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A monthly edition of best practices and thought leadership concepts from Advisory Services
January 2010 Insights newsletter
Insights - A monthly edition of best practices and thought leadership concepts
January 2010 best practice
The Decision Analytics team is pleased to share this month's edition of the Insights newsletter, a forum for sharing best practices and thought leadership concepts with our clients. Each month this newsletter will contain one or more of our best practices or a forward-looking, thought leadership strategy.
As a client, if you have a best practice or strategy to contribute, please submit it to Joel Pruis, principal consultant, Advisory Services, by e-mailing joel.pruis@experian.com.
Looking forward to 2010.jpg)
--by Barry Timm
Senior Process Architect, Experian Decision Analytics
To say 2009 was a challenging year would be the understatement of the century. Bailouts, stimulus packages, recession, unemployment, foreclosures and financial institution failures are just a few items that have become commonplace in the news and our everyday discussions. They are becoming a primary focus and a way of life.
But, as always, we look forward to the new year and the opportunities it affords us. A new outlook is ahead of us with the chance to improve our personal and professional lives.
Some signs of life include: the stock market has shown improvement; our 401(k)s are rebounding (to a certain extent); unemployment rates have leveled off; and the consolidation of failed financial institutions should provide for a stronger base of financial institutions. We are now in a position to turnaround the train of despair that has been part of our lives for the past few years.
Are all the challenges behind us? Absolutely not. However, we are seeing improvements and need to be a contributing part of the future. What can you do to ensure that your financial institution is moving in the right direction? The following is a review of sales, underwriting and portfolio management areas -- including best practices and Baker Hill® solutions to consider as we welcome 2010:
SALES
As we position ourselves for an improved economy and desire to pursue additional opportunities, a renewed focus on the overall sales process is critical in these areas:
Centers of influence cultivation
Do you have a formal center of influence cultivation process? It is important to capture client information, identify those who you would categorize as a center of influence. Be sure to specifically identify those critical elements of information or non-negotiable questions that should be defined and consistently applied to this group.
Referral management
Your best referrals may come from your internal team. Do you have a formal approach or compensation program for referrals? Referrals should be tracked, not only for compensation, but to allow your financial institution to note the quality of referrals.
Client segmentation and treatment strategies
All clients are not created equal. Without defined segmentation and treatment strategies, you may be investing time and resources in the wrong place. Consistent client segmentation and treatment strategies allow your financial institution to identity key clients and obtain positive financial results.
UNDERWRITING
• Portfolio segmentation
Have you segmented your small business book of business (as defined within your financial institution),
separating it from the “commercial loan” book of business? In the absence of appropriate segmentation,
effective reporting of results and performances are less than ideal. A true assessment of underwriting
strategies and resulting payment performances can only be achieved via an effective portfolio segmentation
approach.
• Underwriting consistency
There is no better time than now to reflect on the overall consistency in your decisioning process. Have you
centralized your data entry and decisioning processes? Depending on your answer, do you have procedures,
policies and monitoring processes in place to assure you are achieving consistent results? Now is the time to
reassess and ask the tough questions before they are asked of you by a third party examiner/auditor.
• Portfolio review
Are you confident that the right decisions are being made and you have consistency in your decisioning
process? But, are you actively monitoring results at the portfolio level and communicating these results to all
senior managers?
Do you generate reports on a regular basis to:
1. Identify loan concentrations based on collateral or industry type?
2. Produce segmentation (if a scoring process is in place) of your portfolio based on score results?
3. Justify current cutoffs, and financial parameters/ratios?
4. Identify frequency of policy violations, overrides of pricing exceptions?
*These are just a few areas that should be reviewed on a regular basis to actively monitor your portfolio.
PORTFOLIO MANAGEMENT
Proactive portfolio management will continue to be crucial for financial institutions in 2010 and beyond. For those Baker Hill® Portfolio Risk Advisor® clients, consider these suggestions:
Trigger turnaround times
• Have you determined turnaround times for trigger responses (delinquency, credit score drop, line usage,
etc.)? Do triggered alerts work in a timely manner? If not, what is the issue: staffing levels, training, unclear
processes?
Disposition of portfolio triggers
• Are a high percentage of triggers being closed no action? Does the trigger need to be adjusted or is there a
training issue? Remember, triggers should not be changed until they have fired at least 1,000 times or been in
use six months. Review your trigger responses. Be sure each portfolio manager or relationship manager is
using the responses consistently. This allows for better reporting and future analysis of the portfolio.
Whether you want to actively grow your portfolio or maintain its status quo, the above suggestions should trigger some ideas to consider. Now is the time to re-group, re-think and re-evaluate and launch the new year.
How do your small business and consumer portfolios measure up against the those of your peers? Are you over-or underachieving based on industry averages? Experian's annual small-business and consumer lending Benchmark Reports are packed with insight that will help you answer these questions and more.
Since 2005, Experian's Advisory Services group has been sharing its credit origination and portfolio management perspectives and best practices through the annual Benchmark Reports. Based on a comprehensive analysis of Experian's proprietary electronic database and survey results from clients, the Benchmark Reports present more than 200 metrics spanning the entire lending process from application submission to underwriting and portfolio monitoring. Financial institutions of all sizes are using the Experian Benchmark Reports to better understand the competitive landscape, improve the quality of their portfolios and to streamline processes to improve customer service.
Contact your account executive to order your report today. Be among the first to receive what is fast becoming the industry’s go-to resource for loan portfolio benchmarks.
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