Inefficiency in lending makes it tough for financial institutions to service customers effectively and grow the loan portfolio. Many of these inefficiencies are inherited and accepted as “just the way we do things.” But to work smarter—not necessarily harder—and provide customers a good experience, fresh ideas and processes can challenge the inefficiencies.
Across the banking industry, loan growth represents a current strategic focus – that is, increasing the portfolio by acquiring new customers and expanding the services offered to existing customers. Particularly for community banks and credit unions, many of which find themselves in a very competitive loan environment. Growing the portfolio can prove a daunting task.
To win prospective loans, regardless of whether from new or existing borrowers, an institution must respond quickly to get back in touch with the prospective borrower: with the same speed as competing financial institutions or FinTech. Through technology, a bank or credit union can identify and resolve roadblocks that might otherwise impede growth objectives.
Four probable sources of inefficiency…
Any of these inefficiencies can prevent a financial institution from acquiring qualified new customers and can substantially slow growth:
• Duplicating data entry where staffers have to enter the same data into multiple systems.
• Returning multiple times to the customer to collect necessary documents.
• Hunting down specific loan officers to understand the status of a loan request.
• Respreading financials when analysts encounter new information from customers.
An integrated software solution helps a bank or credit union address any or all of these issues by defining, executing, managing and modifying current processes that relate to strategic business objectives. What’s more, it can eliminate redundant tasks and ensure that uncompleted tasks are followed up in a timely manner. Specifically, a primary objective in the context of loan-portfolio growth involves managing the entire lifetime of the loan, starting with business development and extending through potential impairment and risk management.
An integrated solution also provides information opacity so that staffers throughout the bank have the information they need.
... and three smart ways to tackle them
1) Improve transparency into business development.
At most institutions, lenders track outstanding opportunities and sales activities in spreadsheets, calendars and notebooks. But without a centralized system of record, it’s challenging for management to measure progress or build predictable forecasts.
With an integrated solution, customer information from the core gives lenders a contact database to work with and creates a centralized place for logging conversations. The added transparency of an integrated relationship system means the institution can better service customers—while management has a means to hold lenders accountable towards activity goals.
2) Optimize the loan origination process.
For many financial institutions, the process of taking a loan from application to closing can take weeks. It involves numerous bank employees, including: loan officers, analysts, credit committee members, loan administration, third parties that have to supply information, and outside closing agents. As the prospective loan advances from stage to stage, bottlenecks are common as a result of these factors:
• Back and forth with the borrower and third parties for required documents;
• Unbalanced credit analyst workload;
• Unclear loan-decisioning rules that require added discussion;
• Delay as the credit file is passed between parties.
Without a systematic, comprehensive way to define and track the process, bank management is forced to rely on anecdotal information as to the status of a credit request. But visibility into a process enables management to see the status of loan-request tasks, and follow an audit trail to keep track of what has been completed (and by whom). All this leads to improved pipeline management and better forecasting.
3) Collect current financial information for annual reviews.
According to the Federal Reserve Bank of Atlanta, an effective loan review system should, at a minimum, promptly identify loans with potential credit weaknesses; identify trends affecting the portfolio’s collect-ability; and assign risk grades based on quantitative data. To perform a periodic review of commercial borrowing relationships, institutions must be in receipt of current business and personal financial information. It’s possible to streamline and document the collection process using a software solution that outlines responsibilities, tracks activities and records receipt dates.
A borrower’s failure to provide updated financials may indicate that they are experiencing financial difficulties, so the opportunity to quickly assess which borrowers have overdue documents can provide an early warning sign. A systematic workflow process, together with an effective tickler system, provides the necessary building blocks for compliance with regulatory directives. A systematic, centralized system can replace piecemeal communication. Additionally, management has the ability to access status reports that show the current phase of the loan application process and the percentage of overall completion.
In sum, an end-to-end solution can address these critical questions through defined steps and approvals, with role-based routing and associated transfers. Simply put: The benefits of an automated process don’t end with underwriting or even servicing, but continue into positive, productive portfolio management—with the added bonus of providing a personalized process with a personal touch.
Libby Bierman is an analyst at Sageworks, where she analyzes trends in financial data collected from private companies and develops new products for clients. She also generates and distributes banking industry resources, including whitepapers and webinars. She is a summa cum laude graduate of the University of Notre Dame.