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Greater commercial lending productivity: a strategic marketing tool for bankers.

Productivity and quality improvement efforts have existed for several years in the financial services industry. Industrial engineers, analysts and managers of the bank's "back room" operations areas have labored to define, organize and standardize the varied functions and procedures required to process the daily transactional volumes of work. These operations generally involved repetitive tasks that could be defined, studied and improved in order to be performed more efficiently and effectively. Incentive plans have been developed, particularly in the encoding, data entry and customer information files areas to help increase the per hour volume operators could process. Tremendous amounts of non-interest expense have been eliminated due to these efforts. Outside pressures from foreign banks, deregulation, non-bank institutions and acquisitions have forced bank management to look for ways to reduce expenses without affecting customer services.

These same productivity and quality improvement methods have also been used on the retail banking side. Measuring teller productivity, errors, cross selling, ratios, customer wait time and staffing requirements has helped streamline required activities, terminate unnecessary practices and greatly increase the productivity at reduced expense.

While concentrating primarily on areas with more repetitive type tasks, most bankers have not seriously considered the commercial lending area due to its non-routine nature, as one that would benefit from productivity studies. Commercial bankers, whose success or failure often depend on the efficiency and productivity levels of their borrowers, should expect the same levels of efficiency in their own departments as well. An extremely well run and productive commercial loan department is also an excellent marketing tool. Customers can sense that quick responsiveness to their changing needs indicates a consumer service commitment that will also correspond into greater profits and security for their investment and business needs.

It is said that every commercial loan is different and must be approached differently. The commercial lending process is a combination of human interface, products, software and hardware support, training, management and many other considerations. Despite this relative lack of consistency in loan form, there are many ways lending officers can improve their efficiency and free up much-needed time to do the more essential tasks of sales, marketing and customer service.

Modern industrial engineering techniques such as functional analysis, organizational analysis, work simplification, systems analysis and work management can assist lending officers to minimize unnecessary, time consuming tasks and offer a higher quality service level to customers.

Establishing performance standards in areas such as asset quality, portfolio administration, market execution, profitability and service quality as well as clearly defined policies and procedures with strict underwriting criteria can speed up and help assure quality and accuracy of documentation. Even with these clearly defined standards there are other ways that can free up the lending officers to pursue new business or service existing customers. Essentially, the lending officers job consists of two major components: servicing existing relationships and selling or marketing the bank's services to new prospects. In general, efforts to improve lending officer productivity must directly or indirectly effect one or the other of these two components.

One possible solution lies with the systems bankers use to process loan applications and make credit decisions. Very few customers want loans only. It is the officers responsibility to introduce additional services such as lock-box, cash management, overdraft and operating accounts, trust services, etc. to customers. In order to quickly and accurately make decisions with better knowledge of product cost, productivity issues and credit risk one possible solution is installation of artificial intelligence or expert systems.

Typically most banks make credit decisions through credit committees or through a system of concurrent lending authorities and credit officers who review more complex, risky loans. Much has been said about the applications of the knowledge engineering segment of artificial intelligence. Though used frequently in manufacturing environments it is seldom mentioned in the banking world. Most programs or systems are fed data, which is then used as another supporting tool for making decisions. Examples are commercial or consumer loan systems, general ledger systems, customer information files, etc. Expert systems now available to bankers can draw on pre-programmed knowledge of other financial institutions, their customers, local and nationwide economic conditions, etc. Most banks have similar lending policies and credit criteria. Differences can be easily programmed in to account for the majority of policies and procedures. Engineers work with banking experts to gather the knowledge needed in order to have systems duplicate human judgments or decisions. Having this capability can greatly speed up the time to process a loan application, perform the required underwriting research, make decisions and have the package ready for approval within one business day. Regardless of the particular criteria any lending institution may use to develop policies, the software can be adjusted to be tailor-made to fit the institution. Expert systems will not eliminate the need for lending personnel or support personnel, but when used as a tool it can greatly take the human judgment factor out of making credit decisions. Obviously, the system can be overridden or exceptions made based on special circumstances, but if used as a tool to attempt to simulate the knowledge of humans and frequently compared with the advice of more seasoned lenders, it can be a powerful tool for the bank.

A second possibility that is much more manual in nature is the improvement of the current processes involved with document generation, document flow, document quality and error resolution related to commercial loans. The previous system discussed was very costly and required extensive resources to install and maintain it.

If the moneys are not available for that extreme, what can banks do to enhance the efficiency of this process using current resources? One example of a program developed to accomplish this goal is the Certified Commercial Banking Representative program developed by First American National Bank in Nashville, Tenn. Basically, the program was developed to give lending support personnel (CBRs) a career path, reduce turnover and improve the quality and consistency of loan documentation packages. This program will move the primary responsibility for loan package preparation to the CBR and free up the lending officer to concentrate on sales and marketing activities.

At first glance one might think that the CBR is now carrying the burden of accountability for the package quality. The program is very clear in that respect. The lender never gives up the overall accountability for the quality or accuracy of the loan package, but rather than spend 25 to 40 percent of their time preparing documents, the lenders can now reduce that to 10 to 15 percent of their time reviewing the completed package. The program consists of three levels of CBRs: a trainee; a certified CBR; and a senior CBR. Each level has time, training and quality criteria each CBR must meet.

Training is a critical part of the program. Each CBR, regardless of experience, must be thoroughly trained in a common body of related materials. Examples include:

* Compliance Training;

* Lending Policy Training;

* Approval Document Training;

* Loan Documentation;

* Commercial Loan Operations;

* Commercial Lending Systems;

* DDA Analysis;

* Service Quality; and

* Basic Product Knowledge.

In addition, classes in principles of banking and commercial lending are required for advancement to the senior level. A lending support coordinator works with and assists each CBR with training, quality and technical issues. This assures consistency and standardization across the corporation. Very stringent performance standards must be met and maintained by each CBR in the areas of:

* Technical Proficiency;

* Customer Sensitivity;

* Communication;

* Teamwork and Cooperation; and

* Professionalism.

This ensures that all CBR are knowledgeable of systems, policies, etc. and can be evaluated by the same criteria.

All packages flow into a document review area where each is reviewed for compliance issues, policy exceptions and document completeness. Errors are recorded and monthly reports go to management showing errors by type, by officer, geographic region, etc. This assists management to identify potential problem areas and take corrective actions. As a system is only as strong as its weakest link, so everyone must be accountable for the work they handle and ensure that it is performed accurately and in a quality manner. That way rework is eliminated, exceptions are minimized and overall quality of the portfolio is increased substantially.


Both of the productivity enhancement programs discussed previously have one basic aim -- to give the account officers more time to do their primary functions: sales, marketing and underwriting loans. Improving computer-aided information and support personnel are just two ways to help with that goal without neglecting the critical tasks required to administer a loan portfolio. Value analysis and process flow analysis are other techniques that uncover inefficiencies as well. Properly directed productivity professionals can be a tremendous asset to a financial institution. Earnings pressures, capital shortfalls, asset quality erosion and mounting competition offer challenges to financial institutions that, if not met head on, will result in failures and increased consolidations. There are many opportunities to reduce expenses but the real goal should be to properly train employees, reengineer processes for optimization, totally eliminate rework and inefficient processes and basically work smarter so these steps can go a long way to returning the commercial lending area to a profitable state again.

Jerry L. Calvert is corporate senior vice president and director of the productivity and quality management division for First American Corporation, Nashville, Tenn. He is a graduate of the University of Tennessee-Nashville and is completing his M.B.A. at Middle Tennessee State University. Calvert has experience in manufacturing and financial services industries and has also performed consulting projects in insurance, government and transportation. He is past president of the Nashville chapter of IIE, past director of district VII and is currently director-elect of the financial services division of IIE. He is a senior member of both ASQC and IIE.
COPYRIGHT 1993 Institute of Industrial Engineers, Inc. (IIE)
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Calvert, Jerry L.
Publication:Industrial Management
Date:Jan 1, 1993
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