Learn How a Risk Management Crew Can Help Your Financial Institution Mitigate Risk Every move your financial institution makes will involve some degree of risk. That is why managing your organization’...
In my latest white paper, I take a deep dive into current data to identify the following opportunities and concerns for banks, credit unions, and other lenders in 2022:
Loan demand will continue to increase, albeit at a more modest pace.
- Commercial real estate lending continued to lead growth in 2021
- Growth in commercial and industrial lending abated over Q3 and Q4, but still remained healthy
- Mortgage loan growth was still very positive in the 3rd quarter but is showing signs of slowing from its record pace.
Delinquency is poised to become a larger issue in 2022.
- In 2021, due in large part to government stimulus funds and enhanced unemployment benefits meant to spur economic activity during the pandemic, non-performing or delinquent loans have been at historic low levels.
- Now that savings from stimulus checks and other benefits are beginning to deplete, we’re going to start seeing delinquencies start to rise again. This does not mean we’ll see terrible levels of delinquency, but the level will begin to normalize from the historic lows of 2021. Higher rates of employment will keep this from becoming a larger systemic issue.
- Nonperforming loans continued to decrease in 2021 and credit standards remained largely unchanged, but lenders can expect credit quality to decline over the next six months back to more normal-looking levels.
Expect more stress in used car lending.
- One area that could see more stress is used car lending. Artificially high prices, thanks to supply chain bottlenecks for new vehicles, will inevitably come back to earth. I’m concerned this decline in valuations of used cars combined with extended loan periods (like 72 months) at still low interest rates (3-4% or below) will become a significant risk to lenders with large used car portfolios. In short, risk is not being properly priced in this space.
Net interest margins will continue to be tight.
- Stiff competition in lending coupled with the inevitable rise in short-term rates will flatten the yield curve and further pressure net interest margins.
Deposits will begin to ebb as unemployment benefits expire.
- Expect to see deposits beginning to ebb as extended unemployment benefits expire and stimulus funds leave borrowers’ savings accounts.
Labor supply will continue to tighten in 2022 and become a barrier to faster growth.
- Financial Institutions will need to look at all their human capital-intensive activities and consider automated or outsourced solutions. Call centers and similar customer service operations will become increasingly difficult to staff and expensive to operate.
- Additionally, financial institutions will want to seek ways to make existing staff more productive through training and technology. In particular, data analytics will become an increasingly important tool to gauge performance and drive decision-making on how best to deploy employees.
Action-Items for Financial Institutions in 2022
Now that you’ve seen a snapshot of the economic forecast for financial institutions in 2022, how can your organization adjust to the projected lending environment and thrive in the coming year?
Your first action item should be downloading the full white paper to learn more!
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