Six Strategies for Loan Portfolio Growth During a Recession

Credit unions tend to lend more than banks during times of crisis, as they are driven by their mission of continuing to support their communities. For example, during the pandemic, we saw credit unions do everything possible to continue lending, from modifying rates on individual loans to adjusting the underwriting process, while many banks pulled back.

Since lending is a major source of income for financial institutions, we expect it to remain a priority in 2023. In fact, earlier this year, a Jack Henry survey reported that 67% of credit union and community bank CEOs are focused on growing loans in the upcoming months. However, choppy economic waters usually scare people away from opening a new business or buying a home, especially in the current high interest rate environment. As a result, maintaining or increasing loan portfolio growth in the next year could become challenging. Here are some ways to continue lending in a recession.

Step Out of the Comfort Zone

Credit unions should examine the evolving needs of their communities and work on niche loans to tap into new opportunities. For example, does the town need funding for a new transportation hub, or are local staffing companies in need of help due to a nationwide limited supply of talent? And what services are going to increase in demand during a down economy (e.g., debt consolidation or emergency expenses)? Credit unions know their communities better than anyone else, and although departing from the comfort zone of real estate lending might sound daunting, niche lending will better support members and build resilience in the face of a downturn.

Expand Reach Beyond the Local Community

Diversifying loan portfolios enables credit unions to enhance resilience, performance and asset quality while minimizing risk, which is particularly important in the current economic climate. Platforms for loan trading, selling and participation offered by technology vendors enable unbiased access into new markets and allow credit unions to better manage their existing portfolios, easily reducing large concentrations of a particular loan type and enabling expansion into new opportunities. These open and flexible platforms can help lower portfolio risk, increase transparency and eliminate the costs of working with a broker.

Boost Retention Efforts

While new members might be harder to acquire during a recession, getting closer to existing members and understanding their challenges will go a long way. Frequent communication, retention visits and leveraging the data they have on their members will enable credit unions to deliver personalized experiences and targeted product offerings that their members actually need or are interested in, boosting satisfaction rates and retention.

Study Members More Closely

By examining member relationships carefully and spending more time with the end user, lending officers will gain insights into each member’s goals and ambitions. They might find members that want to open their own businesses, inspired by the changes that the pandemic brought to the workforce. Others might have recently started a business that is too small to use commercial banking products and has flown under the radar, looking like a consumer account on paper. Both scenarios present opportunities for credit union leaders to become trusted advisors and plant the seeds for the credit union’s commercial banking relationships of the future.

Expand Your Digital Presence

Building a dedicated marketing team that will expand an institution’s digital presence is critical in the Internet era, and even more so during down economic times. This strategy will help institutions raise awareness about their products and services with both existing and prospective members, while also making themselves known to the younger generations.

Implement Training Programs and Strategic Hiring

The financial services industry is changing quickly, especially since the move to digital. Having continuing education, training and upskilling programs in place for credit officers is key to delivering quality services and products and helping the institution grow. For example, training credit officers on the additional risk factors they should consider when issuing loans during a recession will avoid costly mistakes. Moreover, we might soon see an influx of talent being released from fintechs that can’t sustain the inflated cost of labor. This creates a great opportunity for credit unions to onboard new talent and prepare for future growth.

Recessions are tough but they can also create new opportunities for growth if credit unions are ready to step out of their comfort zones. Identifying niche markets, expanding reach, boosting retention efforts, expanding digital presence and implementing training programs are only some strategies that credit unions can apply to ensure continued loan growth in the next few months. And, by working with technology partners today, credit unions will develop growth strategies that will carry through the next several years. A future-proof technology plan will tackle and automate the mundane, allowing credit unions to spend more time building valuable relationships with their members.

Ken Summar is director of advisory services, lending at Jack Henry, a CUES Supplier member based In Monett, Missouri. He has more than 30 years of commercial banking experience in executive positions at Jack Henry and First American National Bank. Jack Henry (NASDAQ: JKHY) is a leading SaaS provider primarily for the financial services industry. Read more about its lending contributions here.