BID® Daily Newsletter
Aug 16, 2007

BID® Daily Newsletter

Aug 16, 2007

DO YOU HAVE A DR. NO IN LENDING – PART II


Yesterday we explained why pinning the "Dr. No" label on your CCO may not be entirely fair, considering many banks have understaffed their credit function or operate inefficiently. Taking a cue from Honey Rider in the classic James Bond film when she said, "James, you are going to have to move a little faster," many loan departments could also stand some streamlining. As our past research has uncovered in focus groups with commercial lending clients, banks that can deliver an underwriting answer in 3 days or less have a distinct advantage when it comes to price and/or garnering the loan business. Banks that have adopted credit scoring for loans under $500k have made huge strides in processing and (with similar or better accuracy) at a fraction of the cost and time, compared to traditional credit underwriting. However, a recent review of several bank's loan departments unveiled even more areas of possible efficiency improvements. One the largest bottlenecks uncovered is a problem we alluded to yesterday. Due to client pressure, lenders often present incomplete credit packages, causing analysts and credit management to either wait while they collect the information or potentially make sub-optimal decisions. The credit department can gain efficiencies by defining "high priority" elements required to process credit. Though additional information may come in during underwriting, making a clear distinction about the minimum data required ensures that the queue is not clogged with incomplete requests. Since different credits require different "mandatory" information, some banks assign a set of "gatekeepers" to do an initial review of the credit. They prioritize approvals, note policy exceptions and detail missing information or analysis. This is done during the period of time between submission of a lender's summary and completion of an in-depth review by a credit analyst. The gatekeeper helps keep the process flowing, provides another credit opinion and prioritizes the depth of review (since all credits do not require a full underwriting). In this manner, resources can be better allocated and thus assigned different resources. A company with stable and growing earnings in a protected market (due to technology, patents, etc.) should require about half the analysis of a cyclical company with strong competition. In the future, we will be focusing more on what is working for community banks and how they can process credit more efficiently and accurately. If you have any ideas, we would love to hear about them.
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