Making the case for a bank's push into unsecured lending

A super-regional bank weighing more unsecured consumer lending needed a quantitative answer on through-the-cycle returns, and a way to grow quickly.

TTCreturns compared with secured assets
Newgrowth vertical unlocked
Near-termgrowth from fintech loan purchases

Situation

Unsecured consumer lending looks expensive in a downturn, and bank leadership naturally favors secured assets. But with deposits outpacing loans and secured yields compressed, the bank needed to know whether unsecured lending would earn more over a full cycle after losses and capital.

Approach

  • Built the quantitative case comparing through-the-cycle, risk-adjusted returns of unsecured personal lending against the bank's secured asset classes.
  • Evaluated and negotiated loan-purchase agreements with fintech originators, giving the bank near-term growth while it built direct capabilities.

Result

The analysis showed superior through-the-cycle returns compared with secured assets, which opened a new growth vertical for the bank. The loan-purchase deals delivered near-term portfolio growth.

Relevance for clients

For banks and credit unions with excess liquidity, the question isn't whether unsecured credit is risky. It's whether the return compensates for the risk over a full cycle, and whether to build, partner or buy to get there.

This case study describes work done by our founder, Gaurav Agarwal, as an employee of the organization named. Figures are as publicly reported.