Amid a pandemic-plagued 2020, community banks and credit unions rose to the occasion as reflected in: the disproportionate number of PPP loans that kept local communities afloat, the emergency loans and accommodations extended to struggling borrowers, and the commitment to community as all of our worlds got a little smaller. Yet, continued encroachment of new market entrants into auto loans and cards, and consumer expectations of digital capabilities are but two challenges that overshadow what should be a shining moment propelling community lenders.
With aggressive growth goals, residual performance concerns and increased competition — especially at the top of the credit spectrum where many focus— why are some community lenders bullish on 2021, while others express unease? In conversation after conversation, three themes emerge with the banks and credit unions feeling confident in the year ahead.
1). They’re navigating risk confidently
When millions of Americans can’t make loan payments, and a record number of accommodations may have masked certain risks, why are some still lending confidently — and more efficiently than ever? Better data and analytics. In the last 12 months, the utilization of trended risk scores by community banks and credit unions has doubled, narrowing the utilization gap between FinTechs and big bank lenders and fueling growth from these insights (see chart). Incorporating credit use over time, liquidity and capacity measures, and payment data, these scores routinely outperform the point-in-time scores many still use. Additionally, the increased precision of these scores has allowed multiple community lenders to double or triple the number of loans they automatically approve.
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