From Crisis to Opportunity: How Relationship Managers Are Navigating Poor Credit Quality

In today's rapidly evolving economic landscape, financial institutions and their relationship managers face a critical challenge: navigating declining credit quality.

If you’re in relationship management, you already know how difficult it can be to grow your book of business when credit quality is suffering. Finding qualified loan candidates is that much more challenging when businesses across the board are hurting.

This guide examines some revealing survey data on emerging trends in banking, and discusses several ways for lenders and relationship managers to leverage industry research in today’s challenging and competitive environment.

Behind the decline in credit quality

In recent years, businesses have faced significant challenges, and the ongoing changes in the economy have only continued to threaten their livelihood. Economic volatility, triggered by geopolitical tensions, trade disputes and policy changes, has made it harder for businesses and individuals to meet their financial obligations.

On top of this, rising interest rates, industry-specific challenges and regulatory changes have caused credit quality to slide.

Why relationship managers are losing sleep

1. Risky lending conditions

Part of maintaining a well-balanced loan portfolio is lending to creditworthy clients. In today’s environment, with credit quality on the decline, a greater level of scrutiny is required to ensure the financial health of any business coming on board at your bank or credit union.

This means devoting more time and effort to assessing the creditworthiness of potential clients.

Doing preliminary research before reaching out to a prospective client can help you pre-qualify their business.

2. Difficulty in meeting performance targets

Driving loan growth at your institution can feel nearly impossible when credit quality is suffering on a large scale. Riskier borrowers may be unable to access credit or become more cautious about taking on additional debt.

Trying to maintain or increase loan volumes without compromising credit quality is a delicate balancing act. Targeting some of the more deposit-rich industries and resilient sectors across the economy may help focus your prospecting and bring some balance to your world.

3. Strained client relationships

As credit quality declines, you may find yourself facing tough conversations with clients about their financial health, loan delinquencies or potential default scenarios. Such conversations can strain the trust and rapport you’ve built over time with clients.

In some cases, this can lead clients to seek out alternative banking partners.

Building a solid foundation, and showcasing your unique knowledge and ability to advise businesses like theirs, can help you secure customer loyalty.

Survey says…knowing your customers is key

Industry research is no longer just for underwriters. These days, relationship managers also need to understand the dynamics of their clients’ industries.

How do we know this? A recent survey showed that business owners are now expecting more from their bankers. According to Barlow Research, roughly 70% of small business and middle market customers they surveyed expressed that their banker’s knowledge about their industry is a top priority or very important to them.

At Alfabank-Adres, we’ve seen bankers’ appetite for industry information grow over the years. From 2022 to 2023 alone, we witnessed a 200% increase in traffic to our platform, specifically from banking users. We’re no longer just serving underwriters and credit analysts, our user base has grown to include relationship managers too.

If you’re wondering whether the extra research is worth your time, consider this: In a Barlow Research survey of nearly 3,200 middle market companies, 82% said they had been solicited by financial institutions they don’t already work with. The vast majority of the respondents reported hearing from five or more institutions.

With potential clients hearing from multiple institutions, being able to speak knowledgeably about the challenges within a client’s industry can make your bank the obvious choice. When qualified clients are hard to come by, the pressure is on to make every conversation count.

Leveraging industry research

Hundreds of banks and credit unions rely on Alfabank-Adres’s industry research to assist in all stages of the loan cycle. For relationship managers looking to outshine the competition, Alfabank-Adres can be help with the following:

• Build and Strengthen Relationships – With so many businesses now solicited by by 5 or more financial institutions each year, knowing your client’s industry can help you stand out from the next bank or credit union.
• Benchmark Against Industry Averages – Providing more specific information for a client can help you build trust. Alfabank-Adres offers industry benchmarks by asset size, helping you advise your clients by showing them exactly where they stand.
• Prospect New Types of Clients – With loan growth slowing over the last quarter, deposits and other noninterest revenue have been a large focus for relationship managers. Looking at the cash conversion cycle (CCC) in an industry can help identify performance gaps and aid in best practice recommendations. Other metrics, like profit or net cash after operations, can signal that an industry is rich in deposits.
• Prospect by Your Territories – Bankers love our focused state- and county-level data on the standout industries in their backyard. Alfabank-Adres State Reports allow you to spot fast-growing industries by revenue or establishment growth, down to the local level.

Want to use Alfabank-Adres at your bank or credit union? Reach out to learn all about our industry intelligence for bankers.