Since the financial world reeled in shock at that collapse of Lehman Brothers and the subsequent fallout in the World’s financial markets the banking community has been in a mode of self preservation.   Rather than lending, which generates one of the age-old assets of the banking world, banks have sought ways to preserve and protect their capital. As a result there has been a flight to more secure assets such as government backed securities.

Over the last couple of years, most if not all banks have been haemorrhaging assets as their lending portfolios have shrivelled.  At the same time banks have experienced an increasing deposit base and in some instances, their assets to liabilities have become unbalanced.  We are all too aware of these facts, but if financial recovery is going to continue, things have to change.  Banks have to start lending again! Don’t they?

An increase in lending, both commercial as well as consumer, is not the only factor that will lead us away from the path of a double dip recession, if there is any possibility to avoid one.  I feel that a double dip is inevitable and at this point, it is more a case of how much of a dip and how long it will last.  What I do know is that if the world’s banks do not start looking at ways to increase their quality earning assets, more bank failures are inevitable, impeding the return of market confidence and therefore hampering future growth.

 So, what can be done?

As a first step, the bank needs to take a close look at its legacy processes and infrastructure, and be more aware of credit risk and the ability to apply ongoing stress tests to its existing loan portfolio.  Then as the bank’s loan portfolio matures, it will be necessary for the bank to consider renewals at loan to value ratios that may not have been in compliance with its historical lending strategies.  Lastly, an increase in lending is a key area where the bank needs to focus in order to drive growth. 

Successful lending strategies that may have worked several years back are not necessarily viable or legal in today’s market, wouldn’t you agree?  The end-to-end lending process is traditionally fragmented and highly manual, giving rise to process inefficiencies, break downs in control and poor customer service.  Technology has a role to play in enhancing staff efficiencies, improving customer satisfaction whilst ensuring best use of the bank’s capital.

Banks that have already begun to address their lending deficits by finding new more informed ways to lend will have the advantage of acquiring new customers and retaining existing ones.  They will be able to do this whilst at the same time as positioning themselves for future growth. For those who haven’t, be warned, it’s not too late but time is running out.

Those of you who are Bankers I would love to hear how your Bank is readying itself for an up turn in lending, what is being done to change the way the lending book is being managed?