Banks that have the financial wherewithal to lend will have an opportunity to acquire new commercial relationships in 2011. Data from the Federal Reserve suggest that commercial and industrial loan demand is rebounding. Several banks highlighted growth in their C&I loan portfolio during fourth quarter earnings calls.
However, for the last few years, credit quality issues commanded the attention of executive management, credit personnel and loan officers at many midsized regional and community banks. Often, the focus of loan officers was shifted away from loan originations to deposit generation and resources were devoted to loan monitoring and work outs and underwriting requirements were significantly tightened; Consequently, to woo qualified borrowers, banks would be well advised to take steps to reevaluate their credit process to ensure that it reflects the risk tolerance of the institution, it is efficient and that it supports growth.
Some of the major steps banks should take as part of this reevaluation include:
1. Establishing differentiated underwriting and approval processes pegged to the institution’s definition of what constitutes a material loss.
2. Simplifying the application process for the borrower and reducing time spent gathering information by reviewing required documentation and eliminating documents that are not needed for underwriting or that are not required by competitors.
3. Instituting expedited underwriting in areas such as loan renewals and lines of credit.
4. Removing and centralizing any aspect of the loan officer’s job that adds no value to the customer.