4 challenges banks and credit unions are facing today
The following is an excerpt from the Sageworks whitepaper “Optimizing Capital: Challenges and Opportunities for Financial Institutions”.
Given the many differences between a community institution and a bank with $100 billion in assets, the challenges facing bank executives and their financial institutions may differ dramatically at various times. Yet all financial institutions face internal and external challenges that place demands on personnel, time and – perhaps most importantly – on capital.
Top management will be familiar with many of the internal challenges. They may include:
– Competing and conflicting interests: growth vs. risk
– Disconnected processes, departments and technology
– Little transparency into portfolio health over time
– Lots of data, few actionable insights.
“As the market has shifted from 2009, almost every bank wants to grow, and they are receiving pressure to do that,” says Peter Brown, director of strategy and operations for the financial institutions division at Sageworks. “At the same time, the reality is that these institutions know they need to grow in a manner that’s not risky.”
As Comptroller of the Currency Thomas J. Curry said in December 2015, “Bankers with long memories will remember the worst loans are made in the best of times, and the growing credit risk in their banks should be managed very closely.”
Competing interests of growing the institution and managing its risk are often manifest in the day-to-day actions of lending, credit and operations staff. Lenders may perceive obstacles to growing the portfolio as coming from credit risk managers who are worried about protecting against bad loans, for example. Compliance staff may require certain operational processes that delay credit approval and impede competitiveness.
Meanwhile, departments across the institution are likely working on manual and automated systems that are disconnected and therefore, cannot provide the most efficient workflow. A banker gathers information on a lending prospect only to have an underwriter require additional information before a written request can be forwarded for initial review by a credit officer. A senior lender entering information about the prospect on an Excel worksheet passes the information along to an analyst, who must enter the data into another system. These disconnected processes and systems not only create institutional inefficiencies; they also delay the loan approval process. “Speed to market is critical,” Brown says. “An institution that takes too long for the loan decisioning process risks having a competitor take the business.”
Furthermore, time spent on redundant processes of tracking and keying data is time unavailable for additional selling and business development.
Other internal pressures arising from disconnected data and processes are a lack of transparency into loan-portfolio trends and a lack of actionable insight into the customer, market or operations. “Financial institutions have a wealth of data in different systems, largely as a result of requirements to capture data for external purposes, such as compliance,” Brown says. “But unfortunately, because multiple people from multiple departments are trying to piece together data, it’s hard to acquire actionable insight.”