With borrowers defaulting on loans more often and the regulators breathing down their necks, it is no wonder financial institutions are examining potential borrowers more closely before agreeing to loan them money. With this in mind, I asked a few credit-decisioning software manufacturers what are the biggest credit analysis challenges they see financial institutions facing these days and how to solve them.
Cypress Software, based in North Richland Hills, Texas, believes institutions must have a proven loan process in place due to more stringent analysis of their processes by regulators. The old manual processes that seemed to work well a few years ago are not accepted by examiners anymore because of the need for documented and validated consistency in all loan decisions. To ensure that all federal mandates are adhered to on every loan processed, Steve Croft, senior vice president at Cypress, suggests a bank have automated solutions in place to assist in the overall credit risk management program. Accurate documentation, consistency and proven methods are needed to ensure compliant programs are in place within every financial institution, according to Croft.
Suntell founder Duane Lankard believes the age-old challenge in commercial lending is the lack of consistent analysis by the lenders, particularly when separate software systems are used within the bank by different lenders or credit analysts. This leads to the higher potential for mistakes, inaccurate results or forecasts leading to a bad credit decision.
“Compounding this is the fact the data is, in many situations, stored in several locations on the network or a local machine,” said Lankard, who is based in Topeka, Kan. “This makes the loan analysis and credit-decisioning process inefficient and cumbersome for most commercial lenders.”
Access to complete and accurate data is a significant challenge, according to Omaha, Neb.-based WebEquity. With more than 560 customers that range in size from de novo banks to institutions that are more than $250 billion in total assets, WebEquity believes many banks still rely heavily on Excel spreadsheets as their primary credit analysis tool, which creates processes that require a lot of manual, duplicate data entry. This can lead to data errors and require that the bank’s staff spend considerable time on mundane clerical tasks instead of quality time on thoroughly analyzing a credit request.
Keeping scoring models current is a definite challenge Zoot Enterprises sees in the industry. It takes most lenders 12-18 months to create new models, according to the Bozeman, Mont.-based company. Current economic conditions are changing so rapidly that lenders are already behind by the time the model is implemented. In Zoot’s opinion, banks need to be able to build models and get them into production quickly before they become outdated. Even when using standard scoring models, lenders likely need to adjust their score cut-offs more frequently.
Consistency across the enterprise is another concern, according to Zoot. Being consist across all lines of business in terms of attributes, credit decisions and making intelligent cross-sell offers. Something is wrong when a lender declines a consumer for a credit card with a $3,000 limit and then finances a mortgage for that same customer, Zoot suggests.
Not surprisingly, after identifying the common challenges banks are facing, these vendors sought to create software that alleviates these problems as well as others. Here is a short description of each company’s software and its features.
Cypress Software Mark IV (consumer), BizMark (business)
TIME TO IMPLEMENT: 4-6 weeks
FEATURES: Consumer automated solution, where credit applications are tracked from point of entry through investigation, debts reconciliation and decision processes, to point of funding; site license and hosted deployment; user-based controls for lender-based management; unlimited number of credit product types; institution-defined loan fees by product type.
WHAT MAKES IT UNIQUE: The sole focus of the Mark IV software is credit risk management and automated underwriting. This leads to a highly configurable front-end solution that can accommodate all credit policy, risk-based pricing, scorecards, auto-decisioning parameters and reporting needs. Cypress’ BizMark software for business lending decision-making, provides the same benefits and tools as the Mark IV solution, but adds credit risk management, underwriting and decisioning tools along with automated-decisioning benefits.
TIME TO IMPLEMENT: A few days
FEATURES: TruGlobal cash flow calculation, which combines financial data for multiple businesses, people and properties; ability to enter and store data for and perform analysis on the following types of clients: individual businesses, individual people, businesses or people with real estate holdings, groups of businesses (with or without real estate holdings), groups of people (with or without real estate holdings), or a combined group of businesses and people (with or without real estate holdings); ability to add collateral for analysis of personal and business loans, including the ability to cross-collateralize loans; financial statement-based narrative reports for businesses; ability to enter up to five periods of financial statement data at one time.
Suntell Square 1 Credit Suite
TIME TO IMPLEMENT: Average is 90 to 120 days
FEATURES: Detailed financial spread analysis with RMA comparisons; covenant monitoring; user-defined commercial and agricultural credit scoring; transaction-level stress testing for commercial and agricultural loans; summarized and detailed loan presentation packages for credit approval.
WHAT MAKES IT UNIQUE: Suntell’s software is developed locally and the company is customer service-oriented. The company believes that the software and customer data is yours and represents your biggest asset of the bank and should not be residing outside of your bank in the “cloud” outside of your control and ownership. Suntell offers flexible licensing on the enterprise with unlimited loans and users.
WebEquity Software-as-a-Service Lending Software
TIME TO IMPLEMENT: Two weeks
FEATURES: Customer relationship management includes customer demographics, contact management and originating credit applications; credit analysis with balance sheets and income/expense statements, industry templates, financial analysis, debt servicing/ratio analysis and collateral analysis; credit presentations can be standardized and provided online for a loan committee; decisioning and approvals are provided with standardized “credit action,” scoring/ risk rating models, eSignatures and eNotices, and complete documentation and an audit trail.
WHAT MAKES IT UNIQUE: The WebEquity lending software offers a single system to manage all complex credits (commercial real estate, commercial and industrial, construction, agriculture, small business and consumer loans). With all the data in a single database, an institution is able to maintain uniformity in its lending practices and perform more thorough portfolio reporting and risk management. A single system also enables a bank to reduce operational costs, streamline processes and make more uniform and profitable lending decisions.
Delivered as an on-demand, software-as-a-service solution, WebEquity hosts the software and data.
Zoot Enterprises zDecision (consumer) and Enteprise Decisioning (business)
TIME TO IMPLEMENT: 3-6 months
FEATURES: ASP environment — secure, reliable, scalable — and capable of client-side deployment as well; integrated credit-decisioning process: multiple channels, diverse back-end systems, simultaneous data sources and third-party output processors; supports consumer-initiated and prescreen decisioning; pre-established connections to dozens of data providers; flexible, configurable solution; provides instant decisions.
WHAT MAKES IT UNIQUE: Zoot has designed a suite of tools that configure its services to provide clients with their own unique solutions. Clients can have a unique solution that exactly meets their needs without the time, risk and expense of a custom solution, while using Zoot’s hosted environment for security, reliability and redundancy.
Kari English is senior editor of BankNews.
Copyright © March 2011 BankNews Media