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How do banks make the most of commercial lending?

Since the financial crisis, the banking climate has changed considerably.  What used to be an abundant landscape where most, if not all banking providers coexisted profitably, is gone. 

Today, banks have been forced to operate in a drastically more competitive environment.  Increased access to information, advances in technology and greater choice has given the consumer more freedom to ‘shop around’, placing them clearly in the driving seat.

The longstanding relationships banks once enjoyed with their customers are now under threat from greater, more diverse competition, as retailers with advanced customer profiling capabilities and new market entrants swoop in for market share. The result? Customer loyalty has virtually become obsolete.

Looking from the outside in, banks are also grappling with numerous internal challenges, as high profile failures have placed bank’s risk taking activities under heavy scrutiny. This has left bank boards, regulators and auditors calling for greater visibility, more transparency and better control over lending portfolios and associated risks. The dwindling returns of the banking industry leave little to no room for error. Banks have been left with no choice but to capitalize on market opportunities to safeguard future profitability. The commercial lending space is an area that offers significant opportunities, but are banks ready to win big here?

There are just three steps to success in the commercial lending market.

First, banks - gain true insight into the credit quality of their customers. The whole industry has been talking about customer centricity for years, but how many banks are walking to walk? There is no doubt about it, banks need to attract the best quality credits. That’s a must.  It’s an imperative.  Relationship Managers need to become the customers trusted advisor,  increasing customer loyalty through timely, prompt, and convenient service, and they need to do that at a competitive price.  Not only that, but if they do not execute each and every customer interaction flawlessly, customers will not only walk, but with social media at their fingertips and word of mouth at their lips, they will talk. Deeper knowledge of the customer  is the cornerstone of strong, loyal and profitable customer relationships.

Banks also need to lower costs by implementing strategic initiatives to enhance operational efficiency. They can substantially reduce costs, improve long-term efficiency, and foster better customer responsiveness by incorporating higher degrees of automation, and most importantly, by streamlining processes throughout the commercial lending lifecycle.

Lastly, banks need to proactively manage their portfolio and ensure constant regulatory compliance.  To do this they need to better integrate risk management into their strategic decision-making processes.  This will give bank boards, senior management teams, along with the regulatory and audit communities, visibility, transparency, and control over the portfolio, and most important, a view into the associated risks.

So, to climb the ladder to success in commercial lending, banks must think customer, cost and risk – all of which are much labored points in today’s market, but equally are game changing assets to the future survival and profitability of any bank today.

 

Comments: (1)

A Finextra member
A Finextra member 13 July, 2012, 12:54Be the first to give this comment the thumbs up 0 likes

Some good observations there Vincent.  The challenges that banks have & that you clearly articulated are only made worse by the lack of common business processes & policies across multiple lines of business.  Many banks also suffer from an IT architecture that has evolved over time, especially in the lending area, that can lead to different systems being used for lending across SME, Corporate, Commercial etc.  In fact, the greater market segmentation that a bank has the greater the problem may be with even more disparate origination, risk management & servicing systems.  A consistent application of lending / credit / collateral management policies across multiple lines of business becomes somewhat troublesome in these circumstances. 

Solving the operational business challenges & providing an integrated technology platform to support this can only lead to better lending decisions, creating a bank that becomes more confident about lending, helping in turn to create the growth that so many markets desperately need.