Jeff Judy

Jeff's Thoughts - March 26, 2014

Of Destinations and Journeys

Goals are good. When you analyze a potential credit customer, or a new opportunity or need with an existing customer, you always want to hear their goals.

You want to know the destinations they are aiming for, as they run their business.

Goals are enough to satisfy some bankers. When they hear "increase sales by X%," they think they have the answers to their most important questions.

But wiser credit staff want to know about the journey, about the path to the destination. What if the borrower is going to sell a lot more stuff, but actually produce only a small increase in income? What, on the other hand, if revenue might remain fairly flat, but profit margin and resulting income rise significantly?

Which approach is best? That's up to you, and depends on the unique circumstances of the borrower's business and the market in which it operates. Both approaches may be good strategies, as appropriate.

But neither approach is good for every borrower. There is no one-size-fits-all approach that automatically leads the customer to success, and you to a good return on the credit you extend, over the long haul.

Within your institution, there are goals, including goals at the individual employee level. "Generate more credit business," phrased in one way or another, is a pretty common one. But how do you get there?

Are you just looking to book more loans? Or are you looking to increase the profitability of credit relationships, and indeed, of the overall customer relationship?

When does volume work for you, and when does quality work for you? And please, don't tell me you are going to dramatically grow the portfolio but only take high quality assets. That "we can have it all" goal feels good and sounds good, but realistically, there are always trade-offs, and you should consider them carefully.

When does expanding your target market, the range of businesses and industries you work with, open a path to better results for your bank? When does focusing on wringing everything you can out of a narrower niche offer good returns?

Obviously, you want to boost profits at your bank. That's an excellent, and almost universal, goal. But there are many ways to get there.

And if you don't communicate the path, the journey, to your credit staff as well as the destination, you may not end up where you expect.

Ask your credit staff, "If every credit we added to the portfolio was just like the last one we brought in, how would the bank be better off in a year or two years?" If they cannot get beyond the "it's more credit business" response, if they cannot explain how that credit stacks up against both the desired goal and the desired path to the goal, you have work to do