Elements to commercial lending success

Transcription

1 4 Elements to commercial lending success

2 Lending expansion remains a top priority of senior banking executives. An overwhelming 98 percent of bank CEOs surveyed in 2018 rated loan growth as a very important or important priority for their institution. 1 Top Issues Facing Banks CEOs 2018 Very Important / Important Growing Loans 98% Improving Customer/Member Service and Experience 90% Improving Lending Margins 88% Manage Costs 84% Increasing Non-interest income 84% Increasing Core Deposits and Customer Acquisition/Retention 83% Implementing New systems and Technologies 66% Responding to Compliance Requirements 65% Restructuring, transforming, and optimizing delivery channels 64% Leveraging Data and Analytics for Strategic Decisions 60% Minimizing Impact of Non-traditional Competitors 53% Responding to Potential Changes to Capital Requirements and Reserve Calculations 49% Implementing an Enterprise Risk Management Program 38% Consolidating New Acquisitions and/or Operations 34% Offering application programming interface (API) technology 24% Source: FIS CEO Top of Mind Survey Top Issues Survey, FIS 2

3 The cornerstone of loan growth within most banks is commercial lending, a complex process involving multiple parties within the organization. Lenders, assistants, credit analysts, loan processors and document preparation staff all use the documents and data provided by the borrower. With so many disparate groups involved, who is responsible for what part of the process is easily blurred, leading to numerous reviews and handling of the documents and data? These redundant steps result in a slow and tedious process that negatively affects the borrower and the bank. Traditionally, commercial lending is a highly manual and labor-intensive effort. As such, it offers many automation opportunities beyond simple workflow changes. Increasing commercial lending automation and productivity leads to: Significant cost reductions Reduced cycle time Enhanced competitiveness and market presence Improved delivery quality and customer service Improved loan data quality/integrity The market for Commercial Loan Origination (CLO) systems is estimated at approximately US$513 million, and has grown between 22 and 30 percent during the last three years, according to Aite. 2 Obviously, new origination productivity solutions are available to help with improving the processes, but can be poorly deployed if the old processes are the basis for their use. The adage, automating a bad process is still a bad process, applies as the entire commercial lending environment needs to be reviewed and revamped prior to implementation of these tools. Bankers need to consider four crucial elements when deploying commercial lending productivity tools and new processes. 2 Commercial Loan Origination, Aite, October

4 1 Drive toward paperless banking Adopt the concept to touch it once Data and documents are often handled multiple times, so new technology should support capturing and using information electronically throughout the lending life cycle of new and renewed loans. Enter data at first point of contact When information is received at the first point of contact, it should be entered electronically. This eliminates the need to input data later in the loan life cycle and allows other users of the data to start processes in parallel, instead of linear. Image/index at first point of contact Just as information must be captured at first point of contact, paper documents must be imaged and captured as soon as possible. This allows document and data sharing early in the life cycle and reduces the amount of lapsed time to approve and close loans. Mark-up all documents electronically As the loan package progresses through the life cycle, issues are normally documented in s, telephone calls and notes. To maintain better audit trails, issues should be documented electronically by adding comments and answers directly into the document with tools such.pdf files. 4 Migrate to electronic signature Replace the traditional closing process of using paper-based signatures with electronic signature. This allows closings to be done remotely and provides a complete set of documents electronically. These documents are then filed electronically and indexed to appropriate folders for future processes and reviews.

5 2 Leverage any available automation Use workflow tools The tools deployed to support workflow management should trigger parallel workflows based on information received. By defining rules in a workflow management tool, receipt of documents and input of data can be used to trigger tasks. These tasks cover functions such as appraisal ordering, UCC searches and credit analysis. The rules defined in workflow tools should use the minimum data required to trigger the tasks. Banks should establish service level agreements and track use of workflow tools to monitor performance and ensure the life cycle is improved. Use scoring engine on small credits Banks can build score cards that allow basic information to be input and make decisions on small credits, such as consumer loans. Efforts to treat all credits with the same processes lead to negative impacts on larger loans, creating greater exposure to the bank. Use virtual meeting to approve loans With tools such as video conferencing and Web meetings, review and approval of loans can be done when the loan package is completed. By moving away from set dates and times, workflow effects on commercial lending processes can be minimized to ensure better quality analysis. 5

6 3 Enhance data integrity Use secure portals Documentation submitted in electronic form provides better security for the borrower. Banks should establish a secure portal for submission of documentation. Tools can recognize the submitter of the documents as well document types, and then automatically index and store the information. With indexing, the tools can then trigger workflows to route to staff needing to reference loan documents for specific purposes. Use Optical Character Recognition (OCR) Data integrity can plague commercial lending processes due to handling data multiple times in entry and review. OCR technology can mitigate this issue as it captures data from documents such as tax returns. This helps uncover input and review processes that can be eliminated. Use the tools to store data Ensure that the data is stored in tools (databases) instead of spreadsheets and Word documents. Access to the databases allows information-sharing across various functions such as credit analysis, document preparation and boarding. Storage and access to the data enables one-time entry and re-use of the data without having to locate the source documents to input and verify. 6

7 4 Integrate thoroughly Ensure all systems interface data and images Various applications are used in the life cycle of new and renewed loans, such as appraisal ordering, credit analysis and document preparation. By requiring that all systems communicate bi-directionally, data can be captured in one system and then used in others. This eliminates redundant data entry and review processes. Require upload interfaces to cores Interfaces are needed between various tools to ensure data integrity and to upload data to core systems. With these interfaces, steps in boarding and reviewing new loans can be greatly reduced, if not eliminated. Bankers should ensure that interfaces handle both data to set up the loan as well as monetary entries that enable balanced transactions. Integrate with customer management systems Core systems and the tools used in the life cycle of new and renewed loans need to integrate with customer management systems. This allows capture of critical sales data facilitating processing and pipeline reporting. By integrating these systems, capture of documents such as tax returns and financial statements can be obtained once and re-used as required. 7

8 Summary Commercial lending can be characterized by tradition, cyclicality, mediocre customer experience and a lack of automation, but it is rising in importance. Automation, an opportunity long overlooked by too many lending institutions, is becoming critical to a financial institution s margins. The four critical elements work together to improve overall lending productivity. Combined, they shorten the life cycle for new and renewed loans from weeks to days, if not hours. The improvement in the quality of the data and reduction in errors in data and documents strengthen the commercial loan portfolio for the bank. 8

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