How to Choose the Right Correspondent Banking Partner
As interest rates continue to rise, it can be increasingly difficult to originate loan deals. But the right correspondent banking partner can help you better help your customers.
Healthy competition is good for all of us, but it can also be difficult, especially when competitors offer impossibly low rates. Correspondent banking partners can help community banks compete against the big guys in your market by partnering with you to enhance your bank’s competitiveness, profitability and ability to serve your commercial and agricultural customers.
More people are investing their money in the stock market than they are into CDs. That makes liquidity even more difficult for community banks. A correspondent banking partner can help with that by expanding your customer prospect list to include larger relationships in your markets. Correspondent banks can help you target customers who are too large to handle on your own.
In addition to buying and selling loan participations, correspondent banking partners can provide bank stock loan funding for the purchase of acquisitions, refinancing, restructuring and regulatory capital requirements. A correspondent bank can also offer business and personal loans to bank owners, insiders, directors, managers and officers.
Correspondent banking partners can help in the underwriting process, and they can offer expertise on loans that might not be as commonplace at smaller, rural banks.
When working with a correspondent bank, it’s important to make sure you have a strong partner on your side. To do so, there are a few questions you should ask:
Is the correspondent bank large enough to take the entire participation?
Working with only one correspondent makes your staff more efficient. You’ll also want to make sure the bank can take larger portions of your credits to allow you to keep within your asset-liability committee (ALCO) limits.
Does the correspondent offer longer fixed terms?
Make sure the correspondent you decide to work with can give you the flexibility you need.
How much experience does the correspondent have?
During the recession of 2007-2009, many banks stopped purchasing loans from community banks. They might have since re-entered the game, but if they got out once, think about what might happen the next time a recession hits. When looking for a correspondent banking partner, make sure the bank has a strong commitment to correspondent banking.
Banks experienced in correspondent banking look to do more than either decline or approve a loan. They find ways to work with community banks to make a participation deal better. Their job is to help the correspondent make the loan more solid.
Does the bank offer participations on agricultural loans?
It’s a challenging time in the ag industry, so it’s especially important to look for a banking partner experienced in ag lending and committed to helping you take care of your ag customers. Experienced ag lenders know that the ag economy is cyclical, and many of them have been through harder times than this. A correspondent banking partner with ag lending experience can help you compete for and retain larger, high-quality agri-business customers.
Correspondent banks are not in competition with you, but work as your business partner. Regardless of whether you are a bank with few or many shareholders, if you want to sell your institution or purchase another, it’s important to keep your organization strong through a solid balance sheet and great earnings. It’s also crucial to have a strong customer base. A correspondent bank with a strong, experienced correspondent banking department can help.
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Contact one of our correspondent bankers about your needs.
Learn more about Bell's correspondent banking services.