8 Considerations for Banks Lending to the Health Care Industry

The health care industry is attracting many banks looking to complement existing portfolios and grow revenue. During RMA’s latest installment of the Credit Risk Management Audio Conference Series, Lisa M. Enright, Senior Vice President, Healthcare Director, Citizens Bank, along with health care credit product managers Jason O’Brien and Ben Foltz, presented key questions for banks to consider when developing a health care lending program:

  1. What’s driving the bank’s appetite for pursuing the health care segment? Has the bank seen any success in this segment? Look at the current health care portfolio and the average loan size. Consider historical performance, deposit size, and new versus existing clients.
  2. What are the goals and expectations of the program? Define the overall lending goals and how the bank will measure and track them. Ensure that the goals are aligned with the bank’s overall strategy.
  3. Who are your competitors? Understand the competition in the health care lending space and their capabilities. Determine their approach/positioning in the market and how your bank will differentiate itself.
  4. How broad or narrow is the scope of your bank’s program? Define the health care segments that will be included in your program and identify the reasons why your bank is focusing on them.
  5. Is your bank’s current credit policy conducive to achieving the program’s goals? Craft or adjust a credit policy that will help your bank achieve its goals in this space. Evaluate the bank’s comfort level with different types of lending, i.e., real estate, construction, equipment, expansion, etc.
  6. What is your bank’s risk appetite for the program? Define the risk tolerance, set lending requirements, and determine ongoing portfolio management measures.
  7. What is your bank’s value proposition? Determine the key differentiator that your bank brings to the market and how your bank will be perceived/received. Consider how your bank will compete in the health care space.
  8. What are the tools needed to support your program? Create dedicated health care marketing materials and website support to legitimize your bank’s commitment to this segment.

The speakers also shared key considerations for banks with an existing health care program:

  • Objectively evaluate the portfolio performance of the program.
  • Consider whether you should expand your bank’s definition of health care.
  • Evaluate whether your bank is staying true to its value proposition.
  • Review the program goals annually.

Overall, there is no magic formula for developing/maintaining a health care lending program. Each bank needs to create a program that works within its institution’s unique culture, risk appetite, and strategic goals.

Join us for the next installment of the Credit Risk Management Audio Conference Series on April 9, Loan Participations: Best Practices, Panel Discussion.

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