Not long ago, I asked the CEO of a mid-sized bank 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: the CEOs of other banks, and “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 for banks; if executives don’t give credit administrators the budget they need, it can come back to bite their institutions in several ways. Bankers would be wise to take a second look at how they allocate resources and consider three reasons why credit administration should 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 it brings in the revenue. When push comes to shove, the money makers are the ones who will receive the most attention from management.
It’s not as if credit administrators have been completely forgotten: Bank CEOs usually understand the importance of managing the loan portfolio. But the group often doesn’t receive funding priority, while it often feels like the lending team has a blank check. Credit administration is just as important as loan production; closing the resource gap can decrease risk and increase efficiency for your bank.
Limiting credit risk
The biggest reason banks should invest more in their credit administration department is risk mitigation. When credit administration systems are ignored, spreadsheets can run rampant. This opens the door to numerous risks and errors, including criticism from auditors and examiners.
Outdated systems can open your bank up to risk because administrators are unable to gather and analyze data in a coherent way.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 create a complete view of a loan — a fragmented process that makes it easy to miss important risk indicators. Credit administrators require powerful tools that increase a loan’s 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
Investing in credit administration also improves operational efficiency for your bank’s employees. Clunky, outdated systems impede credit administrators from accessing important information in succinct ways. 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, wasting multiple employees’ time. What could be a simple and straightforward loan review process has turned to a slow, cumbersome and ultimately expensive process.
Outdated software can also negatively impact your team’s overall job satisfaction. Poorly designed systems can be frustrating to use; upgrading other departments’ systems could create a perception that credit administrators aren’t valued by the organization. This could hurt your company culture and lead to costly turnover down the road. Investing in new software and giving credit administrators tools that make their jobs faster and easier is a way that banks can demonstrate their support, keep employees happy and improve the efficiency of their work — potentially improving overall profitability.
Credit administration and loan production are two sides of the same coin, but resources have been weighted significantly toward the lenders for too long. It’s time for a change. Reassessing how your bank can support its credit administration team can mitigate risk, improve operations and ultimately save your bank money.