Two Ways to Mitigate Declining Interest Income

Financial institutions have been continuing to see strong overall loan growth into the summer, but struggles continue when it comes to interest income. Credit unions and banks are experiencing ever-tightening margins as interest income declines year over year. In the case of credit unions, NCUA data showed that net interest income in the second quarter of 2021 was 2.82% of average assets, down 37 basis points from the same time last year. Net interest income at banks for 2021 increased slightly YOY, according to BusinessWire, however, net interest margins decreased 58 basis points.

Much of the current interest income trends banks and credit unions are seeing are due to the fallout of the global COVID-19 pandemic. For the automotive industry, new cars remain scarce, driving up the prices on both new and used vehicles, while banks and credit unions are offering loans at lower interest rates because of the economic environment.

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While financial institutions can make more loans, this doesn’t alleviate the issue of diminishing net interest. In addition, as the U.S. continues to deal with the Delta variant and what this may mean for people’s financial standing for the rest of the year, banks and credit unions are going to have to look for other potential income avenues.

One oft-disregarded market is the nonprime auto loan borrowers, who are working hard to improve their financial stability at the same time your financial institution needs to raise interest income. Leveraging data from a variety of sources, these borrowers can be much more creditworthy than they appear just based on a credit score. Your institutions can make a loan that’s reasonable for the borrower and price it appropriately for the risk using Open Lending’s Lenders Protection™

Once that car loan is on the books, work to cross-sell that new member into a checking account with a debit card, which can help boost your bank or credit union’s interchange income, and more to gain their financial footing. Interchange income is another simple and effective revenue boost to help compensate for the low interest rate environment.