FOUR STEPS TO ADDRESSING COMMERCIAL LENDING PRODUCTIVITY CHALLENGES

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INTRODUCTION

Growing loans continues to be the primary means for bank executives to improve revenue. While commercial loans offer the greatest opportunity for growth, commercial lending processes can hinder growth if their execution creates inefficiencies and redundancies. This eBook reviews the importance of lending revenue and offers strategies for improving the processes supporting the commercial lending business in financial institutions.

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BANKING INDUSTRY CHALLENGES Bank executives are anxiously scrambling to grow their lending business. The findings of a recent FIS survey of financial institution CEOs highlights this priority: The CEOs indicated their primary concern is growing loans, followed very closely by compliance and risk management challenges and controlling costs. Given the intense competition for these loans, banks must differentiate themselves by delivering outstanding service while also managing the expenses that come with growth.

FIS 2015 SURVEY TOP ISSUES FACING CEOS ISSUE

IMPORTANT OR VERY IMPORTANT

Growing Loans

93%

Within lending, the commercial market offers the most opportunity for new growth and additional revenue. According to recent survey on revenue growth from Bank Director, the majority of banks plan to grow through originating more loans. Banks believe the greatest organic loan growth potential lies in commercial real estate, with 85 percent of respondents indicating that was an area of focus. Commercial and Industrial loans came in second with 56 percent of respondents focusing on that area1.

Compliance and Risk Management Challenges

91%

Manage Costs

89%

Improve Lending Margins

85%

Increasing Noninterest Income

85%

Commercial lending appears simple: Lenders collect information about a prospective business, analyze that information and make an informed judgement regarding the loan amount and interest rate. Things become complicated with the complexity of the deal, the depth of the financial information gathered, a bank’s risk and credit management policies, the perfection of the collateral and the servicing of the loan. Commercial lending is a source of great opportunity but is also a potential area of great inefficiency.

Improve Customer/Member Service

84%

Improve Solutions to Attract New Customers

84%

Implement New Systems and Technologies

73%

Increase Core Deposits and Customer Acquisition

69%

Growing efficiency in the commercial lending team work can be accelerated by working with external lending and technology experts. These experts provide skills in building consensus, implementing new technology and managing change. The next section of this eBook addresses an approach to achieving profitable, commercial loan growth.

Respond to Potential Changes in Capital Requirements

50%

Minimize Impact of Nontraditional Competitors

50%

Consolidate Acquisitions and/or Operations

36%

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Bank Director, 2015 Revenue Growth Strategy Survey

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LENDING BUSINESS PROCESS IMPROVEMENT

Improving commercial lending business processes while maximizing enabling technologies is best done in a logical progression, starting with origination and progressing through post-closing. The following steps can serve as a guide for a commercial lending transformation initiative.

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UNDERSTAND THE CURRENT COMMERCIAL LENDING ENVIRONMENT When it comes to process design and automation, the commercial lending workflow has received less attention than other simpler workflows because of the complexities of commercial lending process. Further, commercial lenders tend to be change-averse. Very likely, the bank has not optimized its commercial lending business processes. Experts in lending, with the unbiased eyes of neutral observers, are often in the best position to assess a bank’s commercial lending operation. These outside experts first must fully understand the commercial lending processes and then document relevant workflows. Consideration should be given to workflow variations due to relationship size, size of the request, complexity, collateral and whether or not the loan is made to an officer or board member. This understanding creates a fact and knowledge-based foundation from which to lay the groundwork for meaningful change and improvement.

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EXAMINE PROCESSES CLOSELY, LOOKING FOR IMPROVEMENT OPPORTUNITIES On completion of the thorough review of existing processes, an action team should examine each workflow and process closely, looking for opportunities for improvement. Introducing new technology to support commercial lending processes can initiate the change needed to reach productivity improvements in commercial lending. Origination systems are available to handle the nuances of commercial lending. Substituting technology for manual inputs improves productivity. The application of emerging technologies and the optimization of technology platforms – such as origination, imaging and servicing – remain important for the improvement of productivity and reduction of paper processing. Additionally, vendor solutions in commercial lending can help spread the mounting compliance investment across multiple financial institutions.

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COMMUNICATE THOROUGHLY As opportunities for improvement are identified, documented and implemented, a critical activity to build consensus and support for the transformation of commercial lending is frequent and detailed communication. Change is never easy, but communication can help all individuals in the commercial lending area understand what the plan is for improving their organization. Consistent written and verbal communication that supports and explains the changes in business processes ease fear and uncertainty. Many banks have established a temporary newsletter for the life of a lending transformation initiative. With the unique branding and management participation, these can go a long way to gaining employee buy-in.

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ADJUST AS NEEDED Lending transformations are iterative endeavors. Once changes are implemented, the outside experts will need to assess their impact and effectiveness going forward. Processes will need refinement or, in some cases, may need to be completely redesigned. Technology must fit the newly optimized business processes, not the other way around. Continuous improvement should be the goal even after the outside experts have left the transformation project. With the right mindset and management support, the groundwork established in the original effort should help employees seek ways to further optimize workflows and lending operations as a whole.

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SUMMARY

Commercial lending offers financial institutions significant opportunities for both revenue growth and efficiency improvements. Done correctly, a commercial lending business process improvement effort can achieve both goals.

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