On a quarterly basis, we’ve been diving deep into our pricing data to uncover important trends and market insights. This quarter, we took a look at commercial renewals - what’s working, what’s not working, who is sticking with legacy pricing, and how they’re handling risk migration.
Below are a few of the interesting things we found. To read the full report, you can head over to this link.
Perception vs. Reality
At a recent commercial sales gathering, a group of about 200 relationship managers (RMs) were asked if they revisit pricing on their renewals, even if credit quality remained stable. Roughly half of the bankers raised their hands. The group was then asked if they adjust pricing on downgraded credits. All hands went up.
Strikingly, the bank’s own data told a different story. Legacy pricing was preserved on roughly three-quarters of the bank’s downgrades and virtually all deals with stable risk.
We found that over 50% of long-term renewals get rolled over at the same pricing. Short-term extensions are rarely repriced. And nearly 60% of renewals with terms of three years or longer - deals that should be ideal candidates for repricing - are being rolled over at their existing price.
Why is this a problem? And what’s going on?
We get it. It’s a competitive climate and there are risks with repricing - bankers don’t want to jeopardize the sometimes fragile relationships they’ve had for years. So, they often roll over pricing at the existing levels.
It’s an understandable tactic, but it comes with consequences. Banks that go the legacy pricing route miss out on opportunities to risk crucial new income, while often settling for deals in which the price no longer matches the risk exposure incurred.
You can read more about how to reprice your commercial loans in our report.
But if you want more help with pricing for risk in general, you can also check out, 6 Ways to Price Better For Risk, and leap ahead of your competition.
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