Apr 20, 2023
In an unpredictable market, financial institutions are under pressure to minimize risk while improving ROA. But how are these conditions impacting institutions’ portfolio goals? How are their lending solutions helping — or hurting — their bottom line? And how do they plan to stay competitive in the coming months and years?
To answer these questions, Open Lending surveyed 95 financial institution leaders based in the U.S. with a director-level title or above. We asked about their loan-decisioning process, the biggest obstacles they’re facing this year, and what they need to succeed in the current market. The findings provide a clear picture of the lending landscape and how financial institutions must adapt to build balanced, resilient portfolios.
As we prepare to release the full report, we’re sharing a few of our initial findings. Read on for a glimpse into what our research has uncovered. Sign up here to attend our lending enablement benchmark webinar and receive the full report in the form of an interactive eBook on May 11.
When analyzing ROA attainment, we found financial institutions that use lending enablement solutions were more likely to hit their annual targets than those that do not: 95% vs. 73%.
Lending enablement users were also far less likely to report a rise in delinquency rates among non- and near-prime borrowers. Only 12% of lending enablement users reported a rise in delinquency compared to 57% of other institutions.
These findings reinforce the value of using a modernized lending enablement solution to price loans and determine potential risk. Relying on outdated lending processes exposes financial institutions to risk, including borrower behavior that can lead to default.
Our study found that those with lower credit scores aren’t primarily driving an increase in delinquency rates. Instead, respondents who indicated that delinquency rates are occurring in a specific tier revealed that prime borrowers are the bigger offenders here, outpacing near- and non-prime borrowers by 13%.
This mirrors what we saw in 2008, when more financially stable borrowers suddenly had to choose which bills to pay. By contrast, the typical near-prime consumer continuously navigates challenges in paying their monthly bills, so they tend to make payments more consistently during economic downturns.
The uncertain financial macroenvironment will compel financial institutions to consider expanding their base of near-prime consumers to offset the volatility we’re seeing among prime borrowers. Otherwise, institutions will face downward pressure on their yield and portfolio performance.
Faster loan-decisioning is a top priority for financial leaders in 2023. But they’re not overlooking the threat of defaulted loans. Reducing risk exposure ranks closely behind decisioning speed on the priority list.
Both of these priorities strongly affirm the value of a solution like Lenders Protection. With advanced loan analytics, risk-based pricing and default insurance, financial institutions can reach a diverse borrower base and anticipate market challenges.
To learn more about our findings, sign up now to receive the full report and join our Credit Union Times webcast, State of the Industry: Lending Challenges Facing Credit Unions in 2023 on Thursday, May 11, 1 p.m. CT. We’ll provide complete data, analysis and insights on how to apply these findings at your financial institution.
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