Lending Perspectives: Adopting a marginal pricing mindset
It’s hard to maintain a sound rationale for pricing under extreme competition. Here’s how to start.
Ed Baranowski, retired CEO of Fairwinds Credit Union, used to lament 25 years ago about “stupid competition.” Trying to meet stupid competition is rarely profitable. Today we’re faced with some desperate competition, as there is a flood of liquidity in the financial system. Virtually every bank and credit union needs more loans now! But how can they get them profitably?
Over the last few months, I’ve explored ideas for credit unions to successfully increase their loan volume. Last month I promised a process to sharpen your pricing pencil while increasing the profitability of your credit union. After all, not all pricing decisions to make more loans result in additional income.
A Process for Sharpening Your Pricing Pencil
Over 20 years ago, when faced with the challenge of making more loans through lower rates, I questioned whether I would generate more income for the credit union. Lowering rates should generate more loans, but what about more interest income? How do I factor in the cost of doing additional lending?
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