Category

Credit Administration

Managing credit risk in the downturn

The economic fallout from the coronavirus pandemic has been nothing short of extraordinary. Unemployment is skyrocketing and the federal government has been scrambling to provide relief to affected industries and businesses. Stimulus packages and cash reserves will help many businesses survive for a while, but the longer the crisis lasts, the more problem loans we’ll see. That means banks need to start preparing their operations now for the wave of special assets that’s soon to come. 

History lessons 

The current health crisis is unprecedented. But to understand how banks will need to react to the subsequent economic downturn, we only need to look back a few years. 

Following the financial crisis of 2008, regulators became much stricter on commercial lenders, demanding better portfolio risk management, better controls, and better decision-making. You can be sure they won’t be late to respond to this crisis. Banks will need to have robust systems in place to track and manage special assets or risk regulatory intervention. The good news is that there is still time to prepare. 

Better special assets management 

BankPoint wants to help banks weather the storm, and encourage bankers to explore our special assets management solutions. 

With BankPoint’s intuitive interface, bankers can easily manage credit actions and help mitigate credit risk. Our system allows lenders to track new Paycheck Protection Program loans, deferment and forbearance requests, loan downgrades, watchlists, impairment reviews, and other credit actions. BankPoint also features a fully featured REO management module should your bank take on significant real estate assets. 

BankPoint has been around for years, survived regulatory scrutiny, and been battle-tested in economic conditions very similar to the ones we find ourselves in today. We’re confident we can help banks navigate these difficult times and reduce risk as much as possible. If you’re looking for ways to better prepare your bank for the economic downturn, please contact us today. 

Why credit administration shouldn’t be ignored

Not long ago, I was talking to the CEO of a mid-sized bank, and I asked him how he makes funding decisions when looking to add new technology or software systems. He told me that when it comes to spending money on software, he only listens to two people: 1) the CEOs of other banks, and 2) “Whatever my chief lending officer says.”

The question that immediately popped into my head was, “Why doesn’t the chief credit officer have a say?”

This situation is not unique. For a long time, credit administration has taken somewhat of a back seat when it comes to resource prioritization within banks. But this mindset can be dangerous; if you don’t give credit administrators the budget they need, it can come back to bite you in a number of ways. Here’s why bankers would be wise to take a second look at how they allocate resources and why credit administration deserves to be a bigger priority.

The resource disparity

It’s not hard to understand why credit administration can sometimes get overlooked. The lending side of the house gets the most investment because they are the ones bringing in the revenue. When push comes to shove, the money makers are the ones who will receive the most attention.

Bank CEOs usually understand the importance of managing the loan portfolio. So, it’s not as if credit administrators have been completely forgotten. They just don’t get the funding priority, while it often feels like the lending team has a blank check. In our view, credit administration is just as important as loan production, and closing the resource gap can help decrease risk and increase efficiency for your bank.

Limiting credit risk

What’s the biggest reason banks should invest more in their credit administration department? Risk mitigation. When credit administration systems are ignored, spreadsheets can run wild. This opens the door to numerous risks and errors, including criticism from auditors and examiners.

Additionally, outdated systems can open you up to risk because administrators are unable to gather and analyze data in a coherent way. They are left using multiple systems and spreadsheets to get a complete view of a loan, and this fragmented process makes it easier to miss important risk indicators. The nature of a credit administrator’s job requires them to have powerful tools that increase visibility, not limit it. To mitigate risk, banks should invest in systems that make it easier for credit administrators to see the complete picture in one place.

Increasing operational efficiency

Another reason to invest in your credit administration is to improve operational efficiency for your employees. When credit administrators are forced to use clunky, outdated systems, they can’t access important information in a succinct way. Fumbling through multiple systems and screens to find key data points increases the time it takes to perform even the most routine tasks. Performing a simple data extraction will often involve IT, and now you’ve got multiple employees wasting time. What could be a simple and straightforward loan review process is now a slow, cumbersome and ultimately expensive process.

Outdated software can also have a negative impact on your team’s overall job satisfaction. Poorly designed systems can be frustrating to use, and if credit administrators see other departments getting shiny new systems, they can feel like they aren’t valued by the organization. This hurts your company culture and could lead to costly turnover down the road. By investing in new software and giving credit administrators tools that make their jobs faster and easier, banks are demonstrating their support, keeping employees happy and improving the efficiency of their work, all of which leads to improved profitability for the bank.

Credit administration and loan production are two sides of the same coin. But for too long, resources have been weighted significantly toward the lenders. It’s time for a change. By reassessing how you support your credit administration team, you can mitigate risk, improve operations and ultimately save your bank money.

Want to empower your credit administration department to do their best work? Contact BankPoint or schedule a demo to see how our comprehensive bank management solution can drive efficiency and mitigate risk for your organization.