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Addressing the key challenges cited by commercial bankers E-mail

December 9, 2010

By Bob Seiwert, senior vice-president, ABA Center for Commercial Lending & Business Banking. Prior to joining ABA, Seiwert was a commercial banker and a community bank CEO.

ABA’s Center for Commercial Lending and Business Banking recently completed its 2010 Commercial Banking Survey of ABA members. One of the key questions asked in the survey related to the top five commercial challenges faced by member banks.
The top five challenges, according to survey participants were:
1. Effectively handling regulatory issues and relations with my bank’s regulators,
2. Capturing new commercial customers,
3. Expanding commercial loans,
4. Resolving commercial/CRE problem loans.
5. Improving the overall credit quality of our commercial loan and commercial real estate portfolios.

The rest of this article explores some ways to address these challenges. Reader suggestions and feedback are welcome. Use the feedback tool at the end of the article.

Challenge One—Regulators
Establishing good relations with your bank’s regulators has always been a goal for bankers, but this is the first time in the history of our survey that it has ranked as the number one challenge faced by our members. To address this challenge requires that bankers develop a meaningful two-way dialogue with their regulators to better understand their expectations for their bank. If there are disagreements about what should be expected from the bank, or if two regulators have different views and expectations regarding what they would like to see from the bank, these issues should be worked out in advance of the next exam. If you feel that one of your regulators is taking a position that appears to be in conflict with the stated policy of the regulatory agency, don’t hesitate to bring this discrepancy up in your discussions with the regulator’s local supervisory staff. If your concern cannot be addressed at the local level, contact the regional director’s office or the regulator’s ombudsman. These issues rarely get better with the passage of time, so it is best to address them now. ABA can be of assistance to you in this regard by helping you understand what the regulators are expecting on your point of discussion and what the most effective way of resolving the issue might be. (Call 1-800-BANKERS.)

Challenges Two and Three—Revenue
Two out of the five top challenges highlighted by ABA members focused on generating additional revenue and profits for the bank via new customer acquisition and expanding commercial loans. For a bank to be successful in achieving these objectives requires that they: 1. have the products and services needed by customers in their target markets, 2. deliver these products and services in a way that is perceived by their customers as adding value to their business, and 3. maintain an active ongoing dialogue with their customer and prospect base.    

Here are several specific suggestions to address these challenges:

• Establish a “relationship culture” not a “transactional culture” at your bank.
A relationship culture focuses on all of a client’s potential needs, encourages sharing of client information across bank silos and rewards team members for proactively suggesting bank products and services to existing or potential bank clients. A relationship culture also looks beyond the next sale and encourages bank staff to only recommend products and services that will help customers and prospects achieve their financial goals.

• Create a management information system that lists the products and services used by your commercial customers and highlights others that might be applicable to their situation. It is just as important to know the products and services that your customers are not buying from your bank as it is to know which ones they are purchasing. If you have the majority of a customer’s loan business, but not their operating accounts, for example, then those deposits must be at a competitor. This knowledge raises two questions bankers should ask: 1. Why is my loan customer purchasing these products from the competition?  and 2. What do we need to do to get the customer to switch these accounts to our bank?

• Insist that your commercial sales team utilize a “consultative selling approach” to addressing client needs.” Your bank is more likely to learn about potential sales opportunities, and close more sales, if your sales team focuses on: 1. learning about the client’s challenges and aspirations, 2. understanding the financial implications of these challenges and opportunities, and 3. providing your client, or potential client, with solutions that help them either solve their problem or capitalize on an opportunity. A “consultative sales approach” works because it focuses on the client’s agenda not the bank’s agenda. It is important for bankers to understand that helping customers reach their goals is the ultimate in “customer service.” It is also the best way to differentiate your institution from the competition.

• Maintain an active dialogue with your customer and prospect base during both good and bad times. According to a recent survey by Barlow Research Associates, Inc., only 17% of small businesses (those with sales between $100,000 and $10 million) reported that their banker had been proactive in discussing the impact of the recession on their company. As a banker I always knew that no news from my business customers was generally not a good sign. My small business and middle market customers were always quick to tell me about their business successes, but hesitant to inform me about their challenges. That, too, is not a good situation. 

Bankers who fail to maintain an active dialogue with their clients miss three important opportunities. 

First, if the business is experiencing problems, the banker may have some advice that will help the business owner overcome, or at least minimize, the financial impact of the problem. 

Second, proactive two-way communication with your clients allows your bank an early warning sign of potential portfolio problems ahead. 

Third. Your bank gets the opportunity to discuss with clients and prospects the bank’s perspective of the current economic situation. It is important that the bank openly discuss with their customers the impact that the recession has had on the bank’s financial condition and the changes, if any, in the bank’s lending standards. 

Bankers who fail to have these types of discussions with their clients lose the opportunity to cement relationships with their best customers and deal with credit challenges before it is too late to minimize the bank’s credit exposure.

Challenges Four and Five—Credit Quality
As expected, credit quality issues are top of mind for commercial bankers, as they are for the bank’s regulators. The first step in dealing with these challenges, of course, is to resolve existing credit quality issues in as expedient a manner as possible given market conditions and the bank’s financial capacity. The next step is for the bank to thoughtfully develop a risk management “lessons learned” white paper. There is a very informative series of articles on this topic in ABA’s Commercial Insights monthly e-bulletin written by Dev Strischek, senior vice-president, Corporate Risk Management, of SunTrust Bank. You will want to check out the risk management issues highlighted in these articles to see if any apply to your bank. Members can access these articles on ABA’s website, at www.aba.com/Solutions/BusinessBanking.htm. (Look under “Additional Resources.)

Your bank’s white paper should contain not only what happened, but management’s suggested action plan to prevent a recurrence of the situation. This document should be reviewed by the bank’s board and incorporated (as approved) into the bank’s action plan to prevent a reoccurrence of risk management problems. While it is impossible to prevent all credit losses, there is no sense in increasing the odds that they will occur by not adhering to time-tested risk management principles.

[This article was posted on December 9, 2010, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2010 by the American Bankers Association.] 

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