The Profitable Customer
At the American Agricultural Bankers Conference we had a discussion session breakout on what constitutes a profitable loan for a lender. With lender margins down by about a third, i.e. the difference between cost of money for the bank and price of money for the producer, lenders are scrutinizing each customer for profitability.
The following are the results of their discussion.
First, they will look favorably on a customer that has well-prepared and documented financial statements. The days of lenders preparing statements each year for the customer is over. Your interest rate is likely to increase if the banker has to invest more time in statement preparation.
Second, they like to cross sell as many financial services as possible. For example, checking, savings, insurances and estate planning are services in which lenders can make a profit.
Third, the lenders were in agreement that they don’t like "chisel beaks" or the customer that only thinks of the lowest rates. They tend not to be loyal and find that rate gouging doesn’t pay when accounts get into trouble.
Finally, the lender indicated that the most profitable customer is committed, dedicated, proactive and isn’t afraid to hear "no" from the agrilender.
Points From the Conference
South America will overtake North America in soybean production by the mid-decade.
Insurance has gone up for some producers and homeowners as much as 60%.
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Editors' note: Dave Kohl, Soybean Digest Trends Editor, is an ag economist at Virginia Tech. He recently completed a sabbatical working with the Royal Bank of Canada. He is now back at Virginia Tech with his academic appointment, which is teaching, extension, and applied research.
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