Pub. 9 2019-2020 Issue 3

10 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S www.coloradobankers.org FEATURE ARTICLE BY KEN LEVEY, VICE PRESIDENT FINANCIAL INSTITUTIONS SOFT- WARE, KAUFMAN HALL/AXIOM SOFTWARE F inancial institutions continue to face tight margins, challenges in growing loan and deposit levels, heavy competition, and continued pressure on earnings. In this environment, how can bank and credit union lead- ers squeeze more margin from their portfolio? The a n s we r i s b y u nde r s t a nd i ng relationships and the profitability they bring to your organization. A very small percentage of relationships, typically about 1%, contribute the most value to an institution’s profitability. The loss of any of these key relationships can diminish institution health. Full relationship management is typically related to commercial accounts where an individual’s business and personal network are included in his or her scope of influence. These ties can magnify the results of any front- line interaction. Understanding your relationships andwhere the value comes from is imperative tomanaging a profitable portfolio. Can You Identify the 1%? In 2019, Kaufman Hall and Financial Managers Society surveyed 114 CFOs and senior leaders inNorthAmericanfinancial institutions. Sixty-nine percent of all respondents noted that they are not able to view the profitability components of all the accounts influenced by one customer — i.e., the relationship value of that customer. Without this baseline capability, Squeezing More Margin from Your Portfolio: It’s All About Relationships Building on your understanding of your client’s sphere of influence and empirical profitability, each deal you make must add value rather than dilute it.