We are in the last few days of what we call Asset Liability Management (ALM) season. What is ALM season? It is the busy time of a quarter when we are presenting ALM reports to our clients. We finalize our reports and meet with our clients to dispense timely advise. It is a busy and extremely fun time at McQueen Financial.
This ALM season is a bit different than any other that I can remember. Why do I feel this way? Well, it is a unique situation that is taking me by surprise.
We see a mix of several things:
- Loan demand is strong.
- There is negative savings growth.
- Loan to deposit ratios are reaching historically high levels.
- Investments are shrinking to fund loan growth.
- Increasing cost of funds.
And, we see a lack of action as we see clients afraid to raise loan rates. Yes, I am using the word afraid. It appears that people would rather keep loan rates low, and grow loans at a lower and lower net interest margin. Our consensus is that very few people what to focus on profitability versus growth.
I do not know why this is happening.
Growth does not equal profitability. And, the growth of loans during a shrinking core deposit time may be very expensive and frustrating. I encourage every reader here to seriously consider your Net Interest Margin and the marginal cost of funding a loan when pricing a loan.
If you would like us to review your loan rates and your net interest margin, please contact your advisor to discuss ways that we can help. All of us at McQueen Financial are dedicated to your long-term success.
Have a great week.