Pub. 1 2021 Issue 1

30 | The Show-Me Banker Magazine TREND WATCH: THE FUTURE STATE OF LENDING IN 2021 By Greg Schultz, KASASA This year has been a year of unknowns. For financial institutions, marketers and everyday consumers, 2020 has presented chal- lenges that are simply enormous. And as we look forward to 2021 —which, in its best-case scenario, offers a long-awaited return to normalcy — it seems like there’s no such thing as a prediction these days that’s too bold, crazy or straight-out-of-a-dystopian-fic- tion-novel. What we know is that 2020 turned consumer lending on its head. The changes in consumer lifestyle and expectations we’ve wit- nessed could reshape lending for years to come. So, what will 2021 look like for both lenders and borrowers? Let’s look at a few trends we’ve seen over the past several months to better understand the landscape of where we’re headed. Lending in 2020: the key takeaways. Bank deposits grew at twice the rate of loans this year. Over the first two quarters of 2020, total bank deposits grew 22.3%. That’s a full six times more than the annual growth rate from 2017 to 2019. Total loan growth saw an uptick as well — powered by mortgage refinancing and Paycheck Protection Program (PPP) loans — but at just 14.9% (three times its 2017 to 2019 growth rate), it couldn’t keep pace with deposits. 1 And without refis or PPP loans, growth would have been negative. For credit unions, annualizing the first two quarters of 2020, total median credit union deposits grew 21.8%. That’s 10 times high- er than the median 2017 to 2019 annual growth rate, while loan growth dropped 3.4% over that same time. 2 This marks a sudden, sizable shift in financial institution balance sheets. There’s now an even deeper need for loans. But in a market where qualified loan demand is on the decline, this is a tough ask — especially for institutions with limited marketing resources on cost-saving pandemic budgets. Low mortgage rates are driving a shift toward refinancing. With the 30-year fixedmortgage rate reaching historic lows— its lowest rate on record since 1971 3 —consumers realize it makes sense to refinance. Especially at a time when household finances are tight, people don’t want to overpay in interest if they don’t have to. A longer-term also lets them put more money back in their pocket today, giving them the flexibility to ride out hard times or make over- due home improvements with the work-from-home shift. And con- sumers are now actively seeking products to help them refinance. Google search volume for March 2020 4 • “Personal loan refi” — 2x year-over-year increase. • “Auto loan refi” — 1.8x year-over-year increase. • “Mortgage refi” — 7.7x year-over-year increase. While business lending surged, consumer lending sank. As small businesses flocked to relief with PPP loans, commercial and industrial loans have seen 44.1% growth in 2020. 1 However, that trend couldn’t be more opposite for consumers —with a sharp retraction in consumer lending and credit cards. In fact, mortgage and auto loans have been the only lifelines of growth for consumer loan portfolios — up a modest 1.3% and 0.8%, respectively. Still, these gains were nowhere near enough to offset losses for credit card (-28.3%), home equity (-10.3%), and other per- sonal loans/lines of credit (-0.8%). 1 New players are originating more mortgages than ever. Banks and credit unions aren’t just competing against each other anymore. This isn’t a new trend. It’s a longtime reality that’s only accelerating with today’s new wave of digital transformation.