LOMBARD, Ill.—The recession may have changed consumers’ borrowing appetite and attitude more than anyone expected—possibly stalling loan growth when rates rise—according to a new report.
Raddon Financial Group’s Spring 2015 National Consumer Research has revealed that 18% of consumer households anticipate opening a loan in the next 12 months—the lowest level in 15 years, and nearly half the anticipated loan demand cited during the recession itself.
“From 2007 to 2009 about 35% of consumers anticipated opening a loan in the next 12 months. In 2001, loan demand was 42% of consumers,” said Raddon Financial Analyst Greg Ulankiewicz.
The report indicates that 31% of consumers still indicate they are borrowing less as a result of the recession. Although 62% cite no change in their borrowing behavior, only 7% say they are borrowing more.
The study also shows that 81% of consumers who do not anticipate opening a loan in the next 12 months say there are no economic concerns or personal financial hardships that are preventing them from applying for a loan.
“These results are rather stark given the continued modest improvements in the economy and labor markets,” said Ulankiewicz. “Taken together, these statistics suggest consumers may have little demand, desire or need to borrow in the current environment, and further prove this sentiment is reflective of a change in attitude rather than residual financial difficulties. And with interest rates poised to rise, it is foreseeable that diminished loan demand will continue in the coming years. In an environment marked by debt-averse consumers, how can financial institutions drive loan growth?”
Ulankiewicz suggested steps CUs should consider:
- Use segmentation for more refined and effective targeting. More than ever, financial institutions must have the right message at the right time – with offers and product features that meet the segment need.
- Focus on growing wallet share. If broader loan growth continues to be challenged, institutions must strive to control a larger portion of the customers’ loan business. Align information, technology and culture to leverage each customer interaction to discover new loan opportunities, recapture loans held elsewhere and deepen the customer relationship.
- Use research and analytics to design and measure the effectiveness of relationship development programs. On-going, data-driven measurement will help financial institutions identify and expand successful loan-growth initiatives, as well as refine and improve strategies and tactics that are proving to be less effectual.
“Ultimately, as consumers exhibit a suppressed appetite for debt, driving loan growth will require a better understanding of the customer’s needs and greater sophistication on the part of organizations to be appropriately positioned whenever opportunity strikes,” Ulankiewicz said.