Another Tip on Improving Non Interest Income and Margin
Obviously the fewer the waivers the more the income. Easily said, but how can a bank lower the waiver rate? Yes senior management’s lead sets the tone for the bank, but anyone who has served as a senior manager has figured something out – just because you are a senior manager doesn’t mean you have a magic wand. A manager cannot and should not control every decision maker in the bank. Here are some ideas to help relationship managers reduce waivers and special rates.
Establish and communicate an overall pricing strategy for fees and rates that is fair to the customer and the bank, including the cost of competitive salaries and an acceptable return to the shareholders. Be consistent as much as possible. Bank employees want to do “the right thing,” but inconsistency confuses what the right thing is. It also breaks their confidence and makes them hesitant, something the customer picks up on. For highly profitable relationships that warrant special pricing, establish a structure that is systematic and not situational. Guidelines for when, why and for whom pricing can be modified will provide consistency and ensure the truly appropriate exceptions remain few and are clearly distinguishable.
Banks sometimes offer incentives for meeting pricing and waiver targets. While this works well in some cultures, in others, it sends the message that compliance is optional, only applies if the employee wants more money and therefore is somehow unfair to the customer. Other banks clearly communicate the strategy and exception guidelines making it a fundamental expectation of the job description. We have also seen banks create a waiver pool or percent of targeted pricing for the relationship managers. This leaves them empowered in applying the exceptions and therefore may reduce push-back. Each bank will want to choose what fits its culture and management style.
Measure pricing exceptions. The statement, “what is measured gets attention” applies only if management follows through. Once a pricing strategy and the exception guidelines are established, measuring, monitoring and communicating results are essential. If NSF, Analysis, Loan Origination, Late Fees, etc. are not a necessary and fair component of the bank’s business model, then eliminate them. Making a commitment to consistently follow the pricing strategy and exception guidelines will help ensure the bank meets its financial goals.
About the Author
Kelly Karns is President of Karns Profit Improvement®, an independent Oklahoma-based financial consulting firm that has specialized in growing the profits of community banks in a multi-state area since 1986.