Risk Management with Small and Mid-Size Businesses
Question: Why should banks help small and mid-size businesses (SMBs) with risk management?
Answer: As recessionary pressures in the economy grow, SMBs will be acutely affected. Tight credit markets and ebbing consumer buying power pose significant challenges to SMBs. Bank's with commercial loan exposures, dependencies on transaction fees and account balances face heightened risk factors due to SMB market exposure.
The disastrous conditions in the mortgage market are forcing banks to report rising loan losses, weak sales growth and deteriorating capital ratios. As the effects of the slowing economy deepen banks with exposure to SMBs will experience continued erosion of their business and must take immediate action to mitigate looming problems associated with this market segment.
Poor businesses can hide many sins during times of economic prosperity. But companies with weak governance structures, inefficient business processes, mature product lines and poor management are prime default candidates. Banks need to take action to actively engage underperforming SMBs. Banks need to become activist partners and advocates for SMBs to take risk management seriously and initiate corrective actions to head off the possibility of default. Banks must begin to offer assessment resources and tools that review business and macro-economic risk factors. This will help the bank to develop an early warning capability that uncovers emerging distressed situations and offers options and remediation scenarios to mitigate default.
Swift considered action by bankers will prevent loan losses, protect transaction fees and stabilize eroding account balances and capital ratios. A commitment to an intentional risk management program will also brand your bank as a provider of business solutions and value added services to SMBs. So in the end the investment you make to protect your business and capital base will also provide the greatest ROI in brand marketing your bank will ever realize.
Sum2 Boilerplate
Sum2 is dedicated to offering creative sound practice solutions. The Profit|Optimizer product suite builds profitability for SME's by helping to identify opportunities and initiate effective risk management practices. See our full product portfolio at www.sum2.com or call us at 201.440.1173.
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