As the words “return to normal” and “post-COVID” enter our vocabulary, they reveal the real-world after-effects of the pandemic. Experts expect the ensuing impact of the coronavirus to affect everything from major industries to transportation, to society’s approach to work and education.
Yet, as the dust settles, consumers and bankers alike find themselves asking the question, “What comes next?” With a surge in deposits and minimal demand for loans, banks are facing record-low net interest margins. Without knowing if -- or when -- “normal” will return to their portfolios, community bankers are exploring new sources for loan growth.
Banks: A Changed World for Loans and Deposits
Many community banks are still catching their collective breath from three rounds of PPP loans, and the low-interest rates, that sent the consumer housing market into a flurry.
Although, at the same time, year-over-year loan growth was minimal, totaling only 4%, including the PPP loans. On the commercial side, borrowers probably have not recovered enough to push this demand much further in 2021, or even 2022. Business owners are leery of expansion, especially in industries that were hit hard during the onset of the pandemic. PPP loans may have saved their businesses, but they’re not quite ready to make new loan requests.
Meanwhile, excess deposits are an increasing cause for concern among banks. According to The Wall Street Journal, between late March and May 26, deposits rose by $411 billion. That’s nearly four times the average pace of the past 20 years.
Consumers: Moving Forward from a Standstill
Meanwhile, shaken consumers are also easing back into the world. While businesses may have continued operating – even in a limited fashion - consumers hit “pause” on many aspects of their lives, including healthcare. More than 78% of adults delayed or skipped at least one medical service due to the pandemic, with 15% skipping appointments with specialists like cardiologists. Some delays resulted from restrictions within medical facilities that were hit hard by COVID cases. But in other instances, care was skipped over safety concerns or the loss of health insurance.
The rippling effect of delayed diagnoses and treatment is yet to be seen, but the medical community worries that it’s leading to higher healthcare costs.
New Opportunities for Loan Growth
As consumers begin visiting their providers again, many are finding that postponing healthcare leads to unexpected costs. 56% of patients say they can’t pay a medical bill over $1,000, while others, financially impacted by the pandemic, are unable to pay anything at all.
Healthcare providers know that patient lending is one way to guarantee payment for medical procedures. By offering flexible and affordable payment plans, hospitals ensure they are compensated and that patients can manage their bills.
For community banks, patient lending is a new lending opportunity. By partnering with hospitals to provide financing to patients, these loans become an additional revenue stream. Loans are guaranteed by the healthcare provider, making them a low risk to the financial institution.
Facing high deposits and low demand for loan growth, banks are exploring alternative lending platforms. Patient lending is one that community banks should consider, especially with the likely increase in demand for healthcare services resulting from medical service delays.
Patient Lending: Serving More Borrowers in the Community
Banks strengthened their positions within their communities by providing invaluable assistance through the Paycheck Protection Program. While businesses are regaining their footing and deciding on the next steps, banks can partner with the healthcare industry, much like they did with small businesses via PPP loans.
For more information about joining the network of community banks that partner with hospitals for patient lending, contact us today.