Loan admin complicating bank and credit union challenges
Of the many challenges facing community banks and credit unions, data and human resources can be complex to manage and can be the source for great inefficiencies. One area where this rears its head is loan administration.
From complicated and time-consuming spreadsheets to lack of a central data system, community banks and credit unions can benefit from automating the processes within loan administration.
For many institutions, loan administration requires a system of disconnected spreadsheets. At best, they may interconnect through formulas that are easily manipulated and broken. The individual spreadsheets can also become lengthy, multi-tab documents for each loan with the details of which financial ticklers and policy covenants are required at what times.
The files referenced in spreadsheets – the updated tax returns, the appraisals, etc. – would be located in a different file altogether, likely a physical filing cabinet, which can make file retrieval difficult even after identification in spreadsheets.
In this situation, while loan administration specialists may know their way through the system, it becomes difficult for auditors or examiners to review the process, understand outstanding ticklers or gauge risk in the portfolio. Rather, examiners must call on the loan admin staff to interpret spreadsheets and fetch files where necessary. That added assistance limits the work or new business that the loan administration staff can book during the often two-week exam.
If a bank or credit union handles loan administration without a solution in place, the institution usually organizes its team in one of two ways:
1. Asking loan officers who booked the loan to also administer the loan or
2. Hire additional, administrative staff to cover these responsibilities.
Each arrangement comes with pros and cons as outlined below.
Loan officers administer loans
When loan officers administer their own loans, they can be efficient because they know each loan’s requirements. However, this increases the risk of inconsistencies between personnel as to how completely and quickly they collect required documentation because it isn’t their focus.
There is also a chance that enforcement of covenants will differ between loan officers. In this scenario, preparing an annual loan review or for examiners becomes an exercise in coordinating multiple officers’ work and documents from different sources. In addition, by putting this burden on loan staff, loan officers must take time away from working with new customers, community outreach and new business opportunities.
Specialized loan administration specialists
The specialized administrative support staff arrangement may seem like a more attractive arrangement, but that organization comes with additional costs. With this set up, the bank or credit union gains the efficiency of a single filing system and more consistent processing of loan documents such as ticklers and covenants.
A tradeoff with this arrangement comes in the form of payroll for additional employees, as well as organizational disconnect between loan officers who make the loans and therefore know the unique client situations and the administrative staff who are charged with the long-term administration of the loans.
There is an alternative that brings to the table the efficiencies of a separate team but avoids the labor costs and individualized knowledge: a centralized automated loan administration solution. Find Out More
For more information on this topic, download the whitepaper: Success with Automating Loan Administration.