In part three, we discussed how technological innovations have changed the landscape of loan origination in recent years. That, in fact, has been where most tech investment in commercial lending seems to have been directed. But loan origination is just the beginning. So much more can be done to create efficiencies throughout the life of each lending relationship. As in the case of loan origination, these efficiencies will streamline the efforts of both borrowers and lenders and create a richer experience.
Investment in this area can also help institutions give the regulators what they desire, consistency across lending units and individual lenders within financial institutions. Here are specific areas of portfolio management that are being re-shaped by new and emerging technologies today.
1. Covenant tracking – The best loan origination systems allow for the establishment of covenants. When these are interfaced with the portfolio management system, covenant triggers begin to provide an early warning system for credit administrators. For this to be truly successful, such systems need to have robust reporting features as well as notification alerts. No system should be dependent on a lender logging in to identify a problem. The system itself should identify the issue and notify all key employees through the relationship management system.
2. Financial data collection – Of course, covenant tracking is not possible without the ongoing collection of financial data from a borrowing client. The days of a business owner sending required financial statements and tax returns via email are disappearing quickly. More and more systems are now allowing for borrowers to send data directly from their own accounting systems. Other technologies are allowing for smart scanning of documents, contracts, tax returns, and more. Just as credit files have migrated to electronic formats, so will all other financial data that feeds those files.
3. Collateral management – Just as the financial statements and tax returns migrate to an all-electronic environment, so does data related to collateral values. For working capital facilities, this would include detail regarding the status of accounts receivable and payable as well as physical inventory. Lenders will still have to ensure the validity of this data through the process of field exams, but the delivery and storage of the information itself significantly reduces the chance of delay as well as human error.
4. Risk rating migration – The collection of financial and collateral data itself is just the beginning. The real time savings comes from the resulting systems analysis. For financial records, this creates an environment of automated continuous underwriting of each relationship. With fresh financial data constantly being introduced and compared to prior year statistics, lenders will be closer than ever before to clients. This will streamline the process of loan renewals and new loan requests.
5. Profitability analysis – Financial institutions currently have a handle on the hard cost of originating and managing a lending relationship, but they rarely understand how much time lenders and credit administration staff are spending on each relationship. Better data in this case drives much more realistic profitability analysis. When loan origination and portfolio management systems are integrated with profitability management systems, you begin to track lender workflows. This allows for more accurate accounting and more efficient lender time management. In turn, a better understanding of profitability creates more realistic loan pricing, which allows your team to be more competitive.
6. Predictive portfolio analytics – As the classic saying goes, “information is power.” In the case of portfolio management, it is also competitive advantage. You can already see the benefits of continuous underwriting for your relationships. This leads to the natural next step, knowing what a client needs before they themselves know it. In the years to come, portfolio management systems will harness the power of financial data, peer group analysis, and business lifecycle analysis to help lenders identify which clients are the best fit for lending products within their organization. This will take your sales efforts to a new level and encourage strong business retention.
All six of these areas are enhanced through the integration of your relationship management system with your portfolio management system. This helps to open lines of communication between lenders and borrowers and provides credit administrators with early triggers for upcoming events, covenant issues, and more. The systems will help your team migrate from “information overload” to true information management by identifying how they can best use their time and by pointing out the easiest path to new business opportunity. This is the world of tomorrow for US financial institutions, though much of the technology is already available today.
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