2024 Lending Outlook

Predicting the future of banking is tough in any economy, but after last year’s string of interest rate hikes and stubbornly high inflation that now seems to be cooling, assessing the outlook for the year ahead is particularly challenging in 2024.

Yet, some experts believe the economy is showing signs of strength, leading many banking executives to be cautiously optimistic about the next 12 months. In fact, nearly 90% of bank CEOs are predicting positive earnings this year, according to KPMG. At the same time, CEOs were unanimous on the top risks to growth -- 79% said their workforces are dramatically impacted by the current economic conditions — which are driving wage inflation — while simultaneously stalling borrowing among customers.

Beyond the economic environment, today’s financial institutions must navigate an increasingly competitive landscape, battling for market share against alternative lenders, fintechs, neobanks and other market disruptors. Not to mention, new cutting-edge technologies, such as generative AI and embedded finance, have the potential to revolutionize the future of financial services.

How can banks and credit unions keep up?

As financial leaders evaluate opportunities for 2024 and beyond, many are adjusting their strategic priorities, investing in projects that will boost their institution’s resilience and profitability once the market fully stabilizes and demand for credit makes a full recovery. This blog will explore how today’s financial institutions can get ahead with the right infrastructure investments and make the most of any economic cycle.

Now is the Time to Accelerate the Right Projects

Look at the projects and IT investments your financial institution has planned for the next couple of years. Oftentimes, a bank may hold off on investing in a new technology during a slow economy, but this could seriously limit growth potential once the economy rebounds. For example, loan demand may be slower than it has been in previous years, but waiting to invest in a tool like online loan applications or a new LOS when demand for credit picks up is too late. The last thing a lender or credit analyst wants to do when they are swamped with loan requests is to spend time getting trained on a new system.

Strongly consider pulling those projects forward into 2024. Now is the time for financial institutions and their teams to evaluate where their bottlenecks are, especially in the lending process.

Conduct an audit of your loan origination and risk management workflows. Are there areas that could be more efficient? What could be automated? Are team members spending time on administrative tasks that limit their impact and ability to serve customers? Identifying those bottlenecks now and defining better, more efficient workflows now will pay dividends when borrowing activity rebounds again.

Now is the time to invest in infrastructure. Community banking is not going away. We need community banks that are commercially focused and equipped to help America’s businesses thrive. Don’t cut back on technology investments simply because markets are slow.

America is filled with entrepreneurs. They will continue to develop new businesses – businesses that will need funds beyond what the owners have in liquidity – so they will need commercial credit. While there are non-bank lenders that offer credit, they don’t offer the full services of a traditional financial institution. Banks and credit unions need the right technology to compete with these alternative lenders and fintech companies.

However, avoid pursuing technology investments and digital transformation indiscriminately. Instead, focus on the areas that differentiate your financial institution from the competition, whether it’s the bank down the street or a digital-first neobank with a national presence.

Author Bio

Baker Hill empowers progressive financial institutions to increase revenue, reduce risk, and drive more profitable relationships.

Streamline business, consumer direct and indirect lending with our common origination platform. Understand profitability and risk at every level with our sophisticated business intelligence and analytics. Monitor and maintain a healthy financial portfolio with our statement analysis, exception, and risk management solutions.

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