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Refinancing existing loans and keeping relationships
I would like to discuss why it is important for lenders to focus on existing clients and the benefits of refinancing existing credit facilities. There is an old model that says that “banks are in the business of keeping loans not just making new loans”.
With an existing cliente we already have a relationship, so it should be easier to underwrite, we know where the business is going, we’ve seen their financials and this is one of the reasons we want to make sure we don’t lose existing clients. We also can keep growing the business with them; the longer we stay with the client the more likely we can gain cross-selling opportunities, which could be in the form of additional loans or it could be deposits. Another reason is: the bank should already be comfortable with that client; that means the underwriting process should be easier, the bank directors and credit people are familiar with that business model, etc, etc.
On the other hand, the process of making a new loan could become somewhat unprofitable, first of all competing with other banks, winning and dining the new borrower, underwriting the credit, requesting docs from the client, getting the loan approved, funding and documenting it, etc, etc.
Therefore it is very important to retain an existing “good” borrower for as long as possible. This is why lenders should never allow or wait for their credit facilities to mature. Instead they should look at all commitments at least two years before maturity (or two years before the pre-payment penalty drops) and reach-out to these borrowers approaching them proactively offering options for refinancing. Especially if it’s a good customer of the bank, good credit quality and if it’s a relationship account, most of us understand that the competition is looking for the exact same client and relationship and if we are not approaching our clients with alternatives to meet their financing needs, without us knowing, our competitors are doing this NOW.
>>>>>> This should be 1)The best way of avoiding and preventing competition to come in to play; 2) It is also an excellent way of improving the profitability of the account; and 3) It is possible to augment net interest margin by refinancing before the term is due on the loan, locking it for another term and reducing the risk of losing a good customer in favor of the competition.
If you have any questions, please give me a call at GBC Internacional Bank.
Best Regards,
Fernando Cole
Vice President/Relationship Manager
GBC Internacional Bank
168 W. Garvey Ave.,
Monterey Park, CA 91754
Phone: (626) 243-1623 Mobile: (562) 879-6215
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