is critical for managing both sides of the financials of the bank—income statement and balance sheet. It is needed for lending out to customers, and regulators require certain levels of capital, so it is truly the lifeblood of a bank,” Brown says.

Financial institution executives who identify and acknowledge the pressures facing their banks and credit unions are in a better position to discover solutions that will optimize capital. In many cases, institutions can overcome the challenges through improved risk identification and mitigation, including better loan pricing to account for profitability and risk. Business process and workflow optimization, improved underwriting standards and other credit risk management efforts can also offset some of the pressures, as can stronger portfolio management through better insights and early recognition of capital needs.

Read more by downloading the free whitepaper from Sageworks.

About the Author


Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest real-time database of private-company financial information in the United States. The company was acquired in 2018 and is now part of Abrigo.

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Abrigo is a leading technology provider of compliance, credit risk, and lending solutions that community financial institutions use to manage risk and drive growth. Our software automates key processes — from anti-money laundering to fraud detection to lending solutions — empowering our customers by addressing their Enterprise Risk Management needs.

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